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“Financial Accounts” Does Not Include Most Securities for Purposes of FATCA Reporting Compliance.

On Behalf of | Feb 10, 2012 | Uncategorized |

Proposed Regulations and Joint Statement by the United States, France, Germany, Italy, Spain and the United Kingdom Regarding a Joint Approach to Fight Tax Evasion.

The IRS issued nearly 400 pages of proposed regulations this week regarding the reporting requirements of foreign financial institutions (FFIs) and withholding on certain payments to FFIs and to foreign entities. (REG-121647-10). In addition to providing detailed instructions regarding reporting and withholding requirements, modified procedures for identifying U.S. accounts, reporting that may be postponed and clarification that “financial accounts” do not include most securities are important provisions for review.

Additionally, the U.S. Treasury Department issued a joint statement this week regarding an “Intergovernmental Approach to Improving International Tax Compliance and Implementing FATCA” with partner countries.

The Foreign Account Tax Compliance Act was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act to help fight tax evasion by U.S. taxpayers with offshore investments and to create transparency in determining the ownership of U.S. assets in foreign accounts. (P.L. 111-147)

Beginning with the 2011 tax year, U.S. taxpayers will have to report offshore assets to the IRS on a new form (Form 8938) if their aggregate assets exceed $50,000. Foreign financial institutions will also have a reporting duty to provide certain information directly to the IRS regarding financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest beginning in 2013. In 2012, FFIs will enter into an agreement with the IRS where they will have to implement certain identification procedures with account holders; report accountholders who are U.S. persons or foreign entities with substantial U.S. ownership to the IRS each year; and actually withhold and pay over to the IRS 30-percent of any payments of U.S. source income, or in some cases withhold and pay over all of the gross proceeds from the sale of securities that generate U.S. source income if the FFI is not participating in the program, or certain account holder information is not provided.

The proposed regulations released this week provide instructions to aid in identifying account information, reporting, withholding requirements and additional important provisions, including:

•· An extension of grandfathered obligations

•· An expansion of FFIs that are deemed compliant

•· The allowance of electronic review for identification for certain US accounts

•· The process for FFI compliance certification without audit

•· Postponement of certain information reporting

•· Definition of financial accounts to include traditional bank, brokerage, and money market accounts, and interests in investment vehicles, but not most debt and equity securities issued by banks and brokerage firms.

To review the general considerations and possible intergovernmental approach to improve international tax compliance and implement FATCA, click here.


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