The banks, feeling the heat of a new law that punishes them for shielding U.S. customers, also are seeking waivers that will take them off the legal hook if something goes wrong in the future with a U.S. customer's account.
The letters typically include various documents to be signed, along with a threat to close the account if the customer doesn't comply, according to tax advisers. They say they are hearing about the letters from account holders at banks around the globe, including Switzerland, Israel and countries in Asia.
Swiss bank BSI SA, based in Zurich, for example, has sent a form authorizing account closure if needed and releasing the bank from "any and all liabilities for all the transactions that you have executed," according to a copy of the letter shown to Dow Jones Newswires. Included with the letter was an IRS Form W9, on which the customer must list their U.S. taxpayer identification number, and a form titled Declaration of U.S. Person that gives the bank authority to report information to the IRS and waives the customer's rights under Swiss bank secrecy law.
The bank didn't return a request for comment.
The letters signal a widening, and increasingly aggressive, campaign by international banks to protect themselves from U.S. official action even at the cost of losing U.S. customers. Since 2009, the IRS and U.S. Justice Department have been cracking down on offshore tax evasion, focusing first and most intently on UBS AG (UBS, UBSN.VX) and then extending to other Swiss banks and elsewhere.
Passed in 2010, the Foreign Account Tax Compliance Act, or Fatca, was designed to get more offshore assets onto the IRS's radar. Several of the law's provisions start to take effect this year and will require both U.S. citizens and foreigners living in the U.S. to report more about their overseas holdings on their tax returns.
Anyone who gets a Fatca-related letter from a bank and refuses to sign it faces a dilemma once the account is closed, says Scott D. Michel, a partner at the Washington office of law firm Caplin & Drysdale. "They have to find something to do with the money," he says, "which in this increasingly compliance-oriented global financial system usually means that one way or the other the account will come to the attention of the U.S. government."
Not everyone who has an overseas account is trying to hide assets from the IRS. Financial advisers say that, in general, clients with international connections--parents or children living overseas, for example--are worried about tripping over IRS reporting rules.
Jim Holtzman, a financial planner and certified public accountant at Legend Financial Advisors in Pittsburgh, says his clients are "jumpy" about what to do with foreign accounts.
Financial advisers and accountants have dreaded Fatca in large part because it means more, and sometimes duplicative, reporting. A taxpayer with more than $10,000 in an offshore account, for example, already must file a Report of Foreign Bank and Financial Accounts with the IRS. Now, anyone with at least $50,000 in a foreign account will have to report it separately on another form to the IRS.
Advisers who learn a client has money stashed overseas can help the person think through whether it is worthwhile to enter a special amnesty program the tax agency runs. Penalties are capped and criminal charges won't apply.
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