Taxpayers Receiving Letters from Foreign Banks
Foreign financial institutions (FFIs) around the world are continuing to send out letters to offshore bank account holders that they believe have a U.S. tax nexus, requesting information to determine if the account holder has reported the foreign bank account (FBA) to the Internal Revenue Service (IRS) for FATCA reporting purposes. The FFI may even request that the taxpayer submit a Form W-9 for tax reporting purposes.
Why Am I Receiving this Letter Now?
On March 8, 2010 FATCA was enacted by Congress to target international non-compliance by US taxpayers with offshore bank accounts. FFIs are required under the FATCA to directly register with the IRS or comply with the FATCA Intergovernmental Agreements (IGA) in their jurisdiction. These requirements for FFIs started beginning July 1, 2014. FFIs are required to report under one of the following categories:
- FFIs located in a jurisdiction that is not treated as having in effect an IGA. Such FFIs may enter into an agreement with the U.S. Treasury by which the FFI can become a participating FFI. FFIs that do not register and enter into an agreement with the US Treasury may be subject to FATCA withholding.
- FFIs located in an jurisdiction with a Model 1 IGA. FFIs in such jurisdictions are required to report all FATA information to their own governmental agencies, which in turn will report the information to the IRS. Model 1 IGAs are reciprocal, meaning that both the foreign jurisdiction and the U.S. will share information with each other.
- FFIs located in a jurisdiction with a Model 2 IGA. FFIs located in Model 2 jurisdictions will be required to report information directly to the IRS. These agreements are generally not reciprocal.
I Haven’t Received a Letter, But Will I Receive a Letter?
While the list of registered FFIs and jurisdictions with IGAs in effect continue to grow, you can check to see if your FFI is on the list or if your jurisdiction is covered by an IGA.
- Step 1: Check to see if your country has an IGA that have been signed or agreed to in substance. List of countries with IGAs in effect.*
- Step 2: If your country is not covered by an IGA, check to see if your FFI is registered.
*List is current as of 10/1/2016
In the above list of IGAs, there are 22 IGAs that are signed but not yet in force and 30 IGAs that are agreed to in substance but not yet signed. Per Announcement 2016-27, the Treasury will begin updating the IGA list on Jan 1, 2017 to reevaluate the status of these 55 countries. Until then these countries must put their IGAs in force or provided a detailed explanation as to why it has not and outline steps the country will take towards compliance.
What Does the Letter from the Bank Look Like?
The FFI (bank) will send you a letter and FATCA form like the below examples:
- ICICI fatca form
- HDFC fatca form
- SBI fatca form
- CIBC fatca form
- BMO fatca form
- BNP Paribas fatca form
- Shinsei Bank fatca form
I Received a Letter and I have an Unreported Foreign Account. What Should I Do?
Whether you respond to the letter or not, certain information regarding your bank account will be reported to the U.S. Treasury. The consequences of having undisclosed foreign accounts can be dire. However, even at this point you have time to avoid the more serious consequences, but you need to immediately consult with a knowledgeable tax attorney to review your options under the Offshore Voluntary Disclosure Program (OVDP) or one of the streamlined filing procedures. I would like to stress the importance of immediate consultation with an attorney. For OVDP or streamlined filing procedures, you cannot already have been contacted by the IRS regarding your undisclosed accounts. Once the IRS initiates contact, it’s too late to apply for these remedies.
Even if you have not yet received a letter regarding your offshore bank account, take advantage of these very lenient programs offered by the the IRS. In many cases, only 3 years of tax returns and 6 years of FBARs are required to be filed or amended, sometimes without significant penalties*. The future of the OVDP and streamlined program is uncertain, and it’s possible that the IRS may end this program in the future. Now’s the time if you have an undisclosed offshore bank account or other foreign assets to get into compliance.
*When the taxpayer qualifies under the streamlined foreign offshore procedures.