Wealth & Risk Management Blog

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

Archive for May, 2014

Creative use of Social Security timing strategies

Posted by William Byrnes on May 30, 2014


Creative use of Social Security timing strategies can be key to securing comfort in retirement, and timing benefits so that your client can receive a lump sum payment during retirement can unlock many options for the older client. For those nearing retirement age, this seldom-discussed strategy may be needed to ensure longevity protection throughout a long retirement.  Read about this Social Security lump sum strategy

 


If you are interested in discussing the Master or Doctoral degree in the areas of financial planning, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Retirement Planning | Tagged: , , | 1 Comment »

GLWBs and LIBRs: Which annuity rider?

Posted by William Byrnes on May 29, 2014


Guaranteed Lifetime Withdrawal Benefit Riders (GLWBs) and Lifetime Income Benefit Riders (LIBRs) are two of the more easily confused rider options in a market where understanding the nuances can make or break a client’s financial plan. Even the most astute financial professional may have difficulty navigating the maze of features that can attach to an annuity.

Read the analysis of > GLWBs versus LIBRs < 

 

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

For an indepth analysis of deductions for donations to U.S. charities, download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

 

Posted in Insurance, Retirement Planning, Wealth Management | Tagged: , , , , , | Leave a Comment »

Can’t Pay Your Tax Debt? What is an Offer in Compromise?

Posted by William Byrnes on May 28, 2014


What is an Offer in Compromise?

An offer in compromise allows a taxpayer in certain situations to settle a tax debt for less than the full amount of that debt.  An offer in compromise may be a legitimate option when a taxpayer cannot pay a full tax liability, or paying the full tax liability will create a financial hardship.

The IRS considers the taxpayer’s following unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The IRS states that it will generally approve an offer in compromise when the amount offered represents the most that the IRS thinks that it can expect to collect within a reasonable period of time.

Who is Eligible for an Offer in Compromise?

Before the IRS is able to consider an offer in compromise from a taxpayer, the taxpayer must first be current with all filing and payment requirements.  A taxpayer is not eligible if the taxpayer is in an open bankruptcy proceeding.  Use the Offer in Compromise Pre-Qualifier to confirm eligibility and to prepare a preliminary offer in compromise proposal.

How to Submit an Offer in Compromise?

Step-by-step instructions and all the forms for submitting an Offer in Compromise may be found in the Booklet Form 656-B (PDF).  The Offer in Compromise must include:

How to Select a payment option?

The initial payment will vary based on the offer and the payment option chosen with the offer:

  • Lump Sum Cash: Submit an initial payment of 20 % of the total offer amount with the application for Offer in Compromise.  Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
  • Periodic Payment: Submit the initial payment with the application. Continue to pay the remaining balance in monthly installments while the IRS considers the offer in compromise.  If accepted, continue to pay monthly until it is paid in full.

If a taxpayer meets the Low Income Certification guidelines, then the taxpayer does not need to send the application fee or the initial payment and will not need to make monthly installments during the evaluation of the offer in compromise.

What Happens During the Evaluation of the Offer in Compromise?

  • Non-refundable payments and fees will be applied to the tax liability, payments may be designated to a specific tax year and tax debt;
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are temporarily suspended;
  • The legal assessment and collection period is extended;
  • Make all required payments associated with the offer;
  • Payments on an existing installment agreement may be temporarily suspended; and
  • The Offer in Compromise is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
If the offer is accepted If your offer is rejected
  • Meet all the Offer Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
  • Any refunds due within the calendar year in which your offer is accepted will be applied to the tax debt;
  • Federal tax liens are not released until the offer terms are satisfied; and
  • Certain offer information is available for public review at designated IRS offices.
  • A taxpayer may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).

2014_tf_on_individuals_small_businesses-m_1For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.  “Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Businessrisk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Taxation | Tagged: | Leave a Comment »

High-income clients able to fund Roth IRAs?

Posted by William Byrnes on May 27, 2014


Roth IRAs usually do not make it into a higher-income client’s retirement planning playbook. The income limits set in place even prevent many upper-middle class clients from contributing to a Roth.

These limits do, in fact, block clients with earnings above the annual threshold level from contributing to a Roth directly, but there is an alternative route to Roths for high-income clients looking to minimize their tax burden in retirement.

Read >Roths for high earners: the strategy < !

2013_tf_insurance_emp_benefits_combo_covers-m_2Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Insurance & Employee Benefits delivers the latest guidance on:

  • Estate & Gift Tax Planning
  • Roth IRAs
  • HSAs
  • Capital Gains, Qualifying Dividends
  • Non-qualified Deferred Compensation Under IRC Section 409A
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting insurance and employee benefits including changes from the American Taxpayer Relief Act of 2012
  • Concise updated explanation and highlights of the Patient Protection and Affordable Care Act (PPACA)
  • Expanded coverage of Annuities
  • New section on Structured Settlements
  • New section on International Tax
  • More than thirty new Planning Points, written by practitioners for practitioners, in the following areas:
    • Life Insurance
    • Health Insurance
    • Estate and Gift Tax
    • Deferred Compensation
    • Individual Retirement Plans

Plus, you’re kept up-to-date with online supplements for critical developments.  Written and reviewed by practicing professionals who are subject matter experts in their respective topics, Tax Facts is the practical resource you can rely on.

Posted in Retirement Planning | Tagged: , , , , | Leave a Comment »

check out my new blog

Posted by William Byrnes on May 23, 2014


http://professorwilliambyrnes.blogspot.com/

New design and layout using Google’s Blogger.  Please provide feedback that I may better tailor my writing for the subscribers.

Posted in book | Tagged: , | Leave a Comment »

9 Tax Facts about Amending a Tax Return

Posted by William Byrnes on May 21, 2014


The IRS in Tax Tip 2014-51 alerted taxpayers to their ability to amend a tax return after it has already been filed with the IRS.  By example, if a taxpayer discovers that a mistake was made on the return, such as a mis-statement of income or inadvertent inclusion or exclusion of a deduction, the taxpayer can correct the mistake by filing an amended tax return.

9 tax facts that a taxpayer should know about filing an amended tax return include:

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors on a tax return.  But the amended return must be filed on paper.  Amended returns cannot be e-filed.

2. A taxpayer should file an amended tax return if there is an error claiming a filing status, income, deductions or credits on the original return.

3. However, a taxpayer normally will not need to file an amended return to correct simple math calculation errors on the return.  The IRS computers will find those math errors and automatically make those changes.  Such changes may effect the tax due or increase or decrease a refund.  Also, a taxpayer does not to file an amended return because of a forgotten tax form attachment, such as a W-2 or schedule. The IRS will normally later send a request for those to be sent separately.

4. A taxpayer normally has 3 years from the filing date of the original tax return to amend the tax return to claim a refund by filing Form 1040X . A taxpayer may file the amended return within two years from the date of paying the tax due, if that date is later than the filing date of the tax return.  Thus, generally the last day for most taxpayers to file a 2010 claim for a refund is April 15, 2014, unless a special exception applies.

5. If a taxpayer needs to amend more than one tax return, then a 1040X must be prepared for each year. Each 1040X form must be mailed in a separate envelope.  Note the tax year being amended on the top of Form 1040X.  Form 1040X’s instructions include the address where to mail the form.

6. If a taxpayer has other IRS forms or schedules that required changes, then attach them to the Form 1040X.

7. If a taxpayer is due an additional refund because of a potential amendment from the original return, then the taxpayer should wait to receive that first refund before filing Form 1040X to claim the additional refund.  Amended returns require as much as 12 weeks to process.

8. If a taxpayer ends up owing more tax, then file the Form 1040X and pay the tax as soon as possible. This will reduce any interest and penalties on that amount owing.

9. An amended tax return can be tracked three weeks after it is filed with the IRS tool: ‘Where’s My Amended Return?’ or by phone at 866-464-2050.  This tool can track the status of an amended return for the current year and up to three years back.  The ‘Where’s My Amended Return?’ tool requires a taxpayer identification number, normally the Social Security number, and the date of birth and zip code.

tax-facts-online_medium

Because of the constant changes to the tax law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. For over 110 years, National Underwriter has provided fast, clear, and authoritative answers to financial advisors pressing questions, and it does so in the convenient, timesaving, Q&A format.

“Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , | Leave a Comment »

6 Tax Facts for Making Required Estimated Tax Payments To Avoid Interests and Penalties

Posted by William Byrnes on May 19, 2014


In Tax Tip 2014-49, the IRS reminds taxpayers that tax must be paid throughout the year to avoid interest and penalties, that is, tax may not only be due on April 15 for some taxpayers. For the year 2014, tax may be due also on June 16, 2014, on Sept. 15 in 2014, on Jan. 15, 2015, and of course, also on Wednesday, April 15, 2015.

Who must make estimated tax payments?

Taxpayers that do not have taxes withheld from a paycheck, or who do not have enough tax withheld during the year, may need to make additional “estimated” tax payments during the year ‘to catch up’ if normal withholding was being applied.  This is especially true for self-employed taxpayers whose income is generally are not withheld upon.  A taxpayer filing as a sole proprietor, partner in a partnership, S corporation shareholder, and/or a self-employed individual, generally needs to make estimated tax payments during the year.  If a taxpayer had a tax liability for 2013, then normally the taxpayer will need to make estimated tax payments during 2014.

A corporation will generally need to make estimated tax payments if it expects to owe tax of $500 or more when it files its corporate tax return in 2015.

Why estimated tax payments?

Through estimated tax payments, government funds its activities throughout the year, keeps tabs on what is going on with the economy (are taxpayers earning more or less income than previous years) and also ensures tax payment compliance by limiting the amount of tax actually due April 15th for the previous years.  As infamous jurist and U.S. Supreme Court Justice Oliver Wendell Holmes is oft quoted: “Taxes are what we pay for civilized society…” (Compania General De Tabacos De Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100, dissenting; opinion (21 November 1927)).  Without estimated tax payments, many taxpayers on April 15 would find tax bills larger than the amount saved from which to pay them, be it that other personal spending priorities rise up during the year.

Tax penalty for not paying enough estimated tax?

If in 2014 a taxpayer does not pay enough estimated tax throughout the year, either through withholding or by making estimated tax payments, then a penalty for underpayment of estimated tax will be due on April 15, 2015.  Generally, most taxpayers will avoid this penalty if

EITHER owing less than $1,000 in tax after subtracting all tax withholdings by 3rd parties and after subtracting all tax credits the taxpayer claims for 2014,

OR if they paid at least 90% of the tax that turns out to be owed for 2014, or 100% of the tax shown on the return for 2013, whichever amount is smaller. 

6 tax tips for estimated taxes:

1. A Taxpayer must pay estimated taxes throughout 2014 if expecting to owe $1,000 or more when filing the federal tax return on April 15, 2015.  However, special rules apply to farmers and fishermen.

2. Estimate the amount of income expected to be received for the entire year 2014 to determine the amount of taxes that are estimated to be owed for 2014.  But also, take into account any tax deductions and credits that will be claimed.  Life changes during the year, such as a change in marital status or the birth of a child, can affect the estimated taxes owed.

3. Normally a taxpayer must make estimated tax payments four times a year. The 4 dates that apply to most people this year are April 15, 2014; June 16, 2014; and Sept. 15, 2014, then Jan. 15, 2015.

4. An estimated tax payment may be paid online or by telephone, by check or by money order, and even by credit or debit card.  If a taxpayer mails a tax payment to the IRS, then it is important to use a payment voucher that comes with Form 1040-ES, Estimated Tax for Individuals, that the tax payment may be credited correctly.  Remember that the IRS processes hundreds of millions of tax payments and forms each year!

5. Check out the electronic payment options.  The Electronic Filing Tax Payment System is a free and easy way to make payments electronically.

6. Use Form 1040-ES and its instructions to calculate estimated taxes.

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Businessrisk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

Posted in Taxation | Tagged: , | 1 Comment »

Turks & Caicos plus Azerbaijan IGAs bring total to 66

Posted by William Byrnes on May 16, 2014


66 IGAs Published or in Effect

Two IGAs “agreed in substance” have been added by Treasury to its list on Friday, May 16 – Turks & Caicos Islands and Azerbaijan.  This brings the total IGAs published and treated as in effect up to 62, comprised of 27 published Model 1, 5 published Model 2, while 32 Model 1 have been agreed in substance and 2 of the Model 2 agreed.  Updated list is below.  FFIS in the remaining 140+ countries and jurisdictions rush to register with the FATCA portal and to be placed on the GIIN List by the July 1st start of FATCA withholding.

Previous article and analysis is available at https://profwilliambyrnes.com/2014/05/11/2-new-igas-brings-it-to-64-brides-148-bridesmaids-remain-in-waiting-and-other-important-fatca-updates/

Model 1 IGA’s treated in effect = 32 (in red added since my > last IGA update < of May 11)

  1. Azerbaijan (5-16-2014) <— new
  2. Bahamas (4-17-2014)
  3. Brazil (4-2-2014)
  4. British Virgin Islands (4-2-2014)
  5. Bulgaria (4-23-2014)
  6. Columbia (4-23-2014)
  7. Croatia (4-2-2014)
  8. Curaçao (4-30-2014)
  9. Czech Republic (4-2-2014)
  10. Cyprus (4-22-2014)
  11. India (4-11-2014)
  12. Indonesia (5-4-2014) 
  13. Israel (4-28-2014)
  14. Kosovo (4-2-2014)
  15. Kuwait (5-1-2014)  
  16. Latvia (4-2-2014)
  17. Liechtenstein (4-2-2014)
  18. Lithuania (4-2-2014)
  19. New Zealand (4-2-2014)
  20. Panama (5-1-2014)  
  21. Peru (5-1-2014)  
  22. Poland (4-2-2014)
  23. Portugal (4-2-2014)
  24. Qatar (4-2-2014)
  25. Singapore (5-5-2014) 
  26. Slovak Republic (4-11-2014)
  27. Slovenia (4-2-2014)
  28. South Africa (4-2-2014)
  29. South Korea (4-2-2014)
  30. Sweden (4-24-2014)
  31. Romania (4-2-2014)
  32. Turks & Caicos (5-12-2014) <— new

Model 2 IGAs treated in effect = 2

  • Armenia (5-8-2014)  
  • Hong Kong (5-9-2014)  

jurisdiction that have signed and entered into a formal IGA

Model 2 IGA = 5

  1. Austria (4-29-2014)
  2. Bermuda (12-19-2013)
  3. Chile (3-5-2014)
  4. Japan (6-11-2013)
  5. Switzerland (2-14-2013)

book coverPractical Compliance Aspects of FATCA and GATCA

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

Posted in FATCA | Tagged: , | Leave a Comment »

Is Your Child Required to File a Tax Return?

Posted by William Byrnes on May 16, 2014


2014_tf_on_investments-mChildren are potential taxpayers too!  That is the message from the IRS in Tax Tip 2014-38.  A child may be required to a federal tax return, or if a child can not file his or her own return, then the parent or guardian is normally responsible for filing their tax return.

Here are 4 tax facts from the IRS that about a child’s investment income:

1. Investment income normally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Special rules apply if a child’s total investment income is more than $2,000. The parent’s tax rate may apply to part of that income instead of the child’s (lower) tax rate.

3. If a child’s total interest and dividend income was less than $10,000 in 2013, the taxpayer may be able to include the income on the taxpayer’s tax return. If the taxpayer elects this choice, the child does not then file a return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends.

4. Children whose investment income was $10,000 or more in 2013 must file their own tax return. File Form 8615, Tax for Certain Children Who Have Investment Income, along with the child’s federal tax return.

Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child’s modified adjusted gross income that is over a threshold amount. Use Form 8960, Net Investment Income Tax, to calculate this tax.

Posted in Taxation | Tagged: , , , | Leave a Comment »

How Will The Lifetime Learning Credit Help Pay My Higher Education Tuition?

Posted by William Byrnes on May 15, 2014


The IRS’ Tax Tip 2014-41 answers this question, in conjunction with its > online publication < .

The Lifetime Learning Credit is:

  • Limited to $2,000 per tax return, per year.
  • For all years of higher education, including classes for learning or improving job skills.
  • Limited to the amount of the tax due for that year.
  • For the cost of tuition and required fees, plus books, supplies and equipment.
  • The taxpayer’s school should provide a Form 1098-T, Tuition Statement, showing expenses for the year.
  • File Form 8863, Education Credits, to claim these credits on the tax return.
  • The credit is subject to income limits that could reduce the credit amount.
Maximum credit Up to $2,000 credit per return
Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;
$63,000 if single, head of household, or qualifying widow(er)
Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills
Number of tax years credit available Available for an unlimited number of years
Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential
Number of courses Available for one or more courses
Felony drug conviction Felony drug convictions do not make the student ineligible
Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment)
Payments for academic periods Payments made in 2014 for academic periods beginning in 2014 or beginning in the first 3 months of 2015

 

How does a tax credit work?

A tax credit reduces the amount of income tax a taxpayer may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce tax owed to zero, but if the credit is more than the tax owing then the excess will not be refunded.

Effect of the Amount of Your Income on the Amount of Your Credit

The amount of the lifetime learning credit is phased out (gradually reduced) if MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). For 2013, by example, a taxpayer cannot claim a lifetime learning credit if MAGI is $63,000 or more ($127,000 or more if a joint tax return).
   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on the federal income tax return.  MAGI is the AGI on line 38 of the 1040 form, modified by adding back any:

  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Foreign housing deduction,
  4. Exclusion of income by bona fide residents of American Samoa, and
  5. Exclusion of income by bona fide residents of Puerto Rico.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

Posted in Taxation | Tagged: , | Leave a Comment »

tick-tock, tick-tock, no movement on IGAs yet this week with just 64 and 140 countries FFIs left out in the cold

Posted by William Byrnes on May 14, 2014


Same 64 IGAs Published or in Effect since Friday May 9th … 

2 IGAs “agreed in substance” have been added last week, importantly Hong Kong and Armenia.  See my weekend update at 2 new IGAs brings it to 64 brides, 148 bridesmaids remain in waiting … and other important FATCA updates

What about the other 148 Non-IGA countries?  

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on the June 2nd GIIN list of participating foreign financial institutions (“PFFI”) passed May 5th. See my previous article about the May 5th deadline and consequences of its passing that applied to all FFIs in the non-IGA states and jurisdictions.

Did all the FFIs that are in the 148 countries and jurisdictions that do not have an IGA register for a GIIN?  There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration.  Industry experts have put forward a reasonable range of 20,000 to 30,000 such entities that qualify as FFIs that still need to register or complete registration for a GIIN, though figures as high as 80,000 have been suggested (probably such estimates include branches in the count of financial institutions).  The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks.

It is possible that on July 1st an unregistered FFI is considered non-participating (NPFFI) for purposes of FATCA withholding, but by example, on August 1st its country agrees an IGA in substance that Treasury announces on its FATCA site and the NPFFI goes back to FFI non-withholding status because of the extension related to IGAs, at least until that final December 22 deadline mentioned in Announcement 2014-1.  Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W8-BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

Was the May 5th Deadline a Hard Deadline?

Probably Not.  The IRS states the following on its FATCA Registration Portal: “the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014.”  (See Notice 2014-17, page 6: “FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.”)  

Moreover, the IRS built in a 90 day safeguard for FFIs when a GIIN has been applied for but not yet received:

§1.1471-3(e)(3) Participating FFIs and registered deemed-compliant FFIs—(i) In general. … A payee whose registration with the IRS as a participating FFI or a registered deemed-compliant FFI is in process but has not yet received a GIIN may provide a withholding agent with a Form W-8 claiming the chapter 4 status it applied for and writing “applied for” in the box for the GIIN. In such case, the FFI will have 90 calendar days from the date of its claim to provide the withholding agent with its GIIN and the withholding agent will have 90 calendar days from the date it receives the GIIN to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a participating FFI or registered deemed-compliant FFI. … (emphasis added)
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book coverPractical Compliance Aspects of FATCA and GATCA

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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Analysis of 2014 final forms W-8BEN, W8BEN-E and W-8IMY

Posted by William Byrnes on May 14, 2014


free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671   Number of Pages in PDF File: 58

The Form W-8BEN has been split into two forms.  The new 2014 Form W-8BEN (revision date 2014) is for use solely by foreign individuals, whereas the new Form W-8BEN-E is for use by entities for 2014 (revision date 2014) to provide US withholding agents.  The newest version of Form W-8BEN-E must be used by all entities that are beneficial owners of a payment, or of another entity that is the beneficial owner.

The IRS released the new 2014 Form W-8BEN-E (2-2014) that coincides with FATCA and QI entity classification reporting requirements, and on April 30, 2014 the IRS followed up with the new Form W-8IMY (“Form W-8IMY”), formally replacing its 2006 predecessor W-8IMY.

Form W-8IMY is submitted generally by a payment recipient (the “filer”) with non-beneficial owner status, i.e. an intermediary.  Such intermediary can be a U.S. branch, a qualified intermediary, a non-qualified intermediary, foreign partnership, foreign grantor or a foreign simple trust.  Form W-8IMY requires a tax identification number.  The new Form W-8IMY has 28 parts whereas the previous August 2013 FATCA draft W-8IMY only contained 26.  The new 2014 Form W-8IMY is vastly different from the seven-part 2006 predecessor form.

Below is a summary for the 2014 W-8BENW-8BEN-E  and of W-8IMY.  The Form W8BEN instructions >link is here< but the Form W-8BEN-E Instructions have not been completed by the IRS yet.  The W-8BEN-E instructions, when released, will address a hybrid entity’s claims for treaty benefits and chapter 4 certifications.

(For an in-depth compliance analysis of the new form W-8BEN-E  and the other required withholding forms drafted by the see LexisNexis® Guide to FATCA Compliance Chapter 11 Withholding And Qualified Intermediary, § 11.08 Applicable Withholding Forms, [4] Analysis of Form W-8BEN-E.  For a detailed analysis of Form W-8IMY see Chapter 11 Withholding And Qualified Intermediary, § 11.08 Applicable Withholding Forms, [5] Analysis of Form W-8IMY.)  A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

W-8BEN

Foreign individuals (non-resident aliens – NRAs) must use Form W-8BEN to document their foreign status and claim any applicable treaty benefits for chapter 3 purposes, including a foreign individual that is the single member of an entity that is disregarded for U.S. tax purposes.

The NRA must give the Form W-8BEN to the withholding agent or payer if he/she is the beneficial owner of an amount subject to withholding, or if he/she an account holder of an FFI then to the FFI to document his/her status as a nonresident alien.  Note that a sole member of a “disregarded” entity is considered the beneficial owner of income received by the disregarded entity, and thus the sole member must provide a W-8BEN.

If the income or account is jointly owned by more than one persons, the income or account will be treated by the withholding agent as owned by a foreign person that is a beneficial owner of a payment only if Forms W-8BEN or W-8BEN-E are provided by EVERY owner of the account.  If the withholding agent or financial institution receives a Form W-9 from any of the joint owners, then the payment must be treated as made to a U.S. person and the account treated as a U.S. account.

