Foreign Account Tax Compliance Act (FATCA) letters have been mailed to citizens, legal permanent residents, expatriates, and others with a US tax obligation since the passage of the law. The letters are sent to US taxpayers when the foreign financial intuition believes:
- The individual is under the jurisdiction of the US taxing authority – the Internal Revenue Service (IRS).
- The individual has an interest in or holds signature authority over certain foreign accounts.
- The accounts individually or in the aggregate exceed the balance thresholds and trigger an obligation to disclose their existence to US officials.
A typical letter will request that the account holder and recipient provides information regarding whether they have made any disclosures regarding a foreign account to IRS. While many people are first to consider whether their FBAR filing via FinCEN Form 114, if any, was sufficient, the truth is that a letter of this type could be triggered for a number of other reasons. For instance, the taxpayer may have misread the question on the person 1040 Individual Income Tax return that reads, “At any time during 2014, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country?” The taxpayer may have erroneously responded in the negative to this inquiry despite holding an interest in or signature authority over relevant foreign accounts. Furthermore, disclosures made as through the Offshore Voluntary Disclosure Program (OVDP) or other quiet or noisy disclosures may have triggered the letter.
Receiving a FATCA letter should be a wake-up call and put you on notice that you could potentially face significant tax penalties. At the Hoffman Law Offices we are dedicated to devising a sound legal strategy to advocate and negotiate on behalf of clients who wish to come back into tax compliance.
What does it mean if I receive a FATCA letter?
When you receive a FATCA letter, there is an extremely high likelihood that you will soon be on the IRS’ radar, if you aren’t already. However, this likelihood is more pronounced in certain jurisdictions due to the form of the Intergovernmental Agreement (IGA) that is in effect. An IGA permits the US government and foreign taxing authorities to, among other things, share tax enforcement information. Understanding what the particular IGA in the relevant jurisdiction allows for and the practices it prohibits can be useful in assessing the risks you face.
For instance, under a typical Model 1 IGA, foreign financial institutions are authorized to turn-over an American account-holder’s information only to the foreign taxing body. Then the foreign jurisdiction’s taxing authority may transfer that information to the IRS. A Model 2 IGA, essentially, cuts out the middle-man by allowing the foreign financial institution to report information directly the IRS. However many more technical aspects of the agreement works is contained within provisions and riders that deem certain entities as “exempt beneficial owners”, “deemed-compliant foreign financial institutions” or “recalcitrant account holders”. Understanding how these provisions operate and interact is essential to a fully-formed understanding of your risks and options.
OVDP May Offer a Means to Correct Your FATCA Problems
The IRS’ Offshore Voluntary Disclosure Program (OVDP) can often be leveraged to correct past tax problems while minimizing the penalties created by necessary disclosures to come back into compliance. However, there are a number of different versions of OVDP. Some versions of the disclosure program carry higher levels of risk in exchange for reduced penalties. However, selecting a version of the program with lesser penalties, such as Streamlined OVDP, when the facts and circumstances of your tax matter are inappropriate can actually compound liability and create new problems. An experienced tax professional can assess your unique situation and discuss the options available to you.
Put our FATCA experience to work for you
If you have already received a letter inquiring into foreign account disclosures, it is safe to say that doing nothing is never advisable. If you delay and are investigated by the IRS, the options provided by the OVDP program will no longer be available. Furthermore, you negotiating position is likely to be weaker than if you had addressed the matter earlier. The experienced tax lawyers and tax professionals of the Hoffman Law Offices can assess your unique situation and provide recommendations that are likely to correct your tax problems while minimizing the consequences of disclosure. To talk about your FATCA concerns with an experienced tax professional call (800) 897-3915 or contact us online.