Spanish Version on our sister publication Revista Abogados Here
Updated August 2014
South Florida Legal Guide sat with Stanley Foodman, CEO of Foodman CPAs & Advisors, a recognized forensic accountant and litigation support practitioner specializing in complex domestic and international tax matters to talk about the Foreign Account Tax Compliance Act (FATCA). During the conversation, Foodman provided some insight and updates into many of the questions people have as to what they need to do now that FATCA is upon us.
SFLG: Do foreign financial institutions (FFI) have to report closed bank accounts under FATCA?
Foodman: The Final FATCA Regulations, published in January 2013, now specifically include a requirement for FFIs to report account closures. Although the first reporting is not due until March 2015, the reporting will include accounts, balances and account closures from July 2014 onwards.
SFLG: How do you know if your FFI has signed FATCA?
Foodman: Participating banks in FATCA are registering on the IRS on-line portal which, as of August 2014, has issued over 95,000 GIIN numbers. (Global Intermediary Identification Number). IRS publishes the lists of participating banks on the first of each month and you can access this list on www.irs.gov. to check and see if your FFI is participating.
SFLG: IS FATCA U.S. account holder information covered by attorney client privilege?
Foodman: This is best answered by an attorney. That said, it is my understanding from the attorneys with whom I work that U.S. account holder information disclosed by FFIs to IRS under FATCA is not covered by attorney-client privilege in the same way that interest income of U.S. account holders disclosed to IRS by U.S. financial institutions is not covered by attorney-client privilege.
SFLG: How many years will the FFIs report?
Foodman: Although the FFIs will not report historical data (prior to 2014), Participating FFIs (PFFI) are required by FATCA to maintain up to six years of data about their U.S. account holders. So, the IRS can request additional data on individual accounts from them at any time which could go back as far as six years. PFFIs will initially start reporting basic account data on an annual basis commencing in 2015 (for data covering 2014). In 2016 they start enhanced reporting on 2015 account activity.
SFLG: Should you close a foreign bank account?
Foodman: As explained in an earlier question, account closures from July 1, 2014 onwards will be reported by PFFIs and it is expected that they will serve as alerts of individuals attempting to avoid detection. It is expected that most FFIs will participate in FATCA so closing an account to open another one would only make sense if you plan to repatriate funds. In any case, the best thing to do is to consult with US international tax specialists for your best option to getting back into compliance.
SFLG: What information about my foreign bank account is given to the IRS?
Foodman: Initially ( 2014 data) the account name, address, your US TIN (tax identification number), account number and year end closing balance as well as any account closures and their ending balances. For 2015 data, enhanced reporting, (the same reporting as in 2014) plus income amounts. For 2017 data the reporting is further enhanced to include gross proceeds amounts.
SFLG: What do you need to communicate to your client on FATCA?
Foodman: If you are a PFFI advise your U.S. account holder clients that PFFIs will begin reporting their accounts to the IRS in 2015 for 2014 data. If you are a U.S. international tax advisor, advise your clients that The IRS is already investigating many non-compliant US taxpayers who own assets abroad and with this new information, there is a window of opportunity right now to become compliant through the Offshore Voluntary Disclosure Program and the Streamlined Filing Procedures programs (this typically provides certainty with respect to overall penalty amounts and if you are accepted into the programs, and truthfully fully report, they provide a form of avoiding or reducing otherwise possible risks of criminal prosecution) and they should immediately begin the process of regularizing their U.S. tax status.
SFLG: Do I have to report all my foreign real estate under FATCA?
Foodman: The answer to this question is multi-faceted. First, you have always had to report rental income from offshore properties owned individually and in entities; which implied listing the assets on a depreciation schedule in certain circumstances. FATCA has not changed that. Your ownership of real estate within an offshore legal entity is reported based on your percentage of beneficial ownership in the entity and, if the entity is reportable by you, with your annual federal income tax filing. FATCA requires FFIs to report about the bank accounts of certain entities which have beneficial owners that individually at least 10% of an entity.
SFLG: Are foreign bonds specified foreign financial assets and do they need to be reported under FATCA?
Foodman: Yes they are treated as a financial account and need to be reported.
SFLG: What countries have a FATCA agreement with the US?
Foodman: Currently there are over 89 countries that have either signed FATCA Intergovernmental agreements with the United States or are in the process of doing so. These include; Spain, Canada, Mexico, Switzerland, Japan Ireland, Denmark, Norway, Brasil, China, Hong Kong, and the United Kingdom. Most of these IGAs are “Reciprocal” in nature which means the U.S. will be reporting on NRA accounts held in the U.S. by the residents of these partner countries.
SFLG: How can the IRS find out if I have a foreign bank account?
Foodman: Through FATCA, the IRS will find out because the PFFIs will commence annual reporting on the US owned accounts on their books. Also remember that the IRS is already carrying out a number of investigations using tax information exchange agreements, U.S. tax treaties and an enhanced whistleblower program. They are also increasing the number of IRS agents posted overseas by opening new IRS embassy attaché offices overseas manned by criminal investigation agents.
SFLG: How can I prove that I do not have a foreign account?
Foodman: You do not have to prove that you do not have a foreign account. If you do not have one then you are automatically in compliance as far as your foreign asset filing is concerned. Remember that under FATCA a foreign account also includes bonds, investments and accounts held by structured offshore “U.S. “ Taxpayer owned or controlled entities.
SFLG: If the IRS asks for my foreign bank account details do I need to provide it or can they find it themselves?
Foodman: It is recommended that you always truthfully answer IRS inquiries. Keep in mind that if the IRS is asking you for the details of a foreign bank account, it is because it already has information about it. So, it is recommended that you interpose US tax counsel to provide your answers and not answer yourself directly.
SFLG: You are preparing an individual tax return for a client. The client has foreign financial assets but refuses to provide more information, and asks you not to report it or tell anyone. What would you do?
Foodman: I would strongly advise the client to truthfully and openly comply with his tax reporting obligations and not file a false return. If the client persisted in refusing to transparently report, I would withdraw from representing the client.
SFLG: Any last thoughts?
Foodman: I advise U.S. Taxpayers that have not previously reported their offshore financial accounts and related entities, to immediately seek advice from a qualified licensed U.S. international tax advisor about coming into compliance. The costs of potential mistakes, criminal and/or monetary, far exceed the cost of a knowledgeable tax attorney and an experienced CPA.