What Is the IRS Non-Filer Program and How Does It Affect Americans Abroad?
U.S. Citizens and Green-Card Holders Abroad: The IRS Non-Filer Program Explained
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Read the full analysis here.
What is U.S. citizenship-based taxation, and who does it reach?
The U.S. taxes based on citizenship, not just on where a person lives. A U.S. citizen who has spent nearly all of their life outside the U.S. can still fall within the U.S. tax system. Lawful permanent residents (green-card holders, also called LPRs) residing outside the U.S. can be reached as well. Many people in both groups are shocked to learn how broad this scope is.
Why does the IRS focus so heavily on accounts and assets outside the U.S.?
In recent years the IRS and the Tax Division of the Department of Justice (DOJ) have aggressively pursued assets and accounts located outside the U.S. That pursuit has put a keen focus on the offshore holdings of U.S. citizens and green-card holders who live abroad.
What are the “New Filing Compliance Procedures for Non-Resident U.S. Taxpayers”?
In August the IRS articulated its position for U.S. citizens and lawful permanent residents residing outside the U.S. in a document titled “New Filing Compliance Procedures for Non-Resident U.S. Taxpayers.” It sets out how the IRS approaches the filing obligations of those taxpayers.
What is the IRS non-filer program?
The IRS has had, for years, a specific program aimed at “non-filers,” meaning persons who do not file U.S. income tax returns. The program is detailed in the Internal Revenue Manual (IRM), the IRS’s internal handbook of procedures. It can apply to U.S. citizens and green-card holders living overseas who have not filed.
What can happen if a U.S. citizen or green-card holder living abroad never files a U.S. return?
When a taxpayer does not file, the IRS may prepare a “substitute return” on that person’s behalf. A substitute return is a return the IRS files for the taxpayer, rather than one the taxpayer files. This can apply to U.S. citizens and lawful permanent residents residing overseas who are non-filers. Anyone facing this situation may want to consult an experienced attorney.
Where is the non-filer program actually written down?
The non-filer program is laid out in the Internal Revenue Manual at section 4.19.17, the Non-Filer Program. Its subsections cover the full process:
- 4.19.17.1 — Non-Filer Program
- 4.19.17.2 — Non-Filer Strategy
- 4.19.17.3 — Non-Filer Processing
- 4.19.17.4 — Non-Filer Penalties
- 4.19.17.5 — Undelivered Mail
- 4.19.17.6 — Taxpayer Replies
- 4.19.17.7 — Closures, Non-Examined
Read the full analysis here.
Why Are Foreign Banks Closing Accounts for Americans Abroad?
Is it hype, or is it real? Many U.S. citizens and lawful permanent residents (green-card holders) living overseas have heard that foreign banks are closing their accounts. Here is what actually shows up in practice, and why so many people are moving their money home.
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Are foreign banks really closing the accounts of Americans living overseas?
It is hard to know with certainty how accurate these claims are. If it has happened to you, of course you will know it. In practice, account closings have turned up in places such as Hong Kong, London, Geneva, and Zurich. But they do not appear to be a widespread practice, at least not anecdotally.
What have news reports said about banks cutting off American expats?
Several published reports have raised the issue, including:
- The Wall Street Journal, “Expats Left Frustrated as Banks Cut Services Abroad” (11 Sept 2014).
- The Wall Street Journal opinion piece by Colleen Graffy, “How to Lose Friends, Citizens and Influence.”
- Time Magazine, “Swiss Banks Tell American Expats to Empty Their Accounts.”
- The Huffington Post (Aug 2014), “Expatriate Tax Sense or Broad-Brush Overreach: The U.S. Foreign Account Tax Compliance Act (FATCA).”
- The New York Times (April 2013), “Overseas Finances Can Trip Up Americans Abroad.”
- The Association of Americans Resident Overseas, on Americans abroad being denied access to banking and investment opportunities.
- American Citizens Abroad, which compiles various news accounts of accounts being closed.
Does the size of the account change how a foreign bank responds?
It appears to. For individuals with large investment accounts, for example greater than US$1 million, banks seem to accommodate them, or at least require them to move their assets to a U.S. affiliate or branch. Those with smaller accounts, for example less than US$100,000, appear to see a broader brush stroke of closures.
If foreign banks aren’t the main driver, who is closing these accounts?
