How to Respond to a FATCA LetterOffshore Account Update
Posted in on April 28, 2017
A FATCA letter typically comes from a Foreign Financial Institution (FFI). The letter will contain a request for information about your tax filing status within the United States. Along with the letter, you may also receive certain forms that your FFI requests be returned, including a W-8 or W-9 form. The purpose of these forms is to confirm your status as a United States taxpayer so the FFI can make a determination regarding whether the bank must provide information about your accounts to the United States taxing authorities.
If you receive a FATCA letter, you must respond to that letter and comply with the bank's request for information. Since the FFI that requested the information is asking because they believe they may need to provide your details to the I.R.S., you also need to make absolutely certain that you are in compliance with your own obligations under FATCA and you must also make absolutely certain that you have filed any required Report of Foreign Bank and Financial Accounts (FBARs).
There are very serious civil and potential criminal penalties if you don't file FBARs or provide required information under FATCA, so you should be proactive in protecting your accounts as soon as you receive a FATCA letter. A New Jersey tax law firm can provide you with information on the implications of the FATCA letter and can help you to take all appropriate steps necessary to satisfy your obligations for reporting offshore accounts under U.S. law.
What to Do When You Receive a FATCA Letter
FATCA stands for Foreign Account Tax Compliance Act. After the passage of this act, certain U.S. taxpayers- including both individuals living in the U.S. and individuals living abroad- were required to submit Form 8938, Statement of Specified Foreign Financial Assets to the IRS. You only must submit this form if your offshore accounts are large enough to be reportable. The value of accounts that is reportable is determined by your marital status and whether you are living in the U.S. or living abroad.
Banks also have to make reports to the IRS and, in order for these institutions to comply with their new obligations under FATCA, they review client records annually to try to identify any accountholders with U.S. connections. Since you received a FATCA letter, your FFI has clearly identified links between you and the United States and they are trying to determine what your tax filing status is.
You have to be smart about providing this information. You cannot just ignore the FATCA letter, or your information could be reported to the IRS and your account could be closed. If you are in full compliance with U.S. tax laws, simply send back the letter to your bank with your details. You may want to talk with a lawyer before returning your letter.
If you are not sure you're fully in compliance with all of your obligations when it comes to your offshore accounts, you should contact New Jersey attorney Kevin Thorn right away to help you determine what your obligations are, how best to respond, and what steps you should take to avoid or reduce potential penalties for not declaring offshore accounts earlier.