IRS Eyes Wealthy's Overseas Accounts
Monday, 11 Apr 2011 06:52 AM
The Internal Revenue Service is focusing on the wealthiest Americans with money overseas as it develops regulations that will require foreign banks to give the government more information about those customers.
In new guidance released today, the IRS said it will direct foreign banks to spend less time identifying and monitoring accounts of people with less than $50,000 and more effort focusing on U.S. account holders with more than $500,000 and with private banking relationships.
The information provided today should help financial institutions figure out the process of identifying U.S.-linked accounts, even though the IRS didn’t answer every question that companies have raised, said Barbara Angus, a partner at Ernst & Young LLP in Washington.
“It has operational impacts on financial institutions, on all aspects of their business, on IT systems, on the account opening process,” she said. “That kind of impact, again, is sort of why information is needed, and needed as soon as possible.”
The requirements, passed by Congress last year, take effect in 2013. They force foreign banks to tell the IRS about U.S. account holders as part of the agency’s effort to combat offshore tax evasion. Banks based outside the U.S. face 30 percent withholding on certain payments from inside the U.S. if they fail to share information with the IRS.
Implementing the Rules
An overall goal of the regulatory process is to get information to stakeholders as quickly as possible, according to a Treasury Department official who spoke on condition of anonymity to describe the agency’s approach. The administration is working on the regulation and knows that financial institutions are anxious to know how to implement the rules by the effective date, the official said.
Financial institutions from around the world, including Allianz SE, Aegon NV and Commonwealth Bank of Australia, filed comments with the IRS after the agency released its first set of guidance on the law last August.
The rules are part of a broader effort by the U.S. government and the IRS to combat offshore tax evasion. Commissioner Douglas Shulman has made the issue one of his top priorities.
Separately, the IRS is operating a voluntary disclosure initiative, which encourages taxpayers with undeclared accounts and income to come forward, pay penalties and likely avoid prosecution. The deadline for entering that program is Aug. 31.
About 15,000 taxpayers came forward during a similar program in 2009, and the IRS has been using the information it gleaned during that process to pursue others, Shulman said April 6. Yesterday, the agency asked a court for a summons that would require HSBC Holdings Plc to disclose information about its U.S. clients with accounts in India.
The information released today deals largely with foreign financial institutions and doesn’t address other questions attorneys have about how the new law will work, said Charles Kolstad, an attorney at Venable LLP in Los Angeles who represents the owners and beneficiaries of trusts.
The law, he said, imposes new reporting requirements on beneficiaries of foreign trusts, even in cases where the beneficiaries may not know trust details. That’s an area where the IRS will need to release future guidance.
“This really doesn’t answer most of the questions that people have,” Kolstad said.
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The Internal Revenue Service is focusing on the wealthiest Americans with money overseas as it develops regulations that will require foreign banks to give the government more information about those customers.In new guidance released today, the IRS said it will direct...