FATCA – the Foreign Account Tax Compliance Act – has been widely criticized by people and bankers around the world. Several governments including Canada and India have expressed their concerns directly to Washington. Responding to the pressure, the government has twice postponed implementation of the new law. With the newest and “final” start-up date now looming large on the horizon, a coalition of American financial institutions are now seeking another delay.
The American Bankers Association, Clearing House Association L.L.C., Institute of International Bankers (IIB), and Securities Industry and Financial Markets Association have joined forces to seek a further postponement. The IIB is an industry association of foreign banks with branches located within the United States.
While FATCA remains unpopular in many circles, some countries such as France, the United Kingdom and Spain have embraced the law and plan on introducing their own local FATCA laws.
FATCA was enacted by Congress in 2010. It’s stated goal is to foster better reporting of foreign bank accounts and reduce tax evasion. U.S. law requires U.S. taxpayers to report their offshore financial holdings if the total value of those holdings exceeds $10,000. Reporting is done annually on one’s income tax return and on a FBAR form. Many taxpayers must also file a special FATCA informational return (IRS Form 8938) when submitting their annual income tax return.
Beginning in 2014, FATCA will require foreign financial institutions to review their account records and report those with ties to the United States. Despite the fact that the law will be in full force within a few months, less than a dozen countries have signed up. Many are in active negotiation but time is running out.
The IRS has promised to issue it’s final FATCA regulations by the end of the year but US banks and brokerage firms say that isn’t enough time.
Many of the agreements signed by other countries or under discussion require a reciprocal exchange of information. The banking industry says there isn’t enough time to wait for the regs and then figure out what each country is entitled to receive in reciprocal information. They also say that having a mid year start date – July 1st, 2014, complicates withholding issues. Finally, they claim that the new W-8BEN-E form is too complex and will require considerable resources to complete.
It’s interesting that the banks are only seeking to delay FATCA. While many say the law should be repealed, the banking lobby appears to believe that the law is here to stay.
If you have unreported foreign accounts, there are ways to come into compliance and avoid the serious penalties associated with FBAR violations. No one knows whether an other extension will be granted but we believe the law is here to stay. Even if FATCA were repealed tomorrow, the harsh FBAR penalties under the Bank Secrecy Act remain and the IRS and Justice Department have proven themselves quite adept at enforcing those laws. All of this means that no matter the IRS may do, time is running out to come into compliance and avoid some of the harshest penalties in the tax code.
We welcome questions about FATCA, FBAR and foreign reporting issues and will gladly explain your responsibilities and explore your options. Our FATCA attorneys have helped many taxpayers with a wide variety of offshore reporting problems.
For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author may also be contacted at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence. Our IRS tax services are available worldwide.
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Post by Brian Mahany, Esq.
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