Under one of the provisions of the Foreign Account Tax Compliance Act (“FATCA”), withholding agents are required to withhold 30% of certain payments to a foreign financial institution (“FFI”) unless the FFI has entered into an agreement with IRS to report certain information with respect to U.S. accounts in an effort to bring an end to international tax evasion. Recently, in Notice 2013-43 and Notice 2013-31 IRB 113, the Treasury Department and the IRS extended the deadline for certain FFIs to implement certain FATCA requirements.

What is FATCA?

FATCA is an IRS initiative aimed at preventing U.S. citizens and taxpayers from avoiding paying income tax on their foreign investments and accounts. The law was enacted in March 2010 and became effective on January 1, 2013. Under FATCA, foreign institutions must report to the IRS the existence of offshore accounts and investments by U.S. taxpayers. The law essentially requires these foreign institutions to go through all their accounts and information to identify any U.S. taxpayers with investments, then share that information with the IRS. Any U.S. taxpayers who are found to not have submitted an FBAR will face heavy penalties.

Requirements of Foreign Financial Institutions under FATCA

In order to comply fully with FATCA, an FFI must sign an intergovernmental agreement (“IGA”) with the IRS. In some cases, the FFI and the IRS have entered into a tentative agreement, but have not executed a formal IGA. Prior to Notice 2013-43, these financial institutions would run the risk of failing to comply with FATCA by the original deadline. However, under Notice 2013-43, qualifying FFIs are given additional time to enter into a formalized IGA. Specifically, the Notices delay FATCA withholding until July 1, 2014. A second component of the recent Notices clarifies that FFIs which have entered into IGA with the U.S., but have not fully implemented FATCA, are still treated as though there is an IGA in effect.

Countries Currently Complying with FATCA

Under the FATCA regulations, the IRS and the Treasury Department must publish a list that contains all countries that are treated as having an IGA with the United States. According to recent Notice 2013-43, the official list of FATCA countries will include countries who have a not-completely-implemented IGA. In order to be included on the list of FATCA complying FFI, the FFI must register on the FATCA website by July 1, 2014.

A Tax Attorney Can Help with Your International Tax Issues

If you have accounts or investments with foreign financial institutions, then you might be impacted by FATCA. If any of your accounts are undisclosed, then FATCA might result in the existence of your account being disclosed to the IRS through an IGA with your financial institutions. In many cases, taxpayers in this situation may need to voluntarily disclose the account to the IRS through the OVDP. In order to fully understand and evaluate the options available to you and your complicated tax situation, you should consider working with an experience tax attorney.

In accordance with Circular 230 Disclosure

Original Source By:  William Hartsock