The Tax Times: Foreign Banks are Sending FATCA Notice Letters to US Depositors for Their Foreign Accounts Which Are Being Report to the IRS!

Dennis Brager has a relevant post regarding that since January of 2014, those holding accounts in foreign banks throughout the world have received Foreign Account Tax Compliance Act (FATCA) letters from their financial institutions.

These letters are sent to account holders whom the institution believes have a link to the United States that would give rise to tax reporting and payment obligations. These letters will request that the recipient provide information regarding their disclosures, if any, to the Internal Revenue Service (IRS).

These disclosures typically include whether certain documents have been filed, including a Report of Foreign Bank and Financial Accounts (FBAR) and a 1040 personal return, and whether the individual has availed himself or herself of the Offshore Voluntary Disclosure Program (OVDP) administered by the IRS to resolve tax compliance problems.

Why did I receive a FATCA letter?

If you have received a FATCA letter, you may already be on the IRS’ radar. FATCA requires foreign banks to identify accounts with a link to the US. Depending on the jurisdiction and the Intergovernmental Agreement (IGA) that is in effect, the bank or qualifying financial institution may be required to submit this information to the IRS or face significant fines and penalties. Understanding the agreements in effect in your jurisdiction can help you better understand the risks you face.

What are the potential consequences of FBAR non-compliance or other tax problems?
If a US taxpayer has failed to comply with his or her FATCA, FBAR, or other income tax reporting requirements, he or she could face significant penalties. When the non-compliant taxpayer’s account information is received by the IRS, he or she has likely already lost the right to participate in the various voluntary disclosure programs such as OVDP. A US taxpayer must avail themselves of the voluntary disclosure process prior to an investigation, or they will no longer potentially qualify for criminal amnesty or reduced civil fines.

Non-compliance with tax obligations can also lead to a civil tax action or criminal tax charges. A non-willful violation of FBAR obligations can result in a $10,000 fine for each violation. A willful FBAR violation can carry a penalty of the greater of $100,000 or 50% of the account balance for each violation. Criminal tax penalties can include significant prison sentences and fines that exceed the value of the accounts.

We previoustly posted IRS Opens Gateway for Exchange of FATCA Data on U.S. OwnedForeign Accounts where we discussed that the gateway is now open for the system countries will use to transmit information on U.S.-owned overseas accounts under the Foreign Account Tax Compliance Act, the IRS announces. All enrollees can use the system to securely send account reports under FATCA, which requires foreign financial institutions to transmit information to the IRS on accounts held by U.S. taxpayers.

The new International Data Exchange Service, or IDES, Gateway, will allow financial institutions and the tax authorities in foreign countries to securely send information reports on financial accounts held by U.S. persons. IDES will operate on all major browsers, including Google Chrome and Microsoft Internet Explorer, and will support application-to-application exchanges through secure communication protocols. The IRS said that data transmitted via IDES will be encrypted at both the file and transmission level to safeguard sensitive tax information.

If you have received a FATCA letter you are already on notice that your account is likely to attract further attention from the IRS. Since you can no longer rely on secrecy in foreign banking, the actions you take could potentially create new civil or criminal liability. It is never advisable to ignore it or to do nothing. By delaying action, you may eliminate certain voluntary disclosure options that could have led to a more favorable resolution than would be possible otherwise. An experienced tax professional can help you develop a strategy which may be able to correct your tax compliance issues with lesser penalties or fines.

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