by Brian Mahany
I vividly remember a job application for a summer job at an oil refinery many years ago. One of the questions was, “Are you addicted to or take illegal narcotics?” You don’t have to be the brightest to work in a refinery but they didn’t clearly were concerned about stoners working around explosive gasses and corrosive chemicals. The only problem is how much can you rely on someone, especially an addict, to tell the truth?
Fast forward to the 2012 and the new FATCA regime. (FATCA is the Foreign Account Tax Compliance Act) For years the IRS has asked U.S. taxpayers on Schedule B to check a box if they own or have signatory authority over a foreign bank account. Unfortunately, according to studies, hundreds of thousands of taxpayers have either lied or simply don’t understand the question. Now foreign financial institutions are asking us if they can comply with the new FATCA onboarding regulations by simply having a “check the box” question on their new account forms.
The answer is “NO.”
Obviously, this is a complex subject and doesn’t lend itself to a 500 word blog post. The purpose of this article, however, is to get FFIs to begin to think about their obligations well before the implementation date. (“FFI” is short for “Foreign Financial Institution” and is the IRS term for foreign banks, hedge funds, money market accounts and even insurance companies that offer annuities or insurance products with certain investment components.)
The new and draft regulations are expected to require a much more robust response. “Check the box” is a form of self -certification. It requires the account holder to determine if he has U.S. reporting requirements. That method hasn’t worked well in the past and there is no reason to believe that the government will simply be satisfied with such a response by offshore banks and brokerage firms.
There are new software solutions being developed (we are affiliated with Finomial, however other options certainly exist) and a series of things that should be checked for institutions that wish to develop their own solutions.
The good news is that the IRS has pushed back some of the key compliance dates and the new FATCA reporting regime is being phased in. New account onboarding requirements will come first followed by more detailed reviews and ultimately, withholding requirements for certain payments.
For a quick review of key deadlines, see our recent post here. Remember, however, that the dates and rules are still evolving and further changes are likely.
If you are a U.S. institution, U.S. real estate development project or foreign bank, hedge fund or other entity with FATCA requirements, please give us a call. Our law firm was recently selected by the CPAmerica organization of accounting firms to be their exclusive legal services vendor for offshore reporting services. We are the boutique alternative to the high priced “Big 4” and big law firms, many of whom are still learning about the new law themselves.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California.