Archive for the ‘FATCA’ Category

Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers

Posted by William Byrnes on February 8, 2014

Now that FATCA and its IGAs has attracted the attention of dual citizens (and “Green Card” holders) of the United States and other countries like Canada, Israel, Mexico, United Kingdom, Ireland, Caribbean Island, among many other citizens, I thought I ought remind the dual nationals of the streamlined compliance opportunity for filing delinquent United States tax returns. This information is excerpted from the IRS website with relevant direct links thereto included.

In 2012 the IRS established new streamlined filing compliance procedures for non-resident U.S. taxpayers that went into effect Sept. 1, 2012. These procedures were implemented in recognition that some U.S. taxpayers living abroad have failed to timely file U.S. federal income tax returns or Reports of Foreign Bank and Financial Accounts (FBARs), but become aware of their filing obligations and seek to come into compliance with the law. These procedures are for non-residents including, but not limited to, dual citizens who have not filed U.S. income tax and information returns.

Description of the Streamlined Procedure

This streamlined procedure is designed for taxpayers that present a low compliance risk. All submissions will be reviewed, but, as discussed below, the intensity of review will vary according to the level of compliance risk presented by the submission. For those taxpayers presenting low compliance risk, the review will be expedited and the IRS will not assert penalties or pursue follow-up actions. Submissions that present higher compliance risk are not eligible for the streamlined processing procedures and will be subject to a more thorough review and possibly a full examination, which in some cases may include more than three years, in a manner similar to opting out of the Offshore Voluntary Disclosure Program.

Taxpayers utilizing this procedure will be required to file delinquent tax returns, with appropriate related information returns (e.g. Form 3520 or 5471), for the past three years and to file delinquent FBARs for the past six years. Payment for the tax and interest, if applicable, must be remitted along with delinquent tax returns. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13. (December 2011).

In addition, retroactive relief for failure to timely elect income deferral on certain retirement and savings plans where deferral is permitted by relevant treaty is available through this process. The proper deferral elections with respect to such arrangements must be made with the submission. See instructions below.

Eligibility

This procedure is available for non-resident U.S. taxpayers who have resided outside of the U.S. since January 1, 2009, and who have not filed a U.S. tax return during the same period. These taxpayers must present a low level of compliance risk as described below

Amended returns submitted through this program will be treated as high risk returns and subject to examination, except for those filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. It should be noted that this relief is also available under the Offshore Voluntary Disclosure Program. See below for the information required to be submitted with such requests. (If you need to file an amended return to correct previously reported or unreported income, deductions, credits, tax etc, you should not use this streamlined procedure. Depending on your circumstances, you may want to consider participating in the Offshore Voluntary Disclosure Program.)

All tax returns submitted under this procedure must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, a TIN is a Social Security Number (SSN). For individuals that are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns filed without a valid SSN or ITIN will not be processed. For those who are ineligible for an SSN, but who do not have an ITIN, a submission may be made through this program if accompanied by a complete ITIN application. For information on obtaining an SSN, see http://www.ssa.gov. For information on obtaining an ITIN, see the ITIN page.

Compliance Risk Determination

The IRS will determine the level of compliance risk presented by the submission based on information provided on the returns filed and based on additional information provided in response to a Questionnaire required as part of the submission. Low risk will be predicated on simple returns with little or no U.S. tax due. Absent any high risk factors, if the submitted returns and application show less than $1,500 in tax due in each of the years, they will be treated as low risk and processed in a streamlined manner.

The risk level may rise if any of the following are present:

If any of the returns submitted through this program claim a refund;
If there is material economic activity in the United States;
If the taxpayer has not declared all of his/her income in his/her country of residence;
If the taxpayer is under audit or investigation by the IRS;
If FBAR penalties have been previously assessed against the taxpayer or if the taxpayer has previously received an FBAR warning letter;
If the taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
If the taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
If there is U.S. source income; or
If there are indications of sophisticated tax planning or avoidance.

For additional information about what information will be requested to evaluate risk, please see the Questionnaire.

Instructions for Using This Procedure

Taxpayers wishing to use these streamlined procedures must:

1. Submit complete and accurate delinquent tax returns, with appropriate related information returns, for the last three years for which a U.S. tax return is due.

Please note that all delinquent information returns being filed under this procedure should be sent to the address below with the rest of the submission.

