AMCostaRica©
AMCostaRica©
.
For
Americans living outside the U.S.,
the problems began after President
Barack Obama signed the tax
compliance act into law, says the
report. / A.M.
Costa Rica wire services photo.
|
|
-Published:
Monday, October 28, 2019-
Banks gets break in providing
tax numbers of U.S. citizens
abroad to IRS
By the A.M. Costa Rica wire services
Under pressure from European banks in
particular, the U.S. Internal Revenue
Service has issued a clarification with
respect to an existing requirement
that foreign financial institutions
provide tax information numbers of their
U.S. clients starting in January. Tax
experts say this means that banks now
won't have to close the accounts of their
so-called accidental American clients at
the end of this year, according to the
American Expat Financial News Journal.
The new guidance is contained in a
response 10 days ago by the U.S. Internal
Revenue Service on its question and answer
page, according to John Richardson, a
Toronto-based lawyer who is active in
American expat matters. The adjustment is
to the 2010 U.S. Foreign Account Tax
Compliance Act, known as FATCA.
The statement confirms comments issued in
September by Dutch Finance Minister Menno
Snel, who said he based his
statements on information he'd received in
recent weeks from his American
counterparts about their enforcement of
the act.
According to American Expat Financial News
Journal, the IRS has not yet issued a
statement formally announcing the new
guidance with respect to FATCA and the
taxpayer information number requirement,
but experts spotted the response to a
question and have been sharing the news of
it on social media, Richardson and other
tax experts said.
The identification number for U.S.
citizens usually is their Social Security
number, but the IRS assigns identification
numbers to other entities like
corporations, including foreign ones
subject to U.S. taxes. The acronym TIN
applies to all these numbers.
The question Richardson and others cited
came from a foreign financial institution
that asked about accounts held by U.S.
citizens and whether it had to report all
U.S. taxpayer numbers when it provides
data from 2019 to the IRS.
Foreign financial institutions, although
not covered by U.S. law, have been strong
armed into providing this information to
the U.S. tax collector under penalty of
being frozen out of the world banking
system. U.S. expats worldwide have been
facing trouble from local banks, and some
institutions will not do business with
U.S. citizens.
The answer provided to the question by the
IRS, which is lengthy, notes that although
a U.S. number will be required for
U.S.-reportable accounts beginning with
the 2020 tax year, a foreign institution
is not required to immediately close or
freeze accounts that do not contain such a
number beginning Jan. 1.
"An error notice will generate in
scenarios where the TIN is missing or when
the TIN is completed with nine As or 0s or
in a systemically identifiable
pattern...that indicates it is invalid.
Foreign financial institutions will have
120 days to correct the issue.
If the taxpayer information numbers is not
provided within that 120-day period, the
U.S. will evaluate the data received, and
determine, through a consideration of the
facts and circumstances if there is
significant non-compliance, said the IRS.
The explanation then goes on to note that
the financial institution in question
"would have at least 18 months from the
date of the notification of noncompliance
to correct the error before the IRS took
any other further action, such as
affecting the institution to do business
internationally.
Campaigners against the way the U.S. taxes
its expatriate citizens stressed that the
new IRS guidance did not represent a
change, which they maintain is still
urgently needed. "There is a 120-day delay
and then an 18-month grace period . . .,”
said Keith Redmond, of the Paris-based
American Overseas Global Advocate
organization,.
"Nothing has changed,” he said, adding:
"What is the IRS going to do? That is the
question that must be answered."
In a statement, Richardson noted that he
had been saying for some time that the
fact that banks didn't need to close
Americans' bank accounts at year's end if
they lacked the reporting numbers because
the terms of an ntergovernmental agreement
had always made clear that there was an
18-month minimum time frame after the date
that an account-holder was formally found
to be non-compliant as a result of lacking
an identification number.
"Banks that are closing the accounts of
Americans because they lack a U.S. Social
Security number are doing so because they
want to – and to be fair, you can
understand why, given the complexity of
the FATCA regulations and potential
penalties involved, they might not want to
have American clients. But they are not
closing these accounts because they are
required to.
