FATCA Discussion Thread (Ask your questions) Part Two
Please ask your questions here about FATCA.
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NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See FATCA Discussion Thread (Ask your questions) for earlier discussion.
I frequent a blog called ‘The Greater Fool’ by Garth Turner which is mostly about economics and real estate, and investing. Every once in a while, when the opportunity comes up, I will write something about FATCA. Usually, people ignore me, but once in awhile someone will say something which usually shows they don’t get it at all.
Recently someone wrote this in response to a post of mine where I described FATCA reporting:
“The IRS already has this power here. Haven’t you been asked by your bank or broker if “you are a US Person”? They report all this back to the IRS.”
I am wondering under what circumstances, currently (pre-FATCA) banks can ask such a question. I have never been asked. Is it a violation of privacy rights to ask? Isn’t this information something that must be volunteered. Can someone clarify for me?
The Swiss banks have been doing it for the 18 months or so. Most cantonal banks didn’t even bother to ask, they simply informed their US customers that their accounts were being closed and they needed to find an alternative bank. The big 3 – UBS, Credit Suisse and PostFinance – still have US persons as customers, but all are being sent letters and forms to clarify their status as a US person. The form from the UBS bank was posted some time back on IBS, but here it is again:
“To open/ maintain a current account at one of the major banks in Switzerland, the following master data is now required (translated). Please see section in bold letters below:
Bank Relationship Basic Data Declaration
Type of Bank Relationship: Single-Owner in Person’s Name
Document Status: First Declaration
Owner of Bank Relationship:
Title, Name, First Name, Street/ Nr., Postal Code/ Town, Country
Date of Birth, Nationality
Telephone Home, Telephone Business
Declaration of Status of Customer as Non US-Person or US-Person (ID)
1. Are you a US Citizen? Yes/ No
(You must answer with “Yes” in the event that you possess more citizenships including US citizenship)
2. Were you born in the USA (or in one of the US Territories)? Yes/ No
3. Are you in possession of an American “Green Card” (independent of expiry date)? Yes/ No
4. Do you have residence in the USA from a US tax perspective? Yes/ No
5. Irrespective of the above Substantial Physical Presence Test are you resident still in the USA? Yes/ No
The customer is obliged to inform the bank immediately if his status as a Non-US Person changes per US tax law. The customer acknowledges and accepts that the neglect to inform the bank immediately of any change in his status as a Non-US Person, respectively, any misrepresentation in connection with his status as a Non-US Person, is justification for the bank to cancel the bank relationship without notification.”
This is accommpanied by a W-9 form and usually has to be returned to the bank withing 30 days.
As you can see from the final paragraph, if you don’t agree to provide the information the bank will then cease to do any further business with you and your accounts will be closed.
Can the banks ask? Yes, because they are required by FATCA to identify and report any US person who banks with them. Is it a violation of privacy? Also yes, but that doesn’t bother the US when pursuing all those US people living outside of the country. In the “homelander’s” eyes we are all automatically tax cheats and shouldn’t be allowed any privacy at all because we’re obviously hiding millions from the IRS. FATCA is simply a hammer to smash through the world’s tax havens without any regard for other countries’ laws. Bullying, plain and simple.
Whether other countries are doing the same sort of thing I don’t know.
You hate to say this, but these types of questionnaires are going tempt. a Lot of US Persons to lie!
MedeaFleeceStealer,
Thanks for your detailed reply re: what is going in Switzerland with FATCA(it is horrendous), but what I was referring to is what has been happening in Canada before FATCA was even a thought.
Were the banks asking people resident in Canada whether or not they were Americans in order to report their investment income, or was it strictly on a voluntary basis (i.e. if you told your bank you were American then they would report the income)?
@JustMe,
Yes, but the lie will be one of necessity, done in an act of defense for self and family.
