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The U.S. Treasury Department and the IRS have announced the scheduled Jan. 1, 2014, rollout of withholding, reporting and other rules in the Foreign Account Tax Compliance Act (FATCA) has been delayed six months. The delay is expected to give the United States more time to conclude negotiations and sign agreements to implement FATCA with foreign governments. The rules have not, however, been delayed for reporting by individuals.
Far reaching in scope, FATCA requires certain foreign financial institutions (FFIs) to report information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The reporting institutions include not only banks, but also other financial institutions, such as investment entities, brokers and certain insurance companies.
FATCA also requires that some individuals holding financial assets outside the United States must report those assets to the IRS. The IRS has developed Form 8938, Statement of Specified Foreign Financial Assets. This reporting requirement is separate from the longtime reporting requirement under the Bank Secrecy Act to file an “FBAR” (Form TD F 90.22-1, Report of Foreign Bank and Financial Accounts).
In early 2013, final FATCA regulations were issued, requiring withholding agents to withhold 30 percent of certain payments (called “withhold-able payments”) to FFIs unless the FFI has entered into a reporting agreement with the IRS. To avoid withholding under FATCA, a participating FFI must enter into an agreement with the IRS to:
The final regulations called for the gradual phasing-in of the FATCA rules beginning in 2014 and continuing through 2017. Now, the start of some of the FATCA rules are further delayed, including rules on withholding, reporting and due diligence by FFIs. Withholding agents generally will be required to begin withholding on withhold-able payments made after June 30, 2014, instead of Dec. 31, 2013.
Withholding agents also generally will be required to implement new account opening procedures by July 1, 2014. In addition, Treasury and the IRS intend to modify the final regulations so that the information reports previously required from certain FFIs on U.S. accounts for the 2013 and 2014 calendar years will be required only for 2014 (with respect to U.S. accounts identified by Dec. 31, 2014). Reporting by these FFIs would be required by March 31, 2015. Additionally, all qualified intermediary agreements that would otherwise expire on Dec. 31, 2013, will be extended to June 30, 2014. The launch date of the IRS’s online FATCA registration site has also been delayed to Aug. 19, 2013.
Since FATCA became law, the United States has been negotiating with foreign jurisdictions to implement its reporting requirements, developing two model intergovernmental agreements (IGAs):
FATCA’s rules for reporting by individuals are not delayed. Generally, FATCA requires taxpayers to file Form 8938 if he or she is a U.S. citizen, a resident alien and, in some cases, a nonresident alien. The taxpayer also must own a “specified foreign financial asset,” which includes any financial account maintained by an FFI unless specifically excluded. Additionally, the aggregate value of the specified foreign financial asset must exceed certain reporting thresholds.
For single individuals living in the United States, the total value of the specified foreign financial assets must be more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. For married couples filing a joint return and living in the United States, these amounts are $100,000 and $150,000. The threshold amounts are higher for taxpayers living outside the United States.
Form 8938 is not a substitute for the FBAR. The forms have different filing requirements.
The IRS is also expected to issue rules on FATCA reporting by domestic entities if the entity is formed or used to hold specified foreign financial assets and the assets exceeds the appropriate reporting threshold. Until the IRS issues regulations, only individuals must file Form 8938.
Taking on the complex laws regarding FATCA shouldn’t be done alone. Contact one of Doeren Mayhew’s tax specialists in Michigan, Houston or Ft. Lauderdale to understand the impact on taxpayers here and abroad.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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