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.
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.
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.
What information does my foreign bank have to report to the IRS?
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
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.
Form W-8 or W-9? Why the Wrong Choice Could Cost Green Card Holders Abroad
The choice between Form W-8 and Form W-9 comes down to one thing: your U.S. tax residency status, not your immigration status. Green card holders living abroad may be able to sign Form W-8 under a U.S. income tax treaty, but picking the wrong form means signing a false statement under penalty of perjury. And claiming treaty benefits carries a risk that many people never see coming. Consulting an experienced attorney before signing anything is essential.
What is the difference between Form W-8 and Form W-9?
Both forms tell your bank or financial institution whether you are a U.S. tax resident or not. Form W-9 is for U.S. residents, who must pay U.S. taxes on income they earn anywhere in the world. Form W-8BEN is for non-residents, who generally only pay U.S. taxes on certain types of income that come from U.S. sources. The form you sign has real legal consequences, not just administrative ones.
What happens if you sign the wrong form?
Signing either form is a certification made under penalties of perjury. If you are a U.S. tax resident and you sign Form W-8, you are making a false statement, and serious legal consequences may follow.
Why is this more complicated for green card holders living abroad?
U.S. citizens always sign Form W-9, with no exceptions. For everyone else, it depends on tax residency status. Green card holders are generally treated as U.S. tax residents even while living in another country, which would normally mean they sign Form W-9. But there is an important exception: if the country where they live has an income tax treaty with the United States, they may be able to claim non-resident status under that treaty and sign Form W-8 instead. There are important unintended tax consequences that can befall individuals here: see, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware!International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9).
The United States has 58 income tax treaties that together cover 66 countries. That includes the 1973 U.S. and U.S.S.R. income tax treaty, which still applies today to nine former Soviet republics: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.
What did the court decide in Aroeste v. United States, and why does it matter?
Aroeste v. United States (Case No. 22-cv-00682-AJB-KSC) is a federal court decision that established a 5-step analysis for green card holders who have not formally given up their green card but are living abroad. The key question the court addresses is whether a green card holder qualifies to be treated as a resident of a foreign country under an applicable U.S. income tax treaty. This ruling matters for the more than 3 million LPRs who are living outside the United States.
What are the benefits of successfully claiming non-resident status under a treaty?
If a green card holder qualifies as a non-resident under a tax treaty, they may be able to stop filing U.S. federal income tax returns on their worldwide income. They may also no longer be required to file the Foreign Bank Account Report, known as the FBAR, which would help them avoid the significant penalties that come with missing that filing. The court in Aroeste laid out the specific steps required to make this claim correctly.
One important note: if you claim non-resident status under a treaty but fail to report that treaty position to the IRS on time, you face a separate penalty under IRC Section 6712(a) of $1,000 for each failure to timely file. Claiming treaty status correctly and reporting it on time are both required.
What is the risk on the other side?
Claiming treaty-based non-resident status may also legally end your U.S. tax residency. Under IRC Section 7701(b)(6), this shift may cause you to cease to be a lawful permanent resident of the United States. That change may trigger the U.S. expatriation tax rules under IRC Section 877A(g)(3), which could classify you as a covered expatriate. The Aroeste court did not address these consequences because they were not part of that case, but they are real and potentially serious.
What does covered expatriate status mean for your family?
Covered expatriate status does not only affect you. If your family members or friends in the United States later receive gifts or an inheritance from you, they may owe U.S. tax on those transfers under the covered gift and covered bequest rules. This may affect children, spouses, and anyone else who would receive something from you.
Do you need an attorney before making this decision?
The answer depends on which country you live in, which treaty applies, the value of your assets, and your long-term plans. Getting it wrong may trigger exit taxes, affect your family’s inheritance, and have consequences that cannot easily be undone. This post explains the framework but is not a substitute for legal advice specific to your situation.
Why is signing an IRS Form W-8BEN a significant criminal risk for U.S. citizens living abroad?
Living or studying abroad often requires opening a foreign bank account, which is when many U.S. citizens run into IRS Form W-8BEN. While it might look like just another piece of bank paperwork, signing it as a U.S. citizen can lead to serious legal trouble. Here is a breakdown of what you need to know.
Who is legally allowed to sign Form W-8BEN?
