FATCA (Foreign Account Tax Compliance Act) is a U.S. tax law that requires foreign financial institutions to report accounts held by U.S. persons to the Internal Revenue Service. Many U.S. residents are surprised to learn that even small foreign accounts — including accounts in their country of birth — may trigger U.S. reporting requirements. If you’ve received a FATCA letter from your bank, don’t ignore it.
A FATCA letter from your bank does not automatically mean you are under IRS investigation. Here is what it does mean.
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What is a U.S. Person?
A “United States person” (USP) is any person that is a United States tax resident.
A USP generally includes:
- Certain U.S. entities (corporations, partnerships, trusts)
- U.S. citizens (even if living abroad)
- Lawful permanent residents (green card holders)
- Individuals who meet the substantial presence test
Why Did the Bank Send Me a Letter?
Under FATCA, foreign financial institutions must investigate an account holder’s U.S. connections to determine whether they are a USP, and if so, to report certain information to the IRS.
If you received a letter now, it could be due to various reasons.
The bank may be doing a periodic re-confirmation of its customer base or there may be an internal review.
More likely you have triggered a “U.S. indicia” flag at your bank such as:
- Updating your address
- Logging in from a U.S. IP
- Adding a U.S. phone number
- Transferring funds to or from U.S. accounts
- Opening a new linked account
- Closing an account
This does not mean you should purposely avoid doing these things! For example, using a VPN to access the bank’s website, providing false information, or only visiting your financial institution in person to avoid triggering U.S. indicia could make you willful.
What Will the Bank Do With This Information?
A FATCA letter is issued because your foreign financial institution (FFI) is required to be in compliance with FATCA regulations. It is not an investigation.
If the information you provide in response to the letter indicates that you are a U.S. person, the FFI directly or indirectly* transmits certain data to the Internal Revenue Service.
*In many countries, FFIs report to their local tax authority, which then transmits the information to the IRS under an intergovernmental agreement (IGA).
The IRS receives data such as:
- Name of the account holder
- Address
- U.S. Tax Identification Number (SSN)
- Account number
- Year-end balance or value
- Gross interest, dividends, and other income credited
The IRS does not receive full transaction histories; they will receive summary-level data.
The primary use of FATCA data is automated matching. The IRS compares FATCA-reported information against:
- Form 1040 (income reported)
- Schedule B (foreign accounts question)
- Form 8938 (Statement of Specified Foreign Financial Assets)
- FBAR filings (FinCEN Form 114)
If the IRS sees:
- An account reported under FATCA but no Form 8938
- Foreign income reported by a bank but not on a return
- FATCA data but no FBAR filed
Such discrepancies can later trigger an examination from the IRS.
How Do I Respond to the Letter?
For many individuals, particularly expats and those who have moved to the U.S., a FATCA letter might be the first time they have learned about potential U.S. reporting requirements.
How you respond to the letter is important.
DO NOT provide false information to your bank. This makes you willful and exposes you to large FBAR and other penalties.
DO NOT ignore the letter. The bank will report your information as a “recalcitrant account holder” (i.e., non-cooperative) with limited information. The bank may also close your account(s) or freeze your funds. Additionally, “burying your head in the sand” could make you willfully blind and expose you to large penalties.
DO contact a tax attorney as soon as possible to determine your compliance position, to bring you into compliance if you are not, and to advise you on how to respond to the letter. The way you respond can affect whether your conduct is characterized as willful or non-willful.
What Should Non-compliant Taxpayers Do?
If a person is non-compliant with their foreign asset and income reporting requirements, they should consider resolving it through one of the IRS’s voluntary disclosure programs: