The provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) became law in March of 2010. FATCA targets tax non-compliance by U. S. taxpayers and focuses on the reporting of individuals and financial institutions. However, to aid in compliance with the act, the IRS underwent several “phases” of enforcement (so to speak). Well, the IRS has announced that they will treat the remainder of 2014 and all of 2015 as a “transition period” for financial institutions to comply with FATCA requirements.
This transition period will not postpone the implementation of any parts of the law, including the 30% withholding rate on transactions by non-compliant financial institutions. Rather, the IRS will gauge whether or not financial institutions are moving towards compliance in a good faith manner. If they are, then those financial institutions will not be penalized.
The IRS is still in the process of developing all of the new forms that will be required as part of the FATCA compliance process (the W-8 series). The IRS still expects foreign financial institutions to make progress towards compliance for the next 18 months, but will be lenient towards enforcement. The IRS has also warned that companies that are normally required to withhold funds for various purposes must continue to do so. The FATCA transition will not be an excuse to avoid normal backup withholding, for example.
More and more foreign governments are signing information sharing agreements with the IRS, as well. Even more governments have negotiated agreements that have yet to be signed.
On a personal level, it is becoming more and more difficult to avoid the long arm of the IRS. If you maintain accounts overseas, check to make sure that your foreign financial institution is either compliant, or working towards compliance, with FATCA. This will help you avoid the 30% withholding on any transactions between your foreign and U. S. financial institutions.
If you have questions regarding how FATCA will impact you, have questions about your FBAR filing, or any other matters pertaining to your overseas financial interests, please be sure to give us a call at 773-239-8850 to discuss these matters.