Millie » November 8th, 2014, 8:42 am
What is FATCA?
The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Starting July 1, 2014 Foreign Financial Institutions (FFI) are required by the US government, under FATCA, to report information regarding accounts of all US citizens (living in the US and abroad), US "persons," green card holders and individuals holding certain US investments to the IRS.
FATCA requires foreign financial institutions such as local banks, stock brokers, hedge funds, insurance companies, trusts, etc. to report accounts of US persons directly to the United States, or to the government of the bank’s country for further transmission to the US through Intergovernmental Agreements (IGAs) or be subject to a 30% withholding on their US investments.
FATCA also requires US citizens who have foreign financial assets in excess of $50,000 (higher for bona fide residents overseas – $200,000 for single filers and $400,000 for joint filers – see the IRS website for more details) to report those assets every year on a new Form 8938 to be filed with the 1040 tax return. Instructions for form 8938 were published in December 2011 and can be found on the IRS website.
Many Americans residing overseas are reporting banking lock-out. Many foreign financial institutions have chosen to eliminate their US citizens and US person client basis in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties.
ACA, Inc. advocates a Same Country Exception to alleviate the problem of “lock-out” whereby some Foreign Financial Institutions (FFIs) refuse to do business with Americans because of FATCA reporting. Same Country Exception would exclude the reporting of accounts owned by Americans abroad where the account is with a Foreign Financial Institution in the same country where the individual is a resident. This would alleviate the filing burden for FATCA on Americans as well as the identification and disclosure of these accounts by the Foreign Financial Institution
To learn more about FATCA and how it might impact you, you can consult the IRS website or speak to your tax advisor for more information.
(Updated September 2014)
10 Facts About FATCA, America's Manifest Destiny Law Changing Banking Worldwide
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Never heard of FATCA? You will. FATCA—the Foreign Account Tax Compliance Act—is America’s global tax law. It was quietly enacted in 2010, and after a four-year ramp up, it’s finally in effect. What is most amazing is not its impact on Americans—although that is considerable—but its impact on the world. Yes, the whole world.
Never before has an American tax law attempted such an astounding reach. And it’s clear FATCA has succeeded, after shrewd diplomacy by President Obama and his Treasury Department. (There are probably some congratulatory emails somewhere!) FATCA requires foreign banks to reveal Americans with accounts over $50,000. Non-compliant institutions could be frozen out of U.S. markets, so everyone is complying.
Here are 10 facts about FATCA:
1. FATCA Blew In On a Perfect Storm. FATCA grew out of a controversial rule. America taxes its citizens—and even permanent residents—on their worldwide income regardless of where they live. In 2009, the IRS struck a groundbreaking deal with UBS for $780 million in penalties and American names. Recently, Credit Suisse took a guilty plea and paid a record $2.6 billion fine.
Since then, with over a hundred Swiss banks taking a DOJ deal and many other developments, banking is now more transparent than could ever have been imagined. FATCA was enacted in 2010, when only some of those developments were unfolding. The idea was to cut off companies from access to critical U.S. financial markets if they didn’t pass along American data. And boy did that idea work.
2. Everyone Around the World is Complying. More than 80 nations—including virtually every one that matters—have agreed to the law. So far, over 77,000 financial institutions have signed on too. Countries must throw their agreement behind the law or face dire repercussions. Even tax havens have joined up. The IRS has a searchable list of financial institutions. See FFI List Search and Download Tool and a User Guide. Countries on board are at FATCA – Archive.
3. Even Russia and China Agreed to FATCA. If you think money anywhere can escape the IRS, think again. Even notoriously difficult China and Russia are on board. Which is more amazing? Probably Russia. The U.S. and Russia were negotiating a FATCA deal until March, 2014, but Russia’s annexation of Crimea caused the U.S. to suspend talks. That meant Russian financial institutions faced being frozen out of U.S. markets. Russia took last minute action to allow Russian banks to send American taxpayer data to the U.S. when President Vladimir Putin Signed a Law in the 11th Hour to Satisfy U.S. Treasury.
4. FATCA is America’s Big Stick. Cleverly, FATCA’s 30% tax and exclusion from U.S. markets would be so catastrophic that everyone has opted to comply. Foreign financial institutions must withhold a 30% tax if the recipient isn’t providing information about U.S. account holders. The choice is simple, and that’s why everyone is complying.
5. Everyone is on the Lookout for American Indicia. Foreign Financial Institutions (FFIs) must report account numbers, balances, names, addresses, and U.S. identification numbers. For U.S.-owned foreign entities, they must report the name, address, and U.S. TIN of each substantial U.S. owner. And in what is a kind of global witch hunt, American indicia will likely mean a letter. Don’t ignore it.
6. FBARs Are Still Required. FBARs predate FATCA, but get ready for duplicate reporting. FATCA just adds to the burden, including Form 8938, but it doesn’t replace FBARs. The latter have been in the law since 1970 but have taken on huge importance since 2009. U.S. persons with foreign bank accounts exceeding $10,000 must file an FBAR by each June 30.
These forms are serious, and so are the criminal and civil penalties. FBAR failures can mean fines up to $500,000 and prison up to ten years. Even a non-willful civil FBAR penalty can mean a $10,000 fine. Willful FBAR violations can draw the greater of $100,000 or 50% of the account for each violation–and each year is separate. The numbers add up fast. Court Upholds Record FBAR Penalties, Exceeding Offshore Account Balance.