2. Include at the top of the first page of each tax return “Streamlined” to indicate that the returns are being submitted under this procedure. This is very important to ensure that your returns get processed through these procedures.

3. Submit payment of all tax due and owing as reflected on the returns and statutory interest due and owing.

For returns determined to be high risk, failure to file and failure to pay penalties may be imposed in accordance with U.S. federal tax laws and FBAR penalties may be imposed in accordance with U.S. law. Reasonable cause statements may be requested during review or examination of the returns determined to be high risk. For a summary of information about federal income tax return and FBAR filing requirements and potential penalties, see IRS Fact Sheet FS-2011-13(December 2011).

4. Submit copies of filed FBARs for the last six years for which an FBAR is due. (You should file delinquent FBARs according to the FBAR instructions and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Through June 30, 2013, you may file electronically (http://bsaefiling.fincen.treas.gov) or by sending paper forms to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621. After June 30, 2013, you must file electronically (http://bsaefiling.fincen.treas.gov.)) If you are unable to file electronically, you may contact FinCEN’s Regulatory Helpline at 1-800-949-2732 or (if calling from outside the United States) 1-703-905-3975 to determine possible alternatives for timely reporting.

NOTE: Taxpayers filing FBARs electronically do not currently have the technological ability to include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers. Until such time that they have the ability, it is not necessary to include the statement. (July 18, 2013)

5. Submit a complete, accurate and signed Questionnaire.

6. If the taxpayer must apply for an ITIN in order to file delinquent returns under this procedure, the application and other documents required for applying for an ITIN must be attached to the the required forms, information and documentation required under this streamlined procedure. See the ITIN page for more.

7. Any taxpayer seeking relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty will be required to submit:

a statement requesting an extension of time to make an election to defer income tax and identifying the pertinent treaty provision;
for relevant Canadian plans, a Form 8891 for each tax year and each plan and a description of the type of plan covered by the submission; and
a dated statement signed by the taxpayer under penalties of perjury describing:
- the events that led to the failure to make the election,
- the events that led to the discovery of the failure, and
- if the taxpayer relied on a professional advisor, the nature of the advisor’s engagement and responsibilities.

8. This program has been established for non-resident non-filers. Generally, amended returns will not be accepted in this program. The only amended returns accepted through this program are those being filed for the sole purpose of submitting late-filed Forms 8891 to seek relief for failure to timely elect deferral of income from certain retirement or savings plans where deferral is permitted by relevant treaty. Non-resident taxpayers who have previously filed returns but wish to request deferral provisions will be required to submit:

an amended return reflecting no adjustments to income deductions, or credits; and
all documents required in item 7 above.

9. The documents listed above must be sent to:

Internal Revenue Service
3651 South I-H 35
Stop 6063 AUSC
Attn: Streamlined
Austin, TX 78741

Other Considerations

Taxpayers who are concerned about the risk of criminal prosecution should be advised that this new procedure does not provide protection from criminal prosecution if the IRS and Department of Justice determine that the taxpayer’s particular circumstances warrant such prosecution. Taxpayers concerned about criminal prosecution because of their particular circumstances should be aware of and consult their legal advisers about the Offshore Voluntary Disclosure Program (OVDP), announced on Jan. 9, 2012, which offers another means by which taxpayers with undisclosed offshore accounts may become compliant. For additional information go to the OVDP page. It should be noted, however, that once a taxpayer makes a submission under the new procedure described in this document, OVDP is no longer available. It should also be noted that taxpayers who are ineligible to use OVDP are also ineligible to participate in this procedure.

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FATCA USA-Canada IGA Q&A

Posted by William Byrnes on February 7, 2014

The Canadian Department of Finance has addressed various aspects and concerns of its newly signed FATCA intergovernmental agreement (IGA) between Canada and the United States. The Department stated that Draft legislation to implement the agreement will be released for comment shortly.

Contributing author Jean Richard to the LexisNexis Guide to FATCA Compliance will be providing the 2nd edition purchasers a Canadian chapter update via LexisNexis. Meanwhile, I excerpt below from the series of questions and answers of Canadian Revenue for the immediate benefit of the Lexis FATCA subscribers.

Reporting and Privacy?

Canadian financial institutions will report information on their U.S. clients directly to the Canada Revenue Agency (CRA), which will ensure that the collection and use of the information is consistent with Canadian privacy laws. In addition, exchanged information will be protected by the provisions of the Canada-U.S. Tax Convention.

