Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion

Posted on January 17, 2013 by calgary411

Posted in Issues regarding US persons abroad 93 Comments

US Department of the Treasury News Release

Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion
1/17/2013

NOTE: This document is scheduled to be published in the Federal Register on 01/28/2013 and available online at http://federalregister.gov/a/2013-01025, and on FDsys.gov

Treasury Advances Efforts to Secure International Participation, Streamline Compliance, and Prepare for Implementation of the Foreign Account Tax Compliance Act

WASHINGTON – The U.S. Department of the Treasury and the Internal Revenue Service (IRS) today issued comprehensive final regulations implementing the information reporting and withholding tax provisions commonly known as the Foreign Account Tax Compliance Act (FATCA). Enacted by Congress in 2010, these provisions target non-compliance by U.S. taxpayers using foreign accounts. The issuance of the final regulations marks a key step in establishing a common intergovernmental approach to combating tax evasion.

These regulations provide additional certainty for financial institutions and government counterparts by finalizing the 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.

“These regulations give the Administration a powerful set of tools to combat offshore tax evasion effectively and efficiently,” said Deputy Secretary Neal Wolin. “The final rules mark a critical milestone in international cooperation on these issues, and they provide important clarity for foreign and U.S. financial institutions.”

The final regulations issued today:

Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.

Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.

Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.

Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations: (1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds; (2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and (3) clarify the types of passive investment entities that must be identified and reported by financial institutions.

Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.

Progress on International Coordination, Including Model Intergovernmental Agreements

Since the proposed regulations were published on February 15, 2012, Treasury has collaborated with foreign governments to develop two alternative model intergovernmental agreements that facilitate the effective and efficient implementation of FATCA.

These models serve as the basis for concluding bilateral agreements with interested jurisdictions and help implement the law in a manner that removes domestic legal impediments to compliance, secures wide-spread participation by every non-exempt financial institution in the partner jurisdiction, fulfills FATCA’s policy objectives, and further reduces burdens on FFIs located in partner jurisdictions. Seven countries have already signed or initialed these agreements.

Today, Treasury announced for the first time that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.

Additional Background on the Model Agreements

On July 26, 2012, Treasury published its first model intergovernmental agreement (Model 1 IGA). Instead of reporting to the IRS directly, FFIs in jurisdictions that have signed Model 1 IGAs report the information about U.S. accounts required by FACTA to their respective governments who then exchange this information with the IRS.

Treasury also developed a second model intergovernmental agreement (Model 2 IGA) published on November 14, 2012. A partner jurisdiction signing an agreement based on the Model 2 IGA agrees to direct its FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS.

These agreements do not offer an exemption from FATCA for any jurisdiction but instead offer a framework for information sharing pursuant to existing bilateral income tax treaties. Under both models, all financial institutions in a partner jurisdiction that are not otherwise excepted or exempt must report the information about U.S. accounts required by FATCA. Therefore, the IRS receives the same quality and quantity of information about U.S. accounts from FFIs in jurisdictions with IGAs as it receives from FFIs applying the final regulations elsewhere, but these agreements help streamline reporting and remove legal impediments to compliance.

Background on FATCA

FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA requires FFIs to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order 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, and
Withhold a 30 percent tax on certain U.S.-connected payments to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system. 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.

Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page at Treasury.gov or IRS.gov.

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« American FATCA punishes law-abiding Canadians @ErichTheGreen

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93 thoughts on “Treasury and IRS Issue Final Regulations to Combat Offshore Tax Evasion”

Tim says

January 17, 2013 at 11:55 pm

*Interestingly enough these final regs were NOT published in the Federal Register which the were not really published or are final. Lets see if they make it out tomorrow. If not something is up.
Just Me says

January 18, 2013 at 12:19 am

@badger

Thanks for pointing out that Accounting Today story. I put up a quick comment. Not that anyone reads them.
Just Me says

January 18, 2013 at 12:51 am

@Tim. I wonder is that is just SOP.

