Tagged Under : accounting professional, Daniel Stoica, Department of Treasury, FATCA, FFI, financial institutions, foreign accounts, HIRE, IRS, tax professional, taxpayers, withholding
The Department of Treasury and the IRS announced the implementation of the requirements for the Foreign Account Tax Compliance Act (FATCA). This new law is for the non-compliance of U.S. taxpayers with foreign accounts. Financial institutions in foreign countries and United States holding agents will be given enough time to get documentation together in order to be compliant with the new law.
The implementation of FATCA will aid in U.S. efforts to fight for compliance with offshore account holders. The IRS is fully aware that taking action on this is huge for all financial institutions. It reflects how serious the IRS and the Treasury Department is about enforcing this law, but they also understand how challenging it will be for the financial institutions that are affected. They will need to adjust how they do business to make compliance as easy as possible for everyone.
As part of the Hiring Incentives to Restore Employment (HIRE), the FACTA was made into law in 2010. It required all FFIs (foreign financial institutions) to report all information about their accounts held by U.S. taxpayers to the IRS. The FFIs that participate will enter into an agreement with the IRS to:
-Identify all U.S. taxpayer accounts,
-Report information to the IRS regarding U.S. accounts, and
-Withhold a 30% tax on payments to non-participating FFIs and account holders who are unwilling to provide the required information.
Should an FFI not enter into this agreement, they will have to withhold some payments such as U.S. interest and dividends, gross proceeds from U.S. taxpayer deposits on securities, and all pass-thru payments.
IRS Notice 2011-53. The IRS and the Treasury will provide a feasible time frame for FFIs and U.S. agents to put into action the requirements of the FATCA. The FATCA notices specifies the following:
-An FFI must enter into an agreement with the IRS by June 30th, 2013, to make sure it is identified as a participating FFI in enough time to let withholding agents stop withholding beginning on January 1st, 2014.
-Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1st, 2014, and withholding on all allowed payments will be fully in place on Jan. 1st, 2015.
-Requirements for identifying new and pre-existing U.S. accounts will begin in 2013. Reporting requirements will begin in 2014.
-High risk accounts include private banking accounts with a balance that is equal to or greater than $500,000.
The IRS and the Department of Treasury are working with businesses and foreign government to make sure the FATCA is effective.
If you have any questions about the FATCA, please contact a tax professional.