Does the IGA respect the privacy rights of Canadians?

FATCA has raised a number of concerns in Canada – among both dual Canada-U.S. citizens and Canadian financial institutions. One key concern was that the reporting requirements would force financial institutions to report accountholder information directly to the IRS, which would raise concerns about consistency with Canadian privacy laws.

Under the IGA, financial institutions in Canada will not report any information directly to the IRS. Rather, relevant information on U.S. residents and U.S. citizens will be reported to the CRA, similar to existing tax reporting by financial institutions to the CRA on their clients. The exchange of tax information between Canada and the U.S., including on an automatic basis, is already a longstanding practice, is authorized under Article XXVII of the Canada-U.S. tax treaty, and includes safeguards with respect to the use of the exchanged information. The information on U.S. accountholders obtained by the CRA will be exchanged with the IRS through these existing provisions, an approach that is consistent with Canadian privacy laws.

Limits on Reporting?

The IGA exempts key Canadian savings vehicles from being reviewed and reported on, including most federally registered accounts such as:

Registered Retirement Savings Plans
Registered Retirement Income Funds
Pooled Registered Pension Plans
Registered Pension Plans
Tax-Free Savings Accounts
Registered Disability Savings Plans
Registered Education Savings Plans
Deferred Profit Sharing Plans

Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt.

Reciprocity?

The IGA is reciprocal, meaning that information will flow both ways between the tax administrations of the two countries to assist each in administering its own domestic tax laws. The information exchanged will provide tax authorities with greater information on accounts held by their taxpayers in the other country.

U.S. Tax Filing Obligations?

Since 1913, U.S. persons in Canada, including dual citizens, have been required under U.S. tax law to file an annual U.S. federal income tax return with the U.S. Internal Revenue Service (IRS). In addition, since 1972, these persons have been obliged to file an annual Foreign Bank Account Reporting (FBAR) form with the U.S. Department of the Treasury.

The IRS has a streamlined process to recognize that some U.S. persons living abroad have not filed timely U.S. federal income tax returns or FBAR forms. Information on this process can be found on the IRS website.

I am a U.S. citizen living in Canada and was not aware that the U.S. wants me to file tax returns. Will the IGA mean that I now have to pay U.S. taxes?

The IGA is strictly an information sharing agreement and does not involve the imposition by the U.S. of any new or higher taxes.

Unlike Canada, the U.S. taxes its citizens who reside in other countries on their worldwide income. The U.S. citizenship-based taxation regime has been in place since 1913, and is not altered by the enactment of FATCA, or the signing of any IGAs. For U.S. citizens resident in Canada, their U.S. tax obligations exist independently of their awareness of these obligations.

Canada respects the sovereign right of the U.S. to use citizenship as a basis for taxation. At the same time, citizenship-based taxation is a departure from the residence-based approach generally followed by Canada and most of the rest of the world, and creates unique challenges for U.S. citizens who reside in other countries. U.S. taxation of its non-resident citizens on their worldwide income, when these individuals are also subject to taxation on their worldwide income by their country of residence, can result in significant compliance burden on these individuals, even when they owe no U.S. tax.

What is the Government doing to protect dual citizens living in Canada against claims by the IRS?

While the Canada-U.S. tax treaty contains a provision that allows a country to collect the taxes imposed by the other country, the treaty does not apply to penalties under laws that impose only a reporting requirement. For example, the CRA will not assist in the collection of U.S. penalties associated with the Report on Foreign Bank and Financial Accounts (commonly known as the FBAR), which is a non-tax form required by the U.S. Treasury under the U.S. Bank Secrecy Act that requires the person filing the form to provide details of assets held at non-U.S. financial institutions.

Furthermore, the CRA will not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose (whether or not the individual was also a U.S. citizen at that time).

U.S. Taxes and Penalties?

The IGA will not impose any new U.S. taxes or penalties for non-compliance with U.S. tax laws on U.S. persons holding accounts at Canadian financial institutions, or provide for additional assistance in collection beyond that already permitted by the Canada-U.S. Tax Convention. The IGA is strictly an information-sharing agreement.

The IGA also protects Canadians and Canadian financial institutions from the tax withholding provisions in FATCA.

Does the IGA mean that Canada will be enforcing U.S. tax laws?

Legislation to give effect to the provisions of the IGA will be proposed to Parliament in order to ensure that financial institutions can rely on Canadian law when implementing their procedures for complying with the IGA. The CRA, rather than the U.S., will be responsible for administering the IGA. Canadian financial institutions will report information to the CRA.