Much of it is the individual’s own decision, not the bank’s. What has been widespread in practice is a plan by individuals to close foreign financial accounts and relocate the assets to a U.S. financial institution. This includes U.S. citizens and lawful permanent residents (green-card holders) living outside the U.S. The move is the individual’s choice, not the financial institution’s.
Why are U.S. citizens and green-card holders abroad choosing to close their foreign accounts?
The reason is generally not FATCA (the Foreign Account Tax Compliance Act) itself, but a desire to reduce the compliance costs of filing and reporting on foreign accounts. FATCA seeks to co-opt foreign banks as long-arm enforcement of U.S. tax law. Even so, the driver people cite is cost, not the statute. Multiple tiers of reporting of foreign assets is now required. It can cost a small fortune to retain a good international tax adviser who is aware of these reporting requirements.
What reporting makes holding foreign accounts so expensive?
Two main layers apply to U.S. citizens and lawful permanent residents living outside the U.S.: the FBAR (the Foreign Bank Account Report) and IRS Form 8938 (Specified Foreign Financial Assets). For those with significant assets and numerous accounts, the professional fees and costs of reporting these accounts accurately can become exorbitant. That is especially true when the risk of potentially devastating civil penalties is weighed into the mix.
What penalties are people worried about?
The IRS now regularly threatens large, multiple-year 50% willfulness penalties for those who did not file an FBAR. This risk is more than just perceived. The Zwerner FBAR case is one example, and it has been described as probably a Pyrrhic victory for the government for U.S. citizens and lawful permanent residents living outside the U.S. The combination of cost, compliance burden, and penalty risk is what drives many people to act.
Is it actually illegal for a U.S. person to hold a foreign bank account?
No. There is no legal restriction for a U.S. citizen to hold foreign accounts. A U.S. citizen or lawful permanent resident residing outside the U.S. will generally find it easier, from a lifestyle and personal financial management perspective, to have an account in their home country. The irony is that the practical effect pushes in the opposite direction.
Where are these assets ending up?
The practical effect, anecdotally, is that U.S. financial institutions are receiving these assets and investments. As individuals close foreign accounts to cut compliance costs and penalty risk, the money flows back into the U.S. rather than staying in their home country abroad.
Read the full analysis here.
What Is a Certificate of Loss of Nationality and Why Does Your Bank Need It?
Who Is a “U.S. Person” for Tax, and How FATCA Treats Former Citizens and Green-Card Holders
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How does your immigration status decide whether you owe U.S. tax?
Your U.S. tax status starts with your immigration status. The U.S. taxes a “U.S. person” (the technical term used for U.S. federal tax purposes) on worldwide income, and whether you are a “U.S. person” depends largely on immigration concepts. Three immigration-based categories can make someone a U.S. person:
- U.S. citizenship;
- lawful permanent residency (a green card); and
- meeting the substantial presence test as a non-citizen.
A person in any of these categories may have U.S. income tax residency, and so may be subject to U.S. income tax on income earned anywhere in the world.
Who counts as a U.S. citizen for tax purposes?
Almost every individual born in the United States is a U.S. citizen under the 14th Amendment. Citizenship can also pass from a parent. A child born outside the U.S. to a U.S. citizen parent may also be a U.S. citizen at birth through “derivative citizenship,” meaning citizenship derived from a U.S. citizen parent. The U.S. Citizenship and Immigration Services (USCIS) publishes “Nationality Chart 1, for Children Born Outside U.S.” to help determine whether such a child was a U.S. citizen at birth. Because U.S. citizens are “U.S. persons,” they are generally subject to U.S. tax on their worldwide income.
Can a green-card holder or visa holder be a “U.S. person” too?
Yes. Two non-citizen categories can still make someone a “U.S. person” for tax. The first is a lawful permanent resident (LPR), a green-card holder; LPR status carries a series of complex rules that can affect “U.S. person” status. The second is a person who is neither a citizen nor an LPR but who meets the “substantial presence test,” a tax test based on the number of days an individual is physically present in the United States. A person in either category may be treated as a “U.S. person” and taxed on worldwide income.
What is FATCA, and why is your foreign bank asking if you are a U.S. person?