If any information on the Form W-8BEN becomes incorrect because of a change in circumstances, then the NRA must provide within 30 days of the change of circumstances the withholding agent, payer, or FFI with a new W-8BEN.   By example, if an NRA has a change of address to an address in the United States, then this change is a change in circumstances that requires contacting the withholding agent or FFI within 30 days.  Generally, a change of address within the same foreign country or to another foreign country is not a change in circumstances.   However, if Form W-8BEN is used to claim treaty benefits of a country based on a residence in that country and the NRA changes address to outside that country, then it is a change in circumstances requiring notification within 30 days to the withholding agent or FFI.

A NRA (nonresident alien individual) is any individual who is not a citizen or resident alien of the United States.  An foreign person (‘alien”) meeting either the “green card test” or the “substantial presence test” for the calendar year is a resident alien. Any person not meeting either of these two tests is a nonresident alien individual.   Additionally, an alien individual who is a bona fide resident of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa is a nonresident alien individual.

Taxpayer Identification Numbers

Line 5 requires a taxpayer identification number, which is the US social security number (SSN), or if not eligible to receive a SSN, then an individual taxpayer identification number (ITIN).  The SSN may be applied for www.socialsecurity.gov/online/ss-5.html.  An ITIN may be applied for by filing Form W-7 with the  IRS.  To claim  certain treaty benefits, either line 5 must be completed with an SSN or ITIN, or line 6 must include a foreign  tax identification number (foreign TIN).

US Exchange of Tax Information with Foreign Countries

Line 6 of Form W-8BEN requires a foreign tax identifying number ( foreign TIN) issued by a foreign jurisdiction of residence when an NRA documents him or herself with respect to a financial account held at a U.S. office of a financial institution.  However, if the foreign jurisdiction does not issue TINs or has not provided the NRA a TIN yet, then the NRA must enter a date of birth in line 8.

W-8BEN-E

The W-8BEN-E form has thirty parts, whereas the draft W-8BEN-E form only had twenty-seven, and the former W8BEN in use since 2006 has just four parts.  All filers of the new W-8BEN-E must complete Parts I and XXIX.

Part I of the W-8BEN-E requires general information, the QI status, and the FATCA classification of the filer.  Question 4 of Part I requests the QI status. If the filer is a disregarded entity, partnership, simple trust, or grantor trust, then the filer must complete Part III if the entity is claiming benefits under a U.S. tax treaty.  Question 5 requests the FATCA classification of the filer.  The classification indicated determines which one of the Parts IV through XXVIII must be completed.

Part XXIX requires certification, under penalty of perjury, by the payee or a person authorized to sign on the payee’s behalf.  This part of the final form also contains the following language that does not appear in the current form: “I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect.”

Note that if the filer is a passive NFFE, it must complete Part XXVI as well as Part XXX if it has substantial U.S. owners.  For a Passive NFFE, a specified U.S. person is a substantial U.S. owner if the person has more than a 10 percent beneficial interest in the entity.

Completion of the other parts of the final form W-8BEN-E will depend upon the FATCA classification of the filer. The classifications on the newest version Form W-8BEN-E maintain the classification of a Restricted Distributor (previously Part X, but in the final form Part XI) (see the Rev. 2013 version of the W-8BEN-E).  The complete list of Parts follows the list of thirty-one potential FATCA classifications from which the filer must choose one.

31 FATCA Classifications of the W-8BEN-E (must check one box only unless otherwise indicated).

  1. Nonparticipating FFI (including a limited FFI or an FFI related to a Reporting IGA FFI other than a registered deemed-compliant FFI or participating FFI).
  2. Participating FFI.
  3. Reporting Model 1 FFI.
  4. Reporting Model 2 FFI.
  5. Registered deemed-compliant FFI (other than a reporting Model 1 FFI or sponsored FFI that has not obtained a GIIN).
  6. Sponsored FFI that has not obtained a GIIN. Complete Part IV.
  7. Certified deemed-compliant nonregistering local bank. Complete Part V.
  8. Certified deemed-compliant FFI with only low-value accounts. Complete Part VI.
  9. Certified deemed-compliant sponsored, closely held investment vehicle. Complete Part VII.
  10. Certified deemed-compliant limited life debt investment entity. Complete Part VIII.
  11. Certified deemed-compliant investment advisors and investment managers. Complete Part IX.
  12. Owner-documented FFI. Complete Part X.
  13. Restricted distributor. Complete Part XI.
  14. Nonreporting IGA FFI (including an FFI treated as a registered deemed-compliant FFI under an applicable Model 2 IGA). Complete Part XII.
  15. Foreign government, government of a U.S. possession, or foreign central bank of issue. Complete Part XIII.
  16. International organization. Complete Part XIV.
  17. Exempt retirement plans. Complete Part XV.
  18. Entity wholly owned by exempt beneficial owners. Complete Part XVI.
  19. Territory financial institution. Complete Part XVII.
  20. Nonfinancial group entity. Complete Part XVIII.
  21. Excepted nonfinancial start-up company. Complete Part XIX.
  22. Excepted nonfinancial entity in liquidation or bankruptcy. Complete Part XX.
  23. 501(c) organization. Complete Part XXI.
  24. Nonprofit organization. Complete Part XXII.
  25. Publicly traded NFFE or NFFE affiliate of a publicly traded corporation. Complete Part XXIII.
  26. Excepted territory NFFE. Complete Part XXIV.
  27. Active NFFE. Complete Part XXV.
  28. Passive NFFE. Complete Part XXVI.
  29. Excepted inter-affiliate FFI. Complete Part XXVII.
  30. Direct reporting NFFE.
  31. Sponsored direct reporting NFFE. Complete Part XXVIII

 W-8BEN-E’s 30 Parts

Part I Identification of Beneficial Owner
Part II Disregarded Entity or Branch Receiving Payment.
Part III Claim of Tax Treaty Benefits (if applicable). (For chapter 3 purposes only)
Part IV Sponsored FFI That Has Not Obtained a GIIN
Part V Certified Deemed-Compliant Nonregistering Local Bank
Part VI Certified Deemed-Compliant FFI with Only Low-Value Accounts
Part VII Certified Deemed-Compliant Sponsored, Closely Held Investment Vehicle
Part VIII Certified Deemed-Compliant Limited Life Debt Investment Entity
Part IX Certified Deemed-Compliant Investment Advisors and Investment Managers
Part X Owner-Documented FFI
Part XI Restricted Distributor
Part XII Nonreporting IGA FFI
Part XIII Foreign Government, Government of a U.S. Possession, or Foreign Central Bank of Issue
Part XIV International Organization
Part XV Exempt Retirement Plans
Part XVI Entity Wholly Owned by Exempt Beneficial Owners
Part XVII Territory Financial Institution
Part XVIII Excepted Nonfinancial Group Entity
Part XIX Excepted Nonfinancial Start-Up Company
Part XX Excepted Nonfinancial Entity in Liquidation or Bankruptcy
Part XXI 501(c) Organization
Part XXII Non-Profit Organization
Part XXIII Publicly Traded NFFE or NFFE Affiliate of a Publicly Traded Corporation
Part XXIV Excepted Territory NFFE
Part XXV Active NFFE
Part XXVI Passive NFFE
Part XXVII Excepted Inter-Affiliate FFI
Part XXVIII Sponsored Direct Reporting NFFE
Part XXIX Certification
Part XXX Substantial U.S. Owners of Passive NFFE

Form W-8IMY

Part I of the W8-IMY Form adds FATCA classification.   Part I of the form requires general information, the Chapter 3 QI status, and the Chapter 4 FATCA classification of the filer.

Question 4 of Part I requests the QI status:

  • If the filer is a Qualified Intermediary, then the filer must complete Part III Qualified Intermediary.  If the filer is a Nonqualified Intermediary, then the filer must complete Part IV Nonqualified Intermediary.
  • Territory Financial Institutions complete Part V. U.S. Branches complete Part VI.
  • Withholding Foreign Partnership or Withholding Foreign Trusts complete Part VII.
  • Nonwithholding Foreign Partnership, Nonwithholding Foreign Simple Trust, and Nonwithholding foreign grantor trusts must complete Part VIII.

Question 5 requests the FATCA classification of the filer. The classification indicated determines which one of the Parts IX through XXVII must be completed.

Part II of this form is to be completed if the entity is a disregarded entity or a branch receiving payment as an intermediary. Part II only applies to branches of an FFI outside the FFI’s country of residence.

Chapter 3 Status Certifications  Parts III – VIII

Parts III – VIII of this form address the QI Status of the entity. Part III is to be completed if the entity is a QI, and requires the entity to certify that it is a QI and has provided appropriate documentation. Part IV is to be completed if the entity is a Nonqualified Intermediary (NQI), and requires the entity to certify that it is a NQI not acting for its own account.

Part V is to be completed if the entity is a Territory Financial Institution. Part VI is to be completed by a U.S. branch only if the branch certifies on the form that it is the U.S. branch of a U.S. bank or insurance company, and that the payments made are not effectively connected to a U.S. trade or business. Part VII is to be completed if the entity is a Foreign Withholding Partnership (WP) or a Withholding Foreign Trust (WT). Part VIII is to be completed if the entity is either a Nonwithholding Foreign Partnership, Simple Trust, or Grantor Trust.

Chapter 4 Status Certifications Parts IX – XXVI

Parts IX – XXVI of this form address the FATCA Status of the entity. These classifications include the new classification of a Restricted Distributor (Part XVI), but do not include the new classification of a Reporting NFFE.

Statement of Certification

Part XXVIII requires certification, under penalty of perjury, by the payee or a person authorized to sign on the payee’s behalf. Finally, the form contains the following language: “I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect.”

Structure of New Form Form W-8IMY

  • Part I Identification of Entity
  • Part II Disregarded Entity or Branch Receiving Payment.

Chapter 3 Status Certifications

  • Part III Qualified Intermediary
  • Part IV Nonqualified Intermediary
  • Part V Territory Financial Institution
  • Part VI Certain U.S. Branches
  • Part VII Withholding Foreign Partnership (WP) or Withholding Foreign Trust (WT)
  • Part VIII Nonwithholding Foreign Partnership, Simple Trust, or Grantor Trust

Chapter 4 Status Certifications

  • Part IX Nonparticipating FFI with Exempt Beneficial Owners
  • Part X Sponsored FFI That Has Not Obtained a GIIN
  • Part XI Owner-Documented FFI
  • Part XII Certified Deemed-Compliant Nonregistering Local Bank
  • Part XIII Certified Deemed-Compliant FFI with Only Low-Value Accounts
  • Part XIV Certified Deemed-Compliant Sponsored, Closely Held Investment Vehicle
  • Part XV Certified Deemed-Compliant Limited Life Debt Investment Entity
  • Part XVI Restricted Distributor
  • Part XVII Foreign Central Bank of Issue
  • Part XVIII Nonreporting IGA FFI
  • Part XIX Exempt Retirement Plans
  • Part XX Excepted Nonfinancial Group Entity
  • Part XXI Excepted Nonfinancial Start-Up Company
  • Part XXII Excepted Nonfinancial Entity in Liquidation or Bankruptcy
  • Part XXIII Publicly Traded NFFE or NFFE Affiliate of a Publicly Traded Corporation
  • Part XXIV Excepted Territory NFFE
  • Part XXV Active NFFE
  • Part XXVI Passive NFFE
  • Part XXVII Sponsored Direct Reporting NFFE

book coverPractical Compliance Aspects of FATCA and GATCA

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

<— Subscribe by email on the left menu to the FATCA Updates on this blog:  https://profwilliambyrnes.com/category/fatca/

 

If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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7 Tax Facts for Making IRA Contributions

Posted by William Byrnes on May 14, 2014


In Tax Tip 2014-50, the IRS discussed 7 important tax facts about planning for contributions to an IRA.

1. A taxpayer must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.

2. A taxpayer must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income.  It also includes tips, commissions, bonuses and alimony. If a taxpayer is married and files a joint return, generally only one spouse needs to have compensation.

3. A taxpayer can contribute to an IRA at any time during the year for that year and even may count contributions, up to a certain date, made the following year.  That certain date for 2013 contributions to count, even if made in 2014, is that the contributions made in 2014 had to be by the due date of the 2013 tax return (which was April 15).

Thus, contributions may count for the year 2014 that are made in 2014 and that are made in 2015 up until the date that the 2014 tax return must be filed (Wednesday, April 15, 2015.)

The date to include IRA contributions may not be pushed back with extensions.   Also, no double counting!   If a taxpayer contributes to an IRA between Jan. 1 and April 15, then the IRA plan sponsor must apply it to the correct year which is either the current one, or the previous one, depending upon what the taxpayer has planned.  In general, taxpayers will use this option to contribute toward last year’s contribution limit when at the end of the year, they discover that they have not contributed the full amount allowed by the IRA tax rules.  Said another way, the taxpayer has excess contribution limit remaining for the previous year, and this option allows the taxpayer to fill it.

4. In general, the most a taxpayer can contribute to an IRA for 2014 is the smaller of either your taxable compensation for the year or $5,500. If a taxpayer were age 50 or older at the end of 2014, the maximum you can contribute increases to $6,500.

5. A taxpayer normally will not pay income tax on funds in a traditional IRA until the taxpayer starts taking distributions from it. Qualified distributions from a Roth IRA are tax-free.

6. A taxpayer may be able to deduct some or all of the contributions to a traditional IRA.  A taxpayer should use the worksheets in the Form 1040A or Form 1040 instructions to figure the amount of the contribution that can be deducted for a traditional IRA.  Unlike a traditional IRA, a taxpayer cannot deduct contributions to a Roth IRA.

7. A taxpayer can contribute to an IRA and also may also qualify for the Saver’s Credit. The credit can reduce taxes up to $2,000 if filing a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.

2013_tf_insurance_emp_benefits_combo_covers-m_2Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Insurance & Employee Benefits delivers the latest guidance on:

  • Estate & Gift Tax Planning
  • Roth IRAs
  • HSAs
  • Capital Gains, Qualifying Dividends
  • Non-qualified Deferred Compensation Under IRC Section 409A
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting insurance and employee benefits including changes from the American Taxpayer Relief Act of 2012
  • Concise updated explanation and highlights of the Patient Protection and Affordable Care Act (PPACA)
  • Expanded coverage of Annuities
  • New section on Structured Settlements
  • New section on International Tax
  • More than thirty new Planning Points, written by practitioners for practitioners, in the following areas:
    • Life Insurance
    • Health Insurance
    • Estate and Gift Tax
    • Deferred Compensation
    • Individual Retirement Plans

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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New FATCA FAQ on Trustee Registration increases to 15 added this month

Posted by William Byrnes on May 13, 2014


On May 13, 2014 the IRS has released a new FATCA FAQ: How do Trustees of Trustee-Documented Trusts register? This FAQ adds to the 10 new ones included April 24th and the 4 added May 2nd.  See below for the date-annotated FAQs by topic, followed by the date-annotated by question. Link within this Blog for my other analysis of FATCA updates.

Qualified Intermediaries/Withholding Foreign Partnerships/Withholding Foreign Trusts <– 2 new FAQs on April 24 (see >April 24< update)

IGA Registration <– 1 new FAQs on April 24 (see >April 24< update)

Expanded Affiliated Groups <– 2 new FAQs on April 24 (see >April 24< update)

Sponsoring/Sponsored Entities

Responsible Officers and Points of Contact <– 2 new FAQs May 2 (see >May 2nd< update)

Financial Institutions

Exempt Beneficial Owners

NFFEs

Registration Update <–  1 new questions May 13 (see below), <– 1 new FAQ May 2 (see >May 2nd< update)

Branch/Disregarded Entity <– 1 new FAQ May 2 (see >May 2nd< update)

General Compliance <– 5 new FAQs on April 24 (see >April 24< update)

 

Qualified Intermediaries/Withholding Foreign Partnerships/Withholding Foreign Trusts

# Questions Answers
 Q1 How does a Financial Institution that is not currently a Qualified Intermediary (“QI”), a Withholding Foreign Partnership (“WP”), or a Withholding Foreign Trust (“WT”) register to become one? The process to become a QI, WP or WT has not been modified by the provisions of FATCA.The application for Qualified Intermediary status can be found here: QI ApplicationInformation on acquiring Withholding Foreign Partnership, or Withholding Foreign Trust status can be found here: WP/WT Application
 Q2 How do FIs that are currently QIs, WPs and WTs renew their agreements? Existing QIs, WPs and WTs are required to renew their QI agreements through the FATCA registration website as part of their FATCA registration process.All QI, WP, or WT agreements that would otherwise expire on December 31, 2013 will be automatically extended until June 30, 2014.  (Notice 2013-43; 2013-31 IRB 113).
 Q3 I am not currently a QI/WP/WT.  Can I use the LB&I registration portal to register for FATCA and become a new QI/WP/WT? QI/WP /WT status can only obtained by completing and submitting a Form 14345 (“QI Intermediary Application”) and Form SS-4 (“Application for Employer Identification Number”) directly to the QI Program.   Interested QIs/WPs/WT should submit the required paperwork to the QI program and separately use the FATCA registration portal to obtain a GIIN for FATCA purposes.    FFIs can not become a new QI/WP/WT through the FATCA portal.Applications for QI/WP/WT status can be made to:IRS-Foreign Intermediary Program
Attn:  QI/WP/WT Applications
290 Broadway, 12th floor
New York City, New York 10007Note:  Form 14345 (“QI Intermediary Application”) should be used for WPs and WTs in addition to QIs.
 Q4 Must an FI become a QI/WP/WT in order to register under FATCA? An FI is not required to obtain QI/WP or WT status to register under FATCA.  If at the time of FATCA registration, the FI does not have in effect a withholding agreement with the IRS to be treated as a QI, WP or WT, the FI will indicate “Not applicable” in box 6 and will continue with the registration process.
 Q5 If an FFI has a QI/WP/WT agreement in place, does the Responsible Party for purposes of the QI/WP/WT Agreement also have to the serve as the FFI’s Responsible Officer? (see >April 24< update) No, the FFI’s Responsible Party for purposes of a QI/WP/WT Agreement does not have to be the Responsible Officer chosen by the FFI for purposes of certification under the regulations or for FATCA Registration purposes.
 Q6 If a member of the Expanded Affiliated Group is a Qualified Intermediary/Withholding Trust/Withholding Partnership, does the Lead Financial Institution renew the Qualified Intermediary/Withholding Trust/Withholding Partnership agreement on behalf of the member or does the member renew its own agreement? (see >April 24< update) Each Member FI with a Qualified Intermediary/Withholding Trust/Withholding Partnership (“QI/WP/WT”) agreement will renew its own agreement on the registration system.  When a Member is completing its registration it will be asked about whether it maintains and seeks to renew a QI/WP/WT agreement with the Service.  If the Member indicates it has one of these agreements and would like to renew the agreement, the Member will do so in Part 3 of the registration system in addition to claiming status as a participating FFI or registered-deemed compliant FFI (and obtaining its required GIINs).

IGA Registration

# Questions Answers
 Q1 Please provide a link that lists the jurisdictions treated as having in effect a Model 1 or Model 2 IGA. The U.S. Department of Treasury’s list of jurisdictions that are treated as having an intergovernmental agreement in effect can be found by clicking on the following link: IGA LIST
 Q2 How do Foreign Financial Institutions in Model 1 jurisdictions register on the FATCA registration website? Financial Institutions that are treated as Reporting Financial Institutions under a Model 1 IGA (see the list of jurisdictions treated as having an IGA in effect at IGA LIST) should register as Registered Deemed-Compliant Foreign Financial Institutions.More information on registration can be found in the FATCA Registration Online User Guide:User Guide Link (See Section 2.4 “Special Rules for Registration”)
 Q3 How do Foreign Financial Institutions in Model 2 jurisdictions register on the FATCA registration website? Financial Institutions that are treated as Reporting Financial Institutions under a Model 2 IGA (see the list of jurisdictions treated as having an IGA in effect at IGA LIST) should register as Participating Foreign Financial Institutions.More information on registration can be found in the FATCA Registration Online User Guide:User Guide Link (See Section 2.4 “Special Rules for Registration”)
 Q4 We are an FFI in a country that has not signed an IGA, and the local laws of our country do not allow us to report U.S. accounts or withhold tax. What is our FATCA classification? Unless the Treasury website provides that your country is treated as having an IGA in effect, then, because of its local law restrictions, this FFI should register as a Limited FFI provided it meets the definition shown directly below. See FATCA – Archive   for a list of countries treated as having an IGA in effect.A Limited FFI means an FFI that, due to local law restrictions, cannot comply with the terms of an FFI Agreement, or otherwise be treated as a PFFI or RDCFFI, and that is agreeing to satisfy certain obligations for its treatment as a Limited FFI.
 Q5 In a Model 1 IGA jurisdiction, does the FFI need to fill out Question 10 about Responsible Officers? (see >April 24< update) Yes, if an FFI treated as a reporting Model 1 FFI wishes to have a GIIN, a Responsible Officer must be designated in Part 1, line 10 of Form 8957.     Please see the FAQs on Responsible Officers for further information.

Expanded Affiliated Groups

# Questions Answers
Q1 For registration purposes, can an EAG with a Lead FI and 2 Member FIs be divided into: (1) a group with a Lead FI and a member FI, and (2) a member FI that will register as a Single FI? Yes. An EAG may organize itself into subgroups, so long as all entities with a registration requirement are registered. An FI that acts as a Compliance FI for any members of the EAG is, however, required to register each such member as would a Lead FI for such members.
 Q2 What is required for an entity to be a Lead FI? A Lead FI means a USFI, FFI, or a Compliance FI that will initiate the FATCA Registration process for each of its Member FIs that is a PFFI, RDCFFI, or Limited FFI and that is authorized to carry out most aspects of its Members’ FATCA Registrations. A Lead FI is not required to act as a Lead FI for all Member FIs within an EAG. Thus, an EAG may include more than one Lead FI that will carry out FATCA Registration for a group of its Member FIs. A Lead FI will be provided the rights to manage the online account for its Member FIs. However, an FFI seeking to act as a Lead FI cannot have Limited FFI status in its country of residence. See Rev. Proc. 2014-13 to review the FFI agreement for other requirements of a Lead FI that is also a participating FFI.
 Q3 Can a Member FI complete its FATCA registration and obtain a GIIN if the Lead FI for that Member FI has not yet registered under FATCA? (see >April 24< update) No, a Member FI can only register after its Lead FI has registered.  When the Member FI does register, it should indicate in Part 1, line 1, that it is a member of an expanded affiliated group.In Part 2 of the Lead FI’s registration, the Lead FI will add basic identifying information for each Member, and the system will create the Member FATCA accounts.  Each Member FI will then be required to log into the system and complete its registration.
 Q4 Is a limited FFI who is a member of an Expanded Affiliated Group subject to Chapter 4 withholding?  (see >April 24< update) Yes. A limited FFI (regardless of whether it is a member of an Expanded Affiliated Group) must identify itself to withholding agents as a nonparticipating FFI and, as a result, is subject to Chapter 4 withholding.  Thus, while limited FFIs are generally required to register, they will not be issued GIINs.