What are the benefits to Canada of the IGA?

Under the IGA:

Canadian financial institutions will not report any information directly to the IRS. Rather, accountholder information on U.S. residents and U.S. citizens will be reported to the Canada Revenue Agency (CRA). The CRA will transfer the information to the IRS under the authority of the existing provisions of, and protected by the confidentiality safeguards under, the Canada-U.S. tax treaty.
The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the IGA.
The FATCA requirement that Canadian financial institutions be required to close accounts or refuse to offer services to clients in certain circumstances will be eliminated.
A number of accounts will be exempt from FATCA reporting, including Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, and Tax-Free Savings Accounts.
Smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt from reporting.
The IRS will provide the CRA with enhanced and increased information on certain accounts of Canadian residents held at U.S. financial institutions.

Will Canada be signing similar agreements with other countries?

The IGA is consistent with the Government’s support for recent G-8 and G-20 commitments to multilateral automatic exchange of information for tax purposes. In September 2013, G-20 Leaders committed to automatic exchange of information as the new global standard and endorsed an OECD proposal to develop a global model for automatic exchange of information. The model being developed is based on due diligence and reporting procedures similar to those in the Canada-U.S. IGA.

Canada is actively participating in the work of the OECD to develop the new multilateral standard.

LexisNexis FATCA Compliance Manual

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

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FATCA IGA USA-Canada signed ! (Mauritius, Italy and Hungary announced as well)

Posted by William Byrnes on February 6, 2014

An Intergovernmental Agreement (IGA) between the Government of Canada and the Government of the United States for the enhanced exchange of tax information under the Canada-United States Tax Convention was signed on February 5, 2014, in Ottawa. See http://www.fin.gc.ca/treaties-conventions/notices/fatca-eng.asp The IGA will enter into force once Canada has notified the United States that the procedures required by Canadian law for the bringing into force of the IGA have been completed. It is proposed that the IGA have effect as of July 1, 2014.

FATCA has raised a number of concerns in Canada—among both dual Canada-U.S. citizens and Canadian financial institutions. One key concern was that the reporting obligations in respect of accounts in Canada would compel Canadian financial institutions to report information on account holders who are U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada) directly to the IRS, thus potentially violating Canadian privacy laws. Without an agreement in place, obligations to comply with FATCA would have been unilaterally and automatically imposed on Canadian financial institutions and their clients as of July 1, 2014.

Jean Richard, banking expert and contributing author for the Canadian compliance chapter to the LexisNexis® Guide to FATCA Compliance added: “Canada’s Finance Minister Jim Flaherty stated that the lengthy negotiations resulted in obtaining significant exemptions and other relief. Do these exemptions and relief, different from those found in the models IGA and other IGA signed, address the Canadian citizens concerns about the extratoriality affect of the US tax system? According Canada National Revenue Minister, Kerry-Lynne D. Findlay,

“This is strictly a tax information-sharing agreement. This agreement will not impose any U.S. taxes or penalties on U.S. citizens or U.S. residents holding accounts in Canada.The CRA does not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose. This includes dual Canada-U.S. citizens. That will not change under this agreement.”

Jean Richard continued: “There is still much Canadian taxpayer concern about how this sensitive issue of risk of double jeopardy for Canadian Citizens who are also US Citizens or Green Card holders is to be dealt with. Canada is a country that is said to have over one million Canadian citizen who happen to be also a US Citizen, perhaps by birth or a parent. Canada and the US tax systems are not perfectly aligned, leading to the potential for double taxation.”

“The double tax agreement has a US-centric feature known as a “savings clause” that subjects US persons to US tax regardless of the applicability of the treaty. The inevitable result is an increase in the tax compliance and tax filing costs for Canadians that also have US nationality or a Green Card. These additional costs must be addressed by the respective authorities and then solutions communicated to the general Canadian population. These costs are in addition to those borne, estimated at about a billion Canadian dollars, by the Canadian financial industry to design and implement FATCA compliant reporting systems.”

Other IGAs including a new corresponding DTA announced by US Treasury

“FATCA implementation is critical to combating international tax evasion and promoting transparency,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. “The agreements announced today clearly demonstrate the considerable international support behind FATCA and we are proud to lead the global charge on this pressing issue.” The U.S. Department of the Treasury recently announced that the United States has signed intergovernmental agreements (IGAs) with Hungary and Mauritius, the latter of which also signed a new tax information exchange agreement. Treasury reports that the United States has signed 22 IGAs and has 12 agreements in substance to date.