I did not see the actual Regulations, all 544 pages of it, posted here, so here is the PDF posted at Maple Sandbox

At the top of the PDF it says…

This document is scheduled to be published in the

Federal Register on 01/28/2013 and available online at

http://federalregister.gov/a/2013-01025, and on FDsys.gov

@Calgary411. Would you add the link to the PDF in the text of your post. Thnx
WatACrock says

January 18, 2013 at 12:56 am

I’m not sure this is the proper place to put this, but it would appear that there’s a US tax accountant answering questions on Reddit right now.

In an effort to get the ball rolling and educate people I’ve asked/made some comments to the accountant as the user RepealFatca. I’m not as well versed at writing as my fellow Brockers here, so if you have some free time head over there and spread the word.

http://www.reddit.com/r/IAmA/comments/16shc7/i_am_an_experienced_tax_accountant_ama_or_dont/
Just Me says

January 18, 2013 at 1:13 am

@WatACrock

Thanks for that. I posed a quick question.
Duke of Devon says

January 18, 2013 at 1:33 am

*Look at the guys handle for goodness sake. It’s not a serious set of posts. Don’t waste your time.
Deckard1138 says

January 18, 2013 at 1:37 am
@WatACrock

I’m sure you won’t mind if we quote the pearls of wisdom the “US tax accountant” just shared with you, since they are so exquisitely brilliant and enlightening:
[–]RepealFatca 1 point 34 minutes ago

1) As a tax accountant, how do you feel about FATCA and its consequences it will have towards Americans abroad? (This includes accidental Americans, green card holders, people with no ties to the US)

2) Do you think that FATCA will ultimately lead to the further economic decay of the US? Will it even be possible/feasible (without going broke) for Americans abroad to be compliant with both the tax laws in their country of residence and as well as the ones that the IRS/US mandates towards its citizens working in another country?

For those people who are unfamiliar with FATCA and its damaging effects towards average middle class persons with little or no American ties, please visit these sites for more info:

http://isaacbrocksociety.ca/

http://www.repealfatca.com/

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[–]CircularJerkuler[S] 2 points 20 minutes ago

I appreciate your insightful questions about a very interesting issue.

I am not one who is a fan of government over-regulation, however this was something that needed to be done. First and foremost, this was done to address revenue lost by high wealth individuals hiding their money overseas. Additionally, this helps to protect (to a limited extent) against the funding of terrorism or other undesirable parties.

FATCA is very difficult to implement, and we have been playing catch-up from day one. It’s difficult to understand, and expensive to do properly. However, like most other laws, it’s the best current option in the first phase of eliminating foreign malfeasance. I would expect this to be revamped over the next 10 years.”

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parent

[–]CircularJerkuler[S] 2 points 18 minutes ago

And even to risk the downvote, I’m going to say while it may be damaging for those with little or no American ties, FATCA is good for America.

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@Duke of Devon

I wouldn’t have missed this little cocktail party for all the tea in Boston Harbor.
Just Me says

January 18, 2013 at 2:23 am

@Deckard1138

That is a beauty. Think I will post a reply, just for the fun of it.
Em says

January 18, 2013 at 2:31 am

@ WatACrock

Your questions were good. His answers were uninformed and flippant. Wish I could have given you a plus and him a double minus. FATCA is only good for the compliance industry … oh, that would be him, wouldn’t it. Guess that explains his IRS talking points reply. It is NOT good for America and by his standards it’s okay to damage people as long as they have few ties to America. That is just twisted thinking and sounds so much like American foreign policy doesn’t it. Perhaps CJ is hankering for a cushy job manning the IRS FATCA drones someday.
Just Me says

January 18, 2013 at 2:45 am

@ WatACrock

I know Duke thinks it is a waste of time, but thanks for engaging anyway. I just put up a response as FBAR_Compliant. Didn’t take much time, so not that much of a waste, and since that seems to be an active reddit, I do think it is good to put up opposing views.
Em says

January 18, 2013 at 3:07 am

@ Just Me

And he gets a triple minus for his reply to your question. Thanks for trying though. Actually thanks for all you do — including trying to get important links sorted as well as possible here. It’s so easy to miss something in one spot and nice to know it can be picked up elsewhere when you repost it.
usxcanada says

January 18, 2013 at 3:32 am

Clarification: This thread is loaded with fervor to raise money for this that and the other. With more than one mention of buying advertising, like a full-page in mainstream media. That for sure is rewarding the enemy aka shoving your bucks into Barrie McKenna’s pocket. Go ahead, make his day.