Sponsoring/Sponsored Entities

# Questions Answers
 Q1 We are a Sponsoring Entity, and we would like to register our Sponsored Entities. How do we register our Sponsored Entities? The Sponsoring Entity that agrees to perform the due diligence, withholding, and reporting obligations of one or more Sponsored Entities pursuant to Treas. Reg. §1.1471-5(f)(1)(i)(F) should register with the IRS via the FATCA registration website to be treated as a Sponsoring Entity. To allow a Sponsoring Entity to register its Sponsored Entities with the IRS, and, as previewed in Notice 2013-69, the IRS is developing a streamlined process for Sponsoring Entities to register Sponsored Entities on the FATCA registration website. Additional information about this process will be provided by the IRS at a later date.While a Sponsoring Entity is required to register its Sponsored Entities for those entities to obtain GIINs, the temporary and proposed regulations provide a transitional rule that, for payments prior to January 1, 2016, permit a Sponsored Entity to provide the GIIN of its Sponsoring Entity on withholding certificates if it has not yet obtained a GIIN. Thus, a Sponsored Entity does not need to provide its own GIIN until January 1, 2016 and is not required to register before that date.

Responsible Officers and Points of Contact

# Questions Answers
 Q1 What is a Point Of Contact (POC)? The Responsible Officer listed on line 10 of Form 8957 (or the online registration system) can authorize a POC to receive FATCA-related information regarding the FI, and to take other FATCA-related actions on behalf of the FI. While the POC must be an individual, the POC does not need to be an employee of the FI. For example, suppose that John Smith, Partner of X Law Firm, has been retained and been given the authority to help complete and submit the FATCA Registration on behalf of an FI. John Smith should be identified as the POC, and in the Business Title field for this POC, it should state Partner of X Law Firm.
 Q2 Is the Responsible Officer required to be the same person for all lines on Form 8957 or the online registration (“FATCA Registration”)? No, it is not required that the Responsible Officer (“RO”) be the same person for all lines on Form 8957 or the online registration.  It is possible, however, that the same person will have the required capacity to serve as the RO for all FATCA Registration purposes.The term “RO” is used in several places in the FATCA Registration process.  In determining an appropriate RO for each circumstance, the Financial Institution (“FI”) or direct reporting NFFE should review the capacity requirements and select an individual who meets those requirements.  This will be a facts and circumstances determination.Please note that the responsible officer used for registration purposes may differ from the certifying responsible officer of an FFI referenced in Treasury Regulation §1.1471-1(b)(116).  (See, however, below regarding “Delegation of RO Duties.”)Below is a description of the required RO capacity per line:

Part 1, Question 10 (FATCA RO for the Financial Institution)

Language from the Form 8957 Instructions and the FATCA Online Registration User Guide specifies that the RO for question 10 purposes is a person authorized under applicable local law to establish the statuses of the entity’s home office and branches as indicated on the registration form.  (See FAQ below for what it means to “establish the FATCA statuses” of the FI’s home office and branches or direct reporting NFFE.)

Part 1, Question 11b (Point of Contact authorization)

The RO identified in question 11b must be an individual who is authorized under local law to consent on behalf of the FI or direct reporting NFFE (“an authorizing individual”) to the disclosure of FATCA-related tax information to third parties.  By listing one or more Points of Contact (each, a “POC”) in question 11b and selecting “Yes” in question 11a, the authorizing individual identified at the end of question 11b (to the right of the checkbox) is providing the IRS with written authorization to release the entity’s FATCA-related tax information to the POC.  This authorization specifically includes authorization for the POC to complete the FATCA Registration (except for Part 4), to take other FATCA-related actions, and to obtain access to the FI’s (or direct reporting NFFE’s) tax information.  Once the authorization is granted, it is effective until revoked by either the POC or by an authorizing individual of the FI or direct reporting NFFE.

Part 4

The authority required for an individual to be an RO for purposes of Part 4 is substantially similar to the authority required for RO status under Treas. Reg. § 1.1471-1(b)(116).

The RO designated in Part 4 must be an individual with authority under local law to submit the information provided on behalf of the FI or direct reporting NFFE.  In the case of FIs or FI branches not governed by a Model 1 IGA, this individual must also have authority under local law to certify that the FI meets the requirements applicable to the FI status or statuses identified on the registration form.  This individual must be able to certify, to the best of his or her knowledge, that the information provided in the FI’s or direct reporting NFFE’s registration is accurate and complete.  In the case of an FI, the individual must be able to certify that the FI meets the requirements applicable to the status(es) identified in the FI’s registration.  In the case of a direct reporting NFFE, the individual must be able to certify that the direct reporting NFFE meets the requirements of a direct reporting NFFE under Treas. Reg. § 1.1472-1(c)(3).

An RO (as defined for purposes of Part 4) can delegate authorization to complete Part 4 by signing a Form 2848 “Power of Attorney Form and Declaration of Representative” or other similar form or document (including an applicable form or document under local law giving the agent the authorization to provide the information required for the FATCA Registration).

Note: While the certification in Part 4 of the online registration does not include the term “responsible officer,” the FATCA Online Registration User Guide provides that the individual designated in Part 4 must have substantially the same authority as the RO as defined for purposes of Form 8957, Part 4.

Delegation of RO Duties

While the ROs for purposes of Question 10, Question 11b, and Part 4 of the FATCA Registration may be different individuals, in practice it will generally be the same individual (or his/her delegate)).  The regulatory RO is responsible for establishing and overseeing the FFI’s compliance program.  The regulatory RO may, but does not necessarily have to, be the registration RO for purposes of 1) ascertaining and completing the chapter 4 statuses in the registration process; 2) receiving the GIIN and otherwise interacting with the IRS in the registration process; and 3) making the Part 4 undertakings.  Alternatively, the regulatory RO, or the FFI (through another individual with sufficient authority), may delegate each of these registration roles to one or more persons pursuant to a delegation of authority (such as a Power of Attorney) that confers the particular registration responsibility or responsibilities to such delegate(s).  The scope of the delegation, and the delegate’s exercise of its delegated authority within such scope, will limit the scope of the potential liability of the delegate under the rules of agency law , to the extent applicable.  The ultimate principal, whether that is the regulatory RO or the FFI, remains fully responsible in accordance with the terms and conditions reflected in the regulations, and other administrative guidance to the extent applicable under FATCA, the regulations.

 Q3 The Instructions for Form 8957 state that for purposes of Part 1, question 10, “. . .  RO means the person authorized under applicable local law to establish the statuses of the FI’s home office and branches as indicated on the registration form.”  What does it mean for an RO to have the authority to “establish the statuses of the FI’s home office and branches as indicated on the registration form”? To have the authority to “establish the statuses” for purposes of question 10, an RO must have the authority to act on behalf of the FI to represent the FATCA status(es) of the FI to the IRS as part of the registration process.  This RO must also have the authority under local law to designate additional POCs.
 Q4 My FI plans on employing an outside organization (or individual) solely for the purpose of assisting with the registration process.  Once registration is complete, or shortly thereafter, my FI intends to discontinue its relationship with this organization.  Is this permissible under the FATCA registration system? How should my FI use the registration system to identify this relationship? Yes, the FI or direct reporting NFFE may employ an outside organization to assist with FATCA registration and discontinue the relationship with the outside organization once registration is complete.  As part of the registration process, an FI or direct reporting NFFE may appoint up to five POCs who are authorized to take certain FATCA-related actions on behalf of the entity, including the ability to complete all parts of the FATCA Registration (except for Part 4), to take other appropriate or helpful FATCA-related actions, and to obtain access to the entity’s FATCA-related tax information.  The POC authorization must be made by an RO within the meaning of Part 1, question 10.  Part 4 must be completed by the RO or a duly authorized agent of the RO.  (See FAQ 1 for a discussion of the process for delegating authorization to complete Part 4.)Once the services of a POC are no longer needed, the RO may log into the online FATCA account and delete the POC.  This process revokes the POC’s authorization.  At this point, the Responsible Officer can input a new POC, or leave this field blank if they no longer wish to have any POC other than the RO listed on Line 10.If a third-party adviser that is an entity is retained to help the FI or direct reporting NFFE complete its FATCA registration process, the name of the third-party individual adviser that will help complete the FATCA registration process should be entered as a POC in Part 1, question 11b, and the “Business Title” field for that individual POC should be completed by inserting the name of the entity and the POC’s affiliation with the entity.  For example, suppose that John Smith, Partner of X Law Firm, has been retained and been given the authority to help complete the FATCA Registration on behalf of FI Y.  John Smith should be identified as the POC, and in the Business Title field for this POC, it should state Partner of X Law Firm.
 Q5 For each of the following FATCA classifications (i.e. Participating Foreign Financial Institution “PFFI”, PFFI that elects to be part of a consolidated compliance program, Registered Deemed-Compliant Foreign Financial Institution “RDCFFI”, Reporting Model 1 FFI, Limited FFI and US Financial Institution “USFI”) what type of individual may serve as a Responsible Officer for purposes of Part 1, Question 10 of the FATCA Registration? (see >May 2nd< update) With respect to a PFFI, an RO is an officer of the FFI (or an officer of any Member FI that is a PFFI, Reporting Model 1 FFI or Reporting Model 2 FFI) with sufficient authority to fulfill the duties of a Responsible Officer described in a FFI Agreement.With respect to a PFFI that elects to be part of a consolidated compliance program, an RO is an officer of the Compliance FI with sufficient authority to fulfill the duties of a Responsible Officer described in the FFI Agreement on behalf of each FFI in the compliance group (regardless of whether the FFI is a Limited FFI or treated as a Reporting Model 1 FFI or Reporting Model 2 FFI).With respect to a RDCFFI, other than a RDCFFI that is a Reporting Model 1 FFI, an RO is an officer of the FI (or an officer of any Member FFI that is a PFFI, Reporting Model 1 FFI, or Reporting Model 2 FFI) with sufficient authority to ensure that the FFI meets the applicable requirements to be treated as a RDCFFI.With respect to a Reporting Model 1 FFI, an RO is any individual specified under local law to register and obtain a GIIN on behalf of the FFI.  If, however, the Reporting Model 1 FFI operates any branches outside of a Model 1 IGA jurisdiction, then the RO identified must be an individual who can satisfy the requirements under the laws of the Model 1 IGA jurisdiction and the requirements relevant to the registration type selected for each of its non-Model 1 IGA branches.

With respect to a Limited FFI, an RO is an officer of the Limited FFI (or an officer of any Member FI that is a PFFI, Reporting Model 1 FFI, or Reporting Model 2 FFI) with sufficient authority to ensure that the FI meets the applicable requirements to be treated as a Limited FFI.

With respect to a USFI that is registering as a “Lead FI”, an RO is any officer of the FI (or an officer of any Member FI) with sufficient authority to register its Member FIs and to manage the online FATCA accounts for such members.

 Q6 (see >May 2nd< update)Part 4 of the online registration system* states:By checking this box, I, _________, [(the responsible officer or delegate thereof (herein collectively referred to as the “RO”)], certify that, to the best of my knowledge, the information submitted above is accurate and complete and I am authorized to agree that the Financial Institution (including its branches, if any) will comply with its FATCA obligations in accordance with the terms and conditions reflected in regulations, intergovernmental agreements, and other administrative guidance to the extent applicable to the Financial Institution based on its status in each jurisdiction in which it operates.*Note: Part 4 of Form 8957 contains a substantially similar certification.

Can this statement be broken down into two declarations of the RO, as follows?

(i) The RO certifies that, to the best of its knowledge, the information submitted above is accurate and complete.

(ii) The RO agrees that the FI (including its branches, if any) will comply with its FATCA obligations in accordance with the terms and conditions reflected in regulations, intergovernmental agreements, and other administrative guidance to the extent applicable to the FI based on its status in each jurisdiction in which it operates.

 

 

 

 

 

Does the first declaration above mean that the RO certifies that, to the best of its knowledge, the FI meets the requirements of its claimed status?
Does the second declaration above apply to an FI treated as a reporting Model 2 FFI?
Does the second declaration above (relating to a Participating FFI) require the signing party to ensure that the FFI and its member FFIs (including its branches, if any) comply with its respective obligations under the terms of its FFI Agreement or any applicable intergovernmental agreement and any such applicable local law? The second declaration requires the signing party to be able to certify that, to the best of the signing party’s knowledge at the time the FATCA registration is signed, the FI and its member FFIs intend to comply with their respective FATCA obligations.A Participating FFI will have its certifying responsible officer (as defined in Treasury Regulation §1.1471-1(b)(116)) periodically certify to the IRS regarding the FFI’s compliance with its FFI agreement.  As noted in FAQ 1, the RO identified in Part 4 will normally be an individual with sufficient authority to be eligible for RO status under Treas. Reg. § 1.1471-1(b)(116).  (See, however, above regarding “Delegation of RO Duties.”)
How do the certifications in Part 4 apply to FIs treated as reporting Model 1 FFIs? The first declaration above applies to FIs treated as reporting Model 1 FFIs and, as such, the RO of an FI treated as a reporting Model 1 FFI certifies that, to the best of the RO’s knowledge, the information submitted as part of the FATCA Registration process is accurate and complete.  The second declaration, however, has limited applicability to FIs treated as reporting Model 1 FFIs because the FI does not have ongoing FATCA compliance obligations directly with the IRS.  Instead, the compliance and reporting obligations of an FI treated as a reporting Model 1 FFI are to its local authority.  However, a reporting Model 1 FFI that has branches (as identified in Part 1, line 9 of Form 8957) that are located outside of a Model 1 IGA jurisdiction will also agree to the terms applicable to the statuses of such branches.  Additionally, an FI (including an FI in a Model 1 IGA jurisdiction) that is also registering to renew its QI, WP, or WT Agreement will agree to the terms of such renewed QI, WP, or WT Agreements by making the second declaration.

Financial Institutions

# Questions Answers
 Q1 Are U.S. Financial Institutions (USFIs) required to register under FATCA? If so, under what circumstances would a USFI register? A USFI is generally not required to register under FATCA. However, a USFI will need to register if the USFI chooses to become a Lead FI and/or a Sponsoring Entity or seeks to maintain and renew the QI status of a foreign branch that is a QI. Furthermore, a USFI with a foreign branch that is a reporting Model 1 FFI is required to register on behalf of its foreign branches (and should identify each such branch when registering). A USFI with non-QI branch operations in a Model 2 jurisdiction or in a non-IGA jurisdiction is not required to register with the IRS.
 Q2 Is a Foreign Financial Institution (“FFI”) required to obtain an EIN? If the FFI has a withholding obligation and will be filing Forms 1042 and Forms 1042-S with the Internal Revenue Service, it will be required to have an EIN. Please see publication 515 (“Withholding of Tax on Nonresident Aliens and Foreign Entities”) for further information about U.S. Withholding requirements. See Pub. 515. An FFI is also required to obtain an EIN when it is a QI, WP, or WT (through the application process to obtain any such status) or when the FFI is a participating FFI that elects to report its U.S. accounts on Forms 1099 under Treas. Reg. §1.1471-4(d)(5).
How does a FFI apply for a EIN if it does not already have one? If a FFI does not have an EIN, it may apply for one using Form SS-4 (“Application for Employer Identification Number”) or the online registration system. See Apply-for-an-Employer-Identification-Number-(EIN)-Onlinefor more information.

Exempt Beneficial Owners

# Questions Answers
 Q1 We are a foreign central bank of issue. Will we be subject to FATCA withholding if we do not register? You will generally be exempt from FATCA Registration and withholding if you meet the requirements to be treated as an exempt beneficial owner (e.g. as a foreign central bank of issue described in Treas. Reg. § 1.1471-6(d), as a controlled entity of a foreign government under Treas. Reg. §1.1471-6(b)(2), or as an entity treated as either of the foregoing under an applicable IGA). A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner in accordance with the regulations. However, an exempt beneficial owner may be subject to withholding on payments derived from the type of commercial activity described in Treas. Reg. § 1.1471-6(h).
 Q2 We are a foreign pension plan. Will we be subject to FATCA withholding if we do not register? You will be exempt from FATCA Registration and withholding if you meet the requirements to be treated as a retirement fund described in Treas. Reg. § 1.1471-6(f), or under an applicable IGA. A withholding agent is not required to withhold on a withholdable payment to the extent that the withholding agent can reliably associate the payment with documentation to determine the portion of the payment that is allocable to an exempt beneficial owner (in this case, a retirement fund) in accordance with the regulations.

NFFEs

# Questions Answers
 Q1 How should an entity seeking the FATCA status of “direct reporting NFFE” (other than a sponsored direct reporting NFFE) register for this status to obtain a GIIN in order to avoid FATCA withholding? A direct reporting NFFE is eligible to register for this status and when registering should complete an online registration (or, alternatively, submit a paper Form 8957) based on the instructions provided in this FAQ.   For registrations occurring in years after 2014, it is anticipated that both the online registration user guide and the Instructions for Form 8957 will be updated to incorporate this information.In general, for purposes of completing the registration of a direct reporting NFFE, substitute the words “direct reporting NFFE” for the words “financial institution” wherever  they appear in the online registration user guide (or in the Instructions for Form 8957).  Unless specific instructions for a registration question are described here in this FAQ, please use the generally applicable instructions provided in the online registration user guide (or in the Instructions for Form 8957).Part 1Question 1 – – Select “Single”.

Question 4 – – Select “None of the above”.

Question 6 – – Select “Not applicable”.

Question 7 – – Select “No”.  (If using the portal online, selecting “no” will automatically skip Questions 8 and 9.)

Question 8 – – Skip this question (which relates to branches)

Question 9 – – Skip all parts (a) through (c) of this question (which relate to branches).

Question 10 – – Enter the information of the individual who will be responsible for ensuring that the direct reporting NFFE meets its FATCA reporting obligations and will act as a point of contact with the IRS in connection with its status as a direct reporting NFFE.

Part 2 – – It is not necessary for a direct reporting NFFE to complete this section. (If using the portal online, selecting Single in question 1 will automatically skip Part 2.)

Part 3 – – It is not necessary for a direct reporting NFFE to complete this section. (If using the portal online, selecting “Not Applicable” in question 6 will automatically skip Part 3.)

Part 4 – – The individual who completes this part must have the authority to provide the certification.

Direct reporting NFFE QIs/WPs/WTs should renew their agreements through the existing traditional paper process.  Instructions can be found at the following link (Question IX), see:Qualified-Intermediary-Frequently-Asked-Questions

 Q2 How should a sponsor of a sponsored direct reporting NFFE register itself for this status and obtain a GIIN? A sponsor of a sponsored direct reporting NFFE is a sponsoring entity (see Treas. Reg. § 1.1471-1T(b)(124)) and  should complete an online registration (or, alternatively, submit a paper Form 8957) as a sponsoring entity, based on the instructions provided in this FAQ.  A sponsoring entity need only complete one registration to act as the sponsor for both sponsored FFIs and sponsored direct reporting NFFEs.  For registrations occurring in years after 2014, it is anticipated that both the online registration user guide and the Instructions for Form 8957 will be updated to incorporate this information, including by incorporating the definition of sponsoring entity provided in Treas. Reg. § 1.1471-1T(b)(124).In general, for purposes of having a sponsor register a sponsored direct reporting NFFE, substitute the words “sponsor of a direct reporting NFFE” for the words “sponsoring entity” wherever they appear in the online registration user guide (or in the Instructions for Form 8957).  Unless specific instructions for a registration question are described here in this FAQ, please use the generally applicable instructions provided in the online registration user guide (or in the Instructions for Form 8957).Part 1Question 1 – – Select “Sponsoring Entity”.

Question 4 – – Select “None of the above”.

Question 6 – – Select “Not applicable”.

Question 7 – – Select “No”. (If using the portal online, selecting “no” will automatically skip Questions 8 and 9)

Question 8 – – Skip this question (which relates to branches)

Question 9 – – Skip all parts (a) through (c) of this question (which relate to branches).

Question 10 – – Enter the information of the individual who will be responsible for ensuring that the direct reporting NFFE meets its FATCA reporting obligations and who will act as a point of contact with the IRS in connection with its obligations as a sponsoring entity.

Part 2 – – It is not necessary for a sponsor of a direct reporting NFFE to complete this section.  (If using the portal online, selecting Sponsoring Entity in question 1 will automatically skip Part 2.)

Part 3 – – It is not necessary for a sponsor of a direct reporting NFFE to complete this section. (If using the portal online, selecting “Not Applicable” in question 6 will automatically skip Part 3.)

Part 4 – – The individual who completes this part must have the authority to provide the certification.

Registration Update

# Questions Answers
 Q1 Why has my registration been put into “Registration Incomplete”? What can I do? If your registration has been put into Registration Incomplete status, it is because the IRS has identified an issue with your registration.  If you are Registration Incomplete status, please review your registration for any of the following errors and update it accordingly:

  1. The FFI has identified itself as a Qualified Intermediary with a QI-EIN of which the IRS has no record.  (If you have QI, WP or WT Agreement signed with the IRS, please contact the Financial Intermediaries Team for further assistance.)
  2. The RO has been identified with initials only and no specific name has been provided.
  3. The RO does not appear to be a natural person.
  4. Notice 2013-43 stated that any registrations submitted prior to  January 1, 2014 would be taken out of submit and put into Registration Incomplete status. Thus, if your registration was submitted prior to  January 1, 2014, you must  re-submit your registration assuming that none of the other abovementioned reasons (1-3) are an issue with the FFI’s registration.

After you have updated your registration, you must resubmit in order for your registration to be processed.

 Q2 For each of the following FATCA classifications (i.e. Participating Foreign Financial Institution “PFFI” for Reporting Model 2 FFI, Registered Deemed Compliant Foreign Financial Institutions “RDCFFI” (for both Model 1 and non-Model 1 FFIs), Sponsoring Entity, Limited FFI or Limited Branch, Renewing QI/WP/WT, US Financial Institution “USFI” treated as a Lead FI and Direct Reporting NFFE) what is the impact of completing Part IV of the FATCA Registration? (see >May 2nd< update) PFFI Status for Reporting Model 2 FFIReporting Model 2 FFIs are registering to obtain a GIIN, provide authorization for individuals named in Part 1, Line 11 of the FATCA Registration to receive information related to FATCA registration, and to confirm that they will comply with the terms of an FFI Agreement in accordance with the FFI agreement, as modified by any applicable Model 2 IGA.Notwithstanding the paragraph above, Reporting Model 2 FFIs operating branches outside of Model 1 or 2 IGA jurisdictions are agreeing to the terms of an FFI Agreement for such branches, unless the branches are treated as Limited Branches or are U.S. branches that are treated as U.S. persons.  Additionally, Reporting Model 2 FFIs requesting renewal of a QI, WP or WT Agreement are entering into the renewed Model QI, WP, or WT Agreements, as applicable.RDCFFI Status for Reporting Model 1 FFI

Reporting Model 1 FFIs are not entering into FFI Agreements via the FATCA registration process.  Reporting Model 1 FFIs are registering to obtain a GIIN and to provide authorization for individuals named in Part 1, Line 11 of the FATCA Registration to receive information related to FATCA registration.  Notwithstanding the preceding sentence, Reporting Model 1 FFIs operating branches outside of Model 1 or 2 IGA jurisdictions are agreeing to the terms of an FFI Agreement for such branches, unless the branches are treated as Limited Branches.  Additionally, Reporting Model 1FFIs requesting renewal of a QI, WP or WT Agreement are entering into such renewed Model QI, WP, or WT Agreements, as applicable.

