Foreign Banks Freezing U.S. Accounts | International Tax Lawyers
- 0.1 International Tax Fraud
- 0.2 Reporting Requirements under FATCA
- 0.3 Who Has to Report?
- 1 The Basics
Under the new FATCA (Foreign Account Tax Compliance Act) laws, foreign banks are complying with US tax law by entering into IGA (Intergovernmental Agreements) with the United States.
There are more than 100 countries that have either entered into agreements with the United States or entered into “agreements in substance.” Moreover, thousands of foreign financial institutions have agreed to report US account holders to the United States.
Beyond merely reporting account holder information, if the foreign bank believes that the US account holder has acted fraudulently, then the Foreign Financial Institution they may freeze the account or even forfeit the account.
International Tax Fraud
International tax fraud is a major priority for the United States. Due to the recovery of more than $8 billion alone from the offshore disclosure programs, the IRS has made international tax fraud a major priority.
Some common examples of international tax fraud include the following:
Falsely Filing an W-8 BEN
If a US person (U.S. Citizen, Legal Permanent Resident) has a foreign account, then they are required to file a W-9 when it comes to reporting their status. By filing a W-9, the foreign financial institution is aware that the account holder is a US person. In years past, foreign financial managers were assisting US persons by facilitating their filing of a W-8 BEN. If a person knowingly files a W-8 BEN in order to avoid detection by the IRS, and the foreign bank realizes that the account holder is a US person who falsely filed this form, the foreign bank may freeze or forfeit the account.
*This can be considered a major tax crime, and if you are a U.S. Person and knowingly filed a W-8 BEN to avoid U.S. detection, you should speak with an experienced International Tax Lawyer.
One common strategy in years past was for a US citizen who maintained dual citizenship to only report the citizenship of the foreign country to the bank or foreign financial institution. For example, if a person was a citizen of both the United States and Australia, than when they went to Australia or a different foreign country to open a bank account, they would conceal their US citizenship. This is grounds for the foreign financial institution to freeze or forfeit the account.
Reporting Requirements under FATCA
Golding & Golding is a flat-fee, full-service firm; we are lawyers who assist international clients in reporting their offshore accounts to the IRS. Most recently, many of our clients learned about Foreign Bank Account reporting requirements when they received a FATCA Letter from their Bank, asking them to certify their U.S. Status by submitting either a W-9 or W-8 BEN.
Who Has to Report?
We have represented numerous clients worldwide with issues similar to yours:
– Expats who relocated overseas and did not know they had to report their foreign accounts.
– U.S. Citizens who live overseas and may or may not earn significant income, but have accounts in a foreign country.
– Legal Permanent Residents of the United States who relocate back to a foreign country but are unaware that they are still required to report the foreign accounts.
– Non-Residents who meet the substantial presence test and therefore are required to report foreign bank and other accounts to the US government.
Please do not worry. We can assist you as we have assisted hundreds of clients in over 40 countries disclose upwards of $40 million in a single disclosure.
We are available seven days a week and provide flat-fee and full-service representation to our clients around the world.
These are the most basic rules when it comes to foreign accounts and foreign income:
If you are either a US Citizen, Legal Permanent Resident (aka Green Card holder or recently gave up your Green Card) or foreign resident who meets the substantial presence test, then you are required to report your worldwide income to the IRS. This means that even if you do not have any US-based income, you are still required to report your worldwide income (even if it is the type of income which is not taxed in your home country such as interest and dividend income in most Asian countries). And, if you have enough foreign income to meet the minimum threshold for having to file a US tax return, then you are required to do so even if it is based on your foreign income alone.
If you meet the requirement for being a U.S. “Taxpayer” (even if you do not meet the threshold for having to file a US tax return), you are still required to file an annual FBAR (Report of Foreign Bank and Financial Accounts). The threshold is as follows: if at any time during the year, you have more than $10,000 in foreign accounts (whether the money is in one account or spread over numerous accounts), you are required to file an FBAR.
In addition, if you have significant amounts of money overseas, then you may also have to file additional forms such as an 8938 (FATCA Form) or 8621 (Passive Foreign Investment Company, which includes Foreign Mutual Funds along with as many other passive investments). There are many other forms you may have to file, but we determine those on a case-by-case basis.
Fines & Penalties
Unless you are criminal, chances are the IRS or Department of Justice will not be banging down your door to come drag you to jail. With that said, the fines and penalties can be very steep and depending on your particular circumstances, may include penalties upwards of 100% of the value of your foreign account. If the IRS believes you were willful (aka intentional), then they may launch a criminal investigation against you and the penalties and fines can get much worse from here, including Liens, Levies, Seizures…and worse.
Customs Holds and Passport Revocation
With the implementation of FATCA (Foreign Account Tax Compliance Act), the United States is heavily cracking down on offshore tax evasion and unreported foreign accounts in general. The IRS and US government have the power to both revoke your passport as well as possibly hold you at the airport “customs hold” to question you on the spot (usually outside the presence of your attorney).
Getting Into Compliance
Getting into compliance should be mandatory on your “to-do” list. Even though our firm, Golding & Golding, is based in Newport Beach, we represent clients worldwide. A majority of our clients live overseas in over 40 countries. We have helped numerous clients get into compliance and are regarded as one of the top Offshore Disclosure Law Firms worldwide.
To that end, there are three main methods of compliance:
(1) Streamlined Compliance
This program is for individuals who were unaware of any requirement to file an FBAR and/or report their income on a US tax return. The penalties under the streamlined program are significantly reduced and may possibly be waived depending on whether a person qualifies under the strict definition of foreign resident for offshore disclosure purposes.
This program is mainly for individuals and businesses who were willful, aka were aware they were supposed to report their foreign accounts but intentionally hid or kept the account/income information secret.
(3) Reasonable Cause Statement
This is not a particular program; instead, it is a method for getting to compliance while attempting to avoid any penalty. There are many pros and cons to this method depending on your specific situation, which must be evaluated carefully with your attorney before making a decision.