Em – I think we disagree on nothing.

All – Here’s a hearty recommendation to read Cat’s Cradle by Kurt Vonnegut if you want to get the Bokonism stuff. A formative book for me.

Recalc – I think you blew right past the point? I’m talking about as many separate accounts as you need, each kept under $50K. Admittedly an administrative nuisance, but maybe what you are destined to suffer if you haven’t had the wits to stay “clean” and you’re the one with that much cash to stash.

All – On a different topic re 544 page regulations. That’s a confusing system the US runs in all respects. See this. The regs should not be confused with the Model Agreements?
Just Me says

January 18, 2013 at 3:44 am

@all

This from Reuters tonight…

UPDATE 2-US issues final tax anti-evasion rules, enforcement ahead

Note the lead.. Clever Strategy on Treasuries part, to exempt these. Although I am not sure what the impact will be in NZ and Australia. Will take some steam out of the IGA drive, as their major reason for entering it, was to exempt their Superannuation and KiwiSaver plans. If they are now exempted, why do they need the IGA?? Did Treasury just remove one of the levers it had to force the IGAs on a lot of governments?

WASHINGTON, Jan 17 (Reuters) – Non-U.S. pension funds and mutual funds were spared the full brunt of new U.S. information-reporting rules on overseas accounts meant to catch Americans who dodge U.S. taxes by keeping their assets offshore.

Also note the comment about GATCA, although not called that.

Treasury officials are hoping to sign up more than 50 countries with FATCA agreements and kick-start a dragnet of tax enforcement.

“The real story here is that looks like it is going to become a global model,” Manal Corwin, deputy assistant Treasury secretary for international tax affairs, told Reuters in an interview.

Also some good comments and Reuters is doing one of the better jobs of reporting I have seen. They are not just re-writting the press release. Although it kills you to think Black Rock is spending this much on compliance that could be going towards lobby effort instead.

“FATCA’s scope is being expanded because Treasury is trying to close every hole,” said Harris Horowitz, the global head of tax at BlackRock, which has more than 50 people working on FATCA implementation.

With the government agreements, FATCA “has turned more onerous,” he said.

Some of the agreements include a reciprocal information-sharing provision, under which the IRS will deliver taxpayer information to a foreign government about its citizens living in the United States.

This reciprocal provision has raised privacy concerns, specifically with the Mexico agreement, signed in November.
Mark Twain says

January 18, 2013 at 3:50 am

Where is the information about Norway? (that’s where I work)
Mark Twain says

January 18, 2013 at 3:58 am

http://norskokoforum.no/no/forside/artikler/Den+inng%C3%A5tte+FATCA-avtalen+hjelper+norske+skattemyndigheter.9UFRjIZt.ips

ok: Følgende pressemelding ble sendt ut fra Finansdepartementet 16.1.2013:

Norwegian Economy FOrum

“Avtale med USA om automatisk utveksling av opplysninger om kontoforhold i finansinstitusjoner – FATCA Agreement with Revenue States of America about automatic exchange of discovery of accounts in Finance institutions

Finansdepartementet er blitt enig med amerikanske myndigheter om en avtale om automatisk rapportering mellom skattemyndighetene om kontoforhold i finansinstitusjoner. Avtalen bygger på den amerikanske FATCA-lovgivning (Foreign Account Tax Compliance Act). Avtalen vil lette rapporteringsplikten for norske finansinstitusjoner. Finance dept have come to agreement with USA authorities upon an agreement about automatic reporting between Norwegian tax authorities about the accounts in financial institutions. The agreement builds upon theUS FATCA. Agreement will make the reporting easier for Norwegian financial instituations.

…. Avtalen medfører at norske institusjoner ikke vil bli ilagt kildeskatt THe agreement means that Norwegian instutions won’t be subject to withholding.

For norske skattemyndigheter innebærer avtalen at de automatisk vil motta opplysninger om alle kontoer norske skattytere har i amerikanske finansinstitusjoner. For Norwegian tax dept the agreement means they they will get discovery of all the accounts of Norwegians in US financial institutions.