If your foreign bank has asked whether you are a U.S. person, FATCA is why. FATCA (the Foreign Account Tax Compliance Act, Chapter 4 of Subtitle A of the Internal Revenue Code) entered into force in January 2014. It imposes obligations on financial institutions (“FFI”) and basically all private companies and legal entities (“NFFE”) throughout the world to confirm whether they have any “U.S. person” account holders or owners. That worldwide duty to check is what leads banks and companies outside the U.S. to ask account holders about their U.S. status.
How does a former U.S. citizen prove they are no longer a “U.S. person”?
A former U.S. citizen must generally provide a Certificate of Loss of Nationality (CLN), Form DS-4083, to prove they are no longer a U.S. person. This is a specific requirement both under the FATCA regulations and under a provision adopted into the FATCA intergovernmental agreements (IGAs) signed between the U.S. and other countries. For example, Annex I of the IGA between the U.S. and Spain addresses CLNs. Without the CLN, a financial institution may continue to treat the individual as a U.S. person.
Why does a U.S. place of birth make foreign banks ask for extra proof?
A U.S. place of birth is a warning sign to a withholding agent. Under Treasury Regulations Section 1.1441–7T, a withholding agent has reason to know that documents claiming foreign status are unreliable if its records show an unambiguous U.S. place of birth. To still treat such an account holder as a foreign person, the agent generally needs documentary evidence of citizenship in a country other than the United States (described in § 1.1471–3(c)(5)(i)(B)), plus one of the following:
- a copy of the individual’s Certificate of Loss of Nationality (CLN); or
- a reasonable written explanation of the renunciation of U.S. citizenship, or of why the person did not obtain U.S. citizenship at birth.
Alternatively, a valid Form W–8 establishing the account holder’s foreign status, together with that citizenship evidence and the written explanation, may satisfy the requirement.
Once you are no longer a U.S. person, does FATCA reporting stop?
Generally yes, once the right documentation is on file. A person who is no longer a “U.S. person” can generally avoid FATCA reporting to the IRS by a foreign financial institution (FFI), or by a company or legal entity (NFFE) in any country outside the U.S. The condition is that the supporting documentation, namely the Certificate of Loss of Nationality (CLN), is provided to that institution or entity. Until the CLN reaches the institution, FATCA reporting on the account may continue.
What is an Apostille Certificate, and why pair it with a CLN?
An Apostille Certificate is an international authentication confirming that an official document is genuine for use in another country. When providing a Certificate of Loss of Nationality (CLN) to a foreign financial institution or company, it is often advisable to obtain an Apostille Certificate along with the CLN. Some third-party organizations will accept the CLN only when it carries this certification. Pairing the apostille with the CLN can help the document be accepted abroad.
Future posts will cover more on the interplay of FATCA and former U.S. citizens and lawful permanent residents.
Read the full analysis here.
When Does the IRS Have No Time Limit to Audit or Assess Taxes?
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What is the statute of limitations on an IRS tax audit?
The statute of limitations is the time frame in which the government has to conduct an audit against a US taxpayer. Once that time frame lapses, the IRS cannot commence tax audits or assess taxes or tax penalties against a US citizen (USC) or lawful permanent resident (LPR, a green card holder) living overseas. In other words, the limitations period sets a fixed window, and after it closes the taxpayer generally has protection from new audits and assessments for that year.
In what situations is there no statute of limitations for a US citizen or green card holder abroad?
There are basically three ways a US citizen or green card holder living outside the US will have no protection of a statute of limitations against the IRS. In these scenarios the limitations period stays open, so there is no closing date on the government’s ability to audit or assess. The three basic scenarios are:
- The USC or LPR does not file a US income tax return (IRC Section 6501(c)(3)).
- There is fraud on the part of the taxpayer (IRC Sections 6501(c)(1), (c)(2)).
- The USC or LPR fails to report certain foreign transactions (IRC Section 6501(c)(8)).
What happens to the statute of limitations if you do not file a US income tax return?
If a US citizen or green card holder does not file a US income tax return, there is no statute of limitations for that year under IRC Section 6501(c)(3). Because the limitations clock generally starts when a return is filed, no return means the period never begins to run. The IRS may therefore audit or assess for that year without a fixed cutoff.
How does tax fraud affect the statute of limitations?
