Tags: FATCA | IGA | FFI | IRS

US Treasury Announces 6-Month Delay in Implementing FATCA

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Tuesday, 16 Jul 2013 08:31 AM Current | Bio | Archive

The U.S. Treasury announced on July 12 that due to overwhelming concern from countries around the world, the implementation of the Foreign Account Tax Compliance Act (FATCA) would be deferred from Jan. 1, 2014, to June 30, 2014.

IRS Notice 2013-43 provides: 1) revised timelines for implementation of FATCA, and 2) additional guidance concerning the treatment of foreign financial institutions (FFI) whose country has signed an intergovernmental agreement (IGA) or where the Treasury will treat the country as if they had.

The IRS has not yet established its online registration portal that would allow foreign participating institutions to begin the process of registering by creating an account and entering the FATCA required information. The registration portal is now expected to be open on Aug. 19, 2013.

Effectively, in order to ensure that a FFI would be included on the IRS FFI list, the FFI would need to finalize their registration by April 25, 2014.

To date, only 10 IGAs have been signed, although discussions have been ongoing with dozens of countries. Consequently, FATCA compliance may differ significantly depending on whether the FFI is in a country with an IGA or in a not-yet compliant IGA country. There will also be differences if the IGA is a form of a Model 1 IGA or Model 2 IGA and whether the IGA has provisions requiring U.S. reciprocity in reporting U.S. financial institution information.

Although the IRS has issued a draft form of IRS Form W-8BEN-E (an eight-page form containing 20 different types of FATCA categories reflecting the enormous complexity of FATCA), it is expected that the IRS will finalize the W-8BEN-E sometime in the fall of 2013. It is expected that guidance will be finalized so that affected taxpayers will be able to confidently prepare and file it.

There is a significant amount of controversy surrounding the IGAs and the potential for having the United States being committed to provide reciprocity. The Treasury Department, in its IGA negotiations, had promised in some manner that the information reporting through an IGA or by the accountholders directly would work as a two-way street. Some of the foreign governments will sign only where the United States provides "equivalent levels of reciprocal automatic exchange" with foreign "FATCA partners."

The Treasury has acknowledged that it does not have the statutory power to make any such promise of reciprocity. It has requested such power in the administration's budget for fiscal year 2014, which has been sent to Congress to overcome what would be a fatal flaw in FATCA.

If such statutory authority is given to the Treasury, the consequences would be that every FATCA-type financial institution in the United States would become an FFI to the other IGA countries. The U.S. financial institutions would then have to go through the same registration process and information reporting on their customers that the FFIs from IGA countries must deal with now.

The question then becomes, will Congress pass the necessary legislation.

At this point, there are opponents in the House of Representatives where the tax bills originate. Rep. Bill Posey, R-Fla., a key member of the House Financial Services Committee, has written a letter to Secretary of the Treasury Jack Lew pointedly turning down any thought of imposing FATCA on U.S. institutions.

As Posey has stated, "[i]t is difficult to conceive of any circumstance that would justify imposing such an expensive and counterproductive domestic mandate."

In addition to getting approval from the House Financial Services Committee, an approval will be needed from the House Ways and Means Committee.

Without the IGAs, FATCA is effectively unenforceable.

It remains to be seen if any other countries will move forward to sign any further IGA, considering the extraordinary and, for the most part, unknown cost, customer loss, additional insurance coverage and legal liability (e.g., data privacy and cybersecurity) that an FFI would incur in becoming FATCA compliant.

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The U.S. Treasury announced on July 12 that due to overwhelming concern from countries around the world, the implementation of the Foreign Account Tax Compliance Act (FATCA) would be deferred from Jan. 1, 2014, to June 30, 2014.
FATCA,IGA,FFI,IRS
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2013-31-16
Tuesday, 16 Jul 2013 08:31 AM
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