The W-8BEN is strictly for individuals who are not “United States persons”. Under U.S. tax law (specifically IRC Section 7701(a)(30)(A)), every U.S. citizen is technically defined as a “United States person”. Because the form is a certificate of “Foreign Status,” a U.S. citizen who signs it is making a false statement about who they are. If you are a citizen, you should use Form W-9 instead to certify your status.
What specific crime is triggered by signing a false W-8BEN?
If a U.S. citizen signs a W-8BEN, they are technically committing felony perjury under IRC Section 7206(1). This is a criminal statute, not a civil one—meaning it’s about potential jail time and a criminal record, not just a tax fine. The law says it is a crime to “willfully” sign any document under penalty of perjury that you know isn’t 100% true. Since the form requires you to swear you aren’t a U.S. person, signing it as a citizen is a false statement “as a matter of law”.
Does the form need to be filed with the IRS to be considered a crime?
No. A common myth is that it only counts as a crime if you mail the form to the IRS. However, the law is much broader and covers “any statement… or other document”. This means that simply giving a signed, false W-8BEN to your foreign bank is enough to trigger the perjury statute.
How does the government prove a criminal violation?
To win a case, the government has to prove you acted “willfully”—meaning you knew the information was false but signed it anyway. While this can be hard to prove for someone who isn’t a tax expert, the government often argues that if you were born in the U.S. or grew up there, you should have known you were a citizen. They may use the fact that you signed right under a “penalty of perjury” statement as evidence that you knew what you were doing.
Why are U.S. citizens signing these forms if it is illegal?
Most of the time, it’s a mistake. Foreign banks often give Americans the wrong form by accident, and since U.S. tax laws (like Chapter 3 and Chapter 4/FATCA) are incredibly confusing, most people just sign whatever the bank tells them to. These forms have grown from simple one-page documents to 8+ pages of complex rules, making it very easy for a regular person to get overwhelmed and make an error.
What are the specific warnings for U.S. citizens?
Yes. The Form W-8BEN actually has big, highlighted warnings right at the top telling U.S. citizens not to sign it. There is also a specific section where you have to sign your name directly under a statement acknowledging the “penalties of perjury”. Because these warnings are so prominent, the government can argue that any citizen who signed the form ignored the clear instructions on purpose.
Which IRS Form Do I Give My Foreign Bank? A Guide for U.S. Expats and LPRs
If you’re a U.S. citizen or green card holder living abroad, your foreign bank will likely ask for your U.S. tax status under FATCA. The form you need is Form W-9 — not Form W-8BEN. W-8BEN is strictly for non-U.S. persons; signing it as a U.S. citizen or LPR is a false certification under penalty of perjury. Use W-9 to confirm your U.S. taxpayer status and provide your SSN.
What are all the IRS forms and their purposes?
W-9: Used by U.S. citizens and Lawful Permanent Residents (LPRs) to provide their Taxpayer Identification Number (TIN) to a third party.
W-8BEN: Used by non-U.S. individuals to certify they are not “U.S. persons” for tax purposes.
W-8BEN-E: An eight-page form used by foreign entities to identify “substantial U.S. owners”.
W-7: Used by individuals who are not eligible for a Social Security Number to apply for an Individual Taxpayer Identification Number (ITIN).
W-8IMY: A form for foreign intermediaries or flow-through entities that was substantially modified due to FATCA.
W-4: Used to determine an employee’s federal income tax withholding.
W-8ECI: Used by foreign persons to claim that income is effectively connected with a U.S. trade or business.
W-8EXP: Used by foreign governments or other foreign organizations to claim an exemption from withholding.
W-8: A general category of forms for foreign status reporting.
What are Taxpayer Identification Numbers (TINs)?
A TIN is a broad term for the identification number used for U.S. tax purposes. Its sub-types include:
Social Security Number (SSN): For U.S. citizens, LPRs, and individuals with permission to work in the U.S. under specific visas.
Individual Taxpayer Identification Number (ITIN): For individuals who are not U.S. citizens or LPRs and are ineligible for an SSN.
Employer Identification Number (EIN): For business entities such as corporations, partnerships, and trusts.
Is Form W-9 the standard for Americans abroad?
Yes. If a foreign bank or company asks for your U.S. tax status, Form W-9 is the standard form you should use. It’s how you officially tell them, “I’m a U.S. taxpayer, and here is my ID number”.