Where there is fraud on the part of the taxpayer, there is no statute of limitations under IRC Sections 6501(c)(1) and (c)(2). An example is a taxpayer who intentionally does not report income. In that situation the limitations period stays open, so the IRS may pursue an audit or assessment for that year without a closing date.
What happens if you fail to report certain foreign transactions?
If a US citizen or green card holder fails to report certain foreign transactions, there is no statute of limitations under IRC Section 6501(c)(8). This rule was only recently adopted as part of the “HIRE Act,” the same law that created FATCA (the Foreign Account Tax Compliance Act). The limitations period for the year can remain open until the required foreign-transaction reporting is made.
Why file a complete and accurate return even when no tax is owed?
One basic point from the law is that a US citizen or green card holder is almost always better off filing tax returns that are complete and accurate, even when no tax is owing. Filing this way helps assure a fixed time frame during which the US federal government can conduct tax audits and other related tax investigations. Without that fixed window, the limitations period may stay open. Anyone weighing their own situation may want to consult an experienced tax attorney.
Where can you read more about international tax statute of limitations issues?
For an overview of the statute of limitations periods, see the presentation “Starting the Race Against the Tax Authority in the International Tax World – Statute of Limitations & Lack of Filings” by John C. McDougal, Special Trial Attorney at the IRS, and Jon P. Schimmer and Eric D. Swenson of Procopio.
Read the full analysis here.
What Is a FATCA Intergovernmental Agreement and Is It Really Two-Way?
FATCA IGAs and the One-Way Reporting Gap: What US Persons and Foreign Residents Actually Face
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What is FATCA, and how many countries have FATCA agreements with the United States?
FATCA (the Foreign Account Tax Compliance Act) is the US law behind the intergovernmental agreements (IGAs) that the US Treasury negotiated with some 113 countries. Treasury publishes the full country list on its website. Not all of these countries have actually signed. Many have what Treasury calls an “agreement in substance.” The IGAs require foreign financial institutions (FFIs, meaning non-US financial institutions) to identify “U.S. Persons” and “Substantial U.S. Owners,” and to report what the IGAs call “U.S. Reportable Accounts.” Treasury describes the agreements as “bilateral.” One published example, the FATCA IGA with Colombia, is largely identical in form to almost every other IGA.
How do FATCA IGAs affect US citizens and green-card holders living outside the United States?
They affect US citizens (USCs) and lawful permanent residents (LPRs, green-card holders) in many ways. Foreign financial institutions around the world now collect extensive information to identify account holders who are “U.S. Persons” or “Specified U.S. Persons,” the term the IGAs use for accounts that must be reported. If you received questions from a foreign bank asking whether you are a US person, FATCA is why. The reporting reaches beyond direct accounts. It also reaches entities that a US person controls.
Why are some foreign banks refusing or closing accounts for US citizens and LPRs?
Many FFIs have adopted a policy to no longer accept or retain US accounts. The cost of complying with FATCA for US citizens and lawful permanent residents is high. Many FFIs also want to avoid the risk of being penalized heavily by the US federal government, including being charged with aiding and abetting US taxpayers to evade their US tax obligations. Jack Townsend’s website, Federal Tax Crimes, reviews these cases in detail, with particular focus on Swiss banks and the US DOJ Program for Swiss Banks.
What is the difference between a “U.S. Reportable Account” and a “Country X Reportable Account”?
This difference is the core asymmetry of FATCA. A “U.S. Reportable Account” is defined extraordinarily broadly. A “Country X Reportable Account,” for example a Colombian Reportable Account, is defined narrowly. That gap is why the IGAs are not truly bilateral: US banks do not have to provide the same detailed information on their non-US clients that FFIs must provide on US accounts. A plain reading of the IGAs gets you to that conclusion.
What income must a US bank report on a foreign resident’s account?
Only a limited slice. A Colombian Reportable Account obligates US banks to send information on US source income of individual residents under chapter 3, plus certain accounts of Colombian entities. All non-US source income of a Colombia resident individual is not subject to reporting by the US financial institution. A Colombian resident could hold a US$150M portfolio of non-US mutual funds and ADRs (American Depositary Receipts) traded on the NYSE, with none of that income reported to the Colombian government. Stock sales of US corporations such as Apple, Ford, or Microsoft are not treated as “US source income” under chapter 3 either.
Can a foreign resident use an offshore company to avoid US bank reporting?