RDCFFI Status for FFI (other than a Reporting Model 1 FFI)

An FFI that is registering as an RDCFFI, other than a Reporting Model 1 FFI, is agreeing that it meets the requirements to be treated as an RDCFFI under relevant Treasury Regulations or is agreeing that it meets the requirements to be treated as a RDCFFI pursuant to an applicable Model 2 IGA.

Sponsoring Entity Status

An entity that is registering as a Sponsoring Entity is agreeing that it will perform the due diligence, reporting and withholding responsibilities of one or more Sponsored FFIs or Sponsored Direct Reporting NFFEs.

Limited FFI or Limited Branch Status

An FFI that is registering as a Limited FFI is confirming that it will comply with the terms applicable to a Limited FFI.  A branch of a PFFI that is registering as a Limited Branch is confirming that it will comply with the terms applicable to a Limited Branch.  GIINs will not be issued to a Limited FFI or Limited Branch.

Renewing QI/WP/WT 

An FFI, including a foreign branch of a USFI, requesting renewal of a QI Agreement is agreeing to comply with the relevant terms of the renewed Model QI Agreement with respect to its branches that are identified as operating as a QI.  The obligations under the renewed Model QI Agreement are in addition to any obligations imposed on the FFI to be treated as a PFFI, Reporting Model 2 FFI, RDCFFI, or Reporting Model 1 FFI.

 

An FFI that is applying to renew its WP or WT Agreement is agreeing to comply with the relevant terms of the renewed Model WP or WT Agreement.  The obligations under the renewed Model WP or WT Agreement are in addition to any obligations imposed on the FFI to be treated as PFFI, Reporting Model 2 FFI, RDCFFI, or Reporting Model 1 FFI.  Additionally, a QI, WP, or WT is also certifying that it has in place and has implemented written policies, procedures, and processes for documenting, withholding, reporting and depositing tax with respect to its chapters 3 and 61 withholding responsibilities under its QI, WP, or WT Agreement.

USFI treated as a Lead FI

A USFI that is part of an EAG and registering its Members FIs is agreeing to manage the online FATCA account for each such Member FI.

Direct Reporting NFFE

A direct reporting NFFE is agreeing to comply with the terms and obligations described under Treas. Reg. § 1.1472-1(c)(3).

 Q3 How do Trustees of Trustee-Documented Trusts register? Trustees needing to register Trustee-Documented Trusts (a certified deemed-compliant status for FFIs under the Model 1 and Model 2 IGAs) should use the same procedures Sponsors use to register Sponsored Entities.  The trustee should select “Sponsoring Entity” as its FI Type, and select “None of the above” in Part 1, Question 4.  More information on how to register a Sponsoring Entity can be found in the FATCA Registration Online User Guide.Please note that if a trustee is required to register itself based on its own applicable status as an FFI, it will do so on a separate registration, and thus will have two separate GIINs, one for such use and another for use in its capacity as a trustee of a Trustee-Documented Trust.The Trustee-Documented Trust itself will not be registered and does not need to obtain a GIIN.

Branch/Disregarded Entity

# Questions Answers
 Q1 How does a disregarded entity (DE) in a Model 1 IGA jurisdiction satisfy its FATCA registration requirements? (see >May 2nd< update) A DE in a Model 1 IGA jurisdiction must register as an entity separate from its owner in order to be treated as a reporting Model 1 FFI, provided that the DE is treated as a separate entity for purposes of its reporting to the applicable Model 1 jurisdiction.  Select either a “Single” FFI or “Member” FFI in Part 1, Question 1 of the FATCA Registration (as appropriate).  Select “Registered Deemed-Compliant Financial Institution (including a Reporting Financial Institution under a Model 1 IGA)” in Part 1, Question 4.  When the owner of the DE registers on its own behalf, it should not report the DE as a branch.
How does a branch in a Model 1 IGA jurisdiction satisfy its FATCA registration requirements? In general, a branch (as defined in Treas. Reg. § 1.1471-4(e)(2)(ii)) should be registered as a branch of its owner and not as a separate entity.  Thus, the branch will be registered by the FI of which the branch is a part (including an appropriate Lead FI or Sponsoring Entity) when that FI completes Part 1 of its own FATCA registration.  The online registration user guide provides further instructions on how to register branches.  In general, a branch is a unit, business, or office of an FFI that is treated as a branch under the regulatory regime of a country or is otherwise regulated under the laws of such country as separate from other offices, units, or branches of the FI.
How does a branch or a disregarded entity (DE) in a jurisdiction that does not have an IGA, or that is in a Model 2 IGA jurisdiction, satisfy its FATCA registration requirements? A branch (including a DE) that is in a Model 2 IGA jurisdiction, or a jurisdiction without an IGA, should be registered as a branch of its owner (rather than as a separate entity).  As such, the branch will be registered by the FI of which the branch is a part (including an appropriate Lead FI or Sponsoring Entity) when that FI completes Part 1 of its own FATCA registration.  The branch will not have a separate registration account, but will be assigned a separate GIIN, if eligible.  When the FI completes its FATCA registration and registers its branches by answering Questions 7, 8, and 9, GIINs will be assigned with respect to the registered branches, where appropriate.  The online registration user guide provides further instructions on how to register branches.   A separate GIIN will be issued to the FI to identify each jurisdiction where it maintains a branch that is participating or registered deemed-compliant.All branches (and, except in Model 1 IGA jurisdictions, disregarded entities) of an FI located in a single jurisdiction are treated as one branch and, as a result, will share a single GIIN.  U.S. branches and limited branches are not eligible to receive their own GIINs.  A branch of an FFI located in the FFI’s home country will use the GIIN of the FFI.  For example, suppose FI W (located in Country X) has one branch in Country X, two branches in Country Y and owns a DE in Country Z.  Country Z is a Model 1 IGA jurisdiction.  FI W will receive a Country X GIIN.  FI W’s Country X branch will use W’s GIIN.  The two branches in Country Y will be treated as a single branch, and so FI W will be issued a single Country Y GIIN for these two branches to share.  The Country Z DE will register as an entity separate from its owner, in order to be treated as a reporting Model 1 FFI, and will receive its own GIIN.

General Compliance

# Questions Answers
 Q1 How will Certified-Deemed Compliant FFIs, Owner-documented FFIs, or Excepted FFIs certify to U.S. withholding agents that they are not subject to Chapter 4 withholding given that they are not required to register with the IRS? (see >April 24< update) Certified-Deemed Compliant FFIs, Owner-documented FFIs, and Excepted FFIs will demonstrate their Chapter 4 withholding status to U.S. withholding agents by providing a withholding certificate and documentary evidence that complies with the requirements of Treas. Reg. 1.1471-3(d).
 Q2 We are an FFI in a non-IGA country.  Will we be subject to Chapter 4 withholding if we do not register with the IRS? (see >April 24< update) Yes, to the extent that you receive withholdable payments and are not subject to an exemption from the registration requirement.  Under FATCA, to avoid being withheld upon, FFIs that are not subject to an exemption from the registration requirement must register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners.  An FFI that fails to satisfy its applicable registration requirements will generally be subject to 30% withholding on withholdable payments that it receives.Categories of FFIs that are exempt from registration include:

  1. Certified deemed-compliant FFIs (including any entities treated as certified deemed-compliant);
  2. Exempt beneficial owners;
  3. Owner Documented FFIs; and
  4. Excepted FFIs.
 Q3 What are the consequences of terminating the FFI agreement for a Participating Foreign Financial Institution? (see >April 24< update) If the FFI agreement is terminated by either the IRS or the FFI pursuant to the termination procedures set forth in Section 12 of the FFI agreement, the FFI will be treated as a nonparticipating FFI and subject to 30% withholding on withholdable payments made after the later of (i) the date of termination of the FFI agreement, or (ii) June 30, 2014, except to the extent that the withholdable payments are exempt from withholding (e.g. under the rules related to grandfathered obligations) or the FFI qualifies for a chapter 4 status other than a nonparticipating FFI (such as a certified deemed-compliant FFI).  See Revenue Procedure 2014-13, 2014-3 I.R.B. 419, for the terms of the FFI agreement
 Q4 What happens if an FFI is not registered by May 5th, 2014? (see >April 24< update) As set forth in Announcement 2014-17, released April 2, 2014, to ensure inclusion on the first IRS FFI List (which is expected to first be electronically available on June 2, 2014) prior to the date FATCA withholding goes into effect, an FFI must finalize its registration by May 5, 2014.   The regulations generally provide that, in order for withholding not to apply, a withholding agent must obtain an FFI’s GIIN for payments made after June 30, 2014, though it need not confirm that the GIIN appears on the IRS FFI List until 90 days after the FFI provides a withholding certificate or written statement claiming status as a participating FFI or registered deemed-compliant FFI.  A special rule, however, provides that a withholding agent does not need to obtain a reporting Model 1 FFI’s GIIN for payments made before January 1, 2015.  See Treas. Reg. § 1.1471-3(d)(4)(iv)(A).  As a result, while a reporting Model 1 FFI is currently able to register and obtain a GIIN, it will have additional time beyond July 1, 2014, to register and obtain a GIIN in order to ensure that it is included on the IRS FFI list before January 1, 2015.  See Announcement 2014-17 for revised FATCA registration deadlines to ensure inclusion on the first FFI List (which is expected to be electronically available on June 2, 2014).
 Q5 Are Forms W-8 still required to be renewed by the appropriate beneficial owners? (see >April 24< update) Generally, a Form W-8BEN will remain in effect for purposes of establishing foreign status for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. For example, a Form W-8BEN signed on September 30, 2015, remains valid through December 31, 2018.However, under certain conditions a Form W-8BEN will remain in effect indefinitely until a change of circumstances occurs. To determine the period of validity for Form W-8BEN for purposes of chapter 4, see Treas. Reg. § 1.1471-3(c)(6)(ii). To determine the period of validity for Form W-8BEN for purposes of chapter 3, see Teas. Reg. § 1.1441-1(e)(4)(ii).Withholding certificates and documentary evidence obtained for chapter 3 or chapter 61 purposes that would otherwise expire on December 31, 2013, will not expire before January 1, 2015, unless a change in circumstances occurs that would otherwise render the withholding certificate or documentary evidence incorrect or unreliable.Please note that various Forms in the W-8 series were revised in 2014 to incorporate the certifications required for FATCA purposes and can now be found at the following link: Form & Pubs.  See Treas. Reg. § 1.1471-3(c) for rules regarding reliance on a pre-FATCA Form W-8.

 

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110 Swiss client accounts turned over to IRS

Posted by William Byrnes on May 13, 2014


Swisspartners Enters into Non Prosecution Agreement and Turns Over US clients account information

The Tax Division of the US Department of Justice (DOJ) and the IRS’ Criminal Investigation (IRS-CI) announced a major victory in their joint campaign “… to identify U.S. tax cheats who have hidden behind phony offshore trusts and foundations,” said Deputy Attorney General Cole in the Friday, May 9, 2014 release by the DOJ’s Office of Public Affairs.

“This office will continue to work aggressively to hold accountable not only those U.S. taxpayers who evade their tax obligations by hiding money overseas, but also those abroad who make such tax evasion possible,” said U.S. Attorney Bharara.

The asset management firm, Swisspartners, entered into a non-prosecution agreement (NPA), the terms of which were verified by signature in a May 8, 2014 DOJ letter attached to the May 9th  complaint filed with the New York Southern District.  Almost a year ago, the DOJ reported that in July 2013 Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein that owns 71% of Swisspartners, entered into a non-prosecution agreement and agreed to pay more than $23.8 million stemming from its offshore banking activities, and turned over more than 200 account files of U.S. taxpayers who held undeclared accounts at the bank.

“I am very pleased that we have successfully concluded negotiations with the Swisspartners Group,” said IRS-CI Chief Weber .  “In making amends, the Swisspartners Group has turned over 110 account files relating to U.S. taxpayer-clients who maintained undeclared assets overseas….”

Swisspartners Group confessed to assisting U.S. taxpayer-clients in opening and maintaining undeclared foreign bank accounts from in or about 2001 through in or about 2011.  The DOJ provided the following factors as the basis of the NPA:

  • the Swisspartners Group’s voluntary implementation of various remedial measures beginning in or about May 2008;
  • the Swisspartners Group’s voluntary self-reporting in 2012 of its criminal conduct at a time when it was neither a subject nor target of any investigation by the U.S. Department of Justice;
  • the Swisspartners Group’s voluntary and extraordinary cooperation, including its voluntary production of account files that include the identities of U.S. taxpayer-clients;
  • the Swisspartners Group’s willingness to continue to cooperate to the extent permitted by applicable law;
  • the Swisspartners Group’s representation, based on an investigation by outside counsel, the results of which have been shared with the U.S. Attorney’s Office and the Tax Division, that the misconduct under investigation did not, and does not, extend beyond that described in the Statement of Facts; and
  • the NPA requires the Swisspartners Group to continue to cooperate with the United States for at least three years from the date of the agreement.

The NPA requires the Swisspartners Group to forfeit $3.5 million to the United States, representing certain fees that it earned by assisting its U.S. taxpayer-clients in opening and maintaining these undeclared accounts, and to pay $900,000 in restitution to the IRS, representing the approximate amount of unpaid taxes arising from the tax evasion by the Swisspartners Group’s U.S. taxpayer-clients from 2001 to 2011.  In the complaint, Swisspartners admitted to:

  1. establishing sham corporate entities whereby the clients continued to maintain control of accounts,
  2. smuggling cash, in the tens of thousands, without reporting into the US to deliver to its clients, and
  3. establishing sham insurance policies with premiums from undeclared sources and in which the clients continued to control the underlying investments.

On its website, Swisspartners states: “swisspartners analyzes your tax and fiscal law situation and provides structuring services at an international level – complementary to the services provided by your tax advisor in your home country.”  Regarding insurance policies, its website states: “swisspartners designs private-placement insurance contracts that take into account the legal and tax requirements of the countries in which the family members involved have their fiscal domiciles.  Not only are our efficiently designed contracts not subject to ongoing taxation in the asset owner’s country of residence, they are also non-taxable in several other countries.

In the DOJ release statements, Deputy Attorney General Cole stated, “Swisspartners avoided criminal charges as a direct result of its decision to self-report its misconduct at a time when it was not even under investigation and its extraordinary cooperation, including its decision to turn over voluntarily the files and identities of U.S. taxpayer clients it helped hide money from the IRS.  The case serves as a clear example of the benefits that can be obtained from early and complete cooperation with federal law enforcement.”

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 that strongly encouraged Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) had issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.

106 Swiss Banks Enter DOJ’s NPA program

David Voreacos of Bloomberg News reported that Kathryn Keneally, assistant attorney general of the Justice Department’s Tax Division, in her keynote remarks to the American Bar Association Section of Taxation mid-year  (January 25, 2014), stated that 106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney and Professor Jack Townsend reported on his blog on April 30, 2014 a list of 52 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-eight for category 2.

However, while 106 may be a large jump from a mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few Swiss banks had filed for non prosecution with the DOJ’s program, William R. Davis and Lee A. Sheppard of Tax Analysts’ Worldwide Tax Daily reported that “one private practitioner estimated that some 350 banks holding 40,000 accounts have not come in.” (see “ABA Meeting: Keneally Reports Success With Swiss Bank Program”, Jan. 28, 2014, 2014 WTD 18-3.)

Framework of Swiss Bank NPA Program

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DOJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.  Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November 2013 comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

SwissInfo reported that Migros Bank selected Program Category 2 because “370 of its 825,000 clients, mostly Swiss citizens residing temporarily in the US or clients with dual nationality”, met the criteria of US taxpayer.  Valiant told SwissInfo that “an internal review showed it had never actively sought US clients or visited Americans to drum up business. The bank said less than 0.1% of its clients were American.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

  1. Existing accounts on 01.08.2008: 20%
  2. New accounts opened between 01.08.2008 and 28.02.2009: 30%
  3. New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance program in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

(Chapter updates since November 2013 are available at https://profwilliambyrnes.com/category/fatca/)book cover

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters of the analysis of 50 FATCA experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.  complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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Technical corrections published for brokers

Posted by William Byrnes on May 13, 2014


On May 12, 2014 the IRS published in the IRB its April 21st technical corrections relating to brokers making certain returns of information with respect to their customers as per the final and temporary regulations that relate to the withholding of tax on certain U.S. source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, portfolio interest paid to nonresident alien individuals and foreign corporations, and the associated requirements governing collection, refunds, and credits of withheld amounts under these rules.  See my February 21, 2014 article analyzing these substantial amendments to the FATCA regulations.

Need for Correction

The technical corrections contain amendments to § 1.6045–1T. This regulation affects persons that are brokers making certain returns of information with respect to their customers.  See the Technical Corrections at Announcement 2014–21 (Internal Revenue Bulletin 2014-20) May 12, 2014

As published, the temporary regulation contains errors in the instructions that need to be corrected. First, the instructions indicate that § 1.6045–1T is amended. However, the temporary regulation is added, not amended. Second, the instructions do not add paragraphs (m) through (o), which should be included in the temporary regulation by cross-reference to the final regulation. The correcting amendments add the temporary regulation, including paragraphs (m) through (o).

Relevant excerpts below:

§ 1.6045–1T Returns of information of brokers and barter exchanges (temporary).

(ii) Excepted sales. No return of information is required with respect to a sale effected by a broker for a customer if the sale is an excepted sale. For this purpose, a sale is an excepted sale if it is—

(A) So designated by the Internal Revenue Service in a revenue ruling or revenue procedure (see § 601.601(d)(2) of this chapter); or

(B) A sale with respect to which a return is not required by applying the rules of § 1.6049–4(c)(4) (by substituting the term a sale subject to reporting under section 6045 for the term an interest payment).

(xiv) Certain redemptions. No return of information is required under this section for payments made by a stock transfer agent (as described in § 1.6045–1(b)(iv)) with respect to a redemption of stock of a corporation described in section 1297(a) with respect to a shareholder in the corporation if—

(A) The stock transfer agent obtains from the corporation a written certification signed by an officer of the corporation, that states that the corporation is described in section 1297(a) for each calendar year during which the stock transfer agent relies on the provisions of paragraph (c)(3)(xiv) of this section, and the stock transfer agent has no reason to know that the written certification is unreliable or incorrect;

(B) The stock transfer agent identifies, prior to payment, the corporation as a participating FFI (including a reporting Model 2 FFI) (as defined in § 1.6049–4(f)(10) or (f)(14), respectively), or reporting Model 1 FFI (as defined in § 1.6049–4(f)(13)), in accordance with the requirements of § 1.1471–3(d)(4) (substituting the terms stock transfer agent and corporation for the terms withholding agent and payee);

(C) The stock transfer agent obtains, before each year the payment would otherwise be reported, a written certification representing that the corporation shall report the payment as part of its account holder reporting obligations under chapter 4 of the Code or an applicable IGA (as defined in § 1.6049–4(f)(7)) and provided the stock transfer agent does not know that the corporation is not reporting the payment as required. A stock transfer agent that knows that the corporation is not reporting the payment as required under chapter 4 of the Code or an applicable IGA must report all payments reportable under this section that it makes during the year in which it obtains such knowledge; and

(D) The stock transfer agent is not also acting in its capacity as a custodian, nominee, or other agent of the payee with respect to the payment.

(xv) Effective/applicability date. Paragraphs (c)(3)(ii) and (xiv) of this section apply to sales effected on or after July 1, 2014. (For sales effected before July 1, 2014, see paragraph (c)(3)(ii) of this section as in effect and contained in 26 CFR part 1 revised April 1, 2013.)

(i) With respect to a sale effected at an office of a broker either inside or outside the United States, the broker may treat the customer as an exempt foreign person if the broker can, prior to the payment, reliably associate the payment with documentation upon which it can rely in order to treat the customer as a foreign beneficial owner in accordance with § 1.1441–1(e)(1)(ii), as made to a foreign payee in accordance with § 1.6049–5(d)(1), or presumed to be made to a foreign payee under § 1.6049–5(d)(2) or (3). …

(iv) Special rules where the customer is a foreign intermediary or certain U.S. branches. A foreign intermediary, as defined in § 1.1441–1(c)(13), is an exempt foreign person, except when the broker has actual knowledge (within the meaning of § 1.6049–5(c)(3)) that the person for whom the intermediary acts is a U.S. person that is not exempt from reporting under paragraph (c)(3) of this section or the broker is required to presume under § 1.6049–5(d)(3) that the payee is a U.S. person that is not an exempt recipient. …

(4) Examples. The application of the provisions of this paragraph (g) may be illustrated by the following examples: …

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International Tax Law degree – interactive online – LL.M. or Ph.D. level

Posted by William Byrnes on May 12, 2014


If you are interested in discussing the online Master or Doctoral degree in international taxation and financial services, then please fill out the request for an appointment below and comment whether you prefer Skype-Video or Google Video-Hangout (or just a phone call).  My office at the law school in San Diego is (619) 961-4211 or add me on Skype “professorbyrnes”. My Google Hangouts is email: profbyrnes@gmail.com

Meet a couple PhD Alumni Google-YouTube webinar of May 7, 2014: http://youtu.be/ho2Qn3KpzqE

Meet Alumni webinar: http://mastersinlaw.tjsl.edu/news-resouces/recorded-webinars/webinar-03-31-2011/

Meet Alumni webinar: http://mastersinlaw.tjsl.edu/news-resouces/recorded-webinars/webinar-06-29-2011/

Meet Alumni webinar: http://mastersinlaw.tjsl.edu/news-resouces/recorded-webinars/webinar-02-28-2012/

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IRS releases new Form 1042 instructions for FATCA withholding

Posted by William Byrnes on May 12, 2014


The IRS has released the Instructions for 2014 Form 1042: Annual Withholding Tax Return for U.S. Source Income of Foreign Persons to correspond to FATCA (Chapter 4 of the Internal Revenue Code).

A withholding agent must use Form 1042 to report the tax withheld on certain income of foreign persons, including nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts, or 2% excise tax due on specified foreign procurement payments.

The IRS has provided the final 2014 version of the Form 1042 at this time for informational purposes in order to provide time for withholding agents and intermediaries to implement the new requirements of FATCA. The 2014 version of the Form 1042 reflects the new FATCA requirements and will be filed by taxpayers in 2015 to report with respect to 2014.  See link for the 2013 Form.

What changed?

The Form 1042 for 2014 has been modified from the previous Form 1042 primarily for withholding agents to report payments and amounts withheld under FATCA chapter 4 of the Code (chapter 4) in addition to those payments and amounts required to be reported under chapter 3 of the Code (chapter 3).

