Sep 12, 2012

Alison Dougherty

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Stay Ahead of the Curve on Foreign Account Tax Act (FATCA) Compliance

The Foreign Account Tax Compliance Act (“FATCA”) was enacted on March 18, 2010 as part of the Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147, H.R. 2847).  The purpose of FATCA is to help improve U.S. compliance involving foreign financial assets and offshore accounts.  FATCA affects U.S. taxpayers and foreign financial institutions.  FATCA requires U.S. taxpayers with specified foreign financial assets that exceed certain threshold amounts to report such assets to the IRS on Form 8938 beginning with the 2011 tax filing season.  FATCA also requires foreign financial institutions (“FFIs”) to report directly to the IRS information regarding financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.  The IRS has posted information and resources on its website regarding the FATCA compliance requirements for U.S. taxpayers and foreign financial institutions.

See: http://www.irs.gov/businesses/corporations/article/0,,id=236667,00.html.

The IRS issued Temporary Treasury Regulations T.D. 9567, effective on December 19, 2011, regarding the Form 8938 reporting requirement for specified foreign financial assets.  The IRS updated its questions and answers regarding the Form 8938 on June 7, 2012.   The IRS also has a comparative chart of the Form 8938 and the Foreign Bank Account Report (“FBAR”) Form TD F 90-22.1 filing requirements.

In a news release on July 26, 2012, the U.S. Treasury Department released a Model Intergovernmental Agreement for Implementing FATCA to Improve Offshore Tax Compliance.   The model agreement was developed through coordination with France, Germany, Italy, Spain and the U.K.   In a news release on February 8, 2012, the IRS announced the issuance of nearly 400 pages of proposed regulations regarding FATCA compliance for foreign financial institutions.  In a prior news release on July 14, 2011, the U.S. Treasury Department and the IRS issued guidance to outline the phased in implementation of FATCA compliance beginning in 2013.

FATCA requires foreign financial institutions to enter into an agreement with the IRS to identify U.S. accounts and report certain information to the IRS regarding U.S. accounts.  Foreign financial institutions that do not enter into an agreement with the IRS will be subject to a 30% withholding tax on certain types of payments, including U.S. source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments.  The 30% withholding tax applies to certain payments to non-participating FFIs and when account holders are unwilling to provide the required information.

In addition to the nearly 400 pages of proposed regulations regarding FATCA compliance for FFIs, the IRS issued new draft Forms W-8BEN for individuals and entities on May 31, 2012.  The new draft Form W-8BEN for entities is substantially longer and more comprehensive than the current form.  Stay current with FATCA compliance and watch for more information regarding when the new Forms W-8BEN will be required going forward.

For further information, please contact your Aronson LLC tax advisor or Alison Dougherty, International Tax Services at 301.231.6290 for more information.