The Foreign Account Tax Compliance Act (“FATCA” (pronounced “Fat-cuh”)) is a U.S. law that went into effect in July, 2014. FATCA requires foreign financial institutions (“FFIs”) to report information to the U.S. government about its account holders that may have a U.S. income tax reporting requirement (often referred to as a “U.S. fiscal status”). An individual may have a connection with the U.S. if they have a U.S. social security number or tax identification number, hold a U.S. visa, live or own property in the U.S., earn U.S. source income, or conduct business in the U.S.
The purpose of FATCA is to detect and discourage non-compliance and non-reporting of offshore accounts. Many foreign tax authorities and FFIs have entered agreements with the U.S. government to implement FATCA, so FFIs are sending letters to their clients asking them to disclose their affiliation with the U.S. If an account holder refuses to disclose their affiliation with the U.S., the bank will report the client as an unresponsive “recalcitrant account holder” who is “not aligned with the FATCA process.” This information is reported to the U.S. government and may trigger a civil or criminal investigation by the Internal Revenue Service. In addition, many foreign banks will freeze or close the recalcitrant account holder’s account. Account holders generally must sign their certification responses under penalties of perjury so if the account holder hides or misrepresents their U.S. connection, they risk criminal enforcement from the foreign jurisdiction and the U.S.
If you receive a FATCA letter from your foreign bank or financial institution, you should take the notice seriously. If you have failed to report your foreign financial account or asset, or failed to report foreign income from a foreign asset, you should contact a qualified tax professional to evaluate your options for coming into compliance with your U.S. income and information reporting requirements through one of the IRS voluntary programs, such as the Offshore Voluntary Disclosure Program, Streamlined Filing Compliance Procedures, and Delinquent Filing Procedures.