Joint Statements and Signed Bilateral Agreements

Canada IGA Quick Facts

Under the agreement, financial institutions in Canada will not report any information directly to the IRS. Rather, relevant information on accounts held by U.S. residents and U.S. citizens (including U.S. citizens who are residents or citizens of Canada) will be reported to the Canada Revenue Agency (CRA). The CRA will then exchange the information with the IRS through the existing provisions and safeguards of the Canada-U.S. Tax Convention. This is consistent with Canada’s privacy laws.
The IRS will provide the CRA with enhanced and increased information on certain accounts of Canadian residents held at U.S. financial institutions.
Significant exemptions and relief have been obtained. For instance, certain accounts are exempt from FATCA and will not be reportable. These include Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, Tax-Free Savings Accounts, and others. In addition, smaller deposit-taking institutions, such as credit unions, with assets of less than $175 million will be exempt.
The 30 percent FATCA withholding tax will not apply to clients of Canadian financial institutions, and can apply to a Canadian financial institution only if the financial institution is in significant and long-term non-compliance with its obligations under the agreement.
The agreement is consistent with Canada’s support for recent G-8 and G-20 commitments intended to fight tax evasion globally and to improve tax fairness. In September 2013, G-20 Leaders committed to automatic exchange of tax information as the new global standard and endorsed a proposal by the Organisation for Economic Co-operation and Development to develop a global model for the automatic exchange of tax information. They also signaled an intention to begin exchanging information automatically on tax matters among G-20 members by the end of 2015.
Draft legislation to implement the agreement will be released for comment shortly on the Department of Finance website.

FATCA Compliance Program and Manual

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

106 Swiss Banks seek Non-Prosecution Agreements and Non-Target Letter with the DOJ (but twice that, did not…)

Posted by William Byrnes on January 31, 2014

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

On January 25, Kathryn Keneally, assistant attorney general of the Justice Department’s Tax Division, served as the keynote speaker for the American Bar Association Section of Taxation 2014 Midyear Meeting. to provide agency updates – including on the Switzerland banks non-prosecution agreement program that expired December 31.

David Voreacos of Bloomberg News reported that Kathryn Keneally, in her keynote remarks, 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 Jack Townsend reported on his blog on December 31st a list of 47 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-three for category 2. 106 is 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). [1]

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.” The DOJ reported that in July 2013, Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein, 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.

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.)

Two court orders entered in November 2013 in a New York federal court will further aid the offshore compliance investigations by authorizing the IRS to serve what are known as “John Doe” summonses on five banks to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct the five banks to produce records identifying U.S. taxpayers holding interests in undisclosed accounts at Zurcher Kantonalbank (ZKB) and its affiliates in Switzerland and at The Bank of N.T. Butterfield & Son Limited (Butterfield) and its affiliates in Switzerland, the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta and the United Kingdom. The summonses also direct the five banks to produce information identifying foreign banks that used ZKB’s and Butterfield’s correspondent accounts at the five banks to service U.S. clients.

Swiss banks Wegelin ceased operations because of the DOJ investigation and its consequent guilty plea. Bank Frey followed suit because of the DOJ investigation and costs of future compliance with FATCA (its former head of private banking was indicted, and an > attorney in the same indictment pled guilty to conspiracy to commit tax fraud <). Frey bank, in a November 28, 2013 statement, defended itself: “In October, the former Bank Frey & Co. AG decided to cease its banking activities and to terminate all of its client relationships. Beforehand, the Bank verified the tax compliance of all its US clients, and an external auditor confirmed so. In addition, the Bank examined all of its other clients to determine whether they had any link to the US. Again, an external auditor checked and confirmed these findings. As a result, it was determined that Bank Frey did not have any clients with potential US tax issues.”

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 < 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.

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.

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.”

[1] See Mathew Allen, US tax deal could prove deadly for small banks, SwissInfo, December 10, 2013, available at http://www.swissinfo.ch/eng/politics/US_tax_deal_could_prove_deadly_for_small_banks.html?cid=37506872

[2] See Supermarket banks sign up to US tax probe, SwissInfo, December 11, 2013, available at http://www.swissinfo.ch/eng/business/Supermarket_banks_sign_up_to_US_tax_probe.html?cid=37516028 (accessed December 12, 2013).