Yes, under the IGAs as written. If a Colombian resident holds investments through an offshore corporation, for example a BVI (British Virgin Islands) company, no reporting is required of the US financial institution. That holds even if the entire US$150M portfolio is invested in US stocks, US treasuries, and other American financial investments. Individuals resident in countries such as the UK, France, Mexico, China, the Netherlands, Spain, Colombia, Brazil, Belgium, Guatemala, and Luxembourg can generally hold US investment assets through opaque legal structures and hide behind the entity. A US financial institution has no duty to identify or disclose the beneficial owners to those residents’ tax authorities.
What must a foreign bank report on an account controlled by a US person?
Far more. A “U.S. Reportable Account” includes a US Person who is a “Controlling Person” of a “Non-U.S. Entity.” Take the reverse example: a Colombian bank must identify all of its clients holding non-US entities, an expensive due diligence process, and then determine whether each entity such as a BVI company has a “Specified U.S. Person” behind it. It does not matter whether the income comes from Colombian sources or non-Colombian sources. Income is income, and the FFI must report it. Banks in at least 113 countries must drill down and collect detailed information on the beneficial owners of basically all companies, trusts, and other legal entities, to find “U.S. persons” and “substantial U.S. owners” as defined in the FATCA regulations.
Can US taxpayers hide assets behind offshore entities under FATCA?
Generally no. FFIs must provide extensive information on all income in a “U.S. Reportable Account” to the IRS, either directly or indirectly through their own governments. US taxpayers cannot hide behind offshore opaque legal entities. It is generally illegal for US citizens to form and hold assets in a foreign corporation without reporting that corporation’s assets, activities, and earnings. Such a foreign corporation would generally be a CFC (controlled foreign corporation) or possibly a PFIC (passive foreign investment company).
Read the full analysis here.
Who Was FATCA Actually Aimed At? The Law’s Origins and Unintended Consequences
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What is FATCA, and when did it take effect?
FATCA (the Foreign Account Tax Compliance Act) is a US law that went into effect on 1 January 2014. Since then, there have been an increasing number of consequences for United States citizens (USCs) and lawful permanent residents (LPRs, or green-card holders) who live overseas.
What was FATCA designed to do?
FATCA was built to bring transparency to the worldwide assets of US citizens and green-card holders. Its intended consequences include:
- Identifying non-US financial, investment, and company assets held by USCs and LPRs.
- Identifying the foreign financial institution (FFI) where those assets are located.
- Identifying non-financial foreign entities (NFFE) owned by a USC or LPR.
- Generally bringing transparency to the assets, accounts, and information about the worldwide assets of USCs and LPRs.
Much of this information gets collected through IRS forms, including Forms W-8BEN, W-8BEN-E, and W-9 used by USCs and LPRs overseas. To carry this out around the world, the US Treasury Department negotiated FATCA Intergovernmental Agreements (IGAs) with various countries.
Who was FATCA originally meant to target?
The group FATCA originally targeted was US resident individuals who were evading taxes through foreign financial institutions. The focus was on US resident taxpayers, even though the US imposes income tax on the worldwide income of US citizens living anywhere in the world. This understanding comes from extensive conversations with ex-government officials and some government officials who were involved in the original policy discussions.
What is the biggest unintended consequence of FATCA?
One of the most significant unintended consequences is that the US federal government, meaning the IRS, the Treasury Department, and Congress, never initially even contemplated USCs and LPRs living overseas. An unintended consequence is one that was never contemplated by Congress or the President when the laws were passed, nor intended by the Treasury Department as the IGAs were negotiated. The heavy compliance burden now felt by Americans and green-card holders abroad was a consequence of this kind, not part of the original plan.
Why has it been hard for the IRS to collect taxes from Americans living abroad?
For many years, the US federal government has known it can be nearly impossible to collect a tax liability against US citizens who live and hold their assets outside the United States. The Treasury Department made this point back in 1998, noting that because the United States asserts taxing jurisdiction over people with little or no connection to the country other than citizenship or status as a lawful permanent resident, overseas US taxpayers are in many cases difficult to trace or contact. Treasury added that even when valid tax assessments can be made against overseas taxpayers, the IRS has limited enforcement recourse if the taxpayer’s assets are physically located outside the United States. This appears on pages 13 to 15 of that 1998 Treasury report.