The 2014 Form 1042:

  1. adds lines for reporting of the tax liability under chapters 3 and 4,
  2. includes separate chapter 3 and 4 status codes for withholding agents, and
  3. provides for a reconciliation of U.S. source fixed or determinable annual or periodical (FDAP) income payments that are withholdable payments for chapter 4 purposes.

Withholding agents that make nonfinancial payments generally will not be affected by the new requirements under chapter 4.

When is Form 1042 Due?

Form 1042 is a calendar year tax return.  The Forms 1042 and 1042-S must be filed by March 15 of the year following the calendar year in which the income subject to reporting was paid. Thus, for the 2014 year, the filing date in Monday, March 16, 2015 (because March 15th is a Sunday).

Who Must File?

Every withholding agent or intermediary who has control, receipt, custody, disposal or payment of any fixed or determinable, annual or periodic U.S. source income must file an annual return for the preceding calendar year on Form 1042.

A withholding agent or intermediary must file Form 1042 if:

  • required to file Form(s) 1042-S (whether or not any tax was withheld or was required to be withheld),
  • Is a qualified intermediary (QI), withholding foreign partnership (WP), withholding foreign trust (WT), participating foreign financial institution (FFI), or reporting Model 1 FFI making a claim for a collective refund under the respective agreement with the IRS,
  • pays gross investment income to foreign private foundations that are subject to tax under section 4948(a), or
  • pays any foreign person specified federal procurement payments that are subject to withholding under section 5000C.

(Chapter updates since November 2013 are available at https://profwilliambyrnes.com/category/fatca/)book cover

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters of the analysis of 50 FATCA experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.  complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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2 new IGAs brings it to 64 brides, 148 bridesmaids remain in waiting … and other important FATCA updates

Posted by William Byrnes on May 11, 2014


64 IGAs Published or in Effect

2 IGAs “agreed in substance” have been added this past week, importantly Hong Kong, and to the chagrin of Turkish diplomats – Armenia.  The IGA with Gibraltar has also been released and thus added to the published list.  This brings the total IGAs published and treated as in effect up to 64, comprised of 27 published Model 1, 5 published Model 2, while 30 Model 1 have been agreed in substance and 2 of the Model 2 agreed.

Yet, the important US foreign direct investment jurisdictions of China and Taiwan, as well as the Middle Eastern jurisdictions of United Arab Emirates and Saudi Arabia, remain deafeningly absent from the list as of May 9.  Commentators do not think that Russia, given the geopolitical tension  over the Ukraine and Crimea, will enter the IGA list by the July 1 start of FATCA withholding.

148 IGAs still left to be agreed by Treasury?

The USA recognizes 195 independent states in the world, 67 dependencies of states, and has contacts with Taiwan.  But not each of these 67 dependencies requires an IGA.

Approximately 16 dependencies of the 67 have both local responsibility with regard to tax policy and more than de minimis US source income exposure, such as investments in US Treasuries, for the local authorities to seek an IGA. Such dependencies include by example Bermuda, Cayman Islands, and Hong Kong.  Taiwan has its own peculiar status, claiming to represent the central government of greater China (the US of course recognizes Beijing).  Other dependencies, like the French departments of French Guiana, Guadeloupe, Martinique, Mayotte and Reunion, do not have local responsibility for fiscal policy and thus are protected within the IGA of the parent-state.  And a host of dependencies, such as Antarctica and various atolls, have no (current) global economic relevance.  

Thus, 195 recognized states and 16 economically relevant, semi-autonomous dependencies form the pool of 212 states and jurisdictions that probably could benefit from an IGA.  As of May 9th, 64 have an IGA recognized by US Treasury, leaving 148 without.  

What if these 148 Non-IGA countries agree an IGA after July 1?  

FATCA Portal registration remains open, but the formal IRS deadline for inclusion on the June 2nd GIIN list of participating foreign financial institutions (“PFFI”) passed May 5th. See my previous article about the May 5th deadline and consequences of its passing that applied to all FFIs in the non-IGA states and jurisdictions.

Did all the FFIs that are in the 148 countries and jurisdictions that do not have an IGA register for a GIIN?  There is not one reliable number of how many financial entities in the world qualify as a financial institution requiring FATCA registration.  Industry experts have put forward a reasonable range of 20,000 to 30,000 such entities that qualify as FFIs that still need to register or complete registration for a GIIN, though figures as high as 80,000 have been suggested (probably such estimates include branches in the count of financial institutions).  The list of FFIs requiring registration includes by example trusts companies, investment funds, and banks.

It is possible that on July 1st an unregistered FFI is considered non-participating (NPFFI) for purposes of FATCA withholding, but by example, on August 1st its country agrees an IGA in substance that Treasury announces on its FATCA site and the NPFFI goes back to FFI non-withholding status because of the extension related to IGAs, at least until that final December 22 deadline mentioned in Announcement 2014-1.  Model 1 IGA FFIs with a GIIN are classified as “Registered Deemed-Compliant Foreign Financial Institutions” (RDCFFI) on the new W8-BEN-E (see previous article) instead of as Participating Foreign Financial Institutions (PFFIs) pursuant to the regular FATCA FFI agreement and Model 2 IGA.

Was the May 5th Deadline a Hard Deadline?

Maybe Not.  The IRS states the following on its FATCA Registration Portal: “the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014.”  (See Notice 2014-17, page 6: “FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.”)  

Moreover, the IRS built in a 90 day safeguard for FFIs when a GIIN has been applied for but not yet received:

§1.1471-3(e)(3) Participating FFIs and registered deemed-compliant FFIs—(i) In general. … A payee whose registration with the IRS as a participating FFI or a registered deemed-compliant FFI is in process but has not yet received a GIIN may provide a withholding agent with a Form W-8 claiming the chapter 4 status it applied for and writing “applied for” in the box for the GIIN. In such case, the FFI will have 90 calendar days from the date of its claim to provide the withholding agent with its GIIN and the withholding agent will have 90 calendar days from the date it receives the GIIN to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a participating FFI or registered deemed-compliant FFI. … (emphasis added)

Do FFIs in IGA countries have an extension until December 22 for FATCA Registration? 

Financial institutions (FFIs) in the 64 IGA countries have an extension to register with the IRS in order to obtain a GIIN and thus appear on the IRS’ FATCA compliant list.  FATCA 30% withholding for FFIs in these Model 1 IGA countries and jurisdictions only begins January 1, 2015.  See Reg. § 1.1471-3(d)(4)(iv)(A):  

§ 1.1471-3(d)(4)(iv) Exceptions for payments to reporting Model 1 FFIs.— (A) For payments made prior to January 1, 2015, a withholding agent may treat the payee as a reporting Model 1 FFI if it receives a withholding certificate from the payee indicating that the payee is a reporting Model 1 FFI and the country in which the payee is a reporting Model 1 FFI, regardless of whether the certificate contains a GIIN for the payee.

The situation of the last list to be published for 2014 and, more importantly, the last date to register as a Model 1 FFI to ensure being included on that list, is somewhat fluid.  In the past 18 months, the IRS has several times amended its deadlines and its timelines for GIIN registration.  Thus, it is at least feasible that another registration or withholding start date extension is granted before the end of 2014 (obviously Treasury will vehemently deny any more extensions on the horizon, but last year it did not expect a government shut down and this year it extended the registration date by at least 10 days weeks before the deadline of April 25).

In its January 6, 2014 Announcement 2014-1 (IRB 2014-2), the IRS stated:

Thus, while reporting Model 1 FIs will be able to register and obtain GIINs on or after January 1, 2014, they will not need to register or obtain GIINs until on or about December 22, 2014, to ensure inclusion on the IRS FFI list by January 1, 2015. (emphasis added)

However, at least one IGA country is suggesting an earlier (perhaps more prudent) date than December 22, 2014 for GIIN registration in order to be included on the IRS’ last 2014 FATCA compliant list.  The United Kingdom’s Law Society and Institute of Chartered Accountants in May 2014 published combined guidance to members stating:  

To ensure that the registration has been processed in time for inclusion on that list the last practical date for registration is 25 October 2014.

The IRS will release its final 2014 list of FATCA compliant financial institutions (thus not subject to FATCA 30% withholding on January 1, 2015 and onward) most likely on Wednesday, December 31, 2014 (according to the United Kingdom guidance quoted above), albeit it seems just as reasonable for a Friday, January 2 list to be released.   Either way, the 90 day safeguard mentioned above is in place. 

What Deadlines has Treasury NOT moved? 

For “individual” held accounts, Treasury has neither provided an extension to the FATCA compliance requirements, nor from withholding as of July 1st.  Thus, from July 1 these accounts must be characterized as “new” accounts for FATCA diligence procedures to determine whether the beneficial owner is a US person.

For accounts of ‘entities’ , while an FFI may still characterize accounts opened until December 31 as “pre-existing” accounts, Treasury did not mention extending the deadlines applicable for FATCA diligence procedures to determine whether the entity’s beneficial owner is a US person.

The pre-existing account due diligence analysis remains with three deadlines:

  1. December 31, 2014 for prima facie FFI account holders,
  2. June 30, 2015 for high value accounts, and
  3. June 30, 2016 for all remaining accounts, such as “pre-existing” entity accounts).

Note that FATCA withholding does not apply to all FATCA withholdable payments immediately on July 1.  FATCA has a phase-in period for withholding on certain types of payments, see Ch 13: Withholdable Payments.

Model 1 IGA = 30 (in red added since my > last IGA update < of May 6)

  1. Bahamas (4-17-2014)
  2. Brazil (4-2-2014)
  3. British Virgin Islands (4-2-2014)
  4. Bulgaria (4-23-2014)
  5. Columbia (4-23-2014)
  6. Croatia (4-2-2014)
  7. Curaçao (4-30-2014)
  8. Czech Republic (4-2-2014)
  9. Cyprus (4-22-2014)
  10. India (4-11-2014)
  11. Indonesia (5-4-2014) 
  12. Israel (4-28-2014)
  13. Kosovo (4-2-2014)
  14. Kuwait (5-1-2014)  
  15. Latvia (4-2-2014)
  16. Liechtenstein (4-2-2014)
  17. Lithuania (4-2-2014)
  18. New Zealand (4-2-2014)
  19. Panama (5-1-2014)  
  20. Peru (5-1-2014)  
  21. Poland (4-2-2014)
  22. Portugal (4-2-2014)
  23. Qatar (4-2-2014)
  24. Singapore (5-5-2014) 
  25. Slovak Republic (4-11-2014)
  26. Slovenia (4-2-2014)
  27. South Africa (4-2-2014)
  28. South Korea (4-2-2014)
  29. Sweden (4-24-2014)
  30. Romania (4-2-2014)

Model 2 IGA = 2

  • Armenia (5-8-2014)  <— new
  • Hong Kong (5-9-2014)  <— new

jurisdiction that have signed and entered into a formal IGA

Model 2 IGA = 5

  1. Austria (4-29-2014)
  2. Bermuda (12-19-2013)
  3. Chile (3-5-2014)
  4. Japan (6-11-2013)
  5. Switzerland (2-14-2013)

book coverPractical Compliance for FATCA

Over 600 pages of in-depth analysis of the practical compliance and analysis by 50 experts in 34 chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  information exchange protocols and systems.  See Lexis Guide to FATCA Compliance  (complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf)

 

If you are interested in discussing the Master or Doctor degree of international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

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47 Countries Endorse OECD’s GATCA / CRS

Posted by William Byrnes on May 10, 2014


47 countries and major financial centers on May 6, 2014 committed to automatic exchange of information between their jurisdictions, announced the OECD.  All 34 OECD member countries, as well as Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa  endorsed the Declaration on Automatic Exchange of Information in Tax Matters that was released at the May 6-7, 2014 Meeting of the OECD at a Ministerial Level.

The Declaration commits countries to implement a new single global standard on automatic exchange of information (“CRS” or “GATCA”).  The OECD stated that it will deliver a detailed Commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 finance ministers in September 2014.  The Declaration contains the following statements:

“2. CONFIRM that automatic exchange of financial account information will further these objectives particularly if the new single global standard, including full transparency on ownership interests, is implemented among all financial centres;

3. ACKNOWLEDGE that information exchanged on the basis of the new single global standard is subject to appropriate safeguards including certain confidentiality requirements and the requirement that information may be used only for the purposes foreseen by the legal instrument pursuant to which it is exchanged;

4. ARE DETERMINED to implement the new single global standard swiftly, on a reciprocal basis. We will translate the standard into domestic law, including to ensure that information on beneficial ownership of legal persons and arrangements is effectively collected and exchanged in accordance with the standard;”

Global Forum Peer Reviews and Monitoring

G20 governments have mandated the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes to monitor and review implementation of the standard.  More than 60 countries and jurisdictions of the 121 Global Forum membershave now committed to early adoption of the standard, and additional members are expected to join this group in the coming months. See the link for Country Peer Reviews and the Global Forum list of ratings chart.

Common Reporting and Due Diligence Standards (“CRS”)

February 13 the OECD released the Standard for Automatic Exchange of Financial Account Information Common Reporting Standard.

The CRS calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions. Part I of the report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

Presenting the new standard back in February 2014, OECD Secretary-General Angel Gurría said: “This is a real game changer. Globalisation of the world’s financial system has made it increasingly simple for people to make, hold and manage investments outside their country of residence. This new standard on automatic exchange of information will ramp up international tax co-operation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.”

What are the main differences between the CRS (“GATCA”) and FATCA?

The CRS is also informally called “GATCA”, referring to the “globalization” of FATCA.

The CRS consists of a fully reciprocal automatic exchange system from which US specificities have been removed. For instance, it is based on residence and unlike FATCA does not refer to citizenship. Terms, concepts and approaches have been standardized allowing countries to use the system without having to negotiate individual Annexes.

Unlike FATCA the CRS does not provide for thresholds for pre-existing individual accounts, but it includes a residence address test building on the EU savings directive. The CRS also provides for a simplified indicia search for such accounts. Finally, it has special rules dealing with certain investment entities where they are based in jurisdictions that do not participate in the automatic exchange under the standard.

Single Global Standard for Automatic Exchange (“GATCA”)

Under GATCA jurisdictions obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Part I of this report gives an overview of the standard. Part II contains the text of the Model Competent Authority Agreement (CAA) and the Common Reporting and Due Diligence Standards (CRS) that together make up the standard.

The Report sets out the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

To prevent taxpayers from circumventing the CRS it is specifically designed with a broad scope across three dimensions:

  1. The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.
  2. The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.
  3. Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.

The CRS also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts.

book coverLexis Guide to FATCA Compliance – 2015 Edition 

1,200 pages of analysis of the compliance challenges, over 54 chapters by 70 FATCA contributing experts from over 30 countries.  Besides in-depth, practical analysis, the 2015 edition includes examples, charts, time lines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers.   The Lexis Guide to FATCA Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments.  No filler of forms and regs – it’s all beef !  See Lexis’ order site and request a copy of the forthcoming 2015 edition – http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

A free download of the first of the 34 chapters is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671

<— Subscribe by email on the left menu to the FATCA Updates on this blog:  https://profwilliambyrnes.com/category/fatca/

If you are interested in discussing the Master or Doctoral degree in the areas of international taxation or anti money laundering compliance, please contact me profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour”

  • Chapter 1 Background and Current Status of FATCA
  • Chapter 1A The International Financial System and FATCA
  • Chapter 2 Practical Considerations for Developing a FATCA Compliance Program
  • Chapter 2A FATCA Internal Policy
  • Chapter 3 FATCA Compliance and Integration of Information Technology
  • Chapter 4 Financial Institution Account Remediation
  • Chapter 4A FATCA Customer Outreach
  • Chapter 5 FBAR and Form 8938 Reporting and List of International Taxpayer IRS Forms
  • Chapter 6 Determining U.S. Ownership of Foreign Entities
  • Chapter 7 Foreign Financial Institutions
  • Chapter 7A Account reporting under FATCA
  • Chapter 8 Non-Financial Foreign Entities
  • Chapter 9 FATCA and the Offshore Trust Industry
  • Chapter 10 FATCA and the Insurance Industry
  • Chapter 11 Withholding and Qualified Intermediary
  • Chapter 12 FATCA Withholding Compliance
  • Chapter 13 “Withholdable” Payments
  • Chapter 13A Reporting Payments
  • Chapter 14 Determining and Documenting the Payee
  • Chapter 14A W8 Equivalents
  • Chapter 15 Framework of Intergovernmental Agreements
  • Chapter 16 Analysis of Current Intergovernmental Agreements
  • Chapter 17 European Union Cross Border Information Reporting
  • Chapter 18 The OECD Role in Exchange of Information: The Trace Project, FATCA, and Beyond
  • Chapter 19 Germany
  • Chapter 20 Ireland
  • Chapter 21 Japan
  • Chapter 22 Mexico
  • Chapter 23 Switzerland
  • Chapter 24 United Kingdom
  • Chapter 25 Brazil
  • Chapter 26 British Virgin Islands
  • Chapter 27 Canada
  • Chapter 28 Spain
  • Chapter 29 China
  • Chapter 30 Netherlands
  • Chapter 31 Luxembourg
  • Chapter 32 Russia
  • Chapter 33 Turkey
  • Chapter 34 India
  • Chapter 35 Argentina
  • Chapter 36 Aruba
  • Chapter 37 Australia
  • Chapter 38 Bermuda
  • Chapter 39 Colombia
  • Chapter 40 Cyprus
  • Chapter 41 Hong Kong
  • Chapter 42 Macau
  • Chapter 43 Portugal
  • Chapter 44 South Africa
  • Chapter 45 France
  • Chapter 46 Gibraltar
  • Chapter 47 Guernsey
  • Chapter 48 Italy


If you are interested in discussing the Master or Doctoral degree in the areas of financial services or international taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

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7 Tax Facts on Deducting Charitable Contributions to a Charity

Posted by William Byrnes on May 9, 2014


2014_tf_on_individuals_small_businesses-m_1In its Tax Tip 2014-39, the IRS disclosed that a taxpayer looking for a tax deduction may donate to a charity and create a ‘win-win’ situation.  The IRS stated that it is good for the charity and good for the taxpayer.  (subscribe by email on the left menu to these daily tax articles)

7 tax tips to know about deducting gifts to charity

1. A taxpayer must donate to a qualified charity if the taxpayer wants to deduct the gift.  Importantly, a taxpayer can not deduct gifts to individuals, political organizations or candidates.  Search the >online IRS database< for the charity.  If it is on the list, then it is qualified.

2. In order for a taxpayer to deduct contributions, the taxpayer must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with the federal tax return.

3. If a taxpayer receives a benefit in return for the contribution, the deduction will be limited.  A taxpayer can only deduct the amount of the gift that is more than the value of what the taxpayer received in return.  Examples of such benefits include merchandise, meals, tickets to an event or other goods and services in exchange for a donation.

4. If a taxpayer donates property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price the taxpayer would receive if the taxpayer sold the property on the open market.  A taxpayer must file Form 8283, Noncash Charitable Contributions, if the deduction for all noncash gifts is more than $500 for the year.

5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to >vehicle donations<.

6. A taxpayer must keep records to prove the amount of the contributions made during the year. The kind of records that must be kept depends on the amount and type of the donation. For example, a taxpayer must keep a written record of any cash donation, regardless of the amount, in order to claim a deduction.  It can be a cancelled check, a letter from the organization, or a bank or payroll statement.  It should include the name of the charity, the date and the amount donated. A cell phone bill meets this requirement for text donations if it shows this same information.

7. To claim a deduction for donated cash or property of $250 or more, a taxpayer must have a written statement from the organization. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

For an indepth analysis of deductions for donations to U.S. charities (and the government’s policy encouraging or discouraging these donations), download my article at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304044

If you are interested in discussing applying for the Master or Doctoral degree in the areas of financial planning or taxation, please contact me: profbyrnes@gmail.com to Google Hangout or Skype that I may take you on an “online tour” 

 

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complimentary download Lexis’ FATCA Guide Chapter 1

Posted by William Byrnes on May 8, 2014


complimentary chapter download: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

(Chapter updates since November 2013 are available at https://profwilliambyrnes.com/category/fatca/)book cover

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters of the analysis of 50 FATCA experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.  

If you are interested in discussing the online Master or Doctoral degree in international taxation and financial services, then please call, skype, or email me.  My office in San Diego at (619) 961-4211 or skype with me “professorbyrnes”. Email: profbyrnes@gmail.com

LinkedIn GroupInternational Tax & Financial Services Graduate Program

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Meet Alumni webinar: http://mastersinlaw.tjsl.edu/news-resouces/recorded-webinars/webinar-03-31-2011/

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Meet Alumni webinar: http://mastersinlaw.tjsl.edu/news-resouces/recorded-webinars/webinar-02-28-2012/

Meet Alumni webinar: http://youtu.be/ho2Qn3KpzqE

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FATCA Guidance for UK Trustees

Posted by William Byrnes on May 7, 2014


The Law Society, Institute of Chartered Accountants, and STEP published guidance with an accompanying flow chart that are intended to help United Kingdom trustees and their advisers determine whether FATCA registration is required.  See Law Society and Institute of Chartered Accountants FATCA Guidance for UK Trust Companies (May 2014)  (Chartered Accountants link)

The Law Society states that: “This guidance is relevant for all UK trusts and trustees, whether or not they have any known US connections. UK financial institutions must meet the requirements of the Treaty and UK legislation in order to avoid the withholding tax.  All UK trusts and trustees, whether or not they have any known US connections, need to consider their status under the UK/US agreement. If they are required to register with the IRS under the agreement, they must do so by 25 October 2014.”

The guidance states that: “The major impact of FATCA will fall on banks and investment houses but it is essential to understand that firms such as yours are directly affected, even if you only have UK clients. As partners (or as directors, administrators and trustees) you have direct UK legal obligations that must be met if you are to avoid financial (and reputational) penalties. The full guidance is available at http://www.hmrc.gov.uk/drafts/uk-us-fatca-guidance-notes.pdf.” (see page 2).

See the Flow Chart for UK trustees (under the UK/USA Intergovernmental Agreement (IGA))

Guidance excerpts below …

So what do I have to do?

Identify and classify the entities comprising your practice and the client entities with which you are connected such as trusts;
Register any FI for a Global Intermediaries Identification Number (GIIN);
Review your practice systems and implement any necessary changes to:

1) engagement letters
2) client take-on process
3) client identification
4) establishing reportable transactions
5) effecting the report
6) client communications;

Make the appropriate reports to HMRC.

United Kingdom Deadline

The deadline is October 2014, by which time you need to register any FIs with the IRS as an FI. At that time you will also need to demonstrate that you have adequate systems in
place to identify and record US Persons. The first reporting will be for the calendar year 2015, but systems will need to be put in place now. The mechanics of reporting, which will
be to HMRC, are not yet known.

Corporate trustees

Where there is a corporate trustee, it registers and reports on the trust; the individual trusts do not need to register or report. It may be worth considering whether there is merit in
appointing a corporate trustee in place of or in addition to the individual trustees to eliminate the need for the individual trust to register and report. The responsibility for doing so is
passed to the corporate trustee. In this situation the trust itself becomes known as a Trustee Documented Trust.