Det tas sikte på undertegning av avtalen så tidlig som mulig i 2013, og avtaleteksten vil da bli publisert.” They aim to sign the agreement so soon as possible in 2013, and agreement will be published.
Just Me says

January 18, 2013 at 4:49 am

btw, I skipped one egregious mistake that Reuters made.. Sorry…

They said.

the IRS will deliver taxpayer information to a foreign government about its citizens living in the United States.

As we know, the other countries have NO interest in their citizens living in America, only those in their own homeland that might have money stashed away in America.
Just Me says

January 18, 2013 at 4:51 am

@Mark Twain

So they really haven’t signed the darn thing. More marketing misdirection by Treasury!
Mark Twain says

January 18, 2013 at 4:59 am

in which train depots will the trains be stopping to pick us up? I want to comply so that I can be taken to the correct camp.
Innocente says

January 18, 2013 at 5:00 am

Based on a software translation of the Norwegian text:

1) It appears that the IGA has NOT been signed (see last sentence of translation).

2) The unsigned/ proposed IGA requires the US to deliver data on Norwegian taxpayers’ accounts in the US.

“The signed FATCA agreement helps the Norwegian tax authorities

Ministry of Finance on behalf of the Norwegian government signed a deal with U.S. authorities based on FATCA legislation. The agreement means that Norwegian financial institutions reported accounts belonging Americans dirk true to the Norwegian authorities who forwarded it to the IRS in the U.S. For the Norwegian tax authorities, the agreement that they will automatically receive information on all accounts Norwegian taxpayers in U.S. financial institutions.

The following press release was issued by the Ministry of Finance 01/16/2013:

“Agreement with the United States to automatically exchange information about account issues of financial institutions – FATCA

The Ministry of Finance has agreed with U.S. authorities on an agreement between the IRS automatically reporting the account conditions in financial institutions. The agreement builds on the U.S. FATCA legislation (Foreign Account Tax Compliance Act). The agreement will facilitate the reporting obligation for Norwegian financial institutions.

FATCA is a U.S. international law imposes foreign financial institutions to report financial information about individuals (physical persons, companies and other entities) that is taxable in the United States directly to the U.S. government. Financial institutions that choose not to report information under FATCA, after the U.S. rules will be fined 30 percent withholding tax on payments from the U.S..

Once agreement on the implementation of FATCA is signed between Norway and the United States, the reporting obligation for financial institutions easier by allowing them to send the information to the Norwegian authorities who will communicate them to the appropriate U.S. authority. The agreement means that Norwegian institutions will not be subject to withholding tax.

For the Norwegian tax authorities, the agreement that they will automatically receive information on all accounts Norwegian taxpayers in U.S. financial institutions.
The aim of signature of the Agreement as early as possible in 2013, and the text will be published. “”

http://norskokoforum.no/no/forside/artikler/Den+inng%C3%A5tte+FATCA-avtalen+hjelper+norske+skattemyndigheter.9UFRjIZt.ips

Thanks to Mark Twain for the link!
Mark Twain says

January 18, 2013 at 5:18 am

The economic forum gets its information from—-somewhere. It doesn’t look like it is run by the govt. I now found the word Norway in the treasury announcement
Mark Twain says

January 18, 2013 at 5:30 am

http://www.regjeringen.no/nb/dep/fin/aktuelt/nyheter/2013/avtale-mellom-norge-og-usa-om-rapporteri.html?id=710830

ok, same info from Norwegian authorities.

Same verbage as the ecomonic forum about the signing. undertegning av avtalen så tidlig som mulig i 2013

Finansdepartementet er blitt enig med amerikanske myndigheter om en avtale om automatisk rapportering. Finacedepartment has come to agreement with US authorities on an agreement about automatic reporting. “Coming to agreement” is an important concept in Scandinavian culture, its meaning is both concrete and loose at the same time, and it normally leaves the party with the strongest bargaining power to interpret the meaning of such a statement.