FATCA Compliance Program and Manual

Posted in Compliance, FATCA, Financial Crimes, information exchange | Tagged: DOJ, FATCA, offshore, secrecy, Swiss banking | 2 Comments »

FATCA Intergovernmental Agreements (IGA) Update

Posted by William Byrnes on January 29, 2014

As of January 29, 2013 the U.S. has nineteen IGAs signed and published, although others have been agreed in principle but not yet signed. Sixteen of the current nineteen IGAs are based on Model 1: Costa Rica, Denmark, France, Germany, Guernsey, Ireland, Isle of Man, Italy, Jersey, Malta, Mexico, the Netherlands, Norway, Spain, the UK. Three IGAs are based on Model 2, being Bermuda, Japan and Switzerland.

The following jurisdictions are treated as having an intergovernmental agreement in effect:

Model 1 IGA
Model 2 IGA
This is a complete list of joint FATCA statements between the United States and other countries:

Model Intergovernmental Agreements (Model Agreements)

Following the enactment of FATCA, Treasury published the Model Intergovernmental Agreement to Improve Tax Compliance and to Implement FATCA. Use the links here to find the current version of the agreement you need.

FATCA Compliance Program and Manual

Posted in FATCA | Tagged: FATCA, IGA, intergovernmental agreement | Leave a Comment »

A New World Order of Financial and Business Information Transparency

Posted by William Byrnes on January 23, 2014

The countries of the world, pushed by a U.S. Treasury promotional campaign, have inevitably capitulated to the U.S. unilateral demand for information although the per-country compliance cost may exceed one billion dollars and privacy protection laws must be amended. However, push back by important U.S. trading partners resulted in the U.S. Treasury entering into an expanding network of bi-lateral intergovernmental agreements that in most instances provide for automatic exchange between the competent authorities of the required financial information to fulfill FATCA compliance. These agreements may lead to an imposition of FATCA reporting compliance, though to a lesser extent, upon U.S. financial institutions, that the U.S. Treasury may in turn provide automatically to the foreign competent authority.

FATCA should not be observed in a historical vacuum but instead requires at least an understanding of the U.S. previous attempt to collect such information under the qualified intermediary (‘QI’) regime. Moreover, FATCA should not be observed in a unilateral vacuum but instead requires an overview of the EU and OECD information exchange initiatives and challenges thereto, tax collection and remission alternatives, as well as an overview of the spawn of FATCA (e.g. the UK’s son-of-FATCA approach).

This discussion will also explore the general nature, issues, and challenges of information collection and exchange. During this discussion we will digress into the topic of the information of a business’ financials and of its operations, the topic of domestic and cross border asymmetry of information, as well as the dialogue for global harmonization of information (such as standardization of accounts and of tax base determination), and for exchange of such information. Such conversation is necessary for a robust understanding of the topics of base erosion and the efforts of countries to control ‘transfer pricing’.

Powerpoint available at http://www.slideshare.net/williambyrnes1/uv-a-winter-2014-fatca-and-eoi

FATCA Compliance Program and Manual

Fifty contributing authors from the professional and financial industry provide 600 pages of expert analysis within the LexisNexis® Guide to FATCA Compliance (2^nd Edition): many perspectives crafted into one, coherent voice by primary author William Byrnes. The LexisNexis® Guide to FATCA Compliance (2^nd Edition) comprises 34 Chapters grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of FATCA’s application for certain trading partners of the U.S. (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems. The 34 chapters include many practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA. Chapters include by example an in-depth analysis of the categorization of trusts pursuant to the Regulations and IGAs, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA and the IGAs within new BRIC and European country chapters.

Posted in FATCA | Tagged: FATCA, information exchange, international tax | 2 Comments »

Professor Byrnes Lectures for University of Amsterdam’s International Tax Program

Posted by William Byrnes on January 22, 2014

UvA teaching

Following his October present ation in Moscow at Moscow Finance University organized with University of Amsterdam, Professor William Byrnes was invited to lecture last week for the intersession international tax course of the University of Amsterdam’s Centre for Tax Law. While at the University of Amsterdam, he engaged with Dean Dr. Edgar du Perron on collaborative distance education opportunities, and attended the European Law Student Association’s (ELSA) annual Groot Juridisch Dictee of the Amsterdam chapter.

