Letter from Your Non-U.S. Bank Regarding Chapter 4 of Subtitle A of the U.S. Internal Revenue Code – aka – “FATCA”
Financial institutions, outside the U.S. have been taking numerous steps to advise their U.S. born clients and U.S. resident clients about the reporting of their account information to the U.S. Internal Revenue Service.
These letters take various forms, depending upon the institution. In short, they normally say that as a result of the “Foreign Account Tax Compliance Act” (aka – FATCA, which comes from the newly created Chapter 4 of Subtitle A of the Internal Revenue Code, Title 26) they will be providing various account information to the U.S. Internal Revenue Service.
Some institutions are accelerating the information provided to include the account number, account holders/owners, balances and income from all sources. FATCA does not require all of this information until it is fully phased in over the next couple of years.
Many U.S. born individuals who have resided virtually all of their lives outside the U.S., often find out for the first time they are U.S. income tax residents by virtue of their birth and the 14th amendment of the U.S. Constitution. See, Co-author. “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.
In many cases, I have seen and advised individuals who are first learning of these obligations when they open new accounts and the financial institution outside the U.S. requests an IRS Form W-9 with a U.S. taxpayer identification number, i.e., the social security number for U.S. citizens. See an older post (23 July 2014) – Why do I have to get a Social Security Number to file a U.S. income tax return (USCs)?
The financial institution will have them certify under penalty of perjury their status as a U.S. person or not. If the individual was born in the U.S., they will necessarily be a U.S. person unless (i) they were born to diplomatic parents who were on diplomatic assignment in the U.S., or (ii) they renounced their U.S. citizenship and obtained a Certificate of Loss of Nationality from the U.S. Department of State. See, The Importance of a Certificate of Loss of Nationality (“CLN”) and FATCA – Foreign Account Tax Compliance Act
These FATCA letters are no longer just for U.S. taxpayers with non-U.S. accounts. Countries throughout the world are using the exchange of information agreements between the U.S. Treasury and other countries, the Intergovernmental Agreements to notify their taxpayers that soon information about their U.S. accounts will be made available to their tax authorities. See, recent Mexican articles released including August 26, 2015, in the El Siglo de Torreón, titled Preparan SAT y EU auditorías: ”
“El Servicio de Administración Tributaria (SAT) realizará el primer intercambio de información con Estados Unidos en septiembre para las primeras auditorías de personas con cuentas bancarias en Estados Unidos a partir del próximo año, aseguró Aristóteles Núñez, jefe del fisco.
“Vamos a poder conocer quiénes tienen cuentas en Estados Unidos y con ello empezar a revisar quién ha pagado sus impuestos y si no lo ha hecho habrá auditorías.”