Who Can Sign Form W-8BEN?
U.S. Citizens: They cannot sign this form. Doing so would be a false certification that they are not a “U.S. person” under federal tax law.
Lawful Permanent Residents (LPRs): Generally, they also cannot sign this form, as they are considered U.S. persons for tax purposes.
Former Citizens with a CLN: While the source highlights the importance of a Certificate of Loss of Nationality (CLN) in relation to FATCA status, it does not explicitly state that holding one allows for the signing of a W-8BEN, though it notes that only non-U.S. persons can legally sign the form.
What are the banking requirements for U.S. Persons?
When a bank asks for tax status, a U.S. person should sign Form W-9. However, many Foreign Financial Institutions (FFIs) use substitute forms that comply with regulations but may not look exactly like the official IRS version.
What is the Form W-8BEN-E?
Who completes it: Non-Financial Foreign Entities (NFFEs).
Definitions: A “substantial U.S. owner” is generally a U.S. person who holds a 10% or greater economic interest in the foreign entity.
Burdens: The form is eight pages long and requires the user to understand over 450 pages of FATCA regulations to select from roughly 30 different categories.
Consequences: The form is signed under penalty of perjury. Due to its complexity, the source notes that many “good faith errors” are inevitable.
When does the 8-page Form W-8BEN-E become necessary?
This massive 8-page form is usually for businesses, not just individuals. If you own 10% or more of a foreign company, that company has to use this form to report you to the IRS as a “substantial U.S. owner”.
What are the risks of misfiling these complex entity forms?
It’s a major headache because the instructions for these forms are over 450 pages long, and you have to pick from about 30 different categories. If you check the wrong box, even by mistake, you’ve technically signed a false legal document under penalty of perjury.
Why are foreign banks suddenly demanding this information?
Because of a law called FATCA, banks all over the world—including those in China and Hong Kong—are now required to hunt down and report data on any account holders who might be U.S. taxpayers.
How does this affect my ability to maintain a bank account?
It puts you in a “Catch 22” situation. If you live abroad and want to open or keep a local bank account, you are often forced to give up this private tax info to the bank, or they might refuse to work with you.
The author has extensively discussed the appropriate IRS Form for individuals to sign under penalties of perjury when dealing with their banks and third parties, irrespective of the banks’ location. The choice between IRS Forms W-8 and W-9 hinges on the U.S. income tax residency status of the individual. Forms W-8 and W-9 serve the purpose of conveying the tax residency status of the individual to third parties. The correct (or incorrect form) can have a range of different tax and legal consequences to the individual. A non-resident is generally not subject to income taxation in the United States, except for on limited types of income. In contrast, a resident (for federal income tax purposes) is subject to taxation on their worldwide income. If an income tax resident of the United States falsely certifies their status using Form W-8, severe adverse legal consequences can follow. See e.g., W-8s for U.S. Citizens Abroad: Filing False Information with Non-U.S. Banks (2016)
IRS Forms W-8 or W-9 (or Other)?
For U.S. citizens, the process is straightforward—they must sign IRS Form W-9. However, for individuals without U.S. citizenship, the situation becomes more intricate. The following posts delve into critical legal considerations surrounding IRS Form W-8BEN.
These comments provide in-depth insights into the legal consequences of filing and signing specific IRS forms (or their equivalents produced by financial institutions: W-8 vs. W-9). Notably, UBS’s explanation titled “UBS One Source Understanding tax forms—non U.S. taxpayers” sheds light on the efforts foreign financial institutions need to dedicate to assist clients who are not “United States persons” for federal tax purposes, ensuring compliance with U.S. federal tax laws.
Green Card Holders Living Abroad Have Further Analysis to Consider
The complexity heightens for “Green Card” holders living abroad, especially those residing in countries covered by an income tax treaty with the United States. See, Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC. Aroeste v United States – Order Nov 2023, emphasizes a 5-step analysis for Green Card holders who have not formally abandoned their status. The ultimate test is whether the individual is entitled to be treated as a resident of a foreign country under a tax treaty.
Aroeste v. United States: Decision’s Impact on LPR Individuals
The decision could potentially affect millions of Green Card holders living outside the U.S. Aroeste Court’s 5-step analysis becomes crucial for the 3+ million LPRs residing abroad, determining whether they qualify as “United States persons” under the law.
