With Israel implementing and enforcing FATCA (Foreign Account Tax Compliance Act) Regulations and banks such as Leumi and Hapoalim actively reporting U.S. Account Holders (aka U.S. Citizens, Legal Permanent Residents, Visa Holders who meet the Substantial Presence Test), it is only a matter of time before the IRS will discover and penalize your Foreign or Offshore Bank Accounts in Israel.
If you have a Foreign Bank Account in Israel, you must be very careful. This is especially true if you received a FATCA Letter from your Foreign Bank or Foreign Financial Institution.
If you received a FATCA Letter or Email, you should consider being proactive and taking action before the IRS contacts you first and you lose the right to voluntarily disclosure your foreign account and income information.
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 thousands of FFIs (Foreign Financial Institutions). The purpose of FATCA is to ensure that US taxpayers 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.
*If you have a large account (over $50K) and 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 US 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 to recommend to their clients to 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)
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 of 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, including FBAR (Report of Foreign Bank and Financial Accounts, 8938 (Statement of Specified Foreign Financial Assets), Schedule B (Interest and Ordinary Dividends) and more.
Who has to Comply with FATCA?
Specifically, US taxpayers are required to comply with FATCA by properly disclosing and reporting their foreign accounts and foreign income in their Tax Return filings and FBAR reporting requirements of foreign and offshore accounts. In order to ensure the taxpayer has complied, the foreign financial institution issues a FATCA Letter, which will usually be accompanied by two forms – a W-9 and a W-8 BEN. Only US taxpayers are required to complete a W-9 and return the completed W-9 form to the foreign financial institution.
Once the US taxpayer returns the W-9 to the foreign financial institution, then the foreign financial institution will identify the individual taxpayer as a US taxpayer. Next, the foreign financial institution will forward the US Taxpayer’s information to the Internal Revenue Service for their records during a FATCA information exchange.
Alternatively, if the individual who maintains the foreign bank account is a foreign person who may be residing in the United States but not actually subject to US tax (tourist or student for example) then they are not required to complete a W-9. Rather, they will complete W-8 BEN which signifies that they are not US taxpayers, and therefore the foreign financial institution will not report that information to the Internal Revenue Service.
Before you try to “pull one over on the IRS”, if you submit a W-8 BEN when you are actually W-9 then that is tax fraud and/or tax evasion and the Internal Revenue Service and Department of Justice have made it known that they will seek full enforcement and criminal prosecution of individuals seeking to avoid penalties and other voluntary disclosure programs by lying about their US tax status.
Get into Compliance with IRS Voluntary Disclosure
If you are seeking to get the IRS tax compliance, one of the best and most effective methods is through IRS Voluntary Offshore Disclosure.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.