FATCA – Practical Guide

Guest post by John Ohe, IRS Enrolled Agent and chartered Financial Analyst.

John Ohe 1There are over 100 countries around the world that are now “FATCA-compliant.” This means that banks located in those countries will be sending to the IRS specific information regarding accounts held by U.S. persons. In this article, we’ll discuss how FATCA is affecting the average U.S. expat or dual citizen (including business owners), and the options for dealing with the requirements.

My bank is asking me to complete a W-9 form. What should I do?

In the United States, the W-9 is a basic form that people fill out when they start a new job or open a new bank account. The critical information captured on the W-9 is the Social Security Number. When foreign banks send over to the IRS your account balance and earned interest information, it will be attached to your name and Social Security Number. The IRS computers will be able to cross-reference the information sent by your bank against your U.S. income tax return and FBAR filing. Discrepancies will be red-flagged, although any action by the IRS will likely take several years. Keep in mind that penalties and interest accrue in the meantime.

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When the bank asks you to complete a W-9, you have 3 options:

  • Refuse – your bank will likely close your account for non-compliance
  • Delay – take the form home with you, and hope the bank doesn’t ask again. Depending on the country and bank, this may work (will not be the case in most developed countries)
  • Fill it out – you are being compliant with U.S. tax laws. It will be important that you are also compliant with your tax return and FBAR (foreign bank account) filing requirements.

Dual citizens have an additional option. If the bank inquires about their U.S. citizenship, they can deny having dual citizenship status. Of course, that would be an act not compliant with U.S. tax laws, and carries risks.

I have a business account at the bank. Should I be worried?

It’s unclear whether foreign banks will report business account information (foreign corporations owned by U.S. expats) to the IRS. The consequences would be severe. That is because there many Americans do not report their foreign businesses although it is required. Most report only the wage they pay themselves.

Each FATCA-compliant country and foreign banks are taking their own approach in dealing with U.S. expat customers. Recently, a client of Hola Expat in the Cayman Islands was told by her bank to provide proof of her Form 5471 (report on foreign corporation) and FBAR filings. Another client (in Mexico) was asked by his bank to complete a W-8 Ben-E. This form is used by U.S. companies that do business with foreign entities, so that they can withhold taxes correctly. In most case, the bank is incorrect in asking U.S. expats to complete a W-8 ben-E form. However, if the bank insists, make sure you check off “Active NFFE” on page 1 of the form.

The world is getting smaller, and privacy is increasingly hard to maintain. For U.S. expats, FATCA is a true “thorn-in-the-side,” one that is probably better to deal with earlier than later.

Other articles by this Author

Free Money From the IRS – Child Tax Credit

U.S. Expat Taxes – An Introduction

Buying and Selling Real Estate (Foreign or Domestic) from a Tax Perspective

This article was written by John Ohe (IRS Enrolled Agent and Chartered Financial Analyst). John is a partner at Hola Expat, which specializes in preparing tax returns for U.S. expats. If you would like to submit a tax-related question, email: info@holaexpat.com.

Disclaimer: The answers provided in this article are for general information, and should not be construed as personal tax advice. Tax laws and regulations change frequently, and their application can vary widely based on the specific facts and circumstances involved.

About Retire Early Lifestyle

Billy and Akaisha Kaderli retired three decades ago at the age of 38 and began traveling the world. As recognized retirement experts and internationally published authors on topics of finance and world travel, they have been interviewed about retirement issues by The Wall Street Journal, Kiplinger's Personal Finance Magazine, The Motley Fool Rule Your Retirement newsletter, nationally syndicated radio talk shows and countless newspapers and TV shows nationally and worldwide. They wrote the popular books The Adventurer's Guide to Early Retirement (Your Simple Path to FIRE) and Your Retirement Dream IS Possible.
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