Information letter from bank for U.S. persons
I received a letter from my (Dutch) bank asking if I'm a U.S. person. Why?
As part of FATCA, (Dutch) financial institutions are required to identify U.S. persons who are accounts holders and provide the IRS with certain annual information on those account holders and the accounts held.
Part of the identification process includes the banks sending out a questionnaire to establish whether you are an U.S. person or would otherwise have a U.S. filing requirement.
What happens if I complete the letter and inform the bank that I am a U.S. person?
Accountholders identified as U.S. persons will be included in the annual reporting to the IRS. This will include provide the IRS with details on the value of their accounts and the earnings generated in those accounts.
In addition, it would require the banks to also report your capital gains and capital gains distribution to the IRS. As explained banks have decided not to adjust their administration to be able to provide the IRS with this information. Therefore, the bank will, most likely, close your investment accounts and / or not allow you a new investment account.
My (Dutch) bank wants to close my investment account. Can they?
The (Dutch) banks will argue that they are forced to do so because of law changes based on FATCA. It is true that because FATCA reporting requirements to the IRS, banks needed to adjust their recordkeeping of earnings on investment accounts. But the fact is that instead of incurring the expenses involved with adjusting their recordkeeping, the banks choose to instead to cancel the investment accounts of U.S. persons.
So, it is not the law forcing the banks to close your accounts, but it was their own choice based on internal budget decisions. Nevertheless, refusing to have your security account closed will probably prove to be a battle you will not win. However, we have been successful in assisting clients in at least not incurring any losses by having the bank refund / compensate the clients original investment amount.
What if I refuse to respond to the bank letter and not report myself as a U.S. person?
As part of FATCA requirements, the banks are required to identify U.S. accounts holders. FATCA rules state that financial institutions are required to impose a 30% withholding on any payments made to accountholders refusing to identify themselves as U.S. persons. This 30% withholding is currently being discussed, but chances are that banks will start enforcing this withholding requirement.