The recent IRS announcement that it would phase in requirements of the Foreign Account Tax Compliance Act (FATCA) is a bow to sanity. It’s also good policy for taxpayers and the government, not just banks. Requirements for this sweeping law, which targets U.S. taxpayers who hide assets overseas, were originally set to go into effect in January 1, 2013. Under key provisions, foreign financial institutions (FFIs) must enter into agreements with the IRS to report information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial interest.
The move will give foreign financial institutions (FFIs) more time to complete the daunting task of developing the internal systems needed to comply with FATCA. Likewise, it will offer U.S. taxpayers time to complete what can be a time-consuming process of figuring out if and how much they owe, and settling up with the government. Finally, this approach increases the government’s chances of actually achieving its goal of collecting more taxes on offshore accounts.
Enacted in 2010, FATCA requires FFIs to establish due diligence procedures for U.S. account holders, and withhold and pay the IRS 30 percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income made to non-participating FFIs and foreign entity accountholders who are unwilling to provide required information.
“Today’s notice is a reflection of our serious commitment to implementation of the statute, but also a serious commitment to listen to the implementation challenges of affected institutions and make appropriate adjustments to ensure a smooth and timely roll-out,” explained IRS Commissioner Doug Shulman July 14.
Granted, the move is a reaction to complaints from stressed out banking officials facing a fundamental change in their procedures and an onslaught of new requirements. However, it also makes good business sense. Stay tuned. The process of implementing FATCA will likely call for more adjustments.
IRS FATCA PHASE-IN SCHEDULE
UNDER NOTICE 2011-53, IMPLEMENTATION OF FATCA WILL BE PHASED IN AS FOLLOWS:
June 30, 2013 – FFI’s must enter an agreement with the IRS by June 30, 2013, to be identified as a participating FFI in time to prevent agents from withholding.
2013 – Due diligence requirement for the purpose of identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. High risk accounts include private banking accounts with a balance equal to or greater than $500,000.
2014 – Reporting requirements begin.
Jan. 1, 2014 – On this date withholding on U.S. source dividends and interest paid to non-participating FFIs will begin.
Jan 1, 2015 – Withholding on all withholdable payments (including on gross proceeds) will be fully phased in.
Stanley Foodman, CEO, Foodman CPAs & Advisors is a recognized forensic accounting and litigation support practitioner, specializing in international tax. A pioneer in the field, he has served as an expert witness and forensic accountant for some of the nation’s most complex, high-profile economic crime cases. Mr. Foodman is a former auxiliary special agent for the Florida Department of Law Enforcement with specialization in economic crime – money laundering, bank fraud, public corruption and discovery of hidden assets. He serves on the advisory board of the International Association for Asset Recovery (IAAR).
Foodman CPAs & Advisors is a full service accounting and litigation support firm, specializing in forensic accounting and international tax. One of the top 25 accounting firms in South Florida, Foodman represents clients locally, nationally and internationally.