William Byrnes noted, “Dr. Dennis Weber, the Director of the Amsterdam Centre for Tax Law, is a renowned jurist and author on tax issue brought before the European Court of Justice. He is frequently referred to as a powerhouse among European Tax Law faculty. In 2015, Amsterdam will begin offering the LL.M. of International Taxation in English for a very selective group of professionals. With his robust full-time tax faculty and cadre of Ph.D. candidates from around the world, I expect it to quickly become the premier international tax degree within Europe, perhaps globally.”

Professor Dennis Weber included, “I visited Thomas Jefferson’s campus last February when I lectured to its tax students about international tax risk management and also about practical aspects of careers in the tax field. I became very intrigued with how Associate Dean William Byrnes dynamically engaged students on campus and worldwide through leveraging communication and multimedia technologies. We are investigating potentially collaborating on joint online initiatives in the future and look forward to discussing these further when I return to San Diego this March to deliver my next international tax lectures.”

“Of all my international invitations” Professor Byrnes added, “University of Amsterdam is my favorite because I am an alumni and have fond memories and friends from my three years on campus when I studied international tax law, and participating as an active member of ELSA Amsterdam. The University of Amsterdam led to my initial academic opportunities in South Africa because my fellowship dissertation on transfer pricing profit-margin based methodologies was, at that time, quite unique and South Africa was re-thinking its tax system. With the G20 and OECD’s new agenda against base erosion and profit shifting (BEPS), transfer pricing is now a prominent topic of study in most tax law programs, but two decades ago only Amsterdam offered me the opportunity to delve deeply into it via a shared research program at the IBFD.”cts of careers in the tax field. I became very intrigued with how Associate Dean William Byrnes dynamically engaged students on campus and worldwide through leveraging communication and multimedia technologies. We are investigating potentially collaborating on joint online initiatives in the future and look forward to discussing these further when I return to San Diego this March to deliver my next international tax lectures.”

Professor Byrnes continued, “Also, Dr. Weber, Bruno Da Silva, and I had the opportunity to discuss several future collaborative publications stretching out through 2015 and beyond, including authoring a Lexis book on international tax for the Asian academic and professional market to be translated into several local languages, reworking a Lexis publication on tax treaties, and finally, expansion of my Lexis transfer pricing publication from the U.S. perspective to a global, comparative approach. Bruno Da Silva, who is just completing his doctoral candidacy at UvA on the topic of information exchange, and I just collaborated on the second edition of LexisNexis Guide to FATCA Compliance. His representation of the China Territory of Macau, his OECD research and his work with Loyens and Loeff is establishing him as a leader among his European colleagues for understanding cross border information information flows.”

“Moreover, I explored with Dr. Edgar du Perron, Dean of University of Amsterdam Faculty of Law, and Dr. Weber the ‘flipping the classroom’ approach to distance education and how we may implement some joint international tax courses in this regard that can receive status as professional designations from various financial service authorities and associations. Such courses could become the starting point for Amsterdam to leverage for the undergraduate law courses. It was interesting to learn from Dean Perron that a group of entrepreneurial Amsterdam law students have captured lecture recordings of some of their courses, splicing them into multimedia course outlines and then selling them, albeit potentially without obtaining the faculty members authorization.”

Posted in Courses, Education Theory, FATCA, Uncategorized | Tagged: Dennis Weber, edgar du perron, FATCA, information exchange, international tax, University of Amsterdam, William Byrnes | 1 Comment »

The IRS Median Offshore Penalty 580% of Tax Due For Those Who Make Honest Mistakes

Posted by William Byrnes on January 16, 2014

Published via the IRS Newswire (IR-2014-3) and on the Taxpayer Advocate website of the IRS on January 9, 2014, National Taxpayer Advocate Nina E. Olson released her 2013 annual report to Congress. 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, the IRS received only 807,040 FBAR submissions in 2012.”{1} The Taxpayer Advocate noted that “more than one million U.S. citizens reside in Mexico and many Mexican citizens reside in the U.S.” The Report pointed out that most persons that worked in Mexico had to pay into a government mandated retirement account (known as a AFORES), and that this retirement account may be reportable to the IRS as a foreign trust.

