The Foreign Account Tax Compliance Act (FATCA) was enacted by Congress in 2010 as a way to target non-compliance by U.S. taxpayers using foreign accounts. The U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently announced final amendments to FATCA, which goes into effect in July 2014.
FATCA requires foreign financial institutions (FFIs), including foreign banks, hedge funds and other financial institutions to report on the holdings of U.S. citizens and dual citizens to the IRS, or else face stiff penalties. It has faced sharp criticism from financial institutions around the world and many FFIs have closed the accounts of U.S. taxpayers.
The amendments announced in February 2014:
- Make additions and clarifications to previously issued FATCA regulations; and
- Provide guidance to coordinate FATCA rules with preexisting due diligence, reporting, and withholding requirements under other provisions of the Internal Revenue Code (chapter 3, chapter 61, and section 3406).
In the process of implementing FATCA, the US government has signed intergovernmental agreements (IGAs) with 22 countries, including Switzerland. The IGAs “facilitate the effective and efficient implementation of FATCA information reporting in a manner that removes foreign law impediments to compliance, fulfills the information reporting objectives of chapter 4, and further reduces burdens on FFIs located in partner jurisdictions.”
While the Treasury Department hails these regulations as “Last Substantial Rules Package to Combat Offshore Tax Evasion,” I expect we will see additional extensions on FATCA as processes are put in place both by the IRS and FFIs to comply with the regulations.
For More Information:
Treasury Releases Last Substantial Rules Package to Combat Offshore Tax Evasion, Department of Treasury Press Release, February 20, 2014
Bilateral Agreement between the US and Switzerland to Implement FATCA, Boston Tax Attorney Blog, February 19, 2013
Treasury, IRS Issue Proposed Regulations for FATCA Implementation; U.S. and 5 European Countries Agree to Cooperate in Fighting Tax Evasion, Boston Tax Attorney Blog, February 14, 2012