FATCA F.A.Q.s

Frequently asked questions about FATCA

 

What does FATCA stand for?

Foreign Account Tax Compliance Act

How does FATCA work?

FATCA regulations require foreign financial institutions (FFIs) search their customer records for accounts that have an indicia, or indicator of a connection, to the United States. The FFI then transmits that information to their governments, who then transmit to the US Department of the Treasury, or transmits it directly to the US Department of the Treasury.

What are the “indicia” that FATCA requires FFIs use to flag accounts?

US indicia include:

  • A U.S. place of birth
  • Identification of the account holder as a U.S. citizen or resident
  • A current U.S. residence or mailing address (including a U.S. PO box)
  • A current U.S. telephone number
  • Standing instructions to pay amounts from a foreign (meaning non-U.S.) account to an account maintained in the United States
  • A current power of attorney or signatory authority granted to a person with a U.S. address
  • A U.S. “in-care-of” or “hold mail” address that is the sole address with respect to the account holder

Why was FATCA enacted?

The impetus for FATCA was financial scandal. The Swiss investment bank and financial services company UBS was revealed to have helped customers with ties to the US evade taxes. It was a huge scandal and the US government decided to develop a tool to help enforce US tax laws for US citizens who have accounts in foreign institutions.

How will I know if and FFI has flagged one of my accounts?

Most FFIs will send a letter, called a FATCA letter, to the account holder. No such communication is required under FATCA regulations, however. The content of these letters varies according to the policies of the FFI, but it frequently includes

  • Requests for confirmation of the taxpayer’s compliance with the U.S. Tax Code.
  • Requests to provide a U.S. taxpayer identification number (TIN).
  • Statements that the information will be transmitted with no further need for action.
  • Warnings that the account may be closed if the taxpayer does not take appropriate actions.

I received a FATCA letter. What do I have to do to get my account in compliance with FATCA regulations?

It is a good idea to talk to a lawyer if you receive a FATCA letter, though it is unlikely any account holder will be legally liable immediately upon the flagging of the foreign-held account. The FFI is required to have the owner of the account provide a W-8, if they are a foreign person for tax purposes, or a W-9 if they are a US person for tax purposes. The IRS requires the account holder to file informational return Form 8938 with the tax return with information about their foreign financial accounts.

What is CRS and is it the same as FATCA?

The Common Reporting Standard (CRS) was developed in reaction to FATCA, which is an US law and applies only to US persons for tax purposes. After FATCA was enacted, the Organization for Economically Developed Countries decided to develop their own standard for Automatic Exchange Of Information (AEOI), also to combat tax evasion in signatory countries. To date, almost 100 countries have signed an agreement to implement CRS, with more planning to join. FATCA and CRS reporting have the same goal but different sponsors.

 

 

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