How To Respond to a Bank Letter about FATCA -10-Steps | Stay Calm - Golding & Golding

How To Respond to a Bank Letter about FATCA -10-Steps | Stay Calm – Golding & Golding

How To Respond to a Bank Letter about FATCA -10-Steps | Stay Calm

FATCA Letter: If you are a U.S. Taxpayer (U.S. Citizen or U.S. Person) with foreign accounts, you may receive a FATCA Letter regarding your foreign bank account, investment account, other offshore asset. It is a type of a KYC (Know Your Customer) correspondence from the IRS.

How To Respond to a Bank Letter about FATCA?

FATCA, is the “Foreign Account Tax Compliance Act.” When you receive a FATCA Letter from your Bank, or a KYC Letter — the Foreign Financial Institution (FFI) is making an information request from you, to determine what your U.S. tax status is.

Before responding to a FATCA Letter, it is important to understand what a FATCA Letter is.

FATCA Letter to Clients – What is it?

A FATCA Letter is a letter from your foreign financial institution requesting that you acknowledge and confirm your U.S. status.

Generally, the FFI will ask you to submit either a W-9 which is for U.S. Persons, or a W-8 BEN which is for non-U.S. persons.

When a person is considered a U.S. person, the FFI will have a disclosure requirement to the IRS. And, since the foreign financial institutions do not want to get into trouble with the U.S., they generally err on the side of compliance.

Another thing to keep in mind is generally after the institution has your information — they will send it to the IRS.

Therefore, it is important to understand that there are some serious ramifications involving the FATCA Letter, and even though it comes from a foreign financial institution and not directly from the IRS, non-compliance can have some serious consequences.

More About How FATCA Letters Work

If you are a U.S. Person, you are required to report your worldwide income to the IRS on your tax return (if you meet the threshold for filing a tax returns), and report your foreign assets and accounts on forms such as FATCA (Foreign Account Tax Compliance Act) and FBAR (Foreign Bank and Financial Account Form, aka FinCEN 114).

And, now with more than 110 countries and 300,000 Foreign Financial Institutions (even in non-FATCA countries)  reporting U.S. Account Holders to the IRS — it is important that you stay in compliance.

The FATCA letter will usually ask you to:

  • Confirm your U.S. status 
  • Sign a certification of U.S. Citizenship or Green Card status
  • Send back a completed W-9 or W-8 BEN

Why Did the Foreign Bank Send you a FATCA Letter?

Most likely the reason why FATCA may impact you, is because the foreign financial institution in which you maintain a bank account or other financial account believes that you are a U.S. person.

It is important to note that a U.S. person does not mean a US citizen, or even someone who lives in the United States – the definition is much broader.

Take a Few Preliminary Steps Before Responding to a FATCA Letter

Here are a few practice pointers:

Make Sure the Account is Yours

Before getting yourself entangled in a FATCA situation, be sure the account is yours — and that the bank did not make a mistake.

See if you have Statements at home?

This is will help you determine how much is in the account, and what the maximum balances were.

See if the Bank Sent You Previous Correspondence re: status?

Was this the first letter the bank sent, or just one in a long line of many letters you already disregarded (don’t worry, this is very common).

Were you a U.S. Person when you Opened the Account?

This will also help determine if you identified as a Non-U.S. Person because you were a non-U.S. person. If you were a U.S. person at the time you opened the account, try to assess if the bank already knows you are a U.S. person or not.

See who else is n the Account, and are they a U.S. Person?

Do you own the account by yourself, with a co-owned, or are you just a signatory on the account.

Determine what Portion, if any, of the Money in the Account is yours?

Do you own all the money in the account, part of the money, or none of the money —

Understand what FATCA means and how it Impacts You

FATCA is the Foreign Account Compliance Act.  It is an international act designed to facilitate compliance for U.S. Taxpayers, Foreign Financial Institutions, and other intermediaries with proper reporting of Specified Foreign Financial Assets.

