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Have You Received a Letter About FATCA and US Tax Compliance?

If you’ve received a FATCA compliance letter from your bank, there is still time to act – not much time – but time enough to put together a compliance plan that protects your assets.

What is FATCA?

FATCA – the Foreign Account Tax Compliance Act – is America’s global tax compliance law and it was enacted in 2010. FATCA requires foreign banks to reveal Americans with accounts over $50,000, and more than 80 nations have agreed to the law. So far, over 77,000 financial institutions have signed on too. Foreign Financial Institutions (FFIs) must report account numbers, balances, names, addresses, and US identification numbers.

FATCA promotes global tax compliance by implementing an international standard for the automatic exchange of information related to US taxpayers. FATCA is intended to increase transparency for the Internal Revenue Service (IRS) concerning US persons that may be investing and earning income through non-US institutions.

What are the FATCA Requirements for Withholding?

In general, a withholding agent is required to withhold 30% on a payment made to a Foreign Financial Institution, unless specific requirements are met.

FATCA imposes certain due diligence and reporting obligations on Foreign Financial Institutions, notably the obligation to report US citizen or US tax-resident Account Holders to the US Internal Revenue Service (IRS). Failure to comply with FATCA’s requirements will expose such Financial Institutions to a 30% US withholding tax on payments to them from US sources.

US Citizens Living Abroad

If you are a US citizen living abroad, you must file if you are married and filing a joint income tax return, and the total value of your specified foreign financial assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year. These thresholds apply even if only one spouse resides abroad. Married individuals who file a joint income tax return for the tax year will submit a single Form 8938 that reports all the specified foreign financial assets in which either spouse has an interest.

If you are not married but are filing a joint income tax return, and the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.

Dual US and Foreign Citizenship

Some dual nationals or US Green Card holders think they can bypass FATCA by using a non-US passport and non-US address with their foreign bank. Don’t be tempted; you will likely make it worse, handing the IRS another badge of willfulness. Your bank and the IRS will find out.

FATCA and Australia

In April 2014, Australia and the US signed an agreement to implement FATCA. A key objective of the FATCA Agreement is to facilitate Australia’s compliance with FATCA to reduce its overall burden on the Australian financial industry.

Under the FATCA Agreement, Australian Financial Institutions (AFI) do not report information directly to the IRS. Instead, they report to the Australian Taxation Office (ATO), and the information is made available to the IRS, in compliance with Australian privacy laws.

The FATCA Agreement provides significant relief for AFIs including the exemption of individual Australian institutions (for example, superannuation funds) and accounts from the FATCA requirements and the removal of the 30% withholding tax on AFI.

The FATCA Agreement also improves existing reciprocal tax information-sharing arrangements between the ATO and the IRS. This helps ensure Australian tax laws are effectively enforced, so Australian businesses and individuals who pay the correct amount of tax are not disadvantaged by those who seek to evade their tax obligations.

Under the FATCA Agreement, AFIs that are not exempted need to register with the IRS and report to the ATO each year regarding certain Financial Accounts held with them by US citizens or US tax residents, or by specified US entities established in the US or controlled by US persons. This information is then made available to the IRS.

The Penalties for Non-Compliance

If you do not file, you may be subject to penalties: a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40% penalty on an understatement of tax attributable to non-disclosed assets.

The statute of limitations is extended to six years after you file your return if you omit from gross income more than $5,000 that is attributable to a specified foreign financial asset, without regard to the reporting threshold or any reporting exceptions

If you make a showing that any failure to disclose is due to reasonable cause and not due to willful neglect, no penalty will be imposed for failure.

Don’t Wait for The IRS to Find You

Get on the front foot and manage the timeline and consequences of your previous errors, oversights or omissions. If you have not filed your US tax returns or complied with your FATCA reporting requirements, for however many years, we can help you. No matter how complicated your US tax return is, we’re ready to help.

Back9 offers personal, high-quality, hands-on advice that is specifically designed to suit your circumstances, get in touch with us today.

 

The opinions in this post are intended for general information purposes only and should not be used as a substitute for professional advice. Back9 is not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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