Did the early offshore disclosure programs account for people living overseas?
The original offshore voluntary disclosure initiative in 2009 never even contemplated any particular treatment for USCs or LPRs residing overseas. At that time, the US citizen or green-card holder living abroad was not on the IRS radar. The programs shifted over time:
- In 2011, a new category imposed a 5% penalty for persons residing overseas who had only US$10,000 of US-source income.
- As the IRS realized that millions of USCs and LPRs live somewhere other than the US, the 2014 OVDP was modified again to provide a 0% penalty in certain circumstances for these individuals.
FATCA itself was originally passed in 2010, and at that point USCs and LPRs living overseas were not the focus and barely a thought.
Are Americans living overseas now a focus of the government?
Yes. Even the Senate has started to focus on US citizens living overseas. The Senate Permanent Subcommittee on Investigations focused extensively on Swiss accounts opened by US citizens living outside the United States. Its findings appear in the report titled Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts, dated February 26, 2014.
Read the full analysis here.
Read the full analysis here.
Why Is My Foreign Bank Asking Me for a US Tax ID Number?
If you are a US citizen or green card holder living abroad, your local bank may have asked you to provide a US taxpayer identification number before opening an account. This is a consequence of FATCA, a US law that requires foreign banks to identify their American clients. Here is what is happening.
Table of contents:
What is FATCA and why does it affect my foreign bank?
Why does my foreign bank need my US tax ID number?
What if I have never had a Social Security Number?
What is FATCA and why does it affect my foreign bank?
FATCA, the Foreign Account Tax Compliance Act, took effect in 2014. It requires foreign financial institutions worldwide to identify their US account holders. This obligation extends to financial institutions worldwide.
A “US account” includes an account held by a US citizen who has lived all or almost all of their life outside the United States. The US Treasury has summarized FATCA’s purpose as obtaining information on accounts held by US taxpayers in other countries, as well as accounts held by certain foreign entities with substantial US owners, needed to detect and deter offshore tax evasion.
To enforce this, US financial institutions are required to withhold a portion of certain payments made to foreign financial institutions that do not agree to identify and report information on US account holders. This withholding regime acts as a backstop to FATCA’s main focus. The details and complexity of FATCA are significant, involving hundreds of pages of regulations.
Why does my foreign bank need my US tax ID number?
When you open a new account, your foreign bank must determine whether you are a US person. If you are a US citizen or lawful permanent resident (green card holder), it must collect your US taxpayer identification number (TIN). Under US tax law, a US citizen has no choice but to obtain a Social Security Number (SSN) as their TIN. Your bank will ask you to provide it, typically through IRS Form W-9 or a substitute form provided by the bank.
What if I have never had a Social Security Number?
Here is the catch-22. A US citizen who has spent virtually all of their life outside the United States will typically have no SSN. This includes people who were born in the US but raised abroad, and those who acquired citizenship through a US citizen parent, known as derivative citizenship. The bank asks for a TIN, but you do not have one to give.
The same problem arises for lawful permanent residents (green card holders) who have lived outside the United States for most of their lives. An LPR who never worked or filed taxes in the US may have no SSN or ITIN on record, yet their foreign bank now demands one under FATCA. The process of obtaining an SSN or ITIN as someone living outside the United States is particularly complex and will be addressed in a separate post.
This post provides general information only and is not legal advice. Consult an experienced attorney for guidance specific to your situation.
Read the full analysis here.
Can a US Citizen Sign a W-8 Form Instead of a W-9?
When your foreign bank asks you to complete a W-9 form as a US person, you may wonder whether you can sign a W-8 form instead to avoid FATCA reporting. The short answer is no. For US citizens, signing a W-8 is not a legal alternative. Here is why.
Table of contents:
What forms do foreign banks collect from US persons?
Can a US citizen sign a W-8 form?
What about derivative citizenship?
What is the difference between physical residency and tax residency?
What are the legal consequences of signing the wrong form?
Foreign financial institutions worldwide are required under FATCA to collect an IRS Form W-9, or a substitute W-9 form, from their US account holders. These forms may be provided in the local language of the country where the bank operates. US citizens are US persons, and most LPRs are also US persons under this definition. The goal is to identify “US persons” under US federal tax law.
Can a US citizen sign a W-8 form?
