Do you have a foreign bank account located anywhere outside the United States? If so, make sure you report the account to the IRS right away – otherwise, you may find your funds frozen starting in 2020. On December 31, 2019, the Internal Revenue Service will finally end its long-running FATCA grace period, which means U.S. taxpayers who wish to avoid an account freeze now have less than a month to ensure they are in compliance with the Foreign Account Tax Compliance Act. As non-U.S. banks and other foreign financial institutions (FFIs) scramble to meet the IRS’ swift-approaching FATCA compliance deadline, U.S. expats, retirees abroad, “accidental Americans,” and other international taxpayers should ready themselves for the potential fallout.
See our 2011 OVDI Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
In 2010, the Foreign Account Tax Compliance Act (FATCA) was enacted into federal law as part of the broader Hiring Incentives to Restore Employment (HIRE) Act. With some exceptions, FATCA requires U.S. citizens, resident aliens, nonresident aliens, U.S. trusts, and U.S. business entities to report certain offshore accounts and assets to the IRS. This generally includes foreign bank accounts, foreign stocks and securities, foreign partnership interests, foreign mutual funds, and several other types of foreign investments or financial accounts that exceed the $50,000 FATCA reporting threshold.
Non-U.S. banks have a simple choice: comply with FATCA or face enormous monetary penalties. Noncompliant FFIs, which the IRS calls “non-participating FFIs” (NPFFIs), face a devastating 30% withholding tax broadly applied to U.S.-source payments.
To avoid these penalties, most foreign banks and taxing authorities will readily share information with the U.S. government, in some cases exposing tens of thousands of U.S. customers to the IRS. To satisfy IRS requirements, an FFI must provide various pieces of information about the taxpayer, including his or her name; his or her account number and balance; any interest accrued, dividends gained, or other funds added to the account; and the account holder’s Taxpayer Identification Number (TIN). Any of the following may function as the account holder’s TIN:
To give banks and taxpayers adequate time to transition to FATCA regulations, the IRS initially created a grace period. However, time is almost up: the FATCA grace period is ending on December 31, 2019, leaving only a few more weeks for NPFFIs to become compliant.
As the section above discusses, this requires FFIs to provide TINs, account balances, and other taxpayer information to the IRS. Therefore, you may be contacted by your bank (if you have not been contacted already) with requests for information or other FATCA-related notices.
You may lack a TIN if you are an “accidental American,” a term which loosely describes any U.S. citizen who has never lived or worked in the United States for any substantial period of time (often a scenario where the taxpayer moved abroad during early childhood). Despite having minimal connection to the United States, accidental Americans are nonetheless required to comply with the IRS’ rules – a standard many have protested as burdensome and unfair. Accidental Americans face unique and complex obstacles to tax compliance, which makes it essential to work with a knowledgeable FATCA attorney.
Whether you live in the U.S. or overseas, you must make every possible effort to comply before the grace period ends by providing your TIN (and other requested information) in a timely fashion. Compliance is for your own benefit, as costly penalties can result from willful or even negligent errors. In addition to facing FATCA penalties, you may see noncompliant accounts frozen – or even closed altogether – by the IRS.
At the Tax Law Office of David W. Klasing, our award-winning tax attorneys possess extensive experience in the area of international taxation and FATCA compliance. We can guide you through what to do if you received a FATCA letter from your bank, provide aggressive representation at all stages of a foreign account tax audit, help you make a voluntary disclosure or streamlined disclosure, or defend you against tax fraud charges arising from willful failures to report offshore accounts.
No matter what aspect of FATCA is creating challenges for you or your business, we are ready to help you strategize and move forward. Contact us online right away to arrange a reduced-rate consultation, or call the Tax Law Office of David W. Klasing at (800) 681-1295 for 24/7 tax assistance.
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