International Banks Requesting U.S. Tax Documentation
Banks and financial institutions around the world are mailing letters to account holders requesting U.S. tax documentation. If you have received a letter similar to this one from your foreign bank, it is because the bank is complying with the Foreign Account Tax Compliance Act or FATCA.
FATCA was enacted by Congress in 2010 as a way to target U.S. taxpayers using offshore bank accounts to avoid paying taxes. FATCA requires foreign financial institutions (FFIs), including banks, hedge funds and other financial institutions to report on the holdings of U.S. citizens and dual citizens to the IRS. Failure to do so can mean stiff penalties for the banks.
Banks and financial institutions from approximately 112 countries have Intergovernmental Agreements (IAGs) and related agreements or exchanges with the United States. FFIs in these countries are required to report information about US taxpayers’ accounts to the IRS.
If you receive a letter from your bank requesting information, you should make sure that you are complying with current IRS reporting requirements.
Foreign Bank Account Reporting (FBAR)
Many U.S. taxpayers living abroad do not realize they may need to file Foreign Bank Account Reporting (FBAR) or other reports with the Internal Revenue Service (IRS). If you are working abroad, retired and living outside the U.S., or studying in a foreign country for example, and you have a bank account, brokerage account, mutual fund, retirement account greater than $10,000 during the calendar year, you may need to report the account to the IRS.
Offshore Voluntary Discloser Program (OVDP)
Not everyone with a foreign bank account is trying to hide money from the U.S. government in an offshore account. If you did not know about the reporting requirements or forgot to file the appropriate reports, you may be eligible to participate in the Offshore Voluntary Discloser Program (OVDP). Other filing options include the Streamlined Filing Compliance Procedures, Delinquent FBAR Submission Procedures and Delinquent International Information Return Submission Procedures.
The penalties and qualifying requirements vary greatly between the programs and it is imperative that you select the right one as you only get one chance. Failure to select the correct program could result in criminal charges or large civil penalties.
If you received a letter from your bank, don’t panic. Consult an experienced IRS tax attorney. Be sure to ask the attorney how many clients they have helped with coming into compliance with foreign asset reporting. McMahon & Associates has helped hundreds of clients from the U.K. to Switzerland to Dubai with complying with IRS reporting requirements.
- Offshore Voluntary Disclosure Programs Still an Option for US Taxpayers
- What Should You Do If You Have An Undisclosed Foreign Bank Account
- Boston Tax Attorney Blog Offshore Tax Evasion Resource Page