A recent survey of 100 worldwide financial services firms indicates that many still are not ready for FATCA. Although extended twice by the IRS, FATCA is now scheduled to go live in July of 2014.
FATCA – short for the Foreign Account Tax Compliance Act – is part of President Obama’s economic stimulus package. Passed in 2010, it requires a wide range of foreign financial institutions to review their accounts and report those with ties to the United States. Several other countries are now considering their own versions of FATCA.
Congress intended that banks and brokerage firms become the eyes and ears of the IRS. The costs of compliance, however, may outweigh the amount of money recovered through the new law. Caught in the crosshairs are the banks, brokerage houses and insurance companies who must bear the costs of compliance – and the penalties if they don’t comply.
Owning a foreign account is legal, of course, but the willful failure to annually report that account is a felony and involves heavy penalties. Because many taxpayers simply don’t know about the law, compliance has been inconsistent and the exception rather than the rule. Congress hoped that by making foreign banks review each account, folks who are hiding money from Uncle Sam will soon be caught.
If most taxpayers are unprepared for FATCA, the same problems are shared by offshore banks. Foreign banks are left with questions, steep compliance expenses and even steeper consequences if they fail to comply with FATCA. Although the IRS can’t regulate foreign financial institutions, they can make it costly for them to do business in the United States or transact business here.
Many foreign countries are not thrilled with FATCA but the drumbeat of tax transparency has become impossible to ignore.
A recent survey by NICE Actimize reveals that most offshore institutions are still ill equipped for next year’s launch. Of 100 institutions surveyed, 55% said their understanding of FATCA was average or poor.
Although many institutions are unprepared, there was little consensus on the biggest challenge of FATCA compliance. The most common challenges listed by the respondents were identifying accounts subject to FATCA (25%), meeting compliance timelines (21%), managing multi-jurisdictional conflicts, finding a solution to meet the program requirements (16%) and managing customer communications and privacy concerns (16%).
With FATCA just months away, just 5% claimed their compliance efforts were complete or nearly complete.
The FATCA attorneys at Mahany & Ertl are ready to immediately assist foreign hedge funds, banks, brokerage firms and commodities dealers with their compliance efforts. The CPAmerica organization of accounting firms has named us their preferred legal services provider for foreign reporting issues.
Worried about the cost? Our rates are half what the big firms charge and our work can usually be done on a flat fee basis.
Post by Brian Mahany, Esq.