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What to Do After Receiving a Letter from Your Foreign Bank

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    If you are an American citizen or green card holder and hold an interest in or signature authority over foreign financial accounts, chances are you will eventually receive a rather unnerving letter from your bank or financial institution. While the wording of the letter will vary based on your financial institution, the jurisdiction the account is located in, the model of intergovernmental agreement (IGA) in effect, and the basis for the problem the general message set forth is nevertheless typically very similar. That is, the message is typically along the lines that the foreign financial institution has identified your account(s) to the United States and that the IRS is likely to soon be in possession of your identity and account information.

    Because FATCA penalizes foreign financial institutions that do not hand over Americans account information, it is never advisable to ignore a FATCA letter. In light of the potential consequences for even unintentionally failing to disclose foreign assets, taking no action can never be recommended. Furthermore, depending on how your actions are perceived by the IRS, charges for criminal tax fraud are conceivable.

    If you are faced with this or a similar situation, you should contact an experienced Tax Attorney, such as David W. Klasing, immediately. Your tax lawyer can work to mitigate your criminal exposure while minimizing the FBAR penalties you face.

    What are the potential consequences of a FATCA letter?

    Receiving a FATCA letter regarding undisclosed foreign accounts often means that you are facing extremely serious tax problems. If you have already received the FATCA letter you are facing a potential criminal issue and the 2014 Offshore Voluntary Disclosure Initiative program is no longer an option.

    If your failure to disclose your foreign accounts via a Report of Foreign Bank and Financial Accounts (FBAR) (FinCen Form114) is considered to be non-willful, you could still face significant fines. Penalties can be assessed at $10,000 per unreported account, per tax year. If your failure to make required foreign account disclosures is determined to be willful, even more onerous penalties will apply. A willful violation of the Banking Secrecy Act (BSA) can carry a penalty of the greater of $100,000 or 50% of the account value for each year the account was undisclosed. Assuming the account balance was $100,000 and a 5-year FBAR statute, penalties could be assessed at $50,000 per year. Over the course of 5 years penalties alone would total $250,000 or more than twice the amount originally contained within the account. Interest and other criminal penalties may also apply.

    Do not contact your original tax preparer

    If you have already received a FATCA letter or call, your first impulse may be to contact the individual who originally prepared your taxes. However, taking such action is never advisable. This is for a number of reasons. First, there is a clear conflict of interest for the original preparer. The original preparer may be facing an investigation or penalties themselves due to your tax issues. When faced with the potential loss of their license and other penalties, one would have to assume that the original preparer will act in their own self-interest. Unfortunately, their interests do not align with your own and you are likely to end up in a situation where it is your word against theirs.

    Furthermore, it is never advisable to contact the original preparer because the accountant-client privilege, to the extent that it exists, is extremely limited. The original tax preparer is likely to be government witness number 1 against you and the accountant-client privilege will not prohibit the original prepared from disclosing anything you have communicated. In contrast, the attorney-client privilege is universally recognized in all 50 states and in federal court. Additionally, the attorney-client privilege is extremely robust and will permit you to speak freely regarding your tax concerns without fear of it being disclosed or used against you in court proceedings.

    Do not discuss the matter without an experienced Tax Attorney present

    If you have received a FATCA letter about potential violations of the tax code or Banking Secrecy Act, it is prudent to refrain from any public comment or private conversations regarding the matter unless you have legal counsel present. In the case of private conversations, these should be avoided because the individual you discuss the matter with can then be called as a witness against you.

    Also, you should never speak to anyone from the IRS without counsel present. This is especially true if you are approached in-person by an agent from the IRS Criminal Investigation Division at time you are not expecting it. If a situation like this should arise, demanding to have an attorney present before speaking with them should end the inquiry unless they take the unusual step of arresting you.

    In short, if you have received a FATCA letter about undisclosed foreign accounts, you face a potentially perilous situation. Your main goal should be to try and mitigate criminal exposure while getting the lowest FBAR penalties the situation permits. Working with a Tax Attorney and CPA, such as those of the Tax Law Offices of David W. Klasing, can improve the likelihood that you achieve these goals. To schedule a reduced rate tax law consultation, contact me online or call (800) 681-1295.


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