No. Under US tax law (26 USC § 6109), the only taxpayer identification number an individual US citizen may use is their Social Security Number. A US citizen, even one who has never lived a day in the United States, cannot legally sign an IRS Form W-8 certifying they are not a US person. Doing so would be signing a false document.
What about derivative citizenship?
Some people are US citizens without realizing it, through a process called derivative citizenship. A person born outside the United States to a parent who was a US citizen may have automatically acquired US citizenship at birth. The US Citizenship and Immigration Services (USCIS) provides a Nationality Chart 1 for children born outside the United States to help determine whether citizenship was acquired at birth through a US citizen parent. If you have derivative US citizenship, you are a US person and you cannot sign a W-8.
What is the difference between physical residency and tax residency?
There are two different concepts of residency. Physical residence refers to where a person actually lives. Tax residence, for US federal tax purposes, is determined by citizenship or LPR status, not by where you live. A US citizen who has not lived in the United States for many years is nevertheless treated as a US income tax resident, meaning a “US person,” for FATCA and tax purposes.
What are the legal consequences of signing the wrong form?
Any US individual income tax resident who intentionally signs a false IRS Form W-8 is filing a false document, which falls under the purview of IRC Section 7206(1), the federal perjury statute.
This post provides general information only and is not legal advice. Consult an experienced attorney for guidance specific to your situation.
Read the full analysis here.
Understanding Your FBAR Obligations: A Guide for U.S. Citizens and Residents Abroad
If you are a U.S. citizen or a Green Card holder living overseas, you may have heard of the “FBAR.” While it sounds like a complex tax term, it is actually a financial reporting requirement that follows you no matter where you live in the world.
Here is a breakdown of what you need to know to stay compliant, explained in plain English but with a focus on the legal details.
Table of contents:
What is the FBAR?
Who has to file?
What accounts are covered?
Is the FBAR the same as Form 8938?
The reality of FBAR penalties
How to file
What is the FBAR?
The FBAR stands for the Report of Foreign Bank and Financial Accounts. Its official name is FinCEN Form 114.
Legally, this is not an income tax requirement. It is a mandatory report required under Title 31, Section 5314 of the U.S. Code. Because it falls under “Money and Finance” laws rather than the Internal Revenue Code, you do not file it with the IRS. Instead, you file it with FinCEN (the Financial Crimes Enforcement Network), a separate branch of the Treasury Department.
Who has to file?
The requirement applies to all U.S. Citizens (USCs) and Lawful Permanent Residents (LPRs), regardless of their physical location.
Global Reach: If you are a U.S. citizen living in France, you are required to report your French bank accounts, as well as any other accounts you might hold in places like London or Geneva.
Green Card Holders: Similarly, a Green Card holder living in Sao Paulo, Brazil, must report their Brazilian accounts and any accounts held in other countries, such as Uruguay.
Defining “Resident”: Interestingly, the law for FBARs uses the tax code’s definition (Internal Revenue Code Section 7701(b)) to determine who counts as a “resident,” even though the FBAR itself is not a tax form.
Note: While many resources mention a $10,000 threshold for filing, this specific dollar amount is not mentioned in the legal excerpts provided here; you should verify current filing thresholds independently.
What accounts are covered?
The law is broad and covers bank and financial accounts located outside of the United States. This includes accounts in your country of residence and any other foreign country. Currently, all FBARs must be submitted using the electronic Form 114, which replaced the old paper form known as TD F 90-22.1.
No, though they are often confused because they involve duplicate reporting.
FBAR (Form 114): A financial report filed with FinCEN under Title 31.
Form 8938: A tax information return filed directly with your IRS tax return under Title 26.
A major legal distinction lies in the statute of limitations. The FBAR has a time limit after which the government can no longer assess penalties, even if you never filed the form. In contrast, if you fail to file Form 8938, there is no time limit for the IRS to come back and assess income taxes and penalties for that year.
The reality of FBAR penalties
The penalties for failing to file an FBAR are often discussed as being severe, but the law provides some unique protections.
Penalties are Elective: The law states the Secretary of the Treasury “may” (not “shall”) impose a penalty. This means the government has the discretion to decide whether or not to penalize a violation; it is not mandatory.
