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Delays in FATCA Compliance Rules and the Effect on FFIs and Account Holders

Although FATCA (Foreign Account Tax Compliance Act) was passed in 2010, it has seen numerous delays in implementing the information sharing and reporting requirements that are at its core.  This has given something of a reprieve to foreign financial firms (FFI) who have struggled to adjust to the new information sharing regime mandated by the US government.  US taxpayers that hold foreign accounts also have had more time to evaluate how to handle their investments.

The Dilemma for FFIs Under FATCA

Originally slated to go into effect January 1, 2014, that start date was postponed until July 1 to give FFIs more time to implement internal procedures, understand the IGA (intergovernmental agreement) that may be in place and begin accurate reporting.  The IRS has not been helpful to the FFIs as the guidance offered on reporting has been vague.  The FFIs who report directly to the IRS will be using no fewer than four different forms, all in English, to give account details.  Others will use whatever measures their own governments come up with to meet the standards of an IGA in place with the US.  In either case, it is an administrative headache that has many FFIs divesting themselves of US account holders to avoid the burden of reporting.

Many fully expected another delay as July approached, but instead the IRS gave something of a reprieve to FFIs this month.  They have named the reporting years of 2014 and 2015 as a “transition period” for FATCA where good faith efforts by FFIs to comply will avoid any of the consequences of the 30% withholding on US sourced payments.  In other words, the FFIs have time to sort out how to interpret and use the IRS forms, and as long as they are making an reasonable attempt then the rules will not be strictly enforced.

US Account Holders Given More Time to React

This also seems to affect US account holders with assets over $50,000 held in an FFI.  The FATCA rules penalize non-disclosure with a $10,000 minimum fine, but it appears those penalties may be delayed,  giving account holders time to decide how to structure their offshore investments.  For some, that may mean dividing assets among accounts to avoid the $50,000 minimum, or simply moving into other assets such as real estate or precious metals, which up to this point are not covered by FATCA.

Even if a US citizen avoids the FATCA reporting requirement, they are still required to list foreign accounts under FBAR (Report of Foreign Bank and Financial Accounts), that total in aggregate $10,000 at any point in the reporting year.  This would seem to cover the majority of offshore investors, expats and account holders, who are of continuing interest to the US tax authorities.  FBAR willful violations carry federal criminal tax evasion penalties and minimum civil penalties of 50% of the account’s value, so it is not a requirement one should overlook as a US citizen.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.

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