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If you recently received a FATCA letter or FATCA email, you are probably wondering why you received it.
The reason is simple: 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 US person does not mean a US citizen, or even someone who lives in the United States – the definition is much broader.
Who is a U.S. Person?
A US person (for tax purposes) is classified as any person who is either a United States Citizen, Legal Permanent Resident/Green Card Holder, or U.S. Visa Holder who meets the Substantial Presence Test.
If you are a U.S. person, then the bank is going to report your information to the U.S. Government. It does not matter whether you reside in the United States or in a foreign country, and it does not matter if you are a Dual Citizen and/or Permanent Resident of a foreign country outside of the United States – the institution will still report you.
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 I Do?
The safest and most effective method of getting into compliance is by submitting to one of the IRS offshore voluntary disclosure programs.
At Golding & Golding, we represent hundreds of taxpayers each year and we limit our entire practice to IRS offshore voluntary disclosure.
Email us to schedule a Reduced Fee Telephone Consultation to speak with an attorney.
**Tax Law is a specialized area of law, and FATCA/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.