LPR Individuals Living in 66 Different Countries Could Be Impacted by Aroeste vs. U.S.
The United States has a total of 58 income tax treaties that covers around 66 countries. The 1973 U.S. – U.S.S.R. income tax treaty applies to Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. Some have been cancelled.
Importance of Figuring Out your Residency Status if you Never Formally Abandoned your Green Card and Live in an Income Tax Treaty Country.
The impact of the Aroeste v United States decision presents a dual scenario for individuals who have not formally abandoned their “lawful permanent residency” status. On the positive side, there is an opportunity to inform the Internal Revenue Service (IRS) of their non-resident status by utilizing the applicable income tax treaty. There are specific steps to take as explained by the Court in Aroeste vs. United States. This action can relieve them of U.S. federal income tax filing obligations and Foreign Bank Account Report (FBAR) filing requirements, helping to steer clear of potential penalties and taxes that might otherwise be owed. The Court in Aroeste concluded such late filings could subject the individual ” . . . to penalties pursuant to I.R.C. § 6712(a) equal to $1,000 per failure to timely report his Treaty position. . . “
Potential Downside for “LPRs” Living in an Income Tax Treaty Country.
However, on the flip side, this termination of U.S. income tax residency status may lead to the individual “cease[ing] to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).” Such a shift can trigger adverse U.S. tax consequences, affecting not only the individual but also extending to children, spouses, family members, and friends who could receive “covered gifts” or “covered bequests.” This classification may result in the individual being deemed a “covered expatriate” under the expatriation tax law, as outlined in IRC 877A(g)(3). See, IRC 877A(g)(3). Potentially severe adverse tax consequences can follow from this edge of the sword. The Court in Aroeste vs. United States did not address these adverse tax consequences as they were not at issue.
This Blog is intended to provide general information about tax expatriation legal concepts under U.S. law to help readers better understand often very complex issues within the U.S. international tax field for citizens and lawful permanent residents. General legal information is not the same as legal advice, that is, the concrete application of law to a specific case with unique and particular facts.
Legal advice also should include strategic planning and advice to a particular case. A legal adviser should be able to assist an individual in taking important decisions and steps, related to the specific goals of the individual, while understanding the legal and tax consequences of each step. There are a range of consequences that the “U.S. tax expatriation” laws impose upon different types of transactions, transfers, reorganization of assets, etc. None of these items are discussed in this Blog.
Although the author has taken great care to make sure that the information contained herein is accurate and useful, it is necessary that you consult an experienced attorney to address any particular situation. Most importantly, if you are contemplating renouncing (or proving relinquishment) of U.S. citizenship or formally abandoning your LPR status, you must get legal advice. This is a very important decision with a range of complex legal consequences.
Individuals who do not specialize in U.S. federal tax law, often have little detailed understanding of the U.S. federal “Chapter 3” (long-standing law regarding withholding taxes on non-resident aliens and foreign corporations and foreign trusts) and “Chapter 4” (the relatively new withholding tax regime known as the “Foreign Account Tax Compliance Act”) rules.
Indeed, plenty of U.S. tax law professionals (CPAs, tax attorneys and enrolled agents) do not understand well the interplay between these two different withholding regimes –
Plus, the IRS forms have been significantly modified over the years; with increasing factual representations that must be made by individuals who sign the forms under penalty of perjury. They are complex and not well understood. For instance, the older 2006 IRS Form W-8BEN for companies was one page in length and required relatively little information be provided.
The entire form is reproduced here; indicating how foreign taxpayer information was optional and generally there was no requirement to obtain a U.S. taxpayer identification number. It was governed exclusively by Chapter 3 and the regulations that had been extensively produced back in the early 2000s.
The forms were even easier before those regulations (see old IRS Form 1001). No taxpayer identification numbers were ever required and virtually no supporting information regarding reduced tax treaty rates on U.S. sources of income.
Life was simple back then – compared to today!
The one thing all of these forms have in common is that all information was provided and certified under penalty of perjury. Current day IRS Forms W-8s can typically be completed accurately by experts who understand the complex web of rules. Plus, multiple versions of W-8s exist today; most running some 8+ pages in length.