@Just Me, remember the banks have a copy of your passport and/or Swiss permit (which lists your nationality) on file. Copies are taken as a matter of course when any new account/mortgage is opened with a bank. Although we had been banking with UBS for some years, when we arranged our mortgage with them they took copies of both passports and permits. Until a couple of years ago, there was no problem with Americans having accounts so the banks already know pretty much who’s who and unless you can prove, as I did, with a CLN that you are no longer American, lying will only cause the bank to demand proof that you’re not. If you can’t produce a CLN, then out you will go.
For some reason my bank had forgotten/mislaid the fact that I was American which only came to light sorting out the mortgage, and I was lucky that I renounced the same week as I was sent the form for signing. I was able to tell the bank I’d renounced and they gave me more time to allow the CLN to be produced. The first thing I did when I returned from picking it up at the embassy was scan it and e-mail it straight to my contact at the bank. It was my number one priority that they get it as soon as possible.
US green card holders are another matter. What proof they would have to give the banks to show that they had given up the card and weren’t US residents for tax purposes I don’t know. They will not be Americans as far as the bank is concerned obviously, so could possibly lie about their connection, but there’s still the risk that the bank/IRS will eventually find out and they’d have their accounts closed. As many are probably not even aware that they should still be filing US tax returns they could have a big shock in store in the near future.
Just Me and WhiteKat and Medea,
Thanks for these comments. How is it possible that the US is putting us in the position to have to lie to protect our families? How is this right? I will have to lie (or at least use “Don’t Ask / Don’t Tell”) for my son when push comes to shove with FATCA — if the bank I deal with for all of his accounts asks me, as his trustee, his US status. Why should he be penalized, born a Canadian (and unless we get word regarding the questions posed regarding “Does a child born in Canada (or any other country) to US citizens and who was not registered with the US have automatic US citizenship or is it a claim to US citizenship as some US consulates seem to imply?). We need an answer to this. Not one “Accidental American” who did not have any choice in what country he was born and to whom he was born (what his parents’ citizenships were) should be penalized by the absurdity of this whole fiasco. Or, at least, I cannot see any justice in it. Further absurdity is that those who are able to lie (which they shouldn’t have to do) will be the ones to perhaps squeeze under the line of detection. My god!
@Whitekat
In response to the what was happening in Canada;
There was a form I had to sign to open an investment account about 3 years ago. There was a box in the middle of the form, asking about US personhood. Not not only did they not ask me, they quite clearly didn’t want to know,
I opened two different accounts. I didn’t tell them I was a US citizen, but I started to ask about the box, and both times (different banks) they pretty well told me not to pay any attention to it.
II would be interesting to know if that has changed recently.
@CanuckDoc,
Further absurdity. We have boxes on our financial insitutions’ forms asking about US personhood that we’re sort of asked to disregard (or WERE sort of asked to disregard). Is this like the US turning a blind eye to US Persons Abroad, their US tax returns, FBARs, US passports for crossing the border — until now? How are we to know what is what? Who are we to trust? One thing for certain — it’s all immoral and quite the parody.
CanuckDoc,
So I guess then, that for those persons whose investment income is reported to the IRS on a regular basis, it is probably being done because the person volunteered that they were a US taxpayer and likely volunteered this information because they were active filers and were aware of their US tax obligation.
@Medea
Green card holders file I-407 to abandon permanent residency, usually at their closest US embassy. Some embassies will handle it by mail, others require a visit. USCIS returns a stamped and signed copy as verification.
I don’t know all the history but the W-9 form was a requirement for US persons to fill out for investment accounts held outside the US. I think it came in with the Qualified Intermediary program but could predate the QI program. QIs were required to report to the IRS the US source income of a US person account holder. I had to fill out a W-9 about 10 years ago for an investment account. Under the QI program, it was, however, very easy to sidestep this by not generating any US source income. An investment account with a properly filed W-9 but with investments exclusively in non-US investments generated no reportable info to the IRS.
FATCA, of course, is different. The W-9 is still the means for registering US personhood but the requirement is for an FFI is to report everything eventually (interest, dividends, proceeds from sales of securities and account balance) regardless of whether US source or not.
