Many U.S. expats believe that the IRS will never find their foreign financial assets. With FATCA,
the IRS has motivated foreign financial institutions to find your accounts for them. Understand what
compliance means to avoid draconian IRS penalties.

As FATCA’s practical application unfolds worldwide, I am happy to provide updates to our Costa Rican
friends. The UK is the first country to complete a U.S. treaty regarding foreign financial institution
(FFI) exemptions and compliances. FATCA is bringing foreign governments to the table to negotiate
with the IRS on behalf of their national banks!

The truth is, both countries are agreeing to share
information regarding their citizens; the UK will also receive information on their citizens in the U.S.
As I have been saying for many years, with the internet and computers, there are no secrets in the world
anymore.

On the heels of this agreement, I received a call from a banker in the UK. Their institution was not
exempted in the UK treaty, but they want to keep their U.S. citizen accounts and comply with the IRS
FATCA regulations. In order to establish their compliance status with the IRS, they are going to do
three things:

Request voluntary compliance from account holders.

An initial contact of all obvious U.S. account holders will request that they voluntarily provide their
social security number. The compliant FFI will then file a form like the IRS Form 1099, just as
American banks file.

Prove compliance to IRS.

“Our dilemma,” the banker told me, “Is that there may be some U.S. citizens that do not respond to our
request for information. To maintain our compliance status, we have to prove to the IRS that we have
identified and reported on all U.S. citizens!”

To do this, the bank has started running algorithms on
all existing accounts data to determine any U.S. activity in any account. This includes searching for
U.S.-based telephone numbers, addresses on deposited checks, and any other bank transfer information
available. As well as cross-referencing this information with third-party databases for more complete
information.

Even foreign financial institutions that do not work with U.S. citizens have to prove it; Big Brother is
here.

Withhold income paid to non-disclosed accounts.

Withhold and pay to the IRS, 30% of any income associated with any account identified as U.S. in the
algorithm, but not disclosed by the account holder. That means that at your banking level, the income
credited to an undisclosed account will only be 70% of what was earned! Without a social security
number, the withholding will be forwarded to the IRS in the name of the account, possibly lost forever
in the bureaucracy.

To rent or buy this 54 minute video with Costa Rica Attorney Roger Petersen please visit our Video On Demand page here.

Why are they so motivated?

Not only does a bank like this hold substantial assets from U.S. citizens, they may also hold substantial
investments in the U.S. They want to continue to receive 100% of their income on these U.S.-based
investments. Remember, if they are non-compliant, 30% of the bank’s income will be withheld on their
U.S-based investments.

Who needs to worry?

Many U.S. expats believe that the IRS will never find their foreign financial accounts. With FATCA,
the IRS has motivated foreign financial institutions to find your accounts for them. For some countries,
it may take a couple more years, but based on my conversations with FFIs at present, and understanding
what they are seeking to do for compliance, the IRS will likely find your foreign bank accounts sooner
rather than later.

U.S. citizens attempting to hide assets abroad by not disclosing foreign financial assets (IRS Form
8938) or volunteering a U.S. social security number to the foreign financial institution will need to
worry soon. In addition to IRS penalties starting at $10,000 per year, per account, U.S. citizens that are
non-compliant will have 30% of their foreign-based income withheld by compliant foreign financial
institutions.

Who doesn’t need to worry?

Many U.S. expats live on social security income and small retirement pensions that fall below the U.S.
requirement to file income taxes. For these folks, there is NO requirement to file the IRS Form 8938
since they have no tax return to attach it to. The annual IRS filing requirement depends on age and
marital status and changes each year. These requirements can be looked up online www.irs.gov

Remember, IRS Form 8938 does not replace the FBAR report (Form TD 90-22.1) that is filed with
the U.S Treasury Department separate from your U.S. tax return. If you hold foreign financial assets
totaling $10,000 or more, you still must still file an FBAR — even if you don’t file a tax return.

There is a lot of information circulating regarding the HIRE Act and FATCA regulations. This is
an area of the U.S. tax law that is changing as it is implemented. If you are living and/or investing overseas, you need to work with a U.S. tax professional skilled in international tax issues.

These kinds of conversations are all part of our overall services to our clients at NCH Tax & Wealth Advisors. Please email us if you have any questions: expat@nchwealth.com where questions are always FREE!

Please feel free to pass this along to anyone you think might benefit from this information. We appreciate all referrals.

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Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.