The Foreign Account Tax Compliance Act (FATCA) is about disclosure and transparency, but in part…
Foreign Account Tax Compliance Act (FATCA) online registration program is launched
The Internal Revenue Service on Monday launched an online registration program for the hundreds of thousands of financial firms around the world that must comply with a U.S. anti-tax evasion law or risk being shut out of financial markets.
Starting the registration process, which is accessible on the IRS website, was one of the last steps the tax agency needed to take before the Foreign Account Tax Compliance Act (FATCA), enacted in 2010, takes effect in July 2014 with steep penalties for firms that do not comply.
FATCA requires foreign banks, investment funds and insurance companies to report to the IRS Americans’ offshore accounts worth more than $50,000. It was enacted after a Swiss banking scandal showed U.S. taxpayers hid substantial fortunes overseas
The U.S. Treasury Department last month postponed the start of FATCA from January to July 2014. A key part of the law involves non-U.S. banks and financial firms. Even if they have no U.S. offices, foreign banks and other institutions are asked to do their part in reporting to the IRS on Americans.
FATCA imposes severe penalties on any that do not comply. Foreign financial institutions that fail to comply with FATCA face a 30 percent withholding tax on their U.S. source income. To ease the tensions over a U.S. law that reaches deep into the pockets of foreign institutions, the U.S. government has negotiated intergovernmental agreements (“IGAs”) with many countries. Such IGAs enables foreign banks to turn over U.S. tax information to their local governments, which then will give it to the IRS.
This crucial stage of reporting on Americans involves U.S. account holder data. The IRS will start collecting customer account information from foreign institutions in 2015. In the meantime, though, the IRS has launched an online registration program for financial firms around the world to comply with the law.
The registration process is accessible on the IRS website. To register, a firm gives the IRS its name, mailing address, any branch offices and other basic information. The IRS will not start approving registrations until 2014. Foreign financial institutions must register by April 25, 2014, to avoid FATCA’s withholding penalties.
In June 2014, the IRS is to publish a list of all the institutions that are complying with FATCA. As with the other major FATCA implementation hurdles, the commencement of online registration is a major milestone for the massive reporting law. Many foreign institutions can now more readily develop and fine-tune their software and reporting protocols based on the types of information the IRS will require.
Taxpayers with undisclosed foreign accounts should be a concerned about FATCA’s far reaching implications. As a result, Taxpayers with undisclosed foreign accounts should consult a competent tax lawyer and consider participating in the IRS OVDP program. Although the OVDP penalty regime may seem overly harsh for many, the decision to participate should include an economic analysis of the taxpayer’s projected future earnings that could be generated from the foreign funds. If a taxpayer is discovered before any voluntary disclosure submission, there could be harsh criminal (in addition to civil) penalties. The risks may outweigh the benefits.
Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.