@ Medea and Watcher
I did an I-407 application but it was ignored by USCIS. I can say that because it has been over a year now and despite my attempts to communicate with them after they received my I-407 (I have proof they got it) there has been absolutely no response from them. I followed instructions e-mailed to me from the US consulate in Calgary. I even double checked later to make sure I had sent the I-407 to the correct address and they said yes. This puts me in limbo status land and there I will remain — forever. I don’t have another green card to return — they’ve got the only one I had (it expired over 15 years ago). I will, if asked, say I am Canadian and leave it at that. I can’t prove a negative anymore than anyone can.
@all…
I am not encouraging people to lie, but I am just seeing that temptation will be there for some, especially if the interrogation comes only in the form of a questionnaire and no documentation required.
@Calgary411, you can only make clear to the bank that your son is Canadian and that is all he can ever be. Although he may have the right to claim US citizenship, it’s clear that he hasn’t and never will. You have correspondence backing up your position.
@Em, I don’t know if they would also deal with the green card situation, but have you contacted the Department of State re this? They seem to be on the ball chasing up on the renouncement side when things get stuck. If it’s part of their brief I’d give it a try. If not them, then whichever department deals with green card holders.
@Just Me, but for the banks here you do have to provide documentation in the form of your CLN. As they already believe you are a US person, they will ask to see it if you answer no to the questionnaire. The first thing my bank contact said to me when I told him I’d just renounced was that they couldn’t do anything to change my status until they had a copy of the CLN.
For any green card holders I would suggest making a copy of your card and the I-407 application to keep before you send them off so you have something to show your bank.
@ Medea
I made a copy of everything in my I-407 package but without the original returned with their official stamp affixed it is just an application, not an official proof of abandonment. I have a Canadian birth certificate so as far as I’m concerned that’s all the documentation my credit union will ever get from me. My biggest concern is that because I was in the IRS system I’ll get a dreaded demand letter from them someday and then I don’t know what I’ll do.
I just found out something very interesting. From what I understand, most of the anxiety from Americans abroad regarding FATCA relates to the FBAR penalties, right? I suppose Americans abroad are afraid that their banks will tell the IRS about their accounts, and since they didn’t file FBARs, the IRS will impose the draconian FBAR penalties on them, effectively confiscating half of what they own. Well, if I understood this Treasury report correctly, the IRS cannot use FATCA information to enforce the FBAR. It can only use it to enforce the penalties of form 8938 or other tax penalties, which are far lower than the draconian FBAR penalties. Let me explain this further.
The FBAR and other reports under title 31 (Money and Finance) are adminsitered by the Financial Crimes Enforcement Network (FinCEN), while tax laws under title 26 (Internal Revenue Code) are administered by the IRS. Both FinCEN and the IRS are agencies of the Department of Treasury, but due to a technicality, they cannot exchange information (with rare exceptions like an actual criminal investigation or a court order). FinCEN delegated the administration of the FBAR to the IRS in 2003, but the IRS must still obey that separation when administering the FBAR. So without a judicial procedure, the IRS cannot actually use information provided in an FBAR to check if someone is reporting all income or evading tax, and it cannot use information reported with a tax return or under FATCA to check if someone is reporting all acounts in the FBAR. That’s why they came up with form 8938. It’s just like the FBAR, but since it’s under the Internal Revenue Code, and it is filed with the tax return, the IRS can actually use the information in this form to verify if someone is reporting all income, and vice versa. But it cannot mix it with the FBAR.
Is this right? If so, I suppose many of you can sleep at night now.
The Internal Revenue Manual gives more details. It’s not exactly a court order or judicial procedure that allows tax information to be used to enforce the FBAR. There has to be a “related statute determination”. Only IRS Territory Managers can approve such a deteremination, and it has to be done for each case individually. There are only 30 IRS Territory Managers in the whole country.
