Declaration of Consent Letter – A Guide for Expats

Did You Receive A Declaration of Consent Letter From Your Swiss Bank

Many taxpayers have been contacting us because they have received a Declaration of Consent Letter from their Swiss bank and are concerned about whether or not they should consent and if not, what will happen. This is an area in which the taxpayer should rightfully be concerned and delayed action is not recommended. Failure to sign a consent letter can have serious repercussions.

Background On The Declaration of Consent Letter

Some background on why Swiss banks and banks in other countries are sending these letters would be helpful in understanding their context and purpose. Many countries (and many more to come) have signed an agreement to implement FATCA, the Foreign Account Tax Compliance Act. In some countries, such as Switzerland that have a foundation in bank secrecy, they have sought out the consent of their customers as part of their agreement before turning over information. The agreement says that the banks must request from each customer a “Declaration of Consent” to report and simultaneously inform the Swiss Federal Tax Administrator (FTA) if the account holder is a U.S. taxpayer and also if such consent is not given.

On February 14, 2013, the Swiss Government and the United States signed an agreement for the implementation of the Foreign Account Tax Compliance Act of March 18, 2010 (“FATCA”) in Switzerland (“FATCA Agreement”). The purpose of the FATCA Agreement is to simplify the implementation of FATCA for Swiss financial institutions and, at the same time, give them permission to comply with the requirements of FATCA without breaching the bank secrecy inherent in the Swiss legal system.

Swiss banking secrecy laws prevent the disclosure of account information by Swiss financial institutions to the tax authorities. The FATCA Agreement provides a carve-out from Swiss law that would otherwise prohibit Swiss financial institutions from reporting directly to the IRS.

In accordance with the implementation of the FATCA Agreement, your bank is required to disclose information to the US Internal Revenue Service (IRS) via the Swiss tax authority, concerning US accounts.

In this context and in accordance with Article 3 Paragraph 1 letter b of the FATCA Agreement, your bank sent you a declaration of consent to which this letter tor the transmission of your account information to the IRS is attached to.

By returning the validly signed declaration of consent to your bank, you authorize your bank to communicate your account information to the IRS directly. This consent is irrevocable tor the present calendar year and unless expressly revoked it will extend to each following year automatically.

If you received a declaration of consent letter from your Swiss or other country banks, then it probably means that they believe you are a U.S. taxpayer.

Failure To Sign Declaration of Consent Letter

So what will happen if you refuse to sign the letter?

If the bank does not receive your Declaration of Consent by the date specified on the letter or if you do not submit your US tax identification number by the same date, your account will be considered a Non Consenting US Account.

First of all, the bank will close your accounts and such a decision will have serious ramifications.

The bank will also be legally obliged to report the quantity of the accounts and the total amount on all “Non-Consenting US Accounts“ by the end of January 2015, without mentioning the identity of the clients concerned.

Based upon this information and in accordance with Article 5 of the FATCA Agreement, the IRS has the possibility to submit a group request tor administrative assistance (to identify the account holders) regarding “Non-Consenting US Accounts“ to the Swiss competent authority. Such requests are based on the Swiss Federal Tax Administration (FTA) Service tor Exchange of Information in Tax Matters SEI for Pre-existing US Accounts.

The IRS is entitled to ask for that information from the Swiss tax authority and they will likely get the account holder name in time. Once they have an account holder name and if you haven’t already disclosed your accounts on the FBAR (FinCen Form 114) and filed the requisite tax returns and forms, you will likely face significant and extreme civil and criminal penalties.

Since your name will be on a list of non-consenting taxpayers, your refusal to sign and complete the Declaration of Consent Letter will be viewed by the IRS as willful conduct and an affirmative act of tax evasion.

At Tax Samaritan, our recommendation is don’t refuse to sign without advice. The civil penalties for failing to file an FBAR start at 50% of the highest account balance. If your name is on the list of people who refused to sign a declaration of consent, you may also be charged with the willful failure to file an FBAR.

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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self-prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.