FATCA: how to be in compliance with US tax authorities
The Foreign Account Tax Compliance Act (FATCA) is a regulation introduced by the US Congress on March 18, 2010 as anti-avoidance provision whose aim is to hit the subjects of US origin who make use of foreign vehicles in order to conceal their income from US tax authorities. Once having identified a US Taxpayer, the Italian Financial Intermediary must communicate all its data (amounts invested, accrued interest, dividends, etc.) to the Italian tax authorities (Agenzia delle Entrate), which, in turn, will pass the information on to the US Internal Revenue Service (IRS) who will check the coincidence of such data with those indicated in the tax return by the US Taxpayer.
A person is considered a US Taxpayer if he/she is a US citizen or is a US tax resident. Many US citizens living in Italy are not aware of FATCA, so they have not filed any tax returns in USA. The IRS has developed a specific procedure for those living abroad for more than three years and who have failed to file a tax return or submit a statement of possession of financial assets abroad. This procedure, called Offshore Voluntary Disclosure Program, requires that the taxpayer declare that his/her failures are “involuntary” and due to “negligence, inadvertence or mistake made in good faith interpretation of a provision”. The key aspect that characterizes this procedure is that the US citizen will not be required to pay any penalty; this procedure is the best way to sort out this situation and be in compliance with the US tax authorities.
To be eligible for the Streamlined Foreign Offshore Procedures you must:
- be an individual US taxpayer or
- be an estate of a US taxpayer and
- if a US citizen, must have a valid Social Security Number or
- if not eligible for a Social Security Number, must have an Individual Taxpayer Identification Number (ITIN) or apply for one and
- not have a US abodeand
in one or more of the most recent three years that a US tax return was due (or an extension was properly filed) has passed
- have failed to report the income from a foreign financial asset and pay tax as required by U.S. law, and may have failed to file an Foreign Bank and Financial Accounts Report (FBAR) with respect to a foreign financial account, and such failures resulted from non-willful conduct and
- meet the applicable non-residency requirement (was physically outside the United States for at least 330 full days).
The steps involved to use the streamlined procedure are:
- Submit complete and accurate tax returns for the last three years that a tax return is due (for example if filing in 2014, submit the 2011, 2012 and 2013 tax returns). Ensure you include all necessary related informational returns such as the Forms 5471 and 3520.
- If a tax return was filed previously, submit a complete and accurate amended US income tax return (Form 1040X) for the last three years that a tax return was due (for example, if filing in 2014, submit the 2011, 2012 and 2013 tax returns) together with the required information returns.
- Include at the top of the first page of each delinquent or amended tax return and at the top of each information return “Streamlined Foreign Offshore” written in redto indicate that the returns are being submitted under these procedures. This is critical to ensure that your returns are processed through these special procedures.
- Complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying (1) that you are eligible for the Streamlined Foreign Offshore Procedures; (2) that all required FBARs have now been filed; and (3) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct. You must submit the original signed statement and you must attach copies of the statement to each tax return and information return being submitted through these procedures. You should not attach copies of the statement to FBARs. Failure to submit this statement, or submission of an incomplete or otherwise deficient statement, will result in returns being processed in the normal course without the benefit of the favorable terms of these procedures.
- Submit payment of all tax due as reflected on the tax returns and all applicable statutory interest with respect to each of the late payment amounts. Your taxpayer identification number must be included on your check. You may receive a balance due notice or a refund if the tax or interest is not calculated correctly.
After having completed the procedure, there is only one way to avoid the obligation to report income to US tax authorities: renounce American Citizenship. Should this be the route you choose you must:
- Find the nearest embassy or consulate in your area (it is not possible to renounce US citizenship in the United States).
- Contact the embassy or consulate and make an appointment to renounce citizenship.
- Bring your US passport as proof of residence and communicate your intention to renounce your citizenship to an appropriate official.
- Sign an oath of renunciation in the presence of a US consular or diplomatic agent. By signing the oath, all purposes and rights granted to a US Citizen are canceled irreversibly.
- Wait until the US Federal Department honors or refuses the request for waiver. If the request is approved, you will receive a certificate of loss of citizenship by the US government. Citizenship is not legally canceled until you receive this certificate.
For further information please contact firstname.lastname@example.org