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William Byrnes (Texas A&M) tax & compliance articles

FATCA FFI Agreement technical corrections released by IRS

Posted by William Byrnes on January 14, 2014


Revenue Procedure 2014-13 (2014-3 I.R.B. 419), published January 13, 2014, contains corrections to the FFI agreement released on December 26, 2013.

Below are the links to the Revenue Procedure 2014-13 (2014-3 I.R.B. 419), published January 13, 2014, that contain corrections to the FATCA FFI Agreement released on December 26, 2013.  The FFI Agreement is contained within the Revenue Procedure publication and accessible below.

The corrections can be found in sections 3.03(B)(1), 4.02(C), 5.01, 6.07, 9.02(B), 9.02(D) and 10.03 of section 5 (FFI Agreement) of Revenue Procedure 2014-13.  The January 1, 2014, effective date of Revenue Procedure 2014-13 is unchanged.

Rev. Proc. 2014–13

FFI Agreement for Participating FFI and Reporting Model 2 FFI


Table of Contents

FATCA Compliance Program and Manual

Fifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2nd Edition): many perspectives crafted into one, coherent voice by primary author William Byrnes.

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA.  Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters. 

2 Responses to “FATCA FFI Agreement technical corrections released by IRS”

  1. tomazz1 said

    You can eliminate FATCA problems by using two pedigreed QEFs as in the example below. comments welcome: taxman@batelnet.bs

    Example #1; Foreign company A owns 95% of Foreign company B. US person X owns 4.5% of Foreign company A.
    Foreign company B is the business vehicle and has $270,000 in passive profits annually.

    US person X takes the election to be taxed as a QEF for both FCA and FCB.

    No US tax returns for Foreign company A or B is required under the US tax law.

    For purposes of the PFIC provisions, person X would report his “pro-rata” share of Foreign company A’s profits (called the ordinary earnings of his QEF or PFIC).

    Person X is supposed to file a QEF http://www.irs.gov/pub/irs-pdf/f8621.pdf

    For purposes of the PFIC provisions, person X would ALSO report his “pro-rata” share of Foreign company B’s net capital gains ($270,000), but the IRS allows X to pay the tax as long term capital gains of 15%.
    http://www.law.cornell.edu/uscode/text/26/1293
    ftp://www.fourmilab.ch/pub/ustax/www/t26-A-1-P-VI-B-1293.html

    If Company B passes a dividend of $30,000 to Company A, US taxpayer X would put 4.5% of the $30,000 dividend from from Company B, (i.e., the ordinary income of foreign company A) on his tax return. See part III of the form.. http://www.irs.gov/pub/irs-pdf/f8621.pdf

    Special Note: X would not have to pay any tax on his pro rata share of the $30,000 dividend received by FC A when distributed to him. That amount ($1,350) could be passed on to him AND he would not have to pay tax on it again. He paid tax on it all ready Kemo Sabe on the Form 8621.

    The tax for US person X for QEF A (i.e., Foreign Company A) would be on $1,350 income (his pro-rata share of the $30,000 dividend) at a tax rate of say 25% or about $300.

    The tax for US person X for QEF B (i.e., Foreign Company B) would be on B’s $270,000 income (i.e., B’s net capital gains) at a tax rate of 15% or $1,731.375.

    The IRS allows the ordinary earnings and profits of Foreign Company B ($270,000) to be taxed at the long term capital gains tax rate of 15% on US person’s tax return. NOTE: For 2014 the tax rate is going up to 20% for LTCGs.

    Note: The net capital gains cannot exceed the the earnings and profits of B (I.e., I’m assuming $270,000 in net capital gains).
    X would pay a tax on QEF B totaling $1,731.375. (multiply 4.275% indirect ownership times $270,000 GG = $11,542.50) (this figure gets put in part III of form 8621 and gets taxed at a 15% tax rate AND equals $1,731.375). It’s that simple kemo sabe.

    REVIEW: Here’s the tax computation of US person’s X tax return for QEF A and QEF B.

    X would pay tax on his 4.275% (i.e., his indirect shareholding is 4.5% X 95% = 4.275%) of the $270,000 capital gains of foreign company B
    +
    X would pay tax on his 4.5% of the $30,000 dividend FROM company B or $300.
    X’s direct ownership in foreign Company A is 4.5%.

    Total tax on $300,000 in offshore profits for both companies would amount to $2,031.375.
    Note: THAT’S A TOTAL TAX RATE OF .677% … LESS than 1%.

    Effectively, X would file two QEF forms for Company A and Company
    See part III for where your accountant reports and files F8621 for YOU or person X

    BUT.. X would have been IRS compliant. Very unlikely the IRS would challenge or ask for more money IMO.

    IT’s CALLED good, legitimate, TAX PLANNING.. Folks.. Read your tax code!
    ASK THEM.. ASK THE IRS.

    IF THE TAX CODE DOES NOT ALLOW YOU TO USE THE “PRO RATA” SHARE METHOD TO COMPUTE YOUR TAX LIABILITY AS DESCRIBED ABOVE, YOU COULD NOT CALCULATE A TAX LIABILITY FOR U.S. PERSON X ON HIS HOLDINGS IN FC A OR FC B or for any US PERSON for that matter.

    IN OTHER WORDS, FIGURING YOUR OFFSHORE TAX LIABILITY WOULD BE IMPOSSIBLE.

    Under the FATCA rules, offshore banks don’t have to report account owners that are not “substantial owners” (defined as sharerholder that own more than 10% of the company stock). US person X in the example above is not a “substantial owner” of either Company A or B, so the bank does not have to provide detailed infromation to the IRS. FATCA ESSENTIALLY EXEMPTS less than 10% shareholdings from FATCA disclosure of offshore assets. Note: However… Either way, X would file the TD 90.22-1 for compliance.

    By the IRS’ own attribution rules, for purposes of FATCA, X would own under 10% of the stock in foreign company A (4.5% directly) and foreign company B (4.27% – indirectly), so X wouldn’t necessarily be targeted under the IRS’ own FACTA rules as a “substantial owner”, AND even if the offshore bank or government typed you into the “IRS database” – which is supposed to happen in 2016 (for accounts over $1,000,000), X is COMPLIANT and filed the 8621.

    Compliance means everything .. to the IRS.

    Note This author has filed his TD-90.22-1 every year since 1995 (and I have copies to prove it). It’s due by June 30th of every year… kemo sabe. For 2014 the Treasury will be using the NEW FBAR… http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

    Thomas Azzara
    Overseas agent – Anguilla registrar
    (since 2001)
    Company Formations/Trusts
    New Providence Estate Planners, Ltd.

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  2. […] On June 24, 2014 the IRS released an updated version of the FATCA FFI Agreement for Participating FFI and Reporting Model 2 FFI, just one week before FATCA withholding begins July 1st.   The previous FFI agreement version was released January 13th as Revenue Procedure 2014-13 (see my article link). […]

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