India FATCA Letter – Understanding what a FATCA Bank Notice Means
If you received a FATCA Letter from an Indian Bank, it should serve as a catalyst or starting point for your research journey into what FATCA means.
Why You Received the FATCA Letter?
There are many reasons why you may have received a FATCA Letter, but typically, it is because the Indian Bank or Foreign Financial Institution believes you are a U.S. Person and may have a U.S. Income Tax or Account Reporting requirement.
It does not matter if you live in India or the U.S. and it does not matter if you are still an Indian Citizen.
If you are a U.S. Person (U.S. Citizen, Legal Permanent Resident, or Visa Holder who meets the IRS Substantial Presence Test) you will be impacted.
Types of Foreign Accounts
We have represented many clients from India. Typically, the types of accounts that will need to be disclosed, include:
- NRI Account (NRO or NRE)
- Fixed Deposit (FD)
- Indian Mutual Fund
- Retirement Account
- Demat Account
- Life Insurance
- Post Office Account
Reporting Indian Institutions
Moreover, if you have accounts at ICICI, Axis, HDFC, HSBC, State Bank of India, Bank of India or any number of Indian Investment Institutions, it is important to note that in accordance with FATCA (Foreign Account Tax Compliance Act), these banks are actively reporting U.S. Taxpayers to the U.S. Government
*A Common issue we deal with often is Indian Citizens or U.S. Citizens with Indian Accounts not reporting and paying tax on their NRO/NRE Interest Income.
What is FATCA?
FATCA is the Foreign Account Tax Compliance Act, and it is an international tax law with a global impact on U.S. Taxpayers worldwide – no matter where they live. FATCA is being enforced by the IRS, several foreign countries, and tens of thousands of FFIs (Foreign Financial Institutions).
The purpose of FATCA is to ensure that U.S. Account Holders comply with all aspects of IRS tax law by reporting their foreign accounts and reporting their foreign interest income and other passive investments, even if the amounts are relatively small, to the IRS.
Account with More than $50K
*If you have a large account (over $50K) but minimal income, it will not reduce the chances of disclosure, since disclosure is typically based on the account balances, not the income.
Over the past years, the IRS has become aware that hundreds of thousands if not millions of U.S. taxpayers maintain foreign accounts overseas that have gone unreported. Many of these US taxpayers have never reported their foreign accounts because for as far back as anyone can remember, it was impossible for the IRS to track foreign accounts.
In fact, it was common practice for CPAs or Chartered Accountants abroad to recommend to their clients that they avoid disclosure. After realizing how much money the IRS loses annually in penalties and tax revenue – FATCA was born.
Even before the implementation of FATCA, the IRS has been recovering Billions of dollars of revenue annually through OVDP (Offshore Voluntary Disclosure Program) and other accepted Offshore Disclosure Programs such as the Streamlined Offshore Disclosure Programs.
What is a FATCA Letter?
A FATCA Letter is a warning. The letter will come from a foreign financial institution such as a bank, brokerage, or investment house when it is unsure if the intended recipient of the letter is a U.S. Taxpayer. In other words, the FFI will evaluate its client base to determine which portion of the clients are either US taxpayers, live in the United States, or maintain a foreign address in the United States. For these unlucky taxpayers, the foreign financial institution will send out a FATCA letter.
The main purpose of the letter is to investigate the customer in order to ascertain whether the bank client has complied with IRS FATCA laws.
Namely, has the taxpayer filed the necessary paperwork with both the Internal Revenue Service and Department of Treasury sufficient to show full compliance with FATCA, as well as additional requirements, including FBAR (Report of Foreign Bank and Financial Accounts and Schedule B (Interest and Ordinary Dividends), as well as potentially several other reporting requirements.
What if You Were Willful?
If you were willful, do not let inexperienced counsel tell you that you can go “Streamlined.”
These attorneys will try to sell you that the audit risk is low, or that individuals with low amounts of unreported income cannot get audited. This is false. To learn more, you can find four case study examples we have prepared for our readers.
They are not designed to scare you, but rather to give you a real-life reality check as to what may happen if you get caught lying to the IRS.
- Foreign Bank Account Case Study – High Balance, Low Income
- How a FATCA Notice may Lead to an IRS Audit
- Was Your Streamlined Non-willful Certification Truthful?
- The IRS OVDP Willfulness Dilemma – Penny Wise & Pound Foolish.
If you are going to comply with FATCA you should retain an experienced FATCA Attorney.
If you receive a Fee Quote from a CPA or Attorney that seems too Low…you should be careful.
That is not to say you should resign yourself to mortgaging your house for representation, but there are many CPAs and Attorneys who see a frightened human being as little more than a “Mark” or “Target.”
They will provide artificially low fee quotes to bait you in, only to request more money down-the-line.
Offshore Voluntary Disclosure Lawyer Credentials
**Tax Law is a specialized area of law, and Offshore Disclosure is especially complex. Your OVDP or Streamlined Attorney should have:
- At least 15 years of experience as a practicing lawyer
- An advanced Master’s of Tax Law Degree (LL.M.); and
- Either a CPA or Enrolled Agent (EA) license.
While a sole Attorney practitioner may offer a reduced rate, if they are not handling the tax preparation as well as the legal portion of the representation (including signing their own name) to the Tax Return and Legal Submission, then you have to wonder who is going to be handling that portion of the submission. Will you even get the chance to interview the CPA beforehand and work with them during the process?
Golding & Golding, A PLC
At Golding & Golding, we have successfully handled numerous OVDP (Offshore Voluntary Disclosure Program) and IRS Streamlined Program applications for individuals and businesses around the globe with outstanding unreported foreign accounts ranging from $50,000.00 to nearly $40,000,000.00 in a single disclosure.
We have represented clients from India with highly complex PFIC issues, along with Mutual Funds and close to 200 accounts, in a single disclosure.
In order to assist you to better understand the distinction between the two different IRS offshore/foreign account disclosure programs, we are providing the following summary for your reference.
We Take FATCA Representation Very Seriously
The main takeaway from this article is that you understand the risks and pitfalls of entering either over OVDP or the Streamlined Offshore Disclosure Program unprepared.
We are passionate about representing individuals in offshore voluntary disclosure matters, and feel horrible when a client calls us after having hired an inexperienced Attorney or CPA who either did a sloppy job, charged them more money than they agreed upon, and/or is overall not providing the level of representation a person deserves.
Call Today, Let us Help.