Regarding individual international tax compliance initiatives, the IRS Newswire reported that “Analyzing results from the IRS’s 2009 OVD program, the Advocate found the median offshore penalty was about 381% of the additional tax assessed for taxpayers with median-sized account balances, and 580% of the tax assessed for taxpayers with the smallest account balances (i.e., the bottom 10%, with an average $44,855 account balance). Taxpayers who “opted out” of the OVD program and agreed to subject themselves to audits fared better but still faced penalties of nearly 70% of the tax and interest.”

The Report stated: “Since 2009, the IRS has generally required those who failed to report offshore income and file one or more related information returns (e.g., the Report of Foreign Bank and Financial Accounts (FBAR)) to enter into successively more punitive offshore voluntary disclosure (OVD) programs. … The programs were punitive, charging average penalties of more than double the unpaid tax and interest associated with the unreported accounts. … On average, the IRS assessed penalties of nearly 70% of the unpaid tax and interest in the audits of those who opted out.” The FBAR penalty of 50% of the account balance, for up to six years of non-compliance, equals a potential maximum FBAR penalty of 300% of the account itself, without regard to the actual tax due, interest thereupon, and tax penalties.

The finding that small account holding benign taxpayers paid penalties of nearly 600% of the actual tax due appears to be a miscarriage of the intent of policy makers. This situation has also led the Taxpayer Advocate to conclude that benign actors, in particular those with small non-reported accounts, made either soft disclosures or prospectively began to comply “… without subjecting themselves to the lengthy and seemingly-unfair OVD process.”

Regarding the 2012 IRS Streamlined OVD program, the taxpayer Advocate found that as of September 2013 2,990 taxpayers had submitted returns reporting an additional $3.8 million in taxes.

{1} Report Volume 1, Page 229.

Posted in FATCA, Tax Policy | Tagged: Byrnes, income tax, IRS, offshore, OVD, Taxpayer Advocate | 6 Comments »

FATCA FFI Agreement technical corrections released by IRS

Posted by William Byrnes on January 14, 2014

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

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

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

Rev. Proc. 2014–13

FFI Agreement for Participating FFI and Reporting Model 2 FFI

Table of Contents

FATCA Compliance Program and Manual

Posted in FATCA | Tagged: FATCA, FFI agreement | 2 Comments »

FATCA Intergovernmental Agreements

Posted by William Byrnes on January 13, 2014

As of December 31, 2013 the U.S. has eighteen IGAs signed and published, although others have been agreed in principle but not yet signed. Fifteen of the current eighteen IGAs are based on Model 1: Costa Rica, Denmark, France, Germany, Guernsey, Ireland, Isle of Man, Jersey, Malta, Mexico, the Netherlands, Norway, Spain, the UK. Three IGAs are based on Model 2, being Bermuda, Japan and Switzerland.

Joint Statements and Signed Bilateral Agreements

FATCA Compliance Program and Manual

Posted in FATCA | Tagged: Bermuda, Cayman Islands, Costa Rica, FATCA, Germany, Guernsey, IGA, Implement FATCA, Isle of Man, United States | 1 Comment »

IRS’ Frequently Asked Questions (FAQs) – FATCA Registration System

Posted by William Byrnes on January 8, 2014

The IRS has published the following FATCA FAQs about the FATCA Registration Portal and System, including these topics:

FATCA Registration System – Overview
Registration System Resource Materials
General System Questions
FATCA Account Creation and Access
Registration Status and Account Notifications
Expanded Affiliated Groups (EAG)
Registration Updates
Global Intermediary Identification Number (GIIN) – Overview
GIIN Format

#	Questions	Answers
FATCA Registration System – Overview
Q1.	What is the FATCA Registration System?	An overview of the FATCA Registration System is available, along with other Registration Resources and Support Information, on the FATCA Registration Resources Page.
Registration System Resource Materials
Q2.	What training is available for the Registration System?	In addition to these Q&As, the FATCA Registration Online User Guide will provide information on how to answer questions and navigate through the online system. Short “how-to” videos for the Registration system are also available on the FATCA Registration Resources Page.The IRS anticipates adding more items in the near future to aid those registering through the FATCA Registration Website.
Q3.	What help will be available for the FATCA Registration System?	The FATCA Registration Resources Pagecontains information to get you started, including the FATCA Registration Online User Guide, short “how-to” videos for the Registration system, and other resources.If help is needed prior to logging onto the FATCA registration system, the Registration User Guide will provide information about logging in and navigating through the system. There is also a link “Forgot FATCA ID or Access Code?” on the login page with information on how to obtain assistance with login issues.Once logged on, the FATCA