Bermuda’s banks intend to check on their account holders to identify “US persons” and supply their details to US tax authorities, in order to comply with tough new American regulations designed to catch tax dodgers.The Bermuda Bankers’ Association yesterday told The Royal Gazette that all of its members intended to comply with the Foreign Account Tax Compliance Act (Fatca), which will require a list of US persons holding accounts here to be sent to the Internal Revenue Service (IRS) every year.For Bermuda banks, compliance may entail a lot of work. As well as the thousands of US guest workers on the Island, there are many dual-nationality Bermudian-Americans, and spouses of Americans, people with an American parent and green card holders, who fall into the category of “US persons”, whether or not they possess a US passport.Any institution failing to comply will be hit with a 30 percent tax on all income and sales proceeds from a US source, leaving local banks with little choice but to comply.The US is one of few countries in the world that taxes its citizens living overseas on the income they earn outside the US.With the US Government’s national debt up around the $16 trillion mark, the Internal Revenue Service (IRS) is seeking to maximise tax revenue — and a growing focus is Americans overseas that may be slipping through its net.This newspaper approached HSBC Bermuda, Butterfield Bank and Capital G bank to ask what they were doing about Fatca. In response, we received a statement from the Bermuda Bankers’ Association, saying all its members will be fully compliant with Fatca.“Under Fatca, all financial institutions worldwide are required to identify if any individual with whom they have a relationship is a US person, the statement reads. “This applies whether the individual holds an account directly or as beneficial owner of an entity, such as a company or trust.”The statement adds that banks will be amending their account opening processes with effect from July 1, 2013 to identify whether the owner of the new account is a US person.“In addition, they [the banks] will be reviewing all existing accounts to identify whether any owners of these accounts are US persons,” the statement adds. “Depending on the type of account, the regulations require that this review exercise is completed by either June 30, 2014, or June 30, 2015.“Once a US person is identified as being the owner of an account, their details and account balances as at the end of each calendar year will be reported to the US tax authority on an annual basis.”Visiting Bermuda this week was Anne Hornung-Soukup, finance director of American Citizens Abroad (ACA), an advocacy group which has long fought for taxation based on residency rather than citizenship, as practised by most countries.In an interview she outlined her concerns about Fatca.“What Fatca means is that every financial institution in the world outside the US will effectively be an instrument of the IRS,” Ms Hornung-Soukup said.“How it will work in practice is posing a lot of problems. They’re struggling to put the system in place. There are a couple of models being discussed. The first is that the information from the bank goes straight to the IRS. For them to give this type of information directly to a foreign government is against the law in many countries.“In the second model the information would go to the domestic authorities, for example the Bermuda Government, who would then pass it onto the US Government.”Some European governments, including the UK, have agreed to provide account holders’ information to the IRS on the condition of reciprocity. Germany, for example, has reportedly been particularly vocal about the need for US banks to supply information about German account holders as a strict condition of their Fatca compliance.Some have suggested that the clampdown could backfire, if institutions or countries choose not to comply with Fatca, and their clients and residents pull their money out of US investments.The number of US citizens in Bermuda is unknown. Jennifer Patterson, of Patterson Partners, a firm that provides financial planning advice to dual nationality Bermudians and Bermudians with US connections, believes as many as a third of Bermuda’s population could be US persons. That underlines the scale of the banks’ task ahead in finding and listing them all for the IRS.US citizens resident overseas have been required to report their US bank accounts and file tax returns for many years, but only in recent times has the IRS been really clamping down on compliance, says Martha Harris Myron, also of Patterson Partners.She said US tax rules were having an impact even at the family level.“I know that some American wives — and husbands — have been taken off bank accounts to avoid having to report them to the IRS,” Ms Harris Myron said.“That’s OK if the marriage is stable, but it can lead to problems. These people become financially isolated and vulnerable. Much of this can be dealt with by planning.”Ms Hornung-Soukup, an Illinois native who lives in Switzerland, said the ACA considered Fatca “unimplementable” and that it just added to the difficulties experienced by US citizens living overseas.“In Switzerland, Americans are being thrown out of Swiss banks, because they don’t want to deal with these rules,” she said. “But US banks are also getting rid of American account holders who live overseas. An account I had in the US for more than 30 years was just closed by the bank.”Useful websites:http://www.irs.gov/Businesses/Corporations/Summary-of-Key-FATCA-Provisionswww.americansabroad.orgwww.patterson-partners.com