HSBC Sends Letters to US Taxpayers – re: FBAR (Report of Foreign Bank and Financial Accounts)
There are millions of Americans with unreported offshore bank and financial accounts. Under the new FATCA legislation, foreign financial institutions will soon be required to report account holders with ties to the United States. (FATCA is short for the Foreign Account Tax Compliance Act, a 2010 Obama initiative designed to cut back on tax evasion using foreign accounts.)
U.S. taxpayers with foreign accounts that have an aggregate value in excess of $10,000 USD must report those accounts on a Report of Foreign Bank and Financial Accounts or “FBAR” form. The penalties for not filing an FBAR are severe.
As foreign banks all over the world gear up for FATCA, many are sending letters to clients. We have just learned that HSBC and other banks doing business in the United Arab Emirates began sending letters to clients seeking documentation. One letter from HSBC said,
“As a result of a new [US] legislative requirement, we are writing to you to request additional documentation. Providing these documents will allow us to establish your exact classification under FATCA. We will then classify you as either a US or a Non-US person based on the documents you provide us.”
Those letters have created a flurry of inquiries from concerned account holders, some of whom are just learning of FATCA and their FBAR requirements for the first time.
Failure to cooperate with the bank probably means the account will be closed and reported. Closing the account and transferring money elsewhere isn’t likely to work either as banks are looking back in their records.
No matter how important individual client relationships may be, banks risk a 30% withholding tax on US receipts if they fail to comply.
Although many taxpayers are just learning of their FBAR filing requirements, the law dates back to 1970. Residents of the United States, American expats living overseas, dual nationals, foreign born Americans and green card holders (resident aliens) are all required to comply.
Taxpayers with unfiled FBARs need to take immediate action. The IRS offers amnesty alternatives but those disappear once the IRS obtains a taxpayer’s name from a cooperating bank. Those folks with more than one year of unfiled FBAR forms are strongly urged to immediately seek competent tax counsel.
