FBAR Letter: Recently, Foreign Financial Institutions began sending FBAR notices to US customers — asking for proof of FBAR filing. Several Foreign Financial Institutions have increased their offshore compliance reporting, and have begun asking taxpayer for specific information proving they are in US Tax compliance. Back in 2014, FATCA (Foreign Account Tax Compliance Act) agreements began being signed between the United States and foreign countries. As a result, several Foreign Financial Institutions (FFI) started issuing FATCA letters. These letters require bank customers to confirm whether the Taxpayer was a US person or non-US Person. US persons submit a W-9, and non-US Persons submit a W-8BEN. This way, the FFI could remain in compliance with the IRS — and accurately report customer information to the IRS. Apparently the FBAR did not want to be left out in the cold, and as a result, foreign financial institutions worldwide have now began sending FBAR letter notices as well.
What is the FBAR?
The FBAR refers to FinCEN form 114 in which US persons are required to disclose foreign bank and financial accounts.
The FBAR is a strictly United States’ law, and so there are no specific “FBAR Agreements” between the United States and foreign jurisdictions — although many tax treaties do request each country to facilitate cross-border reporting and disclosure.
FFIs Want Proof that you Filed the FBAR?
Recently, we have learned that several foreign financial institutions, life insurance companies, and pension/retirement funds overseas are requesting that their US clients provide proof that they actually filed the FBAR.
This is substantially different than a FATCA Letter.
With a FATCA letter, the FFI wants to confirm whether the client/customer is a US person or not — so that the FFI knows how to conduct their own reporting as to the client.
With an FBAR letter, the FFI wants to either know that the taxpayer filed the form and/or confirm that their specific institution was included on the filing. As you can imagine this is an incredible breach of privacy.
How to Respond to the FBAR
Before responding to a request from a foreign financial institution that you provide a copy of your FBAR, it is important that you speak with a Board-Certified Tax Law Specialist to get a lay of the land.
Sometimes these notices can be worded ambiguously, and taxpayers should be careful not to volunteer any additional information or documentation beyond what is required to answer the FFI’s request.
Foreign Accounts Compliance Expands Beyond FATCA
In conclusion, it is clear that more jurisdictions than ever before are requiring US clients to confirm their US status so that the financial institution can properly report in accordance with FATCA. In addition, many of these institutions want to see that the taxpayer has properly complied with any rules and regulations regarding foreign accounts compliance, such as filing the FBAR and other international reporting forms. Taxpayers should take heed before providing any unnecessary information to the foreign institution.
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