FATCA letters are going out from banks around the world to millions of US expats in readiness for reporting their financial information to the Internal Revenue Service (IRS).
If you are one of the 8 million US expats subject to the Foreign Account Tax Compliance Act (FATCA), what do you do if you receive one of these letters?
It’s important not to ignore the letter, which usually arrives with a Form W-9 or W-8.
The bank wants the forms back to confirm whether any customer is a US taxpayer and subject to FATCA.
Expats should complete the forms and send them back to the bank within the time limit.
Ignoring the letter will lead to the immediate closure of any bank account.
Filing FBAR and Form 8938
If any expat receiving the FATCA letter has not already tidied up their finances and declared any offshore accounts, ask the bank to extend the time limit, suggesting you need between 30 and 45 days to sort the matter out.
Most banks will consider this reasonable.
Then consult a US tax professional about filing a foreign bank account report or FBAR (Fincen 114).
The IRS requires these from any US taxpayer with a foreign bank account with a balance of more than $10,000 at any time during a calendar year.
They may also want a Form 8938, which is filed alongside the FBAR by US taxpayers with extensive foreign assets.
Both should already have been filed for previous financial years.
Tidying up your finances
If not, discuss the Streamlined Filing Procedure with your accountant or tax professional. The program means preparing three years of tax returns and six years of FBAR forms. The benefit is the IRS discount penalties. Bringing tax affairs up to date under this program is likely to cost around $1,400.
This process generally takes a month, which is within the bank’s FATCA timeline.
Expats or offshore account holders who do not tidy up their finances before the IRS finds out tax may be due from their banks risk far higher penalties.
FATCA interacts with these filings by demanding foreign banks and other financial institutions identify accounts held by US taxpayers. Under FATCA rules, foreign banks must report a US customer’s personal details and information about their bank accounts to the IRS.
The IRS compares this data with the FBAR, Form 8938 and other filings. If discrepancies are spotted, a tax investigation is likely to follow.
FATCA reporting rules are different for US resident and US expat taxpayers.
Under FATCA, residents have a $50,000 account limit trigger, while the amount is $200,000 for expats.
Thanks for sharing. It’s very important for US citizens living abroad. One note: The article states, for FBAR reporting requirements, “The IRS requires these [filing of FBAR] from any US taxpayer with a foreign bank account with a balance of more than $10,000 at any time during a calendar year.”
A more accurate and complete statement of FBAR filing responsibility appears on FinCen’s website:
“Who Must File the FBAR?
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.” https://www.fincen.gov/forms/bsa_forms/fbar.html
In other words, all foreign financial accounts are aggregated to determine whether the $10,000 threshold is reached.
“The IRS requires these from any US taxpayer with a foreign bank account with a balance of more than $10,000 at any time during a calendar year.”
Wrong. If the TOTAL balance of ALL your non-U.S.A. bank accounts reached the equivalent of $10,000 U.S., you are required by U.S.A. law to file the FBAR.
See https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR
2. the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.