Owner documented trusts

Instead of registering it may be possible for trustees to opt for owner documented status. They can only do so without challenge if they have enough regular information to prove that
all owners (beneficiaries who receive one or more distributions) are and remain non-US Persons.

They will also have to recertify their status every three years via form W8-BEN-E and if at any time the trustees become aware that an owner has become a US person, they will have
to register with the IRS and report to HMRC in the normal way. Further, they will need to appoint a withholding agent. It is understood that banks and investment businesses, which
already act as Qualifying Intermediaries for US tax purposes, are currently considering whether they will be prepared to offer this service. The current indications are that they will
do so.

Trustees must notify withholding agents of any change in status within thirty days. They will need to have systems and procedures in place to ensure that this is adhered to.

Creation of new trusts

The current regulations are unclear as to the deadline for obtaining a GIIN or otherwise regulating the FATCA status of trusts created after October 2014, i.e. once the first set of
registration is completed. Taking into account the requirements of banks and other institutions to be able to operate accounts, the advice must be that FATCA status, and
registration as necessary, should be an integral part of the process for creating any new trust and completed as soon as practicable.

There is a particular point of concern surrounding executors. Executors themselves are not entities within FATCA and will therefore be reported upon as usual. There is one exception in that the accounts of deceased persons are not reportable accounts as long as the FI concerned is in possession of the death certificate. However, it is not uncommon for
executors to become the trustees of a will trust and the point of transition between the two can be difficult to identify with precision. Practitioners will need to be alert for this
circumstance and ensure that the appropriate steps are taken in good time, including whether a corporate trustee should be appointed, and align with the records at banks and
investment managers etc.


book cover
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 Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.  

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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5 New IGAs Bring Total to 62 Published by May 5 Deadline for FATCA Registration ! Only 150 to go …

Posted by William Byrnes on May 6, 2014


How many IGAs are left to be agreed by Treasury?

The USA recognizes 195 independent states in the world, 67 dependencies of states, and has contacts with Taiwan.

Of the 67 dependencies, some like the French departments of French Guiana, Guadeloupe, Martinique, Mayotte and Reunion, are included as part of the state, others like Antarctica have no economic relevance.  More important, approximately 16 dependencies have at least enough potential US source income exposure for local financial firms to warrant an IGA, such as Bermuda, Cayman Islands, and Hong Kong.  And then there’s Taiwan.

That means approximately 212 states and jurisdictions, give or take a couple, could benefit from an IGA.  62 have one recognized by US Treasury as being in effect as of yesterday May 5.  FFIs in IGA jurisdictions have an extension to register with the IRS – until December 22, 2014 to obtain their GIINs. 

So at least 150 IGAs to go by my count…. 

The May 5th Deadline for these Non-IGA Countries and Jurisdictions

FATCA registration remains open of course, but the deadline for inclusion on the June 2nd participating foreign financial institution list (“PFFI”) passed yesterday on May 5.  Yesterday’s article covered the May 5th deadline (and consequences of passing) that applied to all FFIs in these 150 non-IGA states and jurisdictions (see https://profwilliambyrnes.com/2014/05/05/which-fatca-deadlines-did-treasurys-may-2nd-notice-extend-is-todays-deadline-still-in-place/)

Did all the FFIs register that are in countries and jurisdictions that are not yet included on the list, such as China, Hong Kong and Taiwan, as well as the Middle Eastern jurisdictions such as United Arab Emirates and Saudi Arabia?  What about Russia and Ukraine institutions? What IGA will apply to Crimea?  It is possible that on July 1st an unregistered FFI is considered non-participating (NPFFI) for purposes of withholding, but by example, on August 1st its country agrees an IGA in substance that Treasury announces on its FATCA site and the NPFFI goes back to FFI non-withholding status because of the IGA, at least until the final Dec 22 deadline applying to the IGA FFIs.

56 days remain until the July 1st application of FATCA’s 30% withholding applies to payments from US sources for all these FFIs that missed the deadline.

IGA FATCA Registration Classification

Financial Institutions that are treated as Reporting Financial Institutions under a Model 1 IGA register as Registered Deemed-Compliant Foreign Financial Institutions, whereas Financial Institutions that are treated as Reporting Financial Institutions under a Model 2 IGA register as Participating Foreign Financial Institutions.  

The following jurisdictions are treated as having a FATCA intergovernmental agreement (IGA) in effect. (see the 8 IGA additions and 1 IGA Mexican revision update at https://profwilliambyrnes.com/2014/05/01/iga-list-expands-to-55-mexico-iga-revised/)

jurisdictions that have reached agreements in substance (beginning on the date indicated in parenthesis):

Model 1 IGA = 31 (in red added since my last IGA update)

  1. Bahamas (4-17-2014)
  2. Brazil (4-2-2014)
  3. British Virgin Islands (4-2-2014)
  4. Bulgaria (4-23-2014)
  5. Columbia (4-23-2014)
  6. Croatia (4-2-2014)
  7. Curaçao (4-30-2014)
  8. Czech Republic (4-2-2014)
  9. Cyprus (4-22-2014)
  10. Gibraltar (4-2-2014)
  11. India (4-11-2014)
  12. Indonesia (5-4-2014) <— new
  13. Israel (4-28-2014)
  14. Kosovo (4-2-2014)
  15. Kuwait (5-1-2014)  <— new
  16. Latvia (4-2-2014)
  17. Liechtenstein (4-2-2014)
  18. Lithuania (4-2-2014)
  19. New Zealand (4-2-2014)
  20. Panama (5-1-2014)  <— new
  21. Peru (5-1-2014)  <— new
  22. Poland (4-2-2014)
  23. Portugal (4-2-2014)
  24. Qatar (4-2-2014)
  25. Singapore (5-5-2014) <— new
  26. Slovak Republic (4-11-2014)
  27. Slovenia (4-2-2014)
  28. South Africa (4-2-2014)
  29. South Korea (4-2-2014)
  30. Sweden (4-24-2014)
  31. Romania (4-2-2014)

Model 2 IGA = 0

jurisdiction that have signed and entered into a formal IGA

Practical Compliance Aspects of FATCA and GATCAbook coverThe 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 Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.  

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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Which FATCA Deadlines did Treasury’s May 2nd Notice Extend? Is Today’s Deadline Still in Place?

Posted by William Byrnes on May 5, 2014


This is a follow up on my article Friday afternoon of May 2: Treasury provides temporary relief for five areas of FATCA compliance (Notice 2014-33) https://profwilliambyrnes.com/2014/05/02/treasury-provides-temporary-relief-for-five-areas-of-fatca-compliance-notice-2014-33-of-may-2/

What has Treasury done May 2? 

Treasury released Notice 2014-33.  Notice 2014-33 provides aspects of temporary relief for five areas of FATCA compliance:

1. 6 month extension (from July 1, 2014 until December 31, 2014) for characterizing as “pre-existing” the obligations (including accounts) held by an entity

2. soft-enforcement transition period 2014 and 2015 for good-faith actors

3. modification to the “standards of knowledge” for withholding agents for accounts documented before July 1, 2014

4. revision to the definition of a “reasonable explanation” for determination of foreign status

5. additional guidance for an FFI (or a branch of an FFI, including a disregarded entity owned by an FFI) that is a member of an expanded affiliated group of FFIs to be treated as a limited FFI or limited branch, including the requirement for a limited FFI to register on the FATCA registration website.

As the relief is limited to entity accounts, an FFI still must have procedures in place by July 1, 2014 to document new individual account holders and to apply FATCA withholding on withholdable payments to individual account holders where required.

Why is May 5th still an Important FATCA deadline? 

Treasury announced on April 2 (see my previous article explaining impact of announcement)  a 10-day extension from the original April 25th deadline  for foreign financial institutions (FFIs) to register with the FATCA Portal IRS to obtain a GIIN and to be included on the IRS’ June 2 list of participating FFIs (PFFI).  That extension thus ends today, on May 5, in a couple hours.

Some types of payments (there is a phase in period for applicability to all types of payments, see Ch 13: Withholdable Payments) made by US withholding agents as of July 1 will attract the 30% FATCA withholding.

Depending on who you ask, industry pundits quote a range of 20,000 to 100,000 FFIs that still need to register for a GIIN as of today.  I just do not know myself, but when I think of all the little trust companies, money managers, and small financial institutions in countries without an IGA, it seems plausible the worldwide number to still register is higher than 20,000.

Is the May 5th Deadline a Hard Deadline?

Yes, No, and Maybe.  Three significant caveats as to this May 5 deadline.

No: Firstly, FFIs in IGA jurisdictions have an extension to register with the IRS – until December 22, 2014 to obtain their GIINs.  To date, 60 IGAs are considered to be in effect (see my article last week – but Kuwait, Peru, Panama were all agreed as of May 1, and thus just uploaded to the list).  60 out of say 200 countries and jurisdictions still leaves 140 IGAs to go – and thus a May 5th deadline for the majority of countries’ and jurisdictions’ FFIs.

Yes: Secondly, Treasury has stated that every 30 days it will reissue its PFFI) list.  So at least by intention, on Tuesday July 1 the IRS should release another list of PFFIs that do not require withholding.  Moreover, if an FFI on May 6th registers, Treasury may still include it on the June 2 PFFI GIIN list – just no promises from Treasury.

Maybe: Finally, the IRS states the following on its FATCA Registration Portal: “the IRS believes it can ensure registering FFIs that their GIINs will be included on the July 1 IRS FFI List if their registrations are finalized by June 3, 2014.”  (See Notice 2014-17, page 6: “FFIs that finalize their registrations after May 5 or June 3 may still be included on the June 2 or July 1 IRS FFI List, respectively; however, the IRS cannot provide assurance that this will be the case. The IRS will continue processing registrations in the order received; however, processing times may increase as the May 5 and June 3 dates approach.”)*  [* Thank you to reader Vesselin (Vesco) Tzotchev, JD, LLM for spotting this note. He has practiced U.S. taxation for more than 15 years in industry, with Big 4 and boutique accounting firms in California, Ontario and Switzerland, and currently resides in Zurich, Switzerland.]

So it is possible that on July 1st an FFI is considered non-participating (NPFFI) for purposes of withholding, but on July 2nd its country agrees a IGA with Treasury and the NPFFI goes back to simple FFI non-withholding for FATCA, at least until Dec 22.

What Deadlines has Treasury NOT moved? 

For “individual” held accounts, Treasury has neither provided an extension to the FATCA compliance requirements, nor from withholding as of July 1st.  Thus, from July 1 these accounts must be characterized as “new” accounts for FATCA diligence procedures to determine whether the beneficial owner is a US person.

For accounts of ‘entities’ , while an FFI may still characterize accounts opened until December 31 as “pre-existing” accounts, Treasury did not mention extending the deadlines applicable for FATCA diligence procedures to determine whether the entity’s beneficial owner is a US person.

The pre-existing account due diligence analysis remains with three deadlines:

  1. December 31, 2014 for prima facie FFI account holders,
  2. June 30, 2015 for high value accounts, and
  3. June 30, 2016 for all remaining accounts, such as “pre-existing” entity accounts).

Did Treasury provide relief to the “standards of knowledge” compliance requirement? 

Again – Yes and No.

Yes, Treasury has relieved the application of the additional US indicia search for US telephone number and for US place of birth for a direct account holder already documented as “foreign” beneficially owned prior by June 30, 2014 because some institutions have already undertaken the due diligence procedures for determining which accounts are beneficially foreign owned and which are owned by US persons.  It would be egregious to force these institutions to re-do all their foreign account determinations, when they were early adopter actors. 

But No – for “new” account from July 1st, and for “pre-existing” account that have a “change in circumstances”, the new standard of knowledge indicia must be applied. 

What About the Deadlines of Annex I of the Current 60 IGAs in Effect?

Going forward, Treasury will amend Annex I to include the above six month extension and relief of compliance requirements for standard of knowledge / reasonable explanation of non-US person, foreign status.

The current 60 IGA countries and jurisdictions may, and presumably will, adopt the Annex 1 amendments by exercising the most-favored nation provision of the IGA.

 

book cover

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 Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

 

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More than 40% of big firm partners retiring over coming decade – and many will outlive retirement savings!

Posted by William Byrnes on May 5, 2014


On April 28, 2014 The American Lawyer published its annual (2014) Big Law report in which it found that 16% of partners in the US’ largest 200 law firms by revenue are 60 years old or older with at least 8% least 65.  This generally means that these partners will be retiring over the next five years.  Moreover, right behind this retiring group are 28% more of the partners that have reached at least 50 years of age.

While these thousands of retiring partners have in general been earning between $1 million and $3 million annually, most also have lifestyles that correspond to spending this level of income.  These retiring partners are now asking “Will my retirement portfolio maintain my spouse and my lifestyles if we live another 30 years?”  “Will we have enough to truly enjoy our retirement, or will we have to cut back our lifestyle to make due?”  Will plans for luxurious global travel and spas be thrown out the window?  Wealth managers and financial planners have turned attention to these retirees.

“The 10,000 baby boomer that reach retirement age each day in America are waking up to the probability that they will outspend their retirement plan designed before the financial crisis, forcing a drastic reduction in quality of life style for the ‘golden years’” shared William Byrnes, author of National Underwriter’s Tax Facts.

“The largest concern for most middle class Americans is that social security since Ronald Reagan’s presidency did not increase enough to beat actual inflation.  The average social security monthly payment in 2014 is only $1,294 for a single retiree, and $2,111 for a married couple.  And it is possible that Congress will further reduce inflation adjustments for the future.”

“Moreover, baby boomers are outliving their retirement plans by at least ten years, and thus selling off their remaining assets and relying on children”, continued Professor Byrnes. “It’s no wonder that reverse mortgages have become so popular.”

“It’s not just the middle class retirees trying to survive on $2,500 a month over at least the next 20 years as lifestyle becomes more expensive, upper middle class Americans and even the wealthy also have lifestyle challenges.  A couple who for the past twenty years is used to spending $200,000 a year after tax needs to have significant assets.”

“Let’s run an example using a National Underwriter Advanced Markets retirement calculator.  A 50 year old partner at a law firm that requires retirement by age 67 currently earns after tax $300,000.  The partner will begin saving $60,000 a year toward retirement, and already has $400,000 saved and earned in tax deferred retirement accounts.  The partner expects earnings to increase 1.5% on average per year.  The partner expects to live until 90 years old, and will cut the annual lifestyle by 30% to $210,00 a year upon retirement.  The partner expects a healthy annual rate of return on the investments until reaching 90 of 5%, and average annual inflation of only 2%.”

“The question is: Will the partner’s retirement dollars last  until age 90? Unfortunately, the partner has only 13 years of retirement based on this scenario, and that only if including $42,937 of average annual social security.  At age 80, the $2,439,817 of retirement savings simply runs out. So given these variables, the partner must either save significantly more for retirement, have assets that can be sold down during retirement (such as the family home), or live on only $150,000 a year.  While $150,000 a year sounds like a lot to middle class retirees, for law firm partners living in New York, Miami, DC, LA, San Fran who are used to an upper class lifestyle, living on half the income with double the free time is a shock. And remember, this includes social security paying out over $40,000 of that $150,000 a year.”

“Stretching the retirement savings available for these additional ten years of life expectancy in the example above requires correctly calibrating a retirement plan over the next 20 years which includes managing the complex retirement savings and retirement plans tax rules.”

Robert Bloink added, “Baby boomers retirement taxation questions include: How are earnings on an IRA taxed? What is the penalty for making excessive contributions to an IRA? How are amounts distributed from a traditional and from a ROTH IRA taxed?  How is the required minimum distribution (RMD) calculated?”

“By example of managing the retirement taxation rules, if the baby boomer engages in a prohibited transaction with his IRA, his or her individual retirement account may cease to qualify for the tax benefits.  Thus, then baby boomer needs to understand what is a prohibited transaction?  When can the baby boomer tax pull retirement funds as a loan from a retirement account or policy without it being prohibited?”

“For complex modern families with multiple marriages and various children, a retirement and estate planner should analyze the non-probate assets”, interjected Dr. George Mentz. “Such assets may include the client’s 401k, 403b, 459, annuities, property and joint tenancy, among others.  Regarding insurance policy designations, the client may need to reexamine the beneficiaries, contingent and secondary, and percentages among them, based on current circumstances.”

“Because client’s are outliving their life expectancy and thus outliving their retirement planning, and medical expenses certainly factor into retirement planning, long term care for family members must also be addressed,” said William Byrnes.  “Moreover, recent press has focused client’s attention on tragic incident and end of life issues, such as a durable power of attorney for health care (DPA/HC), living will, or advance directives that explain the patient’s wishes in certain medical situations.  Finally in this regard, a client may require a Limited Powers of Attorney to address situations of incapacity, as well as orderly continuation of immediate family needs upon death.“

Robert Bloink included, “Other important issues to address with the client include pre-marital property contracts/pre-nuptials involving the second marriage(s), IRA beneficiary planning in blended families, spousal lifetime access trust (SLATs), and planning for unmarried domestic partners.”

tax-facts-online_medium

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.” said Rick Kravitz.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

 Authoritative and easy-to-use, 2014 Tax Facts on Insurance & Employee Benefits shows you how the tax law and regulations are relevant to your insurance, employee benefits, and financial planning practices.  Often complex tax law and regulations are explained in clear, understandable language.  Pertinent planning points are provided throughout.

2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  2014 expanded sections on Limitations on Loss Deductions, Charitable Gifts, Reverse Mortgages, and REITs.

 

 

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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Treasury provides temporary relief for five areas of FATCA compliance (Notice 2014-33 of May 2)

Posted by William Byrnes on May 2, 2014


For my blogs FATCA subscribers, below I summarize and (quickly) analyze the aspects of Notice 2014-33, published just before 3pm East Coast time on Friday May 2, and provide relevant links.

Treasury released Notice 2014-33 on May 2.  Notice 2014-33 provides aspects of temporary relief for five areas of FATCA compliance:

1. 6 month extension (from July 1, 2014 until December 31, 2014) for characterizing as “pre-existing” the obligations (including accounts) held by an entity

2. soft-enforcement transition period 2014 and 2015 for good-faith actors

3. modification to the “standards of knowledge” for withholding agents under §1.1441-7(b)[1] for accounts documented before July 1, 2014

4. revision to the definition of a “reasonable explanation” of foreign status in §1.1471-3(e)(4)(viii)[2]

5. additional guidance for an FFI (or a branch of an FFI, including a disregarded entity owned by an FFI) that is a member of an expanded affiliated group of FFIs to be treated as a limited FFI or limited branch, including the requirement for a limited FFI to register on the FATCA registration website.

1. Six Month Extension To Characterize Entity Accounts As Pre-Existing Obligations

Treasury stated that industry comments indicate that the release dates of the final Forms W-8 (click on the links for analysis of the April 2014 releases of the new W-8IMY and W-8BEN-E) and accompanying instructions present practical problems for both withholding agents and FFIs to implement new account opening procedures beginning on July 1, 2014.

Thus, obligations (including accounts) held by an entity – opened, executed, or issued from July 1, 2014 until December 31, 2014 – may be treated as preexisting obligations by a withholding agent or FFI for purposes of sections 1471 and 1472 (subject to certain modifications described in section IV of Notice 2014-33).

2. Transition Period For Enforcement And Administration Of Compliance

The IRS will regard 2014 and 2015 as a transition period for purposes of its enforcement and administration of the due diligence, reporting, and withholding provisions under chapter 4, as well as the provisions under chapters 3 and 61, and section 3406, to the extent these rules were modified by the temporary coordination regulations.

During this transition period, the IRS will take into account the extent of good faith efforts to comply with the requirements of the chapter 4 regulations and the temporary coordination regulations by

  • a participating or deemed-compliant FFI,
  • direct reporting NFFE,
  • sponsoring entity,
  • sponsored FFI,
  • sponsored direct reporting NFFE, or
  • withholding agent.

The IRS will take into account whether a withholding agent has made reasonable efforts during the transition period to modify its account opening practices and procedures to document the chapter 4 status of payees, apply the standards of knowledge provided in chapter 4, and, in the absence of reliable documentation, apply the presumption rules of §1.1471-3(f).[3]

Additionally, for example, the IRS will consider the good faith efforts of a participating FFI, registered deemed-compliant FFI, or limited FFI to identify and facilitate the registration of each other member of its expanded affiliated group as required for purposes of satisfying the expanded affiliated group requirement under §1.1471-4(e)(1).

The IRS will not regard calendar years 2014 and 2015 as a transition period with respect to the requirements of chapters 3 and 61, and section 3406, that were not modified by the temporary coordination regulations. For example, the IRS will not provide transitional relief with respect to its enforcement regarding a withholding agent’s determinations of the character and source of payments for withholding and reporting purposes.

3. Modification To The Standards Of Knowledge For Withholding Agents Under §1.1441-7(b)[4] 

Treasury intends to amend the temporary coordination regulations to provide that a direct account holder will be considered documented pursuant to the requirements of §1.1441-1(e)(4)(ii)(A)[5] prior to July 1, 2014, without regard to whether the withholding agent obtains renewal documentation for the account holder on or after July 1, 2014. Therefore, a withholding agent that has documented a direct account holder prior to July 1, 2014, is not required to apply the new reason to know standards relating to a U.S. telephone number or U.S. place of birth until the withholding agent is notified of a change in circumstances with respect to the account holder’s foreign status other than renewal documentation or reviews documentation for the account holder that contains a U.S. place of birth.

The temporary coordination regulations also provide a transitional rule to allow a withholding agent that has previously documented the foreign status of a direct account holder for chapters 3 and 61 purposes prior to July 1, 2014, to continue to rely on such documentation without regard to whether the withholding agent has a U.S. telephone number or U.S. place of birth for the account holder. The withholding agent would, however, have reason to know that the documentation is unreliable or incorrect if the withholding agent is notified of a change in circumstances with respect to the account holder’s foreign status or the withholding agent reviews documentation for the account holder that contains a U.S. place of birth.

4. Revision Of The Definition Of Reasonable Statement 

Commentators have noted that the description of a reasonable explanation of foreign status in the final chapter 4 regulations differs from the description provided in the temporary coordination regulations.

Treasury and the IRS intend to amend the final chapter 4 regulations to adopt the description of a reasonable explanation of foreign status provided in the temporary coordination regulations, which permit an individual to provide a reasonable explanation that is not limited to an explanation meeting the requirements of §1.1471-3(e)(4)(viii)(A) through (D).

(viii) Reasonable explanation supporting claim of foreign status. A reasonable explanation supporting a claim of foreign status for an individual means a written statement prepared by the individual (or the individual’s completion of a checklist provided by the withholding agent), stating that the individual meets one of the requirements of paragraphs (e)(4)(viii)(A) through (D).

