2017 FATCA Updates

Foreign Nationals & Expats

Houston Tax Attorney

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2017 FATCA News

Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers with foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers in which U.S. taxpayers hold a substantial ownership interest. FFIs are encouraged to either directly register with the IRS to comply with the FATCA regulations (and FFI agreement, if applicable) or comply with the FATCA Intergovernmental Agreements (IGA) treated as in effect in their jurisdictions.

There are two types of IGA agreements:

  1. Model 1: This agreement provides for reciprocal information exchange between the United States and the partner jurisdiction.
  2. Model 2: This type of agreement is not reciprocal. The partner jurisdiction will provide information regarding U.S. account holders to the United States, but not vice versa.

Intergovernmental Agreements (IGAs)

Several updates have been made in 2016 and 2017 (highlighted).

There are several statuses that an agreement could be in:

  1. Signed: the IGA has been signed and agreed to by both the US and foreign taxing authority; however, it may not yet be in force unless indicated
  2. Agreement in substance: an IGA has not been finalized, but the US has reached “agreements in substance” with the foreign jurisdiction
  3. In force: the obligation to exchange information officially begins when the competent authorities provide notification that each is satisfied with the other’s confidentiality safeguards and infrastructure necessary for sharing information

FATA Intergovernmental Agreements

Participating Foreign Financial Institutions

Even if the jurisdiction may not have an IGA in force, foreign financial institutions may be voluntarily providing information to the IRS. You can search the FATCA Foreign Financial Institution List to see if your financial institution is on the list.

If your institution is on the list then you may receive a letter from the financial institution if the financial institution has reason to believe that you are a US person (or have US nexus). Eventually your information will be reported to the IRS directly by the financial institution (model 2 IGA) or through the foreign competent authority (model 1 IGA).

Once the IRS receives this information, it can choose a number of options. It can open up a civil examination of the taxpayer’s return. In the very worst cases (e.g., several million $, located in a tax haven, etc), it may result in a criminal investigation. At this point it may be too late to enter into the offshore voluntary disclosure program (OVDP) or streamlined filing compliance procedures.

That is why it is imperative to contact an attorney to discuss your options if you have unreported foreign assets. If you’ve received a letter from your foreign bank, you should immediately seek counsel before responding.

Foreign financial institutions (FFIs) are continuing to send FATCA letters to their US citizen account holders. Along with the letter, you may also receive a Form W-8 BEN or W-9. If you’ve received a letter, you need to contact a tax attorney immediately. There are several methods of becoming compliant with your foreign accounts but you must do so before the IRS contacts you. After you’ve been contacted by the IRS, it is too late to participate under the voluntary disclosures. You are subject to the maximum penalties at that point.

The Future of FATCA and the Offshore Voluntary Disclosure Program

While there has been a strong movement in recent years to repeal FATCA, it has not gained momentum with the new administration. Regardless it could not be done through an executive order. It would require an act of Congress and probably an overhaul of the tax system. FATCA has come a long way in bringing foreign financial institutions into cooperation and negotiating Intergovernmental Agreements with foreign countries. Too much time and effort has been invested by governments and banks in complying with FATCA for the US government to repeal it now. It is here to stay.

Jan 2017 FATCA News

1. Saudi Arabia has signed a Model 1 Intragovernmental Agreement (IGA) on November 15, 2016. Saudi Arabia had previously agreed to a FATCA IGA in substance but this finally makes it official. You can expect to see continued and perhaps escalated participation from Saudi Arabian banks to comply with FATCA requirements.

2. Model 1 intergovernmental agreements (IGAs) with Panama and Georgia have entered into force on November 7, 2016.

3. A decision by the Israeli Supreme Court has cleared the way for FATCA implementation by lifting a temporary injunction on the disclosure of information to U.S. authorities under Israel’s intergovernmental agreement (IGA). In connection with the decision, the Israeli government has agreed to give individual taxpayers at least thirty days to object to the inclusion of their information in data transferred to U.S. authorities under the IGA. Implementation of the IGA began on September 30, 2016.

4. Indian financial institutions are now past the August 31, 2016 deadline to provide FATCA information regarding US account holders to taxing authorities.

5. The FBAR filing deadline has changed to April 15 from June 30 to coincide with the tax return filing deadline. And taxpayers will be able to request a 6 month extension similar to their tax returns. This change will affect FBAR filings in 2017 and beyond.

July 2017 FATCA News

While many believed that FATCA would be repealed by the new administration, it appears that exactly the opposite is occurring. The IRS is making it easier for foreign financial institutions to comply with FATCA. The FATCA online registration now allows foreign financial institutions to renew their reporting agreements on the financial holdings of U.S. persons.

Your foreign financial institution will now be able to renew their agreement with the IRS to provide financial information regarding U.S. persons to the IRS. The initial online registration was delayed in 2013, but has been recently revamped. Institutions that are required to renew their FFI agreement and who fail to do so by July 31, 2017 will have been treated as having terminated their FFI agreement. Financial Institutions who fail to comply with FATCA could face significant fines or be prohibited from being business with American clients.

ments

1. Saudi Arabia has signed a Model 1 Intragovernmental Agreement (IGA) on November 15, 2016. Saudi Arabia had previously agreed to a FATCA IGA in substance but this finally makes it official. You can expect to see continued and perhaps escalated participation from Saudi Arabian banks to comply with FATCA requirements.

2. Model 1 intergovernmental agreements (IGAs) with Panama and Georgia have entered into force on November 7, 2016.

3. A decision by the Israeli Supreme Court has cleared the way for FATCA implementation by lifting a temporary injunction on the disclosure of information to U.S. authorities under Israel’s intergovernmental agreement (IGA). In connection with the decision, the Israeli government has agreed to give individual taxpayers at least thirty days to object to the inclusion of their information in data transferred to U.S. authorities under the IGA. Implementation of the IGA began on September 30, 2016.

4. Indian financial institutions are now past the August 31, 2016 deadline to provide FATCA information regarding US account holders to taxing authorities.

5. The FBAR filing deadline has changed to April 15 from June 30 to coincide with the tax return filing deadline. And taxpayers will be able to request a 6 month extension similar to their tax returns. This change will affect FBAR filings in 2017 and beyond.

The Future of FATCA and the Offshore Voluntary Disclosure Program

While there has been a strong movement in recent years to repeal FATCA, it has not gained momentum with the new administration. Regardless it could not be done through an executive order. It would require an act of Congress and probably an overhaul of the tax system. FATCA has come a long way in bringing foreign financial institutions into cooperation and negotiating Intergovernmental Agreements with foreign countries. Too much time and effort has been invested by governments and banks in complying with FATCA for the US government to repeal it now. It is here to stay.

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