TIME EXTENDED TO CERTIFY ACCOUNTS AFTER FATCA REGISTRATION
The IRS published guidance this past week that extends the time for certain foreign financial institutions, including banks, to certify which of their accounts opened prior to the enactment of FATCA are owned by U.S. citizens. These certifications are important for the U.S. government’s fact-finding efforts because prior to FATCA, many foreign banks did not have comprehensive systems in place to identify new accounts with U.S. owners. For many foreign banks, Notice 2016-8 extends the due date for making the certifications from August 29, 2016 to July 1, 2018.
QUICK FATCA BACKGROUND
As you may have already heard, the IRS bolstered its efforts to curtail U.S. tax evasion through a law known as FATCA , which was enacted back in 2010. The objective behind FATCA is to combat offshore tax evasion by (1) requiring U.S. citizens, including those living abroad, to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS, and (2) requiring foreign financial institutions (“FFIs”) (which include just about every foreign bank, investment house and even some foreign insurance companies) to report to the IRS the balances in the accounts held by customers who are U.S. citizens.
If U.S. tax return filers don’t comply with the FATCA rules, they can be subject to severe penalties, and if foreign banks and other institutions don’t comply, they and their account holders can be subject to an automatic 30% withholding tax on U.S.-source payments such as interest and dividends.
FATCA’S IMPACT ON FOREIGN BANKS
Complying with FATCA has proved quite expensive for banks and other financial institutions, with global costs estimated by Forbes at US$8 billion a year. The costs relate mainly to making the banks’ processes and systems compliant with the FATCA regulations.
Banks that want to be viewed by the IRS as FATCA compliant must also make certifications to the IRS regarding its U.S. customers, including those who were account holders prior to starting the process of FATCA registration.
FATCA’S IMPACT ON YOU
FATCA has impacted U.S. expats in many important ways. Most importantly, it has allowed the IRS to extend its global tax reach further than ever before. Your local foreign bank may soon send information about you to the IRS if it hasn’t done so already. It is therefore becoming an increasingly bad idea for non-filing U.S. expats to hide their heads in the sand .
In addition, your annual IRS information reporting requirements have increased significantly under FATCA, with the addition of Form 8938 , which must be filed to disclose specific information about your foreign financial assets.
If you are a U.S. citizen living abroad and need help catching up with your U.S. tax filings or with properly filing your taxes moving forward, our experienced CPAs at Expat Tax Professionals can provide you with the best solutions available. We’ve helped numerous expats with their U.S. taxes, including delinquent taxpayers who are ready to come clean with the IRS. Our experts at Expat Tax Professionals can help you understand your U.S. tax filing obligations and assist you with all of your U.S. tax compliance needs.