7. FATCA is Compelling Compliance. U.S. account holders who aren’t compliant have limited time to get to the IRS. The IRS recently changed its programs, making its Offshore Voluntary Disclosure Program a little harsher. Yet for those not willing to pay the 27.5% penalty—which rose to 50% August 4, 2014 for some banks—the new IRS’s Streamlined Program may be a good option for those who qualify.
The latter applies now to both foreign and U.S.-based Americans. Some still want to amend their taxes and file FBARs in a “quiet disclosure” which could bring civil FBAR penalties or even prosecution. Thus, caution is clearly in order.
8. Banking Will Never Be the Same. FATCA is making banking transparent worldwide. With Swiss bank deals, prosecutions, summonses, and FATCA, the IRS has quicker, better and more complete information than ever.
9. Forget Repeal or Dismantling FATCA. Republicans have mounted a lackluster repeal effort, but there’s no serious push to repeal FATCA. At least not one that’s getting traction. (No hate mail please, but honest, repeal now isn’t likely.) Some say FATCA will be like prohibition, lasting for a time but doomed. We’ll see, but it sure doesn’t look that way now.
Still, Canadians recently Filed Suit To Block FATCA And Prohibit Handover Of U.S. Names To IRS. The suit claims the Inter-Governmental Agreement under which Canada can turn over private bank account information is illegal. The legal claim challenges the constitutionality of the agreement the Canadian government struck with the United States.
10. Don’t Count on Other Passports. Some dual nationals or U.S. Green Card holders think they can bypass FATCA—and other U.S. tax rules—by using a non-U.S. passport and non-U.S. address with their foreign bank. Don’t. You may just make it worse, handing the IRS another badge of willfulness. Your bank and the IRS will likely find out eventually, even if not right away.
This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
walkingstick » November 8th, 2014, 10:22 am
US anti-tax evasion law, FATCA, starts to hit home
VIRGINIE MONTET, AFP NOV. 6, 2014, 9:00 PM 474 4
The US Treasury has opened a new front in its war against offshore tax evasion. But for some it amounts to financial imperialism
Washington (AFP) - The US Treasury has opened a new front in its war against offshore tax evasion. But for some it amounts to financial imperialism.
Americans with legitimate bank accounts outside the country, and foreigners working in the United States, have begun receiving letters from their banks in Paris, Tokyo, Johannesburg and elsewhere, informing them that their account information is being turned over to the US tax authority.
It is the culmination of a years-long effort by the Treasury, straining to close the chronic US budget deficit, to get to unreported incomes taxable under US law that get hidden away in bank accounts around the world.
For some the new Foreign Account Tax Compliance Act (FATCA) is an outrage: their foreign banks are now handing over their confidential information to the US government.
Under newly inked treaties with the United States, some 100,000 foreign financial institutions in more than 100 countries must report to the Treasury on the accounts of any so-called "US persons" -- a US citizen, or anyone with an immigrant's "green card" or a US work permit.
"That's shocking, how can they do that?" said Helene, a French woman working in Washington after receiving a letter like that from her bank back home. She did not want her family name used.
For some time Americans with bank accounts abroad have been required to report them to the Treasury's Internal Revenue Service (IRS), in case they have US-taxable income in them.
But FATCA now puts the burden on foreign financial institutions to do the reporting. If they do not, the Treasury threatens a 30 percent withholding tax on the bank's US earnings.
Official estimates say FATCA will uncover enough hidden assets and income to generate some $8 billion in additional tax payments to the US government over 10 years.
Richard Harvey, a tax law professor at Villanova University who helped craft the FATCA rules, estimates the take could be "more like $20 to $30 billion".
But with the huge task of collecting the data and handing it over, some foreign banks are wondering if allowing accounts from potentially US tax-liable customers is worthwhile.
In September La Revue Suisse, a newsletter for Swiss citizens abroad, said that some banks had stopped accepting accounts from certain clients because of the tougher regulations.
"I know that foreign nationals who live in the US, some of them have had their bank accounts back in Europe shut down," said Dan Mitchell, a tax reform expert at the Cato Institute.
"You are not talking only about Swiss banks or Cayman banks... you are talking banks in the UK, in Japan. Nobody likes this law."
- Renouncing citizenship -
The problem of the wealthiest Americans hiding money overseas to avoid taxes has existed for a long time. Harvey said FATCA was created in part because of the fear that the globalization of finance would give far more people the opportunity to hide their money.
"It was becoming very clear that it wasn't going to be just the very wealthy, but that it could really be the middle class and upper-middle class that could start moving income offshore."
While foreigners inside the United States squirm over having their offshore account data delivered to the IRS, a number of US citizens facing the same treatment are voting with their feet.
With the IRS chasing their accounts to force them to pay US taxes, last year some 3,000 people gave up US nationality, and another 1,577 did so in the first half of 2014.
But even doing that has been hit by the government: Washington has now hiked the fee for formally renouncing citizenship to $2,350 from $450.
And paying that does not fully fend off the taxman. The Treasury says renouncing citizenship will not erase outstanding US tax obligations.
FATCA, meanwhile, is generating ire against foreign governments for accepting the US reporting rules.
In Canada, where there are many people with dual US-Canadian nationality, the Alliance for the Defence of Canadian Sovereignty accused Ottawa of infringing on their rights by signing a FATCA accord with Washington.
The Cato Institute's Mitchell criticized the fact that, for their part, US banks are not even permitted to supply information to foreign governments on their nationals' US accounts.
"There is no reciprocity, it's a one-way street. It really is financial imperialism on the part of the USA."