Therefore, I believe FBAR penalties remain impossible outside voluntary disclosure or criminal cases. FATCA doesn’t change this.
@Shadow Raider, but what prevents the IRS from asking for foreign bank statements during an audit?
Also, this would mean that people like me, who checked the box, but did not file 8938 because I am under the threshold are more likely to be audited, because the IRS does not have anything to check against.
@Shadow Raider,
If it is that the Financial Crimes Enforcement Network (FinCEN) and the IRS (both agencies under the Department of Treasury) cannot exchange information without an actual criminal investigation or a court order, thank you for pointing this out to all of us so we can use that in how we process our worries. The new FATCA form 8938 is in many ways duplicative of the reporting FBAR and is attached, so part — another of the many supplemental forms required, of our whole 1040 tax return. We all, at first, freak out at the thought of having to give all of our financial information to the US through our FBARs, with the huge penalties attached that could essentially wipe families out. I am now, hopefully, ready to sign out with all required FBARs and 1040’s and the 8854. It will be on its way at the beginning of the week. I would like to have understood the fact you have just posted. It absolutely would have lessened my many sleepless nights. Thanks from me for these important distinctions.
I’ve just opened your presentation on FBAR dire problems and suggested solutions — hopefully you will soon have meetings with the anticipated congressmen. Your continued work on all our behalf is so appreciated.
@Em,
Hopefully that dreaded demand letter from the IRS will never arrive in your mailbox. If it does, you have all the back-up documentation that you attempted to correctly turn in the I-407. As I see it, you could do no more — they are the ones who screwed up (and with that caused ‘mental anguish’ to you!).
Thanks, Medea, for helping to further clarify this issue in my mind.
Perhaps my revised plan (if it becomes clear, to be determined, that there is no other than what I have been advised — that my son was an automatic US citizen from the moment he was born in Canada VS what some consulates have indicated — that if a person was not registered by their parent(s) as a US birth abroad, they do not have to now register with the US and get a US social security number, etc., in order to be able to renounce their “supposed” US citzenship, with all the tax compliance that involves; i.e. they seem to have some choice in the matter) will be:
If my Canadian bank asks for my son’s US status, I will have a meeting with those concerned (not the front line bank person handing me any questionnaire to fill out) giving them all the documentation of why my son cannot, nor can I on his behalf, renounce a “supposed” US citizenship since he was born to me in Canada, etc., etc. If they then still feel they must close the accounts that are for my son’s benefit (if the Canadian registered RDSP and the TFSA are not exempted in an IGA with the US), it will be part of a class action suit if such goes forward (or one just for my son’s situation on behalf of others who will be in the same situation), as well as a submission of discrimination by my bank or my Canadian government to the Canadian Civil Liberties Association (CCLA).
This would, undoubtedly, be better for me personally (except for the further cost) and for the whole issue of the developmentally disabled (or anyone else with a mental incapacity) than my hiding in a “Don’t Ask / Don’t Tell” stance. Perhaps that action would highlight the US entrapment for this population as part of the entire discrimination of all US Persons Abroad.
that would be very valid of its own post.
Would be good to look at it from different angles with different opinions.
http://www.acfcs.org/by-taking-certain-steps-the-irs-may-share-bank-data-it-gets-from-foreign-banks-under-fatca-with-other-us-agencies/?goback=%2Egde_4118437_member_247324492
I am guessing Shadow Raider turned this information upside down and on its head, to come up with good news.
“The judge may grant the ex parte order under certain conditions:
if “there is reasonable cause to believe… that a specific criminal act has been committed,” or
“the (tax) return or return information is or may be relevant to a matter relating to the commission of such act,” and
the tax “return or return information is sought exclusively for use in a federal criminal investigation or proceeding concerning such act, and
the information sought to be disclosed cannot reasonably be obtained, under the circumstances, from another source”
Em You’re kidding right. Ain’t gonna happen. Trust me, when they got your letter their response was ‘WTF am I supposed to do with this?’ Then they filed it in the round file.