(A) The individual certifies that he or she—

(1) Is a student at a U.S. educational institution and holds the appropriate visa;

(2) Is a teacher, trainee, or intern at a U.S. educational institution or a participant in an educational or cultural exchange visitor program, and holds the appropriate visa;

(3) Is a foreign individual assigned to a diplomatic post or a position in a consulate, embassy, or international organization in the United States; or

(4) Is a spouse or unmarried child under the age of 21 years of one of the persons described in paragraphs (e)(4)(viii)(A) through (C) of this section;

(B) The individual provides information demonstrating that he or she has not met the substantial presence test set forth in § 301.7701(b)-1(c) of this chapter (for example, a written statement indicating the number of days present in the United States during the 3-year period that includes the current year);

(C) The individual certifies that he or she meets the closer connection exception described in § 301.7701(b)-2, states the country to which the individual has a closer connection, and demonstrates how that closer connection has been established; or

(D) With respect a payment entitled to a reduced rate of tax under a U.S. income tax treaty, the individual certifies that he or she is treated as a resident of a country other than the United States and is not treated as a U.S. resident or U.S. citizen for purposes of that income tax treaty.

5.1 Limited FFIs And Limited Branches

While Treasury stands ready and willing to negotiate IGAs based on the published models, commentators have expressed practical concerns about the status of FFIs and branches of FFIs in jurisdictions that are slow to engage in IGA negotiations and that have legal restrictions impeding their ability to comply with FATCA, including the conditions for limited FFI or limited branch status under the chapter 4 regulations. Specifically, comments have noted that the restrictions imposed by the final chapter 4 regulations on a limited branch or limited FFI on opening any account that it is required to treat as a U.S. account or as held by a nonparticipating FFI hinders the ability of an FFI to agree to the conditions of limited status due, for example, to requirements under local law to provide individual residents with access to banking services or to the business needs of the FFI to secure funding from another FFI in the same jurisdiction with similar impediments to complying with the requirements of FATCA.

Treasury and the IRS intend to amend the final chapter 4 regulations to permit a limited FFI or limited branch to open U.S. accounts for persons resident in the jurisdiction where the limited branch or limited FFI is located, and accounts for nonparticipating FFIs that are resident in that jurisdiction, provided that the limited FFI or limited branch does not solicit U.S. accounts from persons not resident in, or accounts held by nonparticipating FFIs that are not established in, the jurisdiction where the FFI (or branch) is located and the FFI (or branch) is not used by another FFI in its expanded affiliated group to circumvent the obligations of such other FFI under section 1471. This modification is consistent with the treatment of related entities and branches provided in the model IGAs.

5.2 Registration of Limited FFIs

Commentators have also stated that certain jurisdictions are explicitly prohibiting an FFI resident in, or organized under the laws of, the jurisdiction from registering with the IRS and agreeing to any status, including status as a limited FFI, regardless of whether the FFI would otherwise be able to comply with the requirements of limited FFI status.

Treasury and the IRS intend to amend the final chapter 4 regulations to provide that, if an FFI is prohibited under local law from registering as a limited FFI, the prohibition will not prevent the members of its expanded affiliated group from obtaining statuses as participating FFIs or registered deemed-compliant FFIs if the first-mentioned FFI is identified as a limited FFI on the FATCA registration website by a member of the expanded affiliated group that is a U.S. financial institution or an FFI seeking status as a participating FFI (including a reporting Model 2 FFI) or reporting Model 1 FFI.

In order to identify the limited FFI, the member of the expanded affiliated group will be required to register as a Lead FI with respect to the limited FFI and provide the limited FFI’s information in Part II of the FATCA registration website. If the Lead FI is prohibited from identifying the limited FFI by its legal name, it will be sufficient if the Lead FI uses the term “Limited FFI” in place of its name and indicates the FFI’s jurisdiction of residence or organization.

By identifying a limited FFI in the FATCA registration website, the Lead FI is confirming that:

(1) the FFI made a representation to the Lead FI that it will meet the conditions for limited FFI status,

(2) the FFI will notify the Lead FI within 30 days of the date that such FFI ceases to be a limited FFI because it either can no longer comply with the requirements for limited status or failed to comply with these requirements, or that the limited FFI can comply with the requirements of a participating FFI or deemed-compliant FFI and will separately register, to the extent required, to obtain its applicable chapter 4 status, and

(3) the Lead FI, if it receives such notification or knows that the limited FFI has not complied with the conditions for limited FFI status or that the limited FFI can comply with the requirements of a participating FFI or deemed-compliant FFI, will, within 90 days of such notification or acquiring such knowledge, update the information on the FATCA registration website accordingly and will no longer be required to act as a Lead FI for the FFI.

In the case in which the FFI can no longer comply or failed to comply with the requirements of limited FFI status, the Lead FI must delete the FFI from Part II of the FATCA registration website and must maintain a record of the date on which the FFI ceased to be a limited FFI and the circumstances of the limited FFI’s non-compliance that will be available to the IRS upon request.

For 600 pages of substantive expert analysis by 50 leading FATCA professionals and in-house compliance officers, see Guide to FATCA Compliance

—-Footnotes—–

[1] §1.1441-7 (b) Standards of knowledge

(1) In general. A withholding agent must withhold at the full 30-percent rate under section 1441, 1442, or 1443(a) or at the full 4-percent rate under section 1443(b) if it has actual knowledge or reason to know that a claim of U.S. status or of a reduced rate of withholding under section 1441, 1442, or 1443 is unreliable or incorrect. A withholding agent shall be liable for tax, interest, and penalties to the extent provided under sections 1461 and 1463 and the regulations under those sections if it fails to withhold the correct amount despite its actual knowledge or reason to know the amount required to be withheld.

[2] § 1.1471–3(e) Identification of payee

(4) Reason to know. A withholding agent shall be considered to have reason to know that a claim of chapter 4 status is unreliable or incorrect if its knowledge of relevant facts or statements contained in the withholding certificates or other documentation is such that a reasonably prudent person in the position of the withholding agent would question the claims made. For accounts opened on or after January 1, 2014, a withholding agent will also be considered to have reason to know that a claim of chapter 4 status is unreliable or incorrect if any information contained in its account opening files or other customer account files, including documentation collected for AML due diligence purposes, conflicts with the payee’s claim of chapter 4 status.

(viii) Reasonable explanation supporting claim of foreign status. A reasonable explanation supporting a claim of foreign status for an individual means a written statement prepared by the individual (or the individual’s completion of a checklist provided by the withholding agent), stating that the individual meets one of the requirements of paragraphs (e)(4)(viii)(A) through (D).

[3] (f) Presumptions regarding chapter 4 status of the person receiving the payment in the absence of documentation—(2) Presumptions of classification as an individual or entity—

(i) In general. A withholding agent that cannot reliably associate a payment with a valid withholding certificate, or that has received valid documentary evidence, as described in paragraph (c)(5) of this section, but cannot determine a person’s status as an individual or an entity from the documentary evidence, must presume that the person is an individual if the person appears to be an individual (for example, based on the person’s name or information in the customer file). If the person does not appear to be an individual, then the person shall be presumed to be an entity. In the absence of reliable documentation, a withholding agent must treat a person that is presumed to be an entity as a trust or estate if the person appears to be a trust or estate (for example, based on the person’s name or information in the customer file). In addition, a withholding agent must treat a person that is presumed to be a trust, or a person that is known to be a trust but for which the withholding agent cannot determine the type of trust, as a grantor trust if the withholding agent knows that the settlor of the trust is a U.S. person, and otherwise as a simple trust. In the absence of reliable indications that the entity is a trust or estate, the withholding agent must presume the person is a corporation if it can be treated …. If the withholding agent cannot treat the person as a corporation … then the person must be presumed to be a partnership.

[4] §1.1441-7 (b) Standards of knowledge

(1) In general. A withholding agent must withhold at the full 30-percent rate … if it has actual knowledge or reason to know that a claim of U.S. status or of a reduced rate of withholding … is unreliable or incorrect. A withholding agent shall be liable for tax, interest, and penalties to the extent provided … if it fails to withhold the correct amount despite its actual knowledge or reason to know the amount required to be withheld.

[5] §1.1441-1(e)(4)(ii) Period of validity—

(A) Three-year period. A withholding certificate … shall remain valid until the earlier of the last day of the third calendar year following the year in which the withholding certificate is signed or the day that a change in circumstances occurs that makes any information on the certificate incorrect.

book cover

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 Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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IRS releases 4 new FATCA FAQs three days before registration deadline

Posted by William Byrnes on May 2, 2014


On May 1, the IRS released 4 new FATCA Frequently Asked Questions (FAQs) and Answers.  The 4 new FAQs address the topics of Responsible Officers,  Branches/Disregarded Entities and Registration Update.  2 of the new FAQs, on Responsible Officer and on Branches, are further divided into multiple sub-questions.  The new Q&A are posted below.

The IRS answered important questions such as: How does a branch in a Model 1 IGA jurisdiction satisfy its FATCA registration requirements?  How does a branch or a disregarded entity (DE) in a jurisdiction that does not have an IGA, or that is in a Model 2 IGA jurisdiction, satisfy its FATCA registration requirements?

FATCA IRS Q&A has to date been provided on the following topics: (previous FAQ update is available at https://profwilliambyrnes.com/2014/04/24/irs-releases-new-fatca-faqs/)

Responsible Officers and Points of Contact

# Questions Answers
Q5. For each of the following FATCA classifications (i.e. Participating Foreign Financial Institution “PFFI”, PFFI that elects to be part of a consolidated compliance program, Registered Deemed-Compliant Foreign Financial Institution “RDCFFI”, Reporting Model 1 FFI, Limited FFI and US Financial Institution “USFI”) what type of individual may serve as a Responsible Officer for purposes of Part 1, Question 10 of the FATCA Registration?

With respect to a PFFI, an RO is an officer of the FFI (or an officer of any Member FI that is a PFFI, Reporting Model 1 FFI or Reporting Model 2 FFI) with sufficient authority to fulfill the duties of a Responsible Officer described in a FFI Agreement. 

With respect to a PFFI that elects to be part of a consolidated compliance program, an RO is an officer of the Compliance FI with sufficient authority to fulfill the duties of a Responsible Officer described in the FFI Agreement on behalf of each FFI in the compliance group (regardless of whether the FFI is a Limited FFI or treated as a Reporting Model 1 FFI or Reporting Model 2 FFI).

With respect to a RDCFFI, other than a RDCFFI that is a Reporting Model 1 FFI, an RO is an officer of the FI (or an officer of any Member FFI that is a PFFI, Reporting Model 1 FFI, or Reporting Model 2 FFI) with sufficient authority to ensure that the FFI meets the applicable requirements to be treated as a RDCFFI. 

With respect to a Reporting Model 1 FFI, an RO is any individual specified under local law to register and obtain a GIIN on behalf of the FFI.  If, however, the Reporting Model 1 FFI operates any branches outside of a Model 1 IGA jurisdiction, then the RO identified must be an individual who can satisfy the requirements under the laws of the Model 1 IGA jurisdiction and the requirements relevant to the registration type selected for each of its non-Model 1 IGA branches. 

With respect to a Limited FFI, an RO is an officer of the Limited FFI (or an officer of any Member FI that is a PFFI, Reporting Model 1 FFI, or Reporting Model 2 FFI) with sufficient authority to ensure that the FI meets the applicable requirements to be treated as a Limited FFI. 

With respect to a USFI that is registering as a “Lead FI”, an RO is any officer of the FI (or an officer of any Member FI) with sufficient authority to register its Member FIs and to manage the online FATCA accounts for such members.

Q6.

Part 4 of the online registration system* states:

By checking this box, I, _________, [(the responsible officer or delegate thereof (herein collectively referred to as the “RO”)], certify that, to the best of my knowledge, the information submitted above is accurate and complete and I am authorized to agree that the Financial Institution (including its branches, if any) will comply with its FATCA obligations in accordance with the terms and conditions reflected in regulations, intergovernmental agreements, and other administrative guidance to the extent applicable to the Financial Institution based on its status in each jurisdiction in which it operates.

*Note: Part 4 of Form 8957 contains a substantially similar certification.

Can this statement be broken down into two declarations of the RO, as follows? 

(i) The RO certifies that, to the best of its knowledge, the information submitted above is accurate and complete. 

(ii) The RO agrees that the FI (including its branches, if any) will comply with its FATCA obligations in accordance with the terms and conditions reflected in regulations, intergovernmental agreements, and other administrative guidance to the extent applicable to the FI based on its status in each jurisdiction in which it operates.

Yes.

 

 

 

 

 

 

 

 

 

Does the first declaration above mean that the RO certifies that, to the best of its knowledge, the FI meets the requirements of its claimed status?

Yes.

 

Does the second declaration above apply to an FI treated as a reporting Model 2 FFI?

Yes.

 

Does the second declaration above (relating to a Participating FFI) require the signing party to ensure that the FFI and its member FFIs (including its branches, if any) comply with its respective obligations under the terms of its FFI Agreement or any applicable intergovernmental agreement and any such applicable local law? 

The second declaration requires the signing party to be able to certify that, to the best of the signing party’s knowledge at the time the FATCA registration is signed, the FI and its member FFIs intend to comply with their respective FATCA obligations. 

A Participating FFI will have its certifying responsible officer (as defined in Treasury Regulation §1.1471-1(b)(116)) periodically certify to the IRS regarding the FFI’s compliance with its FFI agreement.  As noted in FAQ 1, the RO identified in Part 4 will normally be an individual with sufficient authority to be eligible for RO status under Treas. Reg. § 1.1471-1(b)(116).  (See, however, above regarding “Delegation of RO Duties.”)

 

How do the certifications in Part 4 apply to FIs treated as reporting Model 1 FFIs?

The first declaration above applies to FIs treated as reporting Model 1 FFIs and, as such, the RO of an FI treated as a reporting Model 1 FFI certifies that, to the best of the RO’s knowledge, the information submitted as part of the FATCA Registration process is accurate and complete.  The second declaration, however, has limited applicability to FIs treated as reporting Model 1 FFIs because the FI does not have ongoing FATCA compliance obligations directly with the IRS.  Instead, the compliance and reporting obligations of an FI treated as a reporting Model 1 FFI are to its local authority.  However, a reporting Model 1 FFI that has branches (as identified in Part 1, line 9 of Form 8957) that are located outside of a Model 1 IGA jurisdiction will also agree to the terms applicable to the statuses of such branches.  Additionally, an FI (including an FI in a Model 1 IGA jurisdiction) that is also registering to renew its QI, WP, or WT Agreement will agree to the terms of such renewed QI, WP, or WT Agreements by making the second declaration.

 

Registration Update

# Questions Answers
Q2.

For each of the following FATCA classifications (i.e. Participating Foreign Financial Institution “PFFI” for Reporting Model 2 FFI, Registered Deemed Compliant Foreign Financial Institutions “RDCFFI” (for both Model 1 and non-Model 1 FFIs), Sponsoring Entity, Limited FFI or Limited Branch, Renewing QI/WP/WT, US Financial Institution “USFI” treated as a Lead FI and Direct Reporting NFFE) what is the impact of completing Part IV of the FATCA Registration?

 

PFFI Status for Reporting Model 2 FFI

Reporting Model 2 FFIs are registering to obtain a GIIN, provide authorization for individuals named in Part 1, Line 11 of the FATCA Registration to receive information related to FATCA registration, and to confirm that they will comply with the terms of an FFI Agreement in accordance with the FFI agreement, as modified by any applicable Model 2 IGA.

Notwithstanding the paragraph above, Reporting Model 2 FFIs operating branches outside of Model 1 or 2 IGA jurisdictions are agreeing to the terms of an FFI Agreement for such branches, unless the branches are treated as Limited Branches or are U.S. branches that are treated as U.S. persons.  Additionally, Reporting Model 2 FFIs requesting renewal of a QI, WP or WT Agreement are entering into the renewed Model QI, WP, or WT Agreements, as applicable. 

RDCFFI Status for Reporting Model 1 FFI

Reporting Model 1 FFIs are not entering into FFI Agreements via the FATCA registration process.  Reporting Model 1 FFIs are registering to obtain a GIIN and to provide authorization for individuals named in Part 1, Line 11 of the FATCA Registration to receive information related to FATCA registration.  Notwithstanding the preceding sentence, Reporting Model 1 FFIs operating branches outside of Model 1 or 2 IGA jurisdictions are agreeing to the terms of an FFI Agreement for such branches, unless the branches are treated as Limited Branches.  Additionally, Reporting Model 1FFIs requesting renewal of a QI, WP or WT Agreement are entering into such renewed Model QI, WP, or WT Agreements, as applicable. 

RDCFFI Status for FFI (other than a Reporting Model 1 FFI)

An FFI that is registering as an RDCFFI, other than a Reporting Model 1 FFI, is agreeing that it meets the requirements to be treated as an RDCFFI under relevant Treasury Regulations or is agreeing that it meets the requirements to be treated as a RDCFFI pursuant to an applicable Model 2 IGA.

Sponsoring Entity Status

An entity that is registering as a Sponsoring Entity is agreeing that it will perform the due diligence, reporting and withholding responsibilities of one or more Sponsored FFIs or Sponsored Direct Reporting NFFEs.

Limited FFI or Limited Branch Status

An FFI that is registering as a Limited FFI is confirming that it will comply with the terms applicable to a Limited FFI.  A branch of a PFFI that is registering as a Limited Branch is confirming that it will comply with the terms applicable to a Limited Branch.  GIINs will not be issued to a Limited FFI or Limited Branch.

Renewing QI/WP/WT 

An FFI, including a foreign branch of a USFI, requesting renewal of a QI Agreement is agreeing to comply with the relevant terms of the renewed Model QI Agreement with respect to its branches that are identified as operating as a QI.  The obligations under the renewed Model QI Agreement are in addition to any obligations imposed on the FFI to be treated as a PFFI, Reporting Model 2 FFI, RDCFFI, or Reporting Model 1 FFI. 

 

An FFI that is applying to renew its WP or WT Agreement is agreeing to comply with the relevant terms of the renewed Model WP or WT Agreement.  The obligations under the renewed Model WP or WT Agreement are in addition to any obligations imposed on the FFI to be treated as PFFI, Reporting Model 2 FFI, RDCFFI, or Reporting Model 1 FFI.  Additionally, a QI, WP, or WT is also certifying that it has in place and has implemented written policies, procedures, and processes for documenting, withholding, reporting and depositing tax with respect to its chapters 3 and 61 withholding responsibilities under its QI, WP, or WT Agreement. 

USFI treated as a Lead FI

A USFI that is part of an EAG and registering its Members FIs is agreeing to manage the online FATCA account for each such Member FI.

Direct Reporting NFFE

A direct reporting NFFE is agreeing to comply with the terms and obligations described under Treas. Reg. § 1.1472-1(c)(3). 

 

Branch/Disregarded Entity

# Questions Answers

Q1.

How does a disregarded entity (DE) in a Model 1 IGA jurisdiction satisfy its FATCA registration requirements?

A DE in a Model 1 IGA jurisdiction must register as an entity separate from its owner in order to be treated as a reporting Model 1 FFI, provided that the DE is treated as a separate entity for purposes of its reporting to the applicable Model 1 jurisdiction.  Select either a “Single” FFI or “Member” FFI in Part 1, Question 1 of the FATCA Registration (as appropriate).  Select “Registered Deemed-Compliant Financial Institution (including a Reporting Financial Institution under a Model 1 IGA)” in Part 1, Question 4.  When the owner of the DE registers on its own behalf, it should not report the DE as a branch.

 

How does a branch in a Model 1 IGA jurisdiction satisfy its FATCA registration requirements?

In general, a branch (as defined in Treas. Reg. § 1.1471-4(e)(2)(ii)) should be registered as a branch of its owner and not as a separate entity.  Thus, the branch will be registered by the FI of which the branch is a part (including an appropriate Lead FI or Sponsoring Entity) when that FI completes Part 1 of its own FATCA registration.  The online registration user guide provides further instructions on how to register branches.  In general, a branch is a unit, business, or office of an FFI that is treated as a branch under the regulatory regime of a country or is otherwise regulated under the laws of such country as separate from other offices, units, or branches of the FI.

 

How does a branch or a disregarded entity (DE) in a jurisdiction that does not have an IGA, or that is in a Model 2 IGA jurisdiction, satisfy its FATCA registration requirements?

A branch (including a DE) that is in a Model 2 IGA jurisdiction, or a jurisdiction without an IGA, should be registered as a branch of its owner (rather than as a separate entity).  As such, the branch will be registered by the FI of which the branch is a part (including an appropriate Lead FI or Sponsoring Entity) when that FI completes Part 1 of its own FATCA registration.  The branch will not have a separate registration account, but will be assigned a separate GIIN, if eligible.  When the FI completes its FATCA registration and registers its branches by answering Questions 7, 8, and 9, GIINs will be assigned with respect to the registered branches, where appropriate.  The online registration user guide provides further instructions on how to register branches.   A separate GIIN will be issued to the FI to identify each jurisdiction where it maintains a branch that is participating or registered deemed-compliant. 

All branches (and, except in Model 1 IGA jurisdictions, disregarded entities) of an FI located in a single jurisdiction are treated as one branch and, as a result, will share a single GIIN.  U.S. branches and limited branches are not eligible to receive their own GIINs.  A branch of an FFI located in the FFI’s home country will use the GIIN of the FFI.  For example, suppose FI W (located in Country X) has one branch in Country X, two branches in Country Y and owns a DE in Country Z.  Country Z is a Model 1 IGA jurisdiction.  FI W will receive a Country X GIIN.  FI W’s Country X branch will use W’s GIIN.  The two branches in Country Y will be treated as a single branch, and so FI W will be issued a single Country Y GIIN for these two branches to share.  The Country Z DE will register as an entity separate from its owner, in order to be treated as a reporting Model 1 FFI, and will receive its own GIIN. 

book coverOperational Compliance Guide for FATCA .. a Lexis solution for compliance officers

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 Intergovernmental Agreements (IGAs) and local law compliance challenges (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.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

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Former Credit Suisse Banker Pleads Guilty

Posted by William Byrnes on May 2, 2014


Former Credit Suisse Banker Pleads Guilty

Josef Dörig, 72, plead guilty on April 30 to conspiring to defraud the IRS in connection with his work as the owner of Dorig Partner AG, a trust company in Switzerland.

In a statement of facts filed with the plea agreement, Dörig admitted that between 1997 and 2011, while owning and operating a trust company, he engaged in a wide-ranging conspiracy to aid and assist U.S. customers in evading their income taxes by concealing assets and income in secret bank accounts held in the names of sham entities at Credit Suisse.  In 1997, the Credit Suisse subsidiary spun off these sham entities into a trust company, Dorig Partner AG, owned and operated by Dorig, the Justice Department said.

Sentencing is set for Aug. 8th and Dörig faces a statutory maximum sentence of five years in prison.

Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients

In the February 21, 2014 Press Release by the US Securities and Exchange Commission (SEC) “Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients“, Credit Suisse agreed to pay $196 million and admit wrongdoing to settle the SEC’s charges.  According to the SEC’s order instituting settled administrative proceedings, Credit Suisse provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws.  Credit Suisse relationship managers traveled to the U.S. to solicit clients, provide investment advice, and induce securities transactions.  These relationship managers were not registered to provide brokerage or advisory services, nor were they affiliated with a registered entity.  The relationship managers also communicated with clients in the U.S. through overseas e-mails and phone calls.

