December 20, 2014

FATCA Comes Online July 1, 2014

Two extensions have been granted by the U.S. Treasury before FATCA, Foreign Account Tax Compliance Act.  Very recently, notable organizations including the American Bankers Association, Clearing House Association, International Bankers Association, Securities Industry and Financial Markets Association as well as foreign governmental bodies are seeking a further delay.  However, the U.S. Treasury and the Internal Revenue Service had now clearly stated on 30th of January 2014 that there will be no further extensions.  FATCA will become active on 1 July 2014.Many of my international clientele have expressed shock to me that their foreign financial institutions have been asking all account holders to complete an organizer to be shared with the IRS or have their long-standing bank accounts closed immediately.  From my various communications, in summary, these are the questions asked:

Two extensions have been granted by the U.S. Treasury before FATCA, Foreign Account Tax Compliance Act.  Very recently, notable organizations including the American Bankers Association, Clearing House Association, International Bankers Association, Securities Industry and Financial Markets Association as well as foreign governmental bodies are seeking a further delay.  However, the U.S. Treasury and the Internal Revenue Service had now clearly stated on 30 January 2014 that there will be no further extensions.  FATCA will become active on 1 July 2014.Many of my international clientele have expressed shock to me that their foreign financial institutions have been asking all account holders to complete an organizer to be shared with the IRS or have their long-standing bank accounts closed immediately.  From my various communications, in summary, these are the questions asked:

1.            Were you born in the USA?

2.            Do or did you ever have a U.S. Passport?

3.            Do or did you ever have a U.S. Green Card (Permanent residency status)?

4.            Do or did you ever live in the United States and, if so, provide all dates of residing in the U.S.?

5.            Do or did you ever have a physical address in the U.S.?

6.            Do or did you ever have a U.S. mailing address in your name?

7.            Do or did  you ever have a U.S. mailing address in care of your name?

8.            Do or did you ever have legal representation in the U.S.?

If you answered yes to any one of the above questions, some banks immediately closed your account and forwarded on the balance to you and other banks sent W-8BEN and/or W-9 IRS forms for completion and mailing back to the bank upon which a possible 30% U.S. tax withholding would be levied upon your accounts.

Now the immediately above paragraph is the “Good News”, if you can absorb this into your thinking.

With FATCA, this above personal information will be shared with the IRS as of 1 July 2014.  The IRS also been preparing teams of employees and custom designed computer programs specially created to mine this information for targeting individuals for proposed tax assessments for current and past tax years.  How many past years?  This depends on how good your U.S. Tax Attorney is with negotiating with the IRS.  If you are not represented competently or go forward alone; then the statute is 8 years.  As an example, if the IRS contacts you from the information provided by your foreign financial institution, then your exposure is for reporting all 9 years.  If this happens to you, then the possibility of resolving the matter by merely filing the past tax returns and paying the taxes, interest and penalties will NOT be an options any longer.  Remember, if the IRS contacts you first, the Voluntary Tax Amnesty no longer is available to you.  In hard money, this means that you will suffer much higher penalties and be audited for all 9 years of tax reporting.  From my experience representing Americans living overseas undergoing IRS audits, the final resolution generally takes from 9 months to 2 years.  Shocking yes and that is for only one year.  Of course, it is possible to consolidate all years in questions, but even then the time will exceed 12 months to get a proper outcome utilizing all of your rights and appeals.

Under current U.S. tax law, before the imposition of FATCA, penalties are up to the greater of $100,000 OR 50% of the highest historical account balance in EACH account. These are penalties routinely imposed by the IRS.  There are still options available to you, but once the IRS makes contact with you, as noted above, the options all disappear.  What you will have will be a complete different strategy trying to keep the IRS inquiry from quickly developing into a CRIMINAL proceeding with the Criminal Investigation Division of the U.S. Treasury.  You certainly need immediate and vigorous legal representation in an organized and intelligent presentation of your case to the IRS Tax Examiners!

The FATCA registration rules are complicated and replete with conditions and exceptions for foreign trustees, foreign trust companies, foreign banks and financial institution that many have now asked us our  advice.  So, not only are foreign countries now entering into tax information agreements between themselves, which will ultimately be shared with the IRS, but once private information with Trust Companies and Trustees will now be solicited by their own countries and shared via the internet with the IRS.   It truly is now only a matter of time.  Don’t freeze in the headlights of this final news of FATCA implementation; act now.  Give us a call under the Attorney/Client privileged communications and learn of your exposure and possible options before it is too late.

Also,there are now additional forms for American with foreign financial institutions’ accounts.  Below is a brief comparison of the new Form 8938 and From 114, a replacement form for the form 90-22.1.

Comparison of Form 8938 and FBAR Requirements

The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file FinCEN  Form 114 (Report of Foreign Bank and Financial Accounts). Individuals must file each form for which they meet the relevant reporting threshold.

Read the chart on this link

By Michael Nelson, Esq.