Avtale med USA om automatisk utveksling av opplysninger om kontoforhold i finansinstitusjoner – FATCA

Finansdepartementet er blitt enig med amerikanske myndigheter om en avtale om automatisk rapportering mellom skattemyndighetene om kontoforhold i finansinstitusjoner. Avtalen bygger på den amerikanske FATCA-lovgivning (Foreign Account Tax Compliance Act). Avtalen vil lette rapporteringsplikten for norske finansinstitusjoner.

FATCA er en amerikansk internlovgivning som pålegger utenlandske finansinstitusjoner å rapportere finansielle opplysninger om personer (både fysiske personer, selskaper og andre enheter) som er skattepliktig i USA direkte til amerikanske myndigheter. Finansinstitusjoner som velger å ikke rapportere opplysninger i henhold til FATCA, vil etter de amerikanske reglene bli ilagt 30 prosent kildeskatt på betalinger fra USA.

Når avtalen om gjennomføring av FATCA er inngått mellom Norge og USA vil rapporteringsplikten for finansinstitusjonene bli lettere ved at de kan sende opplysningene til norsk myndighet som så vil formidle dem til riktig amerikansk myndighet. Avtalen medfører at norske institusjoner ikke vil bli ilagt kildeskatt.

For norske skattemyndigheter innebærer avtalen at de automatisk vil motta opplysninger om alle kontoer norske skattytere har i amerikanske finansinstitusjoner.

Det tas sikte på undertegning av avtalen så tidlig som mulig i 2013, og avtaleteksten vil da bli publisert.
Innocente says

January 18, 2013 at 5:48 am

Software translation of Norwegian Finance Department’s FATCA press release of 8 January 2013:

“Agreement with the United States to automatically exchange information about account issues of financial institutions – FATCA

The Ministry of Finance has agreed with U.S. authorities on an agreement between the IRS automatically reporting the account conditions in financial institutions. The agreement builds on the U.S. FATCA legislation (Foreign Account Tax Compliance Act). The agreement will facilitate the reporting obligation for Norwegian financial institutions.

FATCA is a U.S. international law imposes foreign financial institutions to report financial information about individuals (physical persons, companies and other entities) that is taxable in the United States directly to the U.S. government. Financial institutions that choose not to report information under FATCA, after the U.S. rules will be fined 30 percent withholding tax on payments from the U.S..

Once agreement on the implementation of FATCA is signed between Norway and the United States, the reporting obligation for financial institutions easier by allowing them to send the information to the Norwegian authorities who will communicate them to the appropriate U.S. authority. The agreement means that Norwegian institutions will not be subject to withholding tax.”

For the Norwegian tax authorities, the agreement that they will automatically receive information on all accounts Norwegian taxpayers in U.S. financial institutions.

The aim of signature of the Agreement as early as possible in 2013, and the text will be published.”

http://www.regjeringen.no/nb/dep/fin/aktuelt/nyheter/2013/avtale-mellom-norge-og-usa-om-rapporteri.html?id=710830
Mark Twain says

January 18, 2013 at 6:07 am

Norway is important to the USA. Number one, there are lots of tax evaders that move there, because the marginal tax rate is 49% and capital gains is 30%.

Next, with the cost of living being the highest in the world, most couples earn well above the $250,000 threshold for Obamacare tax.

And with such good historical relations, many Norwegian families have worked in USA and many have been born there as children.

All in all, a fantastic business opportunity for the Revenue States of America
Innocente says

January 18, 2013 at 6:23 am

I have a lot of respect for Norwegians and would like to hope that they will fight off the US Treasury the way they resisted the Nazis during the second World War and have nearly dominated the Winter Olympics for years. Here’s an excerpt from a fine NY Times article on Norway and Norwegians:

“The United States, a nation of 300 million, won nine gold medals this
year in the Winter Olympics. Norway, a nation of 4.7 million, also won
nine. This was no anomaly. Over the years, Norwegians have won more gold
medals in Winter Games, and more Winter Olympics medals over all, than
people from any other nation.”

http://www.nytimes.com/2010/03/02/opinion/02brooks.html?_r=0
Mark Twain says

January 18, 2013 at 6:25 am

“Coming to agreement” is an important concept in Scandinavian culture, its meaning is both concrete and loose at the same time, and it normally leaves the party with the strongest bargaining power to interpret the meaning of such a statement

The Isaac Brock Society

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