Credit Suisse Hearing 

The seven hour hearing of the US Senate’s Permanent Subcommittee on Investigations on tax evasion associated with unreported bank accounts of Americans held about Credit Suisse in February 2014 provides a good background to understand the Justice Department indictment and guilty plea.  Below I paraphrase and excerpt the most intriguing statements of the hearing.

Based upon its two-year investigation, the Subcommittee reported that Credit Suisse opened Swiss accounts for over 22,000 U.S. customers with assets that, at their peak, totaled roughly $10 billion to $12 billion.  The Subcommittee stated that the vast majority of these accounts were hidden from U.S. authorities and that U.S. law enforcement officials have been slow to collect the unpaid taxes or hold accountable the tax evaders and bank involved.

Sen. Carl Levin, D-Mich., the subcommittee chairman said “The Credit Suisse case study shows how a Swiss bank aided and abetted U.S. tax evasion, not only from behind a veil of secrecy in Switzerland, but also on U.S. soil by sending Swiss bankers here to open hidden accounts. In response, the Department of Justice has failed to use the U.S. legal tools that won the UBS case and has instead used treaty requests for U.S. client names, relying on Swiss courts with predictably poor results. It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore.”

“For too long, international financial institutions like Credit Suisse have profited from their offshore tax haven schemes while depriving the U.S. economy of billions of dollars in tax revenues by facilitating U.S. tax evasion,” said Senator John McCain, ranking member of the subcommittee. “As federal regulators begin to crack down on these banks’ illicit practices, it is imperative that they use every legal tool at their disposal to hold these banks fully accountable for willfully deceiving the U.S. government and seek penalties that will deter similar misconduct in the future.”

Amount Recovered Thus Far from Non-Compliant Taxpayers 

According to the GAO Reports and the Subcommittee report, the 2008, 2011, and the ongoing 2012 offshore voluntary disclosure initiative (OVDI) have led to 43,000 taxpayers paying back taxes, interest and penalties totaling $6 billion to date, with more expected.  However, the vast majority of this recovered money is not tax revenue but instead results from the FBAR penalties assessed for not reporting a foreign account.  The Taxpayer Advocate found that for noncompliant taxpayers with small accounts, the FBAR and tax penalties reached nearly 600% of the actual tax due!  The median offshore penalty was about381% of the additional tax assessed for taxpayers with median-sized account balances.

Have These Efforts Substantially Increased Taxpayer Compliance?

The Taxpayer Advocate, replying on State Department statistics,  cited that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements, yet the IRS received only 807,040 FBAR submissions as recently as 2012.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S. (and thus are required to file a FBAR for any Mexican accounts of $10,000 or greater).

Thus, at a current rate well below 10% compliance (because nonresident aliens in the US must file a FBAR on their non-US accounts of $10,000 and over), it appears that all the additional enforcement is producing similar results of the War on Drugs.  This is not to say that obtaining a highly level of compliance with the tax law , like compliance with the drug laws and DUI laws, is not a public good in itself – it indeed is a public good that the public has chosen, via Congress (and its investigatory hearings), for resource allocation. But like the War on Drugs, there are many potential strategies to bring about compliance, about which pundits such as law enforcement officials, social libertarians, the medical profession, and all their paid lobbyists, debate.

Credit Suisse Statement to Subcommittee:

Credit Suisse is a global financial services company with operations in more than 50 countries and over 45,000 employees including approximately 9,000 U.S. employees in 19 U.S. locations. In the United States, Credit Suisse is a Financial Holding Company regulated by the Federal Reserve. The Bank has a New York branch, which is supervised by the New York Department of Financial Services, and we have three regulated U.S. broker/dealer subsidiaries. Our primary U.S. broker/dealer has been designated a Systemically Important Financial Institution under the Dodd-Frank law. We have a substantial business presence here in the United States.

Credit Suisse Exit of U.S. Relationships

Following our decision to prohibit former U.S. clients of UBS from transferring their assets to Credit Suisse, in August 2008, Credit Suisse promptly turned to addressing issues highlighted by the UBS situation. In October 2008, Credit Suisse decided to allow relationships with non-U.S. entities that had U.S. beneficial owners only if they demonstrated U.S. tax compliance. We hired a leading Swiss law firm to review the tax status of U.S. clients that wanted to remain. By the end of the first year of review, all but 135 relationships with assets over $10,000 had been reviewed and resolved.

In April 2009, we extended our review to U.S. resident clients. Credit Suisse transferred virtually all U.S. resident accounts to one of the Bank’s U.S.-registered affiliates, or terminated the relationships. Credit Suisse simply shut down those client relationships that were unwilling to move or that did not meet the $1 million requirement for transfer to the Bank’s U.S.-regulated affiliates. By the end of the first full year of review, 2010, we had reviewed and resolved more than 85% of U.S.-resident relationships with assets over $10,000.

To ensure that the review was comprehensive, we also manually searched for accounts that, although not identified in our systems as U.S.-linked, could possibly have some U.S. connection – for example, a U.S. phone number or address in the paper client file, or a notation of a U.S. birthplace on a foreign passport. Credit Suisse also reviewed the private banking activities of its subsidiaries, including Clariden Leu, which was a nearly wholly owned Credit Suisse subsidiary between 2007 and 2012. Clariden Leu’s review and exit projects paralleled the projects at Credit Suisse.

Credit Suisse also engaged one of the Big Four accounting firms to conduct its own review to assess whether the Bank had effectively identified the account relationships with U.S. links. This firm carefully analyzed the Bank’s efforts – with an intense line-by-line analysis of account information – and concluded to an extremely high level of confidence that Credit Suisse had identified the complete population of U.S. account relationships. The results of this substantial effort have been presented to the Subcommittee staff.

Subcommittee “Undeclared Accounts” Methodologies Unreliable

Credit Suisse repeatedly discussed with the Subcommittee staff the fact that it is impossible for us to know the tax status of assets previously held by U.S. clients if those clients did not disclose that information to the Bank. Unfortunately, the Subcommittee has chosen to speculate based on a number of “methodologies,” each of which is problematic and generates results that are, at best, unreliable. The Subcommittee’s need to reference three conflicting “methodologies” is an implicit recognition that accurate estimates of unreported U.S. client assets previously held at Credit Suisse cannot be made based on the actual information available to the Bank and to the Subcommittee.

8,300 Accounts under $10,000 FBAR Reporting Requirement

In any event, the Subcommittee assumes that every U.S. client account held abroad was undeclared. As discussed below, that is a demonstrably inappropriate assumption. Moreover, U.S. Treasury Department regulations required U.S. citizens to report foreign accounts only if the balance exceeded $10,000 at some point during the year. While the Subcommittee staff has mentioned 22,000 accounts, more than 8,300 had balances below $10,000 as of December 31, 2008.

6,400 Accounts for US Expats Residing in Switzerland

Troublingly, these estimates also lump in categories of accounts where there is every reason to believe that the client had a valid reason for holding a Swiss account. For example, the Subcommittee’s estimates of “undeclared” accounts include approximately 6,400 accounts held by all U.S. expats who would ordinarily have a need for some form of local banking services outside of the U.S. Again, it should not be ignored that most expats resided in Switzerland, and therefore had a particularly valid reason for maintaining a bank near their homes.

Finally, each of the three “methodologies” that the Subcommittee staff has raised is problematic for different reasons:

First Methodology No Factual Basis

The first method wrongly suggests that the number of accounts closed during the Bank’s

“Exit Projects” may be a proxy for “undeclared” accounts. The Bank’s “Exit Projects” revealed that U.S. clients left the Bank for various reasons. For example, Credit Suisse decided to simply shut down around 11,000 U.S. resident accounts when the Bank decided to stop having Swiss-based private bankers service U.S. residents and because those clients’ balances did not meet the $1 million requirement for transfer to the U.S. regulated affiliates. Those clients never had the opportunity to demonstrate tax compliance because their accounts were simply terminated. There is no basis factually to assume that all of these clients were not tax compliant.

Second Methodology Unsupported

The second method, the “UBS method,” is simply unsupported. This method proposes to estimate accounts by considering all accounts without Forms W-9 to be “undeclared” U.S. accounts. The absence of a Form W-9 alone in no way supports an inference that a client failed to report the account to the IRS, or that the Bank was aware that the client failed to do so. The Qualified Intermediary Agreement with the IRS required the preparation of a Form W-9 only if the client maintained U.S. securities. If the client did not maintain U.S. securities, a Form W-9 was not required. These are the IRS’s rules. Because this method does not consider whether the client maintained U.S. securities, it is inaccurate to assume that the account was maintained to evade U.S. taxes.

Third Methodology Inconclusive

Nor is the third method conclusive. The so-called “DOJ Estimate” recounts a figure of $4 billion stated in an indictment of certain Bank relationship managers. Because the grand jury’s proceedings are secret, neither we nor the Subcommittee have any basis to assess the grand jury’s methodologies.

Credit Suisse Assets Under Management

As to Assets under Management (AuM), it should be noted that our exit projects established that an approximate amount of $5 billion of AuM was reviewed and verified for tax compliance over the years. This number includes AuM transferred to our U.S.-registered entities or closed after tax compliance was established. In addition, approximately $2.25 billion AuM lost its U.S. nexus over the years. Finally, of the accounts that were closed over the years we simply have no basis to assume that all of them were undeclared.

It was discussed between the Senators and the representatives of Credit Suisse that the actual amount of AUM compared to Credit Suisse’s AuM was miniscule, and that such AuM contributed less than 1% to Credit Suisse’s profits.  However, Senator John McCain, the minority ranking member, told the Credit Suisse representatives that, while small in the context of the bank, amounts of billions and the profits made therefrom, are large amounts to a American taxpayer if made aware of such conduct.  While listening to the Senator’s assessment (and agreeing), I wondered why in contrast hundreds of billions of annual deficits up to nearly a trillion deficit, and 15, 17, perhaps 20 trillion of national debt don’t seem to phase the same taxpayer referred to?

Internal Investigation

Nor did we turn a blind eye to the past. On the contrary, we invested enormous efforts to achieve as much clarity as possible about whether, and to what extent, Credit Suisse employees had violated U.S. laws or helped clients do so. Credit Suisse asked external counsel to investigate any instances of past improper conduct fully. That investigation was broad and deep.

The U.S. law firm King & Spalding and the Swiss law firm Schellenberg Wittmer led the investigation, with help from a major accounting firm. The investigation reviewed all aspects of the Bank’s Swiss-based private banking business with U.S. customers. It involved more than 100 interviews of Credit Suisse and Clariden Leu personnel, from line-level private bankers to senior leaders of the Bank. The investigation reviewed the conduct of bankers across the Swiss private bank who had a number of U.S. clients or traveled to the United States.

The investigation identified evidence of violations of Bank policy centered on a small group of Swiss-based private bankers. That conduct centered on a group of private bankers within a desk of 15 to 20 private bankers at any given time who were focused on larger accounts of U.S. residents. Most of the improper activity was focused on some private bankers who traveled to the United States once or twice a year; otherwise, the investigation found only scattered evidence of improper conduct.

The investigation did not find any evidence that senior executives of Credit Suisse knew these bankers were apparently helping U.S. customers hide income and assets. To the contrary, the evidence showed that some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management.

Cooperation with U.S. Authorities

Credit Suisse has consistently cooperated with the investigations led by the Department of Justice, the SEC, and this Subcommittee, going to the greatest extent permissible by Swiss law to provide information to investigating U.S. authorities.

Since early 2011, Credit Suisse has produced hundreds of thousands of pages of documents, including translations of foreign-language documents. Our representatives have met with the Department of Justice to help them understand the information we provided and to describe the findings of our internal investigation and the Bank’s various compliance efforts.

Credit Suisse has also provided briefings to officials from the U.S. government, including the SEC and this Subcommittee. That includes more than 100 hours briefing the Subcommittee staff on details of the private banking business and the internal investigation and thousands more hours answering written questions from Subcommittee staff. Specifically, Credit Suisse produced over 580,000 pages of documents, provided 11 detailed briefings to the Subcommittee staff in all-day, or multi-day, sessions, provided 12 substantive written submissions, and made 17 witnesses available from both the United States and Switzerland, including the Bank’s General Counsel, co-heads of the Private Bank and Wealth Management Division, and the CEO.

Report Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts

The 175-page bipartisan staff report released Tuesday February 25 outlines how Credit Suisse engaged in similar conduct from at least 2001 to 2008, sending Swiss bankers into the United States to recruit U.S. customers, opening Swiss accounts that were not disclosed to U.S. authorities, including accounts opened in the name of offshore shell entities, and servicing Swiss accounts here in the United States without leaving a paper trail.  For the complete analysis of the reportm see https://profwilliambyrnes.com/2014/02/26/senate-subcommittee-hearing-and-report-on-offshore-tax-evasion/

 

106 Swiss Banks Seek Non-Prosecution from US Justice Department for Past Tax Evasion by Clients

106 Swiss banks (of approximately 300 total) filed the requisite letter of intent to join the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“) by the December 31, 2013 deadline.  Renown attorney Jack Townsend reported on his blog on February 14th provided a list of 49 Swiss banks that had publicly announced the intention to submit the letter of intent, as well as each bank’s category for entry: six announced seeking category 4 status, eight for category 3, thirty-five for category 2.  106 was a large jump from the mid-December report by the international service of the Swiss Broadcasting Corporation (“SwissInfo”) that only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel).

What is the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks?

The Tax Division of the Department of Justice released a statement on December 12, 2013 strongly encouraging Swiss banks wanting to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by a Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters (the “Program“).  The Program was announced on Aug. 29, 2013, in a joint statement signed by Deputy Attorney General James M. Cole and Ambassador Manuel Sager of Switzerland (> See the Swiss government’s explanation of the Program < ).  Switzerland’s Financial Market Supervisory Authority (FINMA) has issued a deadline of Monday, December 16, 2013 for a bank to inform it with its intention to apply for the DOJ’s Program.[2]

The DOJ statement described the framework of the Program for Non-Prosecution Agreements: every Swiss bank not currently under formal criminal investigation concerning offshore activities will be able to provide the cooperation necessary to resolve potential criminal matters with the DOJ.  Currently, the department is actively investigating the Swiss-based activities of 14 banks.  Those banks, referred to as Category 1 banks in the Program, are expressly excluded from the Program.  Category 1 Banks against which the DoJ has initiated a criminal investigation as of 29 August 2013 (date of program publication).

On November 5, 2013 the Tax Division of the DOJ had released comments about the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.

Swiss banks that have committed violations of U.S. tax laws and wished to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, had until Dec. 31, 2013 to submit a letter of intent to join the program, and the category sought.

To be eligible for a non-prosecution agreement, Category 2 banks must meet several requirements, which include agreeing to pay penalties based on the amount held in undeclared U.S. accounts, fully disclosing their cross-border activities, and providing detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  Providing detailed information regarding other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed is also a stipulation for eligibility. The Swiss Federal Department of Finance has released a > model order and guidance note < that will allow Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments responded to such issues as: (a) Bank-specific issues and issues concerning individuals, (b) Choosing which category among 2, 3, or 4, (c) Qualifications of independent examiner (attorney or accountant), (d) Content of independent examiner report, (e) Information required under the Program – no aggregate account data, (f) Penalty calculation – permitted reductions, (g) Category 4 banks – retroactive application of FATCA Annex II, paragraph II.A.1, and (h) Civil penalties.

Which of Four Categories To File for Non-Prosecution Under?

Regarding which category to file under, the DOJ replied: “Each eligible Swiss bank should carefully analyze whether it is a category 2, 3 or 4 bank. While it may appear more desirable for a bank to attempt to position itself as a category 3 or 4 bank to receive a non-target letter, no non-target letter will be issued to any bank as to which the Department has information of criminal culpability. If the Department learns of criminal conduct by the bank after a non-target letter has been issued, the bank is not protected from prosecution for that conduct. If the bank has hidden or misrepresented its activities to obtain a non-target letter, it is exposed to increased criminal liability.”

Category 2

Banks against which the DoJ has not initiated a criminal investigation but have reasons to believe that that they have violated US tax law in their dealings with clients are subject to fines of on a flat-rate basis.  Set scale of fine rates (%) applied to the untaxed US assets of the bank in question:

– Existing accounts on 01.08.2008: 20%
– New accounts opened between 01.08.2008 and 28.02.2009: 30%
– New accounts after 28.02.2009: 50%

Category 2 banks must delivery of information on cross-border business with US clients, name and function of the employees and third parties concerned, anonymised data on terminated client relationships including statistics as to where the accounts re-domiciled.

Category 3

Banks have no reason to believe that they have violated US tax law in their dealings with clients and that can have this demonstrated by an independent third party. A category 3 bank must provide to the IRS the data on its total US assets under management and confirmation of an effective compliance programme in force.

Category 4

Banks are a local business in accordance with the FATCA definition.

Independence of Qualified Attorney or Accountant Examiner

Regarding the requirement of the independence of the qualified attorney or accountant examiner, the DOJ stated that the examiner “is not an advocate, agent, or attorney for the bank, nor is he or she an advocate or agent for the government. He or she must provide a neutral, dispassionate analysis of the bank’s activities. Communications with the independent examiner should not be considered confidential or protected by any privilege or immunity.”  The attorney / accountant’s report must be substantive, detailed, and address the requirements set out in the DOJ’s non-prosecution Program.  The DOJ stated that “Banks are required to cooperate fully and “come clean” to obtain the protection that is offered under the Program.”

In the ‘bottom line’ words of the DOJ: “Each eligible Swiss bank should carefully weigh the benefits of coming forward, and the risks of not taking this opportunity to be fully forthcoming. A bank that has engaged in or facilitated U.S. tax-related or monetary transaction crimes has a unique opportunity to resolve its criminal liability under the Program. Those that have criminal exposure but fail to come forward or participate but are not fully forthcoming do so at considerable risk.”

LexisNexis FATCA Compliance Manual

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The LexisNexis® Guide to FATCA Compliance comprises 34 Chapters by 50 contributors 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.

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

Posted in Compliance, FATCA, Financial Crimes | Tagged: , , , , | 1 Comment »

IGA list expands to 57 – Mexico IGA revised!

Posted by William Byrnes on May 1, 2014


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[updated May 1 to include two IGAs posted this morning by Treasury] 60 days remain until the July 1st deadline that FATCA’s 30% withholding applies to payments from US sources. As of April 30th, the list of IGAs now to be treated in effect has expanded to 57, including 30 that have been signed and 27 that are agreed (but not yet officially signed).  8 IGAs have been added this past week, including Belgium, Bulgaria, Curaçao, Colombia, Cyprus, Estonia, Israel, and Sweden (albeit Estonia was signed over 2 weeks past but had not yet been included).  The Mexico-USA IGA of November 19, 2012 has been revised and re-issued (see Mexico (4-17-2014)).  Finally, the IGAs of Austria and Australia have now been released. 

Conspicuously, the most important US FDI jurisdictions that are not yet included on the list are China, Hong Kong and Taiwan, as well as the Middle Eastern jurisdictions such as United Arab Emirates and Saudi Arabia.  Recent US tension with Russia over the Ukraine and Crimea brought its treasury negotiations to a standstill.

But of immediate importance is the 4 days remaining for foreign financial institutions (FFIs) to register by May 5 with the IRS to obtain a GIIN and to be included on the IRS’ list of participating FFIs in order to avoid the attracting the 30% withholding by US withholding agents.   However, FFIs in IGA jurisdictions have an extension to register with the IRS – until December 22, 2014 to obtain their GIINs.

Financial Institutions that are treated as Reporting Financial Institutions under a Model 1 IGA register as Registered Deemed-Compliant Foreign Financial Institutions, whereas Financial Institutions that are treated as Reporting Financial Institutions under a Model 2 IGA register as Participating Foreign Financial Institutions.   One month ago now the IRS released the new 2014 Form W-8BEN-E that must be used by entities that are beneficial owners of a U.S. source payment, or of another entity that is the beneficial owner.  Form W-8BEN-E has thirty parts.  All filers will complete Parts I and XXIX.

Part I of the form requires general information, the QI status, and the FATCA classification of the filer.  Question 4 of Part I requests the QI status. If the filer is a disregarded entity, partnership, simple trust, or grantor trust, then the filer must complete Part III if the entity is claiming benefits under a U.S. tax treaty. Question 5 requests the FATCA classification of the filer. The classification indicated determines which one of the Parts IV through XXVIII must be completed.

Part XXIX requires certification, under penalty of perjury, by the payee or a person authorized to sign on the payee’s behalf.  This part of the final form also contains the following language that does not appear in the current form: “I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect.”

Note that if the filer is a passive NFFE, it must complete Part XXVI as well as Part XXX if it has substantial U.S. owners.  For a Passive NFFE, a specified U.S. person is a substantial U.S. owner if the person has more than a 10 percent beneficial interest in the entity.  Completion of the other parts of the final form W-8BEN-E will depend upon the FATCA classification of the filer.  For further analysis of that form, see  https://profwilliambyrnes.com/2014/04/02/irs-releases-final-fatca-form-w-8ben-e/

The following jurisdictions are treated as having a FATCA intergovernmental agreement (IGA) in effect. jurisdictions that have reached agreements in substance (beginning on the date indicated in parenthesis):

Model 1 IGA = 27

  1. Bahamas (4-17-2014)
  2. Brazil (4-2-2014)
  3. British Virgin Islands (4-2-2014)
  4. Bulgaria (4-23-2014)  <— new
  5. Curaçao (4-30-2014)  <— new
  6. Colombia (4-23-2014)   <— new
  7. Croatia (4-2-2014)
  8. Czech Republic (4-2-2014)
  9. Cyprus (4-22-2014)   <— new
  10. Gibraltar (4-2-2014)
  11. India (4-11-2014)
  12. Israel (4-28-2014) <— new
  13. Jamaica (4-2-2014)
  14. Kosovo (4-2-2014)
  15. Latvia (4-2-2014)
  16. Liechtenstein (4-2-2014)
  17. Lithuania (4-2-2014)
  18. New Zealand (4-2-2014)
  19. Poland (4-2-2014)
  20. Portugal (4-2-2014)
  21. Qatar (4-2-2014)
  22. Slovak Republic (4-11-2014)
  23. Slovenia (4-2-2014)
  24. South Africa (4-2-2014)
  25. South Korea (4-2-2014)
  26. Sweden (4-24-2014)   <— new
  27. Romania (4-2-2014)

Model 2 IGA = 0

jurisdiction that have signed and entered into a formal IGA

Practical Compliance Aspects of FATCA and GATCAThe 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 Intergovernmental Agreements (IGAs) and local law compliance requirements (Chapters 17–34), including  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, and insights as to the application of FATCA and the IGAs for BRIC and European country chapters.  

If you are interested in discussing the Master or Doctorate degree in the areas of financial services or international taxation, please contact me https://profwilliambyrnes.com/online-tax-degree/

Posted in FATCA | Tagged: , , , , | 3 Comments »

 
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