Treasury Proposes FATCA Guidance for Foreign Banks
The Treasury Department and IRS have released a document as the next step in implementing FATCA in an effort to combat offshore tax evasion.
FATCA requires the provision by foreign financial institutions the information on the holdings of U.S. taxpayers or else face stiff penalties. The law has made a controversy both in the U.S. and abroad violating the banking secrecy laws. The Treasury has delayed implementation of the law while negotiating intergovernmental agreements with a number of foreign countries.
The next step in implementation, Notice 2013-69 previews proposed guidance and provides a draft agreement for participating foreign financial institutions directly engaging in agreements with the IRS and those reporting through what has become known as a “Model 2” intergovernmental agreement. The document, which was released Tuesday, aims to provide FFIs with advance notice prior to the beginning of FATCA withholding and account due diligence requirements on July 1, 2014. The FFI agreement will be finalized by Dec. 31, 2013, according to the IRS and the Treasury Department.
To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, the Treasury has developed two alternative model IGAs. Under Model 1, FFIs report to their respective governments who then relay that information to the IRS. Under Model 2, FFIs report directly to the IRS to the extent that the account holder consents or such reporting is otherwise legally permitted, and such direct reporting is supplemented by information exchange between governments with respect to non-consenting accounts. The Treasury said the regulations were designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years. For example, the final regulations exempt all preexisting accounts held by individuals with $50,000 or less from review.
The withholding requirements will begin next July and the first report of FATCA information is due in 2015, but the IRS FATCA registration Web site is already open so that FFIs can begin testing the registration process and entering information.
For the draft notice and FFI agreement, click here. For updates and further information on the IRS FATCA page, click.
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