I recently interviewed Felicia M. Seaton (www.feliciaseaton.com), who has been practicing US law since 1996 and is also licensed by the Israel Bar Association as a foreign attorney. She focuses her practice on US income-tax compliance and US estate-planning law for Americans and Israelis residing in Israel.Can you explain FACTA? Seven million US “persons” (humans, trusts, companies, estates) reside outside of the US. Only about 500,000 of them file tax returns annually. Hence, Congress enacted the Foreign Account Tax Compliance Act (FATCA) in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. It is intended to obtain information about US taxpayers who own assets of any kind that are located outside of the US. We increasingly live in a world of data exchange between countries and between financial institutions and governments.Although the IRS has had a mechanism in place for taxpayers to “come clean” since 1948, we find ourselves living in a reality that no longer enables us to ignore our legal obligation as US persons.What does all of this mean for individuals? While serving as commissioner of the IRS through November 2012, Doug Shulman made several statements clearly indicating that the IRS had set out to find US persons living outside of the US who are not filing US tax returns nor reporting to the US. In June 2011, he was quoted as saying, “The risk of getting caught will only increase.”If they have not already done so, expect your non-US financial institutions (whether bank or broker, or transfer agent, etc.) to require you to complete and sign a Form W-9, which is an IRS form. Please note that if you are not a US person, you will submit a different form and be done with any involvement with the IRS, unless of course you own US assets, which is another topic.How will they know? Your financial institution may require you to prove that the information that you have provided is truthful. If you either delay submission of this W-9 form to your financial institution, or outright refuse to submit it, under FATCA your financial institution will be required to withhold 30 percent of any US-source income starting in 2014.This withholding is an amount that will be held by the IRS.The non-US financial institution where you have your account will transfer the funds to the IRS. If an account owner wishes to claim a refund of the withholding amount in part or in its entirety, the account owner will have to apply for a refund or a credit against the withholding amount.How? By filing a US tax return. The result is that the account owner who did not want to be identified, and hence refused to comply with filing the W-9 form, will have to come forth to the IRS and identify themselves and file a tax return to claim any portion of the withholding as a refund or credit.The withholding mechanism is really a penalty, designed to encourage foreign financial institutions to disclose information about US account holders or owners, if any, rather than endure the more unpleasant consequences of 30% withholding from broad categories of payments to them.What if I do not submit a W-9? Can the IRS find me? All US persons will be required (and many already are required today) to complete and sign a W-9 IRS form. This is because FATCA obligates non-US financial institutions to identify all US account holders. Intergovernmental agreements that the US and foreign governments are signing also require identification.For example, in August 2012, Israel’s Ministry of Finance International Affairs Department publicized the formation of a team to examine the application of FATCA in Israel. The ministry’s press release definitively acknowledged the obligation of Israeli financial entities to report US-person account holders to the US tax authorities.Israel and the US are expected to sign an agreement by the end of this calendar year. It is expected to be reciprocal, meaning each government will provide the other with information about their nationals – the US about Israelis owning accounts located in the US, and Israel about Americans owning accounts located in Israel.So will the IRS find you?It is setting mechanisms in place of extensive magnitude to ensure that it does. It is no longer a feasible option to separate out your foreign assets from your US assets for reporting purposes.The governments are already sharing information.“Getting caught” is also not a viable option for you. It is a dangerous risk to take. I frequently tell my clients that they should already consider themselves on the verge of being caught. The foreign financial institutions’ demand that we submit a Form W-9 is really all it takes. Clean it all up once and for all, and do it right. It is time.Part 2 of the interview with will appear next week.The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.[email protected] Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.