IRS Releases New Timeline for FATCA Implementation

Posted by Michael Nydegger on October 24, 2012

The IRS released Announcement 2012-42 today, delaying the deadlines for certain steps in FATCA implementation, and better aligning the deadlines in regulations with those under the model intergovernmental agreements.  Announcement 2012-42 was issued in response to numerous comments received from financial institutions, trade associations, and foreign governments regarding the proposed regulations for implementing FATCA (see BakerHostetler's FATCA site at www.bakerlaw.com/internationaltax/fatca for the comment letters and proposed regulations, in addition to other FATCA resources).  In addition to releasing the announcement, the IRS also released a helpful table summarizing the new deadlines.

Significantly, the IRS is instead requiring new account opening procedures to begin on January 1, 2014 (or the effective date of an FFI agreement, whichever is later).  In addition, many other due diligence deadlines and withholding deadlines were postponed by 6 months from those in the proposed regulations.  The new deadlines for withholding agents and participating FFIs are as follows:

  • For preexisting accounts of FFIs, due diligence must be completed by June 30, 2014 (or 6 months after the effective date of an FFI agreement, whichever is later);
  • For preexisting accounts of entities other than prima facie FFIs, due diligence must be completed by December 31, 2015 (or two years after the effective date of the FFI agreement, whichever is later);
  • For preexisting high value accounts of individuals, participating FFIs must complete due diligence by the later of December 31, 2014, or one year after the effective date of the FFI agreement; and
  • For all other preexisting individual accounts other than high value accounts, participating FFIs must complete due diligence by the later of Decemer 31, 2015 or two years after the effective date of the FFI agreement.

In addition to the new account opening procedure deadlines and due diligence deadlines listed above, the announcement postponed withholding on gross proceeds to December 31, 2016.  In addition, the announcement noted that the following types of obligations will be treated as grandfathered obligations: (1) any obligation that produces or could produce a foreign passthru payment and that cannot produce a withholdable payment, provided that the obligation is outstanding as of 6 months after the date final regulations defining passthru payments are filed with the Federal Register; (2) any instrument that gives rise to a withholdabel payment solely because the instrument is treated as giving rise to a dividend equivalent pursuant to section 871(m), provided that the instrument is outstanding 6 months after the date on which instruments of that type first become subject to such treatment; and (3) any obligation to make a payment with respect to, or repay, collateral posted to secure obligations under a swap.

For more information on FATCA implementation timelines and requirements, please contact Paul Schmidt at (202)861-1760, Allen Littmen at (202)861-1686, Scott Dayan at (202)861-1584, or Michael Nydegger at (202)861-1688.

IRS Issues Updated Guidance for 2012 Offshore Voluntary Disclosure Program

Posted by Jennifer Benda on June 26, 2012

On June 26, 2012, the Internal Revenue Service (“IRS”) released new FAQ’s on the current Offshore Voluntary Disclosure Program (“OVDP”) . The IRS opened the current OVDP on January 9, 2012, but, other than announcing the new FBAR penalty of 27.5%, had not issued updated guidance, leaving practitioners and taxpayers to rely on the 2011 program FAQ’s and a January 2012 news release for details on the program.

Unlike the 2009 and 2011 programs, the current program does not specify a range of years for the disclosure period.  Instead, the disclosure period is “the most recent eight tax years for which the due date has already passed” and does not include “current years for which there has not yet been non-compliance.” 

Another new feature of the current OVDP is that it has no set end date.  The IRS has reserved the option to change the terms of the program, undoubtedly to make them less favorable, or to end it entirely at any time.

The new FAQs are available here: new%20FAQs.pdf

The IRS also announced that it will provide special procedures for US citizens living abroad who failed to file US income tax returns and FBARs but have little to no U.S. tax liability.  This special procedure will be available September 1.  Details have not been provided. 

The IRS also increased its estimate of the amount of money it has recovered through the three iterations of the program to $5 billion.

Please contact Jay Nanavati at 202-861-1747, jnanavati@bakerlaw.com, or Jim Mastracchio at 202-861-1650, jmastracchio@bakerlaw.com, if you have any questions regarding this post.

 

 

 

U.S. Treasury Releases Joint Statements with Switzerland and Japan Announcing Intent to Cooperate on FATCA Enforcement

Posted by Jay R. Nanavati on June 21, 2012

The U.S. Treasury released joint statements with Switzerland and Japan announcing their “mutual intent to pursue a framework for intergovernmental cooperation to facilitate the implementation of the Foreign Account Tax Compliance Act (FATCA).”  The Treasury has already released similar joint statements with France, Germany, Italy, Spain and the United Kingdom.

The Treasury pointed out that the framework for cooperation with Switzerland and Japan differs from that with France, Germany, Italy, Spain and the United Kingdom.  It called the latter “Model II.”  Model II involves the direct reporting by foreign financial institutions (“FFIs”) to the Internal Revenue Service (“IRS”), where Model I involves reporting by FFIs first to their respective governments, followed by automatic transmission of the information to the U.S. government.

The idea behind the two separate models is to allow FFIs to provide information on U.S. accounts to the U.S. government without violating the privacy laws of their respective governments.  The Treasury’s announcement said that a model intergovernmental agreement pursuant to Model I would be released “soon.”  In the last few days, Michael Danilack, IRS Deputy Commissioner (International) of the Large Business and International Division (“LB&I”), has been more precise, saying that he expects a model agreement to be released “much sooner than the end of the summer . . . .  There's a great urgency to that. We have to get it done.”  The Treasury has given no indication of when a model agreement pursuant to Model II might be released.

Treasury’s announcement comes in the wake of other recent developments.  In December 2011, the IRS released a revised Form 8938, Statement of Foreign Financial Assets.  In June 2012, the IRS released drafts of Forms W-8BEN and W-8BENE (for entities), Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.

Please contact Jay Nanavati at 202-861-1650, jnanavati@bakerlaw.com, if you have any questions regarding this post.