Limited Collection Powers: Unlike a standard tax debt, the government cannot simply place a tax lien or levy on your property to collect an FBAR penalty. Instead, the government typically must sue you in a judicial court action to enforce the penalty.
Expiration Dates: Because there is a statute of limitations, the government’s window to act is limited. For example, if a U.S. citizen missed a filing for the year 2006, the time for the government to assess a penalty has already lapsed.
How to file
Gone are the days of mailing paper forms. All FBARs must now be filed electronically through the BSA E-Filing System website.
Staying compliant is obligatory, but understanding these nuances can help you navigate the process with more confidence. If you have accounts abroad, ensuring your electronic Form 114 is submitted correctly is the best way to avoid the complications of a potential government investigation.
This post provides general information only and is not legal advice. Consult an experienced attorney for guidance specific to your situation.
Read the full analysis here.
What Is FATCA and Why Is My Foreign Bank Asking Me About My US Status?
If you received a letter from your foreign bank asking whether you are a US person, FATCA is why. FATCA (the Foreign Account Tax Compliance Act) is a US law requiring foreign banks to identify and report their American clients’ account information to the IRS. This post explains what those letters mean, what your bank is reporting, and what you should know if you are a US citizen or green card holder living abroad.
In this post
What is FATCA?
Why is my foreign bank sending me a letter about my US status?
What information does my foreign bank have to report to the IRS?
Who counts as a US person under FATCA?
What is a FATCA intergovernmental agreement?
What should I do if I receive a FATCA letter from my bank?
What is FATCA?
FATCA stands for the Foreign Account Tax Compliance Act. It added Chapter 4 to Subtitle A of the Internal Revenue Code, which is why your bank’s letter may use that formal legal phrase. In practice, it means one thing: foreign financial institutions are required by US law to collect information about clients who are US persons and report that information to the IRS.
If your bank’s letter references “Chapter 4 of Subtitle A of the US Internal Revenue Code,” it is simply their way of citing the statute behind their request.
Why is my foreign bank sending me a letter about my US status?
Your bank is required to ask. Under FATCA, foreign financial institutions must identify which of their clients are US persons and report those accounts to the IRS.
For many people, this letter is a surprise. A large number of US-born individuals who have lived most of their lives abroad find out for the first time, through a letter like this, that they are US income tax residents. Under the 14th Amendment of the US Constitution, being born in the United States makes you a US citizen and a US tax resident, regardless of where you have lived since.
In many cases, people first learn about their US tax obligations when they open a new account and the foreign bank asks them to provide an IRS Form W-9 along with their Social Security number.
Under FATCA, your bank reports your name, your account number, your taxpayer identification number (such as your Social Security number), and income earned from your account. Some institutions are also reporting account balances, even where FATCA does not yet require it.
Your bank will ask you to certify under penalty of perjury whether you are a US person or not. That is a legally significant step, not a routine form.
Who counts as a US person under FATCA?
If you were born in the United States, you are a US person, unless one of two things is true:
- You were born to diplomatic parents who were on a formal diplomatic assignment in the US at the time of your birth, or
- You have formally renounced your US citizenship and received a Certificate of Loss of Nationality (CLN) from the US Department of State.
If neither exception applies to you, you are a US person under FATCA, regardless of how long you have lived outside the United States.
What is a FATCA intergovernmental agreement?
A FATCA intergovernmental agreement (IGA) is an agreement between the US Treasury and a foreign government to exchange financial information. These agreements work in both directions: your foreign bank reports your US accounts to the IRS, and US banks may report your accounts there to your local tax authority.
This means FATCA letters are not only going to Americans with accounts abroad. Citizens of other countries are also receiving notifications that information about their US-held accounts will be shared with their home country’s tax authority. For a deeper look at how these agreements operate in practice, see The Dirty Secret of US FATCA IGAs.
What should I do if I receive a FATCA letter from my bank?
A FATCA letter is not a tax bill or a penalty notice. It means your bank is complying with its legal obligations, and that the IRS may receive information about your account.
If you are a US citizen or green card holder living abroad and have not been filing US tax returns or FBARs (FinCEN Form 114, the Foreign Bank Account Report), receiving this letter is a signal to act. Consult an experienced international tax attorney about your options.
This post provides general information only and is not legal advice. Consult an experienced attorney for guidance specific to your situation.
Read the full analysis here.
