- 1 What If a Foreign Bank Has Your Incorrect US Status?
- 2 Foreign Account Examples
- 3 Foreign Account Opened Before US Person Status (No FATCA Letter)
- 4 Opened Before US Person Status (FATCA Letter)
- 5 Opened After Becoming a US Person (Mistake)
- 6 Opened After Becoming a US Person (Willful)
- 7 Current Year vs Prior Year Non-Compliance
- 8 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 9 Golding & Golding: About Our International Tax Law Firm
What If a Foreign Bank Has Your Incorrect US Status?
With the introduction of FATCA (Foreign Account Tax Compliance Act), more than 110 countries and hundreds of thousands of foreign financial institutions have been actively reporting US account holders to the US government. Back when the law was first introduced, the Internal Revenue Service was not aggressively enforcing these types of matters. Then, as more Foreign Financial Institutions began their compliance, the IRS began increasing enforcement. It started first with soft letters such as Form 6291 but now the IRS is moving toward more aggressive enforcement by way of audit or examination. One common issue we find with many taxpayers is that they are concerned that they may have misrepresented their US citizen status to the Foreign Financial Institution. Let’s take a brief look at this issue:
Foreign Account Examples
Many less experienced international tax lawyers may presume that a taxpayer was willful because they did not update their foreign financial institution about their US status, but that is not always the case as each situation is different.
Here are some examples to assist you.
*Please note that these examples are just used to illustrate the different potential issues. They should not be relied upon for your specific facts since each situation has its own set of nuances.
Foreign Account Opened Before US Person Status (No FATCA Letter)
David is a US Citizen. 20 years ago, before he became a US person, he opened a foreign bank account in Switzerland. There was nothing nefarious about opening the foreign account — it was merely because the bank offered a good interest rate and David appreciated the Foreign Financial Institution Manager’s investment strategy. Later, David received a letter 6291 from the IRS since the foreign financial institution reported David as an account holder. David had no idea he was required to report his foreign accounts — and never heard of the acronym FATCA. In this type of situation, David would not be considered willful.
Opened Before US Person Status (FATCA Letter)
Michelle is a Green Card Holder. She became a US person about 10 years ago but before that, she had no US person status and resided in Portugal where she maintained bank accounts. At the time Michelle open these accounts, they were not considered foreign accounts because Michelle was living in Portugal. Years later, she became a US person and was never made aware of the requirement. When Michelle received a FATCA letter he was confused since she was not a US citizen but a permanent resident. Michelle received some incorrect information from the Bank Manager when she reached out to them regarding the letter and what is she supposed to do about it. In this type of situation, Michelle is probably not willful because there is no intent to avoid any reporting — just a misunderstanding.
Opened After Becoming a US Person (Mistake)
Melinda is a US citizen who opened a foreign Bank account in Taiwan where she was originally from. When she went to open the account, the Bank Manager asked if she had identification and then requested that she provide her Taiwanese ID card instead of her US card, because they wanted a local address (which is where her parents lived), to make sure that her family received mail from the bank as intercontinental mail services were spotty at best. Melinda received a Notice from the IRS on form 6291 regarding the missed account. This would probably not be a willful situation, because the bank teller never asked about her US status and Melinda provided the information that the bank teller asked for.
Opened After Becoming a US Person (Willful)
Scott is a US citizen who wants to hide money overseas. He takes a trip to Belize, where he created a Belize corporation under a different name and uses that Belize corporation to open a foreign bank account hoping that he will not be identified as a US Citizen. When he goes to open a foreign bank account, he only provides information about the foreign entity and not the fact that he is a US person owning the foreign entity. Later down the line, the bank asks for his identification, and he provides a Belize ID as well as confirms that he is not a US person. The Bank is suspicious and reports to the US government. This would presumably be a willful situation since Scott’s primary intent was to avoid the foreign bank reporting his information to the IRS.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.