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Foreign financial institutions must report U.S. accounts
The Treasury Department and the IRS have issued proposed regulations for implementing the next major phase of the Foreign Account Tax Compliance Act.
Enacted in 2010 as part of the Hiring Incentives to Restore Employment Act, the Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.
The proposed regulations lay out a step-by-step process for U.S. account identification, information reporting and withholding requirements for foreign financial institutions (FFIs), other foreign entities and U.S. withholding agents.
To avoid withholding under FATCA, a participating FFI will have to enter into an agreement with the IRS to:
Identify U.S. accounts
Report certain information to the IRS regarding U.S. accounts
Verify its compliance with its obligations pursuant to the agreement
Ensure that a 30 percent tax on certain payments of U.S. source income is withheld when paid to nonparticipating FFIs and account holders who are unwilling to provide the required information
Registration will take place through an online system, which will become available by Jan. 1, 2013. FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating to U.S. investments.
Read more about the proposed regulations here.
The technical information here is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.
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