It just became even easier for Foreign Financial Institutions (FFIs) to report U.S. Citizen’s income. As you may know, 2014 is the year that FATCA begins to take effect – this means that all countries who have embraced FATCA (18 and counting) and entered into Inter-Government Agreements (IGAs) with the United States will now have a method for “direct reporting” the financial information of U.S. Citizens with foreign financial accouts.
The Final Agreement has not garnered much discontent from most practitioners, commenting that the agreement was similar to the draft agreement. The reporting of U.S. citizen income is the crucial factor for compliance under FATCA. Otherwise, , a 30 percent withholding tax is applied on any payment (interest, dividends or gross sales proceeds) on U.S. securities made to a FFI, unless it agrees to: Identify U.S. policyholders, U.S. beneficiaries, U.S. source investments.
Considering that the 30% may very well exceed any the tax rate for investments (absent income), the penalty is rather steep. Further, FATCA would require the deduction and withholding of 30 percent from any pass-thru payments made to recalcitrant account holders, institutions without an FFI agreement or non-financial foreign entities that do not disclose their substantial U.S. owners. Now that the final agreement has been revealed, participating countries can rest easier.
The main purpose of the FFI agreement is to promote direct reporting, with the least number of hurdles to overcome. It should be noted that not all the IGAs are identical. Under Model 1 IGAs, financial institutions would report the information to their own governments, which then would share the data with the IRS. Model 2 accords generally provide for a modified version of direct reporting to the U.S. To date, Japan, Switzerland and Bermuda have signed Model 2 pacts.
While compliance with FATCA is not necessarily difficult, other key factors to note of the FATCA implementation is the responsibility of compliance officers to provide Certification to the IRS of the completion of the customer identification procedures within one year of the date of the FFI agreement; Annual reporting obligations if either U.S. investments or U.S., and non U.S. or unidentified recalcitrant policyholders and/or beneficiaries;
S. MATTHEW GOLDING, ESQ, EA
S. Matthew Golding is one of only a few attorneys licensed in both New York & California, and has accumulated 15 years of legal experience, as well as experience as an Enrolled Agent (the highest credential awarded by the IRS). His domestic and international law practice emphasizes the representation of clients worldwide in matters involving Civil & Criminal Tax, Estate Planning, Wealth Management, and International Law. Matthew’s clients include U.S. and foreign citizens living abroad in countries such as Iraq, Japan, Afghanistan, Indonesia, South Africa, Pakistan, and Korea. Matthew is currently enrolled in one of the nation’s Top Master of Tax Law Programs at the University of Denver in a distance program designed for experienced professionals. He worked his way through school, graduating University of Denver and Whittier Law School and earning Dean’s List distinction at both institutions.
Member, State Bar of California, 1999-Present (Inactive 2004-2005 while launching NY practice)
Member, State Bar of New York, 2004-Present
Enrolled Agent, Federally Licensed Tax Practitioner
Admitted, United States Tax Court
Real Estate Broker, California Department of Real Estate
Having achieved Enrolled Agent status, Matthew is one of a handful of attorneys licensed to represent individual and corporate clients nationwide before the IRS, IRS Appeals Board, Tax Courts, and Federal Courts. He has been quoted in several news publications, and is the owner of http://www.GoldingTaxSolutions.com; http://www.ExpatTaxAuditHelp.com; and http://www.GoldingRealEstateStrategies.com
Golding Tax Solutions
Golding Tax Solutions