Foreign Banks Given Transition Period for FATCA Compliance

2014 and 2015 will be treated as a transition period for foreign banks that have shown “good faith efforts” in complying with the provisions of the Foreign Account Tax Compliance Act (FATCA), according to new guidance published by the IRS on May 2.

“Based in part on feedback from stakeholders, today's notice outlines several measures to help institutions comply with FATCA in a timely manner,” Robert Stack, US Treasury Department deputy assistant secretary for international tax affairs, said in a statement on Friday, according to a Wall Street Journal article.

Enacted by Congress in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, FATCA, which goes into effect on July 1, is meant to fight offshore tax evasion by US citizens. The law requires foreign financial institutions (FFIs) to report information about accounts held by US taxpayers directly to the IRS, even if the accounts hold only foreign assets.

Similarly, these institutions must report information on accounts held by foreign entities in which US taxpayers have a substantial ownership interest. If a bank refuses to disclose the information, it can be assessed a 30 percent withholding tax on certain US source payments, whether or not the recipient is a US taxpayer.

But those FFIs that have made good faith efforts to comply with the FATCA requirements will be given relief from IRS enforcement during the transition period, according to the Treasury Department and the IRS.

“With respect to this transition period, the IRS will take into account the extent to which a participating or deemed-compliant FFI, non-financial foreign entity (NFFE), sponsoring entity, sponsored FFI, sponsored direct-reporting NFFE, or withholding agent has made good faith efforts to comply with the requirements of the Chapter 4 regulations and the temporary coordination regulations,” the IRS noted in the new guidance.

For example, during the transition period, the IRS said it would consider whether a withholding agent has made “reasonable efforts” to modify its account opening practices and procedures to document the status of payees, apply the appropriate standards of knowledge, and, in the absence of reliable documentation, apply the relevant presumption rules.

J. Richard Harvey, a former IRS adviser who helped craft the FATCA legislation, told the Wall Street Journal that the delayed enforcement ultimately could assist the regulatory effort by helping to avoid a failed launch.

“If the first several months are a disaster, it could lead to calls for its repeal,” said Harvey, now a Villanova University law professor, according to the article. “By signaling they will ease enforcement, they are hopefully taking some of the pressure off the initial implementation.”

The law has triggered complaints in many countries that claim it violates privacy and banking secrecy laws. Tax havens, such as Switzerland and the Cayman Islands, have long been identified as places where US citizens can stash funds without any fear of retribution.

To improve compliance within the global community, the Treasury Department has been negotiating a series of intergovernmental agreements (IGAs) with countries to help the US implement the law. As of May 1, the Treasury had signed 30 IGAs, and had agreements in substance with 29 other jurisdictions.

Related articles:

How FATCA Compliance Just Got Easier
Treasury and IRS Issue Final FATCA Regulations

You may like these other stories...

Former DOJ Tax Division head Kathryn Keneally joining DLA Piper in New YorkGlobal law firm DLA Piper announced on Thursday that Kathryn Keneally, the former head of the US Justice Department Tax Division, is joining the firm...
Event Date: October 21, 2014, 2 pm ETKristen Rampe will share how to speak and write more effectively by understanding your own and your audience’s communication style. When two people have very different communication...
Expense reports are a fact of life for any business that sends employees to visit clients, other offices, or trade conferences. While most employees are honest and abide by corporate rules, there are enough dishonest ones to...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.