"The clear terms of the Model 1 IGA,
confirmed by the IRS, mean that the
earliest the banks could be in
noncompliance would be 18 months from a
notice of noncompliance."
In order to implement the financial
reporting act, the U.S. created two basic
intergovernmental agreements, Model 1 and
Model 2, and over the course of a couple
of years prior to the law coming into
force, negotiated each of them with more
than 100 countries around the world.
According to the U.S. Treasury's latest
list, some 99 countries have signed up to
the Model 1 IGA and 14 to the Model 2 IGA.
As the American Expat Financial News
Journal has been reporting for months,
Europe's banks in particular have
increasingly been sounding the alarm about
the difficulties they have been having in
providing bank accounts to tens of
thousands of European citizens who happen
to be considered to be Americans by the
U.S. tax authorities, but who typically
don't view themselves as Americans, and
who therefore often lack a U.S.
identification number. These may include
foreign citizens who happened to be born
in the United States and thus acquired
U.s. citizenship, frequently without their
knowledge.
Among those highlighting the problem has
been the Paris-based Accidental Americans
Association, headed by Fabien Lehagre, who
has helped to bring the issue to the
attention of France's lawmakers as well as
French and European news organizations.
As reported, the head of the
Brussels-based European Banking
Federation, which represents some 3,500
banks across Europe, warned U.S. Treasury
officials in February about the problem,
and said Europe's banks were increasingly
having to choose between providing
financial services, including basic
banking services to these European
citizens who are also U.S. citizens, but
who lack a tax identification numbers or
stop doing so.
One of the issues for Europe's banks is
that they are required by law to provide
bank accounts to those European Union
citizens who ask for one.
Since the banking federation's formal
warning in February, what was widely seen
as an approaching Dec. 31 expiration of a
grace period that enabled banks to not
have to report the identification numbers
of their American clients increasingly
focused banks' attention on the matter.
In July, the head of the French Banking
Federation formally warned France's
finance minister that the country's banks
could be forced to close as many as 40,000
bank accounts belonging to French citizens
with perceived U.S. tax obligations who
lack the requisite numbers
For Americans living outside the U.S., the
problems began after President Barack
Obama signed the tax compliance act into
law. The measure was buried and thus
effectively hidden inside a piece of
domestic jobs legislation known as the
HIRE Act. U.s. officials wanted to crack
down on citizens who might be hiding
financial assets outside the country in
foreign accounts.
FATCA required foreign financial
institutions, including non-U.S. banks, to
report annually to the U.S. authorities on
the accounts held by all of their American
clients or else face significant financial
penalties. Almost as soon as the law was
signed, banks began to ask Americans
resident abroad to take their bank
accounts elsewhere, even though FATCA
didn't actually come into force until
2014.
The problem has been particularly
difficult for hundreds of thousands of
so-called accidental Americans who were
often born in the U.S. to non-American
parents who subsequently moved back to
their home countries or elsewhere soon
after, and brought up these children as
citizens of other countries. Such
individuals typically don't see why they
should have to obtain tax information
numbers and file U.S. tax returns, let
alone pay taxes to the U.S., and also
cannot understand why their local banks
and governments don't stand up for them
when the U.S. insists that they should.
In August it emerged that the Dutch
Banking Association had posted an
animated, bilingual video on the home page
of its website in which it warned those of
its American clients who lacked a Social
Security number of the need to get one, if
they didn't wish to lose their Dutch bank
accounts and how they could go about
applying for one at the U.S. Embassy.
In May, two French Assembly members
published a report which called on the
French government to engage in further
negotiations over FATCA, and, if
necessary, abandon it altogether, if it
proved unable to resolve the
extra-territorial tax problems, such as
the bank accounts issue.
More information on taxes for US citizens
living abroad can be found at American Expat Finance
Newspaper site.
--------------------
Do you agree with IRS rule on accidental
Americans have to file a US tax return
even if they never lived in the US nor
have any income there? We would like to
know your thoughts on this story. Send
your comments to: news@amcostarica.com
|
|
|
