Source: https://www.goldinglawyers.com/australia-fatca-letter-anz-cba-nab-westpac-international-tax-lawyers/
Timestamp: 2019-04-20 12:13:08+00:00

Document:
0.1 What is FATCA Compliance?
0.4.1 Do I have to report my foreign retirement account?
0.4.2 What forms do I use to report Investment Accounts?
0.4.3 Do I have to report Foreign Life Insurance?
0.5 What Does the IRS , DOT or DOJ do Next?
0.6 What are the Penalties for Unreported Foreign Money?
As many Australians and other individuals with investments and money in Australia may be aware, FATCA is the Foreign Account Tax Compliance Act. FATCA has many components to it, but the aspect of FATCA that impacts individuals and small businesses the most is the foreign account reporting required by U.S. Persons.
If you fall into one of the aforementioned categories, it does not matter whether you live in the U.S., Australia, are a dual citizen of Australia and the United States, or live in a different country but are a U.S. person and have accounts or investments in Australia – you are still subject to U.S. Tax and Reporting Requirements.
And, if you are subject to U.S. Tax and have unreported foreign accounts, investments, business or earnings in Australia that you did not report to the U.S. (IRS), you may be subject to fines and penalties.
We will use this article to try to bring you some clarity on getting into compliance.
FATCA is designed to facilitate offshore compliance and promote intergovernmental cooperation through the execution of intergovernmental agreements which facilitates the transfer of information between countries. In other words, when the United States and a country such as Australia enter into a FATCA agreement, the purpose of the agreement is to promote tax compliance between the nations.
Australia and the United States achieve FATCA compliance through the reciprocal exchange of information regarding account holder status, For example, if you are a US person, or otherwise subject to US tax and/or simply just have a US address — and have an account in Australia — chances are the Australian bank in which you have an account will provide your information to the United States.
Thereafter, the United States will process the information and if the IRS discovers that you have unreported foreign account and income such as foreign rental income, bank interest, dividends, capital gains, etc., you may be hit with very high fines and penalties.
A FATCA Letter is a warning. The letter will come from a foreign financial institution such as a bank, brokerage, or investment house when it is unsure if the intended recipient of the letter is a U.S. Taxpayer. In other words, the FFI will evaluate its client base to determine which portion of the clients are either US taxpayers, live in the United States, or even just maintains or maintained a foreign address in the United States. For these unlucky taxpayers, the foreign financial institution will send out a FATCA letter.
The main purpose of the letter is to investigate the customer in order to ascertain whether the bank client has complied with IRS FATCA laws. Namely, has the taxpayer filed the necessary paperwork with both the Internal Revenue Service and Department of Treasury sufficient to show full compliance with FATCA, including FBAR (Report of Foreign Bank and Financial Accounts, 8938 (Statement of Specified Foreign Financial Assets), Schedule B (Interest and Ordinary Dividends) and more.
An FBAR, is a “Report of Foreign Bank and Financial Accounts” form. It is a form that is filed online, directly with the Department of Treasury. Unlike the tax return, the form must be filed by June 30th of the tax year and there are no extensions available for filing it late. If you attempt to file it late, there can be serious repercussions, including fines and penalties – since it is considered Quiet Disclosure or Silent Disclosure in an attempt to circumvent the OVDP or Streamlined Program rules and regulations.
**UPDATE: Starting in 2017 for Tax Year 2016 – filing of your 2016 FBAR will be in accordance with the same time periods to file your tax returns, which is by April, 2017 unless you receive an extension of time to file the FBAR.
If you, your family, your business or your foreign trust or PFIC have more than $10,000 overseas in foreign accounts (either directly or indirectly) and either have ownership or signatory over the account, it is important that you have an understanding of what you must do to maintain FBAR (Report of Foreign Bank and Financial Accounts) compliance. There are very strict FBAR filing guidelines and requirements in accordance with general IRS tax law, Department of Treasury (DOT) filing initiatives and FATCA (Foreign Account Tax Compliance Act).
Do I have to report my foreign retirement account?
Yes, most, if not all retirement accounts should be reported on an FBAR and FATCA Form 8938. While certain exceptions may apply, for the most part is better to err on the side of caution and report the account.
What forms do I use to report Investment Accounts?
Do I have to report Foreign Life Insurance?
Generally, if the life insurance has a surrender value (in other words, the policy can be sold for value before completion of the policy) then it must be reported. In addition, if the life insurance or Life “Assurance” earns bonus, interest, or dividends than that income must be reported as well whether it is distributed or simply accrued.
What Does the IRS , DOT or DOJ do Next?
After the United States receives the information from the Australian financial institutions, the U.S. Government evaluates the information and the account holder becomes at higher risk for getting into trouble. Why? Because it is impossible to determine whether a person will be audited. With that said, the IRS is now armed with more information regarding your unreported income or accounts and that may lead to greater chances of audit.
What are the Penalties for Unreported Foreign Money?
The following is not exhaustive; it is a list of some of the more common penalties that are issued against individuals, estates, and businesses for failing to report foreign money.
– A Penalty for failing to file FBARs. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
– FATCA Form 8938. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
– A Penalty for failing to file Form 3520. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
– A Penalty for failing to file Form 3520-A. The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
– A Penalty for failing to file Form 5471. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
– A Penalty for failing to file Form 5472. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
– A Penalty for failing to file Form 926. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
– A Penalty for failing to file Form 8865. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
– Fraud penalties imposed under IRC §§ 6651(f) or 6663. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
– A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1). Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
– A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2). If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
– Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201), filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
– A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
In a quiet disclosure, the person does not enter the program but rather simply amends their tax returns to include the unreported foreign income (schedule B), report the foreign accounts (8938 forms) and file FBAR Statements with the Department of the Treasury.
Here’s the problem: If you were originally non-willful (in that you were unaware of the requirement to file an FBAR) but now you went ahead and willfully failed to pay the penalty, you may have bootstrapped your non-willful submission into full-blown tax fraud and tax evasion.
Why? Because you have now willfully evaded US tax, interest and penalties by knowingly filing an untimely FBAR or Amended Tax Return without payment penalty for money you know you earned in the past but had not paid any US tax on.
Australia PTY Limited – Foreign Income, U.S. Tax & Foreign Account ReportingReady to Report Foreign Accounts with OVDP or Streamlined?

References: § 5321
 § 6651
 § 6651
 § 7201
 § 7206
 § 7203
 § 5322
 § 286
 § 371