Making certifications under penalty of perjury are more complex, the more and more factual information that is being certified. If I certify the dog I see in front of me is “white and black” that is not a complex certification, if I see the dog and see the “white and black”. If the dog also has some brown coloring, my certification would necessarily not be false.
However, if I have to certify as to the colors of each dog in a pack of 8 dogs (and each and every color that each dog is/was), that becomes a much more complicated certification.
That’s my analogy for the old IRS Forms W-8s and the current day IRS Forms W-8s.
Compare that form, of just 10 years ago, with what is required and must be certified to under current law. It can be daunting.
Now to the rub. Individuals who certify erroneously or falsely, can run a risk that the government asserts such signed certification was done intentionally. I have seen it happen in real cases; even though the individual layperson (particularly those who speak little to no English and live outside the U.S.) typically has little understanding of these rules. They typically sign the documents presented to them by the third party; usually the banks and other financial institutions.
The U.S. federal tax law has a specific crime, for making a false statement or signing a false tax return or other document – which is known as the perjury statute (IRC Section 7206(1)). This is a criminal statute, not civil. Some people are also under the misunderstanding that a false tax return needs to be filed. The statute is much broader and includes “. . . any statement . . . or other document . . . “.
(1) Declaration under penalties of perjury
Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or . . .
Therefore, if a U.S. citizen living overseas (or anywhere) signs IRS Form W-8BEN (or the bank’s substitute form, which requests the same basic information), that signature under penalty of perjury will necessarily be a false statement, as a matter of law. Why? By definition, the statute says a U.S. citizen is a “United States person” as that technical term is defined in IRC Section 7701(a)(30)(A). Accordingly, IRS Form W-8BEN, must only be signed by an individual who is NOT a “United States person”; who necessarily cannot be a United States citizen. To repeat, a United States citizen is included in the definition of a “United States person.” Plus, the form itself, as highlighted at the beginning of the form, warns against any U.S. citizen signing such form.
Indeed, criminal cases are not simple, and I am not aware of any single criminal case that hinged exclusively on a false IRS Form W-8BEN. However, I have seen cases, where the government has alleged the U.S. born individual must have signed the form intentionally, knowing the information was false. It’s a question of proof and of course U.S. citizens wherever they reside, should take care to never sign an IRS Form W-8BEN as an individual certifying they are not a “United States person”; even if they think they are not a U.S. person
FATCA Driven (Even More . . . ) – New IRS Forms W-8BEN versus W-8BEN-E versus W-9 (etc. etc.) for USCs and LPRs Overseas – It’s All About Information and More Information (Part III)
U.S. citizens residing outside the U.S. along with lawful permanent residents (“LPRs”) are not the only persons who need to understand the IRS forms referenced above. Indeed, all entities and institutions, whether they are small privately held companies or large and traditional financial institutions are required to complete and have signed a range of IRS forms.
The forms can be either the actual IRS form, or a satisfactory substitute form. Many individuals are of the erroneous view that if they are not financial institutions, they do not need to concern themselves with these classifications.
Unfortunately, that is not the case. Also, these classification rules apply to the surprise of many, if there are (or are not) U.S. persons involved.
In addition to a basic understanding of U.S. laws, it is also crucial that the parties see if their country has entered into an IGA. For instance, if we examine the tiny little country of Liechtenstein which has a relatively large financial sector, it is necessary to first classify the type of entity.
For instance, if it is a Liechtenstein Stiftung, it will probably (but not necessary) be a trust and not a corporation. See the IRS Memorandum from 2009 that provides that a Liechtenstein Stiftung will be classified as a trust, if its primary purpose is to protect or conserve the property transferred to the Stiftung for the Stiftung’s beneficiaries and is usually not established primarily for actively carrying on business activities.[1]
Hence, the terms of the IGA are most important. Under the IGA, as is the case generally for FATCA, the entity has to be either an Foreign Financial Institution (“FFI” or “FI”) or a Non-Financial Foreign Entity (“NFFE”).
1) Definition of Financial Institution (“FI”)
A financial institution is any entity that:
Accepts deposits in the ordinary course of a banking or similar business (“Depository Institution”);[1]
Holds, as a substantial portion of its business financial assets for the benefit of one or more other persons (“Custodial Institution”);[2]
Is an investment entity; or
Is an specified insurance company or holding company that is a member of an expanded group;[3]
Generally a private Liechtenstein Stiftung would not satisfy any of these requirements (although it could conceivably be the case that one could be an “investment entity”). Hence, it would generally be an NFFE and not an FI.
