Answering Your Foreign Bank’s Request for Information
June 5, 2014
With FATCA compliance on the horizon and the U.S. Program for Swiss Banks well underway, many U.S. taxpayers have been receiving letters from their banks requesting information about whether the accounts held at their institutions have been disclosed to the IRS and asking for permission to disclose relevant account information to the U.S. government. Receiving this letter is often a shock to U.S. taxpayers who may have never received any mail from the foreign financial institution, or who closed their accounts years ago and have not thought about it since.
Generally, under the terms of the U.S. Program for Swiss Banks, participating Swiss financial institutions must disclose information about U.S. accounts held at their institution that were in excess of $50,000 on or after August 1, 2008. In order to do this, the Swiss banks have been reaching out to account holders that they know to be or suspect may be U.S. taxpayers to: 1) request confirmation that the account holder is in fact a U.S. taxpayer; 2) warn the account holder that their information is subject to being turned over to the U.S. government and inform them of the IRS Offshore Voluntary Disclosure Program (OVDP); and 3) request permission to disclose account holder information to the U.S. government to protect themselves from potential violations of Swiss law.
In response, many taxpayers are tempted to refuse to give their foreign bank permission to disclose their information or ignore the bank’s correspondence completely. It is important to understand that, whether or not you respond to the bank’s letter, there is a very high likelihood that they will turn over your information anyway, because they will be required to in order to receive the benefits of participating in the U.S. Program for Swiss Banks. Furthermore, your failure to respond or refusal to grant permission could be viewed as a lack of cooperation by the U.S. government, making you ineligible for any voluntary disclosure programs, should you decide to come forward, or weigh as a factor against you should you request a waiver or reduction of civil penalties in the future.
With these things in mind, keeping in touch with your foreign financial institution, whether or not you intend to participate in the OVDP, is a good idea. If you are planning on disclosing your account to the IRS anyway, establishing a good relationship with your foreign financial institution at this stage can lead to an easier exchange of information, making it much easier to accurately and completely compile the information needed to participate in the OVDP. If you are hoping to forego participation in the OVDP, an open exchange of information with your foreign financial institution could at least give you some clue as to when and how much information will be handed over to U.S. authorities.
Notably, receiving a letter like this from your foreign financial institution does not preclude you from participating in the OVDP. Though the IRS has indicated that taxpayers already under audit or investigation will not be eligible for the OVDP, there is no telling how long it will take the IRS to process the information it receives through FATCA and the U.S. Program for Swiss Banks. As such, there is still an opportunity for taxpayers who have not yet disclosed their foreign accounts to the IRS to come forward under the terms of the OVDP.