In recent years, the IRS has increased enforcement of offshore and foreign reporting – with the goal of combatting, reducing, and eliminating offshore/foreign tax fraud and evasion.

What is the Purpose of FATCA?

The main purpose of FATCA is to reduce offshore and foreign tax fraud, facilitate tax compliance and ensure the IRS and U.S. government can keep tabs on your foreign assets.

Who Has to Comply with FATCA?

Any U.S. Person Taxpayer (foreign or U.S. resident) who has to file a tax return may become subject to FATCA reporting.  For individuals and other entities filing U.S. tax returns, the main reporting requirement is filing form 8938.

Unlike other international reporting forms such as an FBAR, 5471 or 8865 – Form 8938 is only required if you have to file a US tax return.  The other forms we just mentioned have to be filed irrespective of whether a person meets threshold having to file a US tax return or not.

Stated another way, a person does not have to file a tax return just to include a form 8938 for FATCA Reporting. If they did not otherwise have to file a tax Return, then the Form 8938 is not required.

What are the Consequences for Not Being in FATCA Compliance?

There are two factors to consider: what is the foreign bank going to do and what is the IRS going to do.

Foreign Bank Actions

Chances are, the foreign bank will freeze your account and prevent you access to the funds. In more recent months, foreign banks have been going so far as actually closing your account, suspending your funds, and refusing to allow you access to your account until you have proven compliance with FATCA. If you received a FATCA notice from your bank, then you are already on their radar. 

IRS/U.S. Government Actions

If the IRS catches you, the penalties can be staggeringly high. Depending on whether you were out of compliance for FATCA, FBAR (Report of Foreign Bank and Financial Accounts), and/or several other forms that may have been required (which depends on the type of accounts and investments you have overseas), the penalties can reach as high as 100%. In addition, the IRS is authorized to: lien/levy your assets or accounts, revoke/deny your passport, issue a customs hold, or impact your ability to renew a Green Card or Visa. 

How can the IRS find out about your noncompliance? The foreign bank is supposed to comply with FATCA and report your personal information to the IRS. Thus, when you receive a FATCA letter, you’re already in the system. Another way some people get “caught” is when their CPA or bookkeeper gets audited or in other trouble with the IRS. Also, sometimes a simple transfer of money between a foreign country and the United States can get you on their radar – for example, the sale of a foreign property or receipt of an inheritance, etc.  

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

We Specialize in Safely Disclosing Foreign Money

Unlike other areas of International Tax, you need a law firm that practices exclusively in the area of IRS Offshore Disclosure, and your attorney should be a Board Certified Tax Law Specialist.

We’re here to help you.

What is the Board Certified Tax Law Specialist Credential?

Once an Attorney earns the prestigious Board Certified Tax Law Specialist credential, it proves to the general public that the attorney is dedicated to tax law, and has real tax law practice experience as an Attorney.

Few tax attorneys have passed the tax speciality exam (regarded as one of the most difficult tax exams in the country) — and met the additional education, experience, and recommendation requirements necessary for certification.

Once a person becomes “Board Certified in Tax,” it shows they have met the following requirements:

  • Advanced tax education 
  • Extensive tax law experience
  • Attorney & Judge recommendations for certification

In California for example, there are 200,000 active Attorneys, with tens of thousands of Attorneys practicing in some area of tax — and only 350 Tax Attorneys have successfully earned the designation.

Less than 1% of Attorneys nationwide have earned the credential.

Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)

IRS Offshore Disclosure is ALL we do.

Our Managing Partner, Sean M. Golding, JD, LLM, EA  earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Beware of Copycat Law Firms

Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.


International Tax Lawyers - Golding & Golding, A PLC

International Tax Lawyers - Golding & Golding, A PLC

Golding & Golding: Our International Tax Lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70 different countries. Managing Partner, Sean M. Golding, JD, LL.M., EA and his team have represented thousands of clients in all aspects of IRS offshore disclosure and compliance during his 20-year career as an Attorney. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo and various Law Journals nationwide.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
International Tax Lawyers - Golding & Golding, A PLC