NFFEs can be passive or active. The kind of compliance obligations varies depending on the type of NFFE (passive or active).
Passive NFFEs
A passive NFFE is an NFFE which is not an active NFFE or a withholding foreign partnership or withholding foreign trust.[1]
There are several criteria under which a NFFE can be classified as an active NFFE. The following explain the most relevant criteria.
Active NFFEs
Among the criteria that the IGA establishes, under which a NFFE can be considered as an Active NFFE, are the following:
1) If less than 50% of the NFFE’s gross income is passive income and less than 50% of the assets held by the NFFE are assets that produce or are held for the production of passive income during the preceding calendar year. A
2) Substantially all of the activities of the NFFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and businesses other than the business of a Financial Institution.
Sometimes trusts or Stiftungs will also participate in or hold interests in companies, some of which may engage in active trades or businesses or simply hold passive investments. On the contrary, the companies/subsidiaries only hold other assets from which they derived passive income (e.g., dividends, interests, rents, royalties, etc.).[2]
This will determine if a Stiftung will be classified as a Passive NFFE or not under FATCA regulations and the IGA.
[1] It also can make a difference if the trust (or Stiftung in this example) is a so-called “withholding” foreign trust; which generally requires an agreement with the IRS.
Not surprisingly, the above analysis is complex, because the rules are complex. Accordingly, it has been the author’s experience, that many institutions around the world which request one or more of the above IRS Forms have great difficulty in even implementing these rules. Most of their employees seem to have little understanding of what is a very complex area of law, even when their resident country has issued extensive regulations or guidance about how the terms of the IGA are to be implemented.
– One of the most significant unintended consequence, is that the U.S. federal government (the IRS, the Treasury Department, or Congress) never initially even contemplated USCs and LPRs living overseas. In other words, the group targeted were U.S. resident individuals who were evading taxes through foreign financial institutions. I say this, based upon extensive conversations I have had with ex-government officials and some government officials who were involved in the original policy discussions.
Currently, the IRS has revised or created the following new tax forms as a result of FATCA (all in the English language), which can be located at the IRS website at FATCA – Current Alerts and Other News:
Importantly, none of these forms are in other key languages such as Spanish, French, Mandarin, Cantonese, Portuguese, etc. Imagine the daunting nature of completing these complex forms just in English when English is your first language, let alone completing them when you speak little to no English.
As the financial and account information of U.S. citizens and LPRs at financial institutions worldwide is now being collected to be reported in 2015 to the IRS under FATCA, a better understanding of FATCA forms is required. A follow-up post will specifically discuss how financial and account information of non-U.S. shareholders and owners of foreign corporations, companies and foreign trusts will also indirectly be reported to the IRS, when there is a “substantial U.S. owner.”
A detailed discussion of how and when this information will be released to the IRS will be explained in a follow-up discussion of a passive “non-financial foreign entity” (“NFFE”) which will typically be a foreign corporation (non-U.S.), companies and foreign trusts.
This information is set forth and requested in Parts XXX and XXIX on the last page of IRS Form W-8BEN-E on page 8. These items are highlighted here in yellow reflecting the information requested.
Under FATCA, countries will be collecting and then delivering massive amounts of taxpayer data to and from government agencies. Will governments use private contractors to manage and move this information (as did the NSA with Mr. Snowden)? The type of information that will be provided under FATCA is extensive, including names, financial account numbers, bank account names, taxpayer identification numbers (e.g., social security numbers, etc.), income earned from account assets, etc.
The Washington Post, 14 August 2014, in an article titled IRS handed taxpayer information to contractors without background checks focused on the recently released report of the Treasury Department oversight agency (The Treasury Inspector General for Tax Administration). In that news account, the article stated that the ” . . . that the IRS handed over a disc containing sensitive data on about 1.4 million taxpayers to a printing firm without any of the company’s employees being subjected to screenings. . . ”
As more and more information is made available, and as it goes through more and more hands via FATCA channels, there is bound to be significant leaks and stolen personal financial information of individuals around the world.
Compliance Act”) rules.
extensively produced back in the early 2000s.
