Foreign Nationals & Expats
Houston Tax Attorney
Foreign Account Reporting and Exchanges of Information
A question those who are seriously non-compliant with reporting of foreign accounts and assets sometimes ask is, “how will the IRS discover my account?” Hopefully this article will shed some light.
Foreign Account Tax Compliance Act (FATCA)
Automatic exchanges of foreign account information with the IRS are received by foreign financial institutions (FFIs) pursuant to the Foreign Account Tax Compliance Act (FATCA) which was passed into law in March 2010. FATCA requires financial institutions (FIs) to report certain information about certain financial accounts held by United States taxpayers, or by foreign entities in which United States taxpayers hold a substantial ownership interest.
Intergovernmental Agreements (IGAs)
Foreign banks that are located in jurisdictions with which the U.S. has intergovernmental agreements (IGAs) are required to provide information as required under I.R.C. § 1471(c). A list of IGAs can be found on the Treasury website. Foreign financial institutions (FFIs) that are not located in jurisdictions with IGAs must comply with FATCA or be subject to harsh withholding rules under I.R.C. § 1471. And since most foreign financial institutions do business with the U.S. or with other financial institutions that conduct business with the U.S., a large number of FFIs not located in jurisdictions with IGAs choose to comply with FATCA. A list of FFIs can be found on the IRS website.
Information Provided by Foreign Financial Accounts under FATCA
I.R.C. § 1471(c) requires a foreign financial institution to report the following with respect to each United States account maintained by such institution:
(A) The name, address, and TIN of each account holder which is a specified United States person and, in the case of any account holder which is a United States owned foreign entity, the name, address, and TIN of each substantial United States owner of such entity.
(B) The account number.
(C) The account balance or value (determined at such time and in such manner as the Secretary may provide).
(D) Except to the extent provided by the Secretary, the gross receipts and gross withdrawals or payments from the account (determined for such period and in such manner as the Secretary may provide)
Exchange of Information Pursuant to Income Tax Treaties and Tax Information Exchange Agreements
In addition to automatic exchange of information under FATCA, specific and spontaneous exchanges of information may occur pursuant to tax treaties and tax information exchange agreements (TIEAs). In matters involving criminal tax evasion, the DOJ may request cooperation through mutual legal assistance treaties (MLATs).
Specific requests may arise from collection matters, criminal investigations, or other tax administrative or court procedures. Information must be first sought domestically, such as by issuance of an Information Document Request or a summons on a 3rd party possessing relevant records.
Spontaneous exchange of information, which operates through the exchange of information provisions of tax treaties and TIEAs, involves the transmission of information that has not been specifically requested by a Competent Authority, but which in the judgment of the providing authority may be of interest to a foreign partner for tax purposes. The exchange typically involves information discovered during a tax examination, investigation, or other administrative procedure that suggests or establishes noncompliance with the tax laws of a foreign partner, or that is otherwise determined to be potentially useful to a foreign partner for tax purposes. The information may pertain to nonresident aliens, United States citizens, domestic or foreign corporations, or other taxpayers.
Simultaneous examinations involve the United States and one or more of its foreign partners conducting separate independent examinations of selected taxpayer(s) within their respective jurisdictions in which the partners have a common or related interest
Tax treaty EOI – Article 26 of the U.S. Model Income Tax Convention
This following is an excerpt from the Exchange of Information Article (Article 26) of the U.S. Model Income Tax Convention (2006).
EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE
- The competent authorities of the Contracting States shall exchange such information as may be relevant for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes of every kind imposed by a Contracting State to the extent that the taxation thereunder is not contrary to the Convention, including information relating to the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, such taxes. The exchange of information is not restricted by paragraph 1 of Article 1 (General Scope) or Article 2 (Taxes Covered).
- Any information received under this Article by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment, collection, or administration of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes referred to above, or the oversight of such functions. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
Deferred Prosecution Agreements
In addition to the above sources of information, certain FFIs, namely Swiss, are required to provide information pursuant to deferred prosecution agreements with the USDOJ. For example. The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by Dec. 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.
Under the program, banks were required to:
- Make a complete disclosure of their cross-border activities;
- Provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest;
- Cooperate in treaty requests for account information;
- Provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed;
- Agree to close accounts of accountholders who fail to come into compliance with U.S. reporting obligations; and
- Pay appropriate penalties.
Once the IRS is in possession of the information relating to undisclosed accounts, whether by an automatic exchange, specific request, or through a deferred prosecution agreement, any non-compliance by a U.S. account holder will subject that person to civil and criminal penalties, and in rare situations a risk of prosecution. While anyone with undisclosed foreign accounts should seek counsel, any account holders with unreported accounts at the below institutions should immediately contact counsel, especially in light of recently announced LB&I compliance campaigns.
Vadian Bank AG
Finter Bank Zurich
Société Générale Private Banking (Lugano-Svizzera)
LBBW (Schweiz) AG
Scobag Privatbank AG
Rothschild Bank AG
Banca Credinvest SA
Société Générale Private Banking (Suisse) SA
Berner Kantonalbank AG
Bank Linth LLB AG
Bank Sparhafen Zurich AG
Ersparniskasse Schaffhausen AG
Privatbank Von Graffenried AG
Banque Pasche SA
ARVEST Privatbank AG
Mercantil Bank (Schweiz) AG
Banque Cantonale Neuchâteloise
SB Saanen Bank AG
Privatbank Bellerive AG
PKB Privatbank AG
Falcon Private Bank AG
Credito Privato Commerciale in liquidazione SA
Bank EKI Genossenschaft
Privatbank Reichmuth & Co.
Banque Cantonale du Jura SA
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA
Bank Zweiplus Ag
Banca dello Stato del Cantone Ticino
Hypothekarbank Lenzburg AG
Schroder & Co. Bank AG
Valiant Bank AG
Bank La Roche & Co AG
St. Galler Kantonalbank AG
E. Gutzwiller & Cie, Banquiers
Migros Bank AG
BHF-Bank (Schweiz) AG
BBVA Suiza S.A.
Piguet Galland & Cie SA
Luzerner Kantonalbank AG
Habib Bank AG Zurich (HBZ)
Banque Heritage S.A.
Hyposwiss Private Bank Genève S.A.
Banque Bonhôte & Cie SA
Banque Internationale à Luxembourg (Suisse) SA
Standard Chartered Bank (Switzerland) SA
Maerki Baumann & Co. AG
BNP Paribas (Suisse) SA
KBL (Switzerland) Ltd.
Privatbank IHAG Zürich AG
Deutsche Bank (Suisse) SA
EFG Bank European Financial Group SA, Geneva, and EFG Bank AG
Cornèr Banca SA
Bank Coop AG
Crédit Agricole (Suisse) SA
Dreyfus Sons & Co Ltd, Banquiers
Baumann & Cie, Banquiers
Bordier & Cie Switzerland
PBZ Verwaltungs AG
Edmond de Rothschild (Suisse) SA and Edmond de Rothschild (Lugano) SA
Bank J. Safra Sarasin AG
Coutts & Co Ltd
Gonet & Cie
Banque Cantonal du Valais
Banque Cantonale Vaudoise
Bank Lombard Odier & Co Ltd
DZ Privatbank (Schweiz) AG
Union Bancaire Privée, UBP SA
Leodan Privatbank AG
HSZH Verwaltungs AG
I.R.C. § 1471, https://www.law.cornell.edu/uscode/text/26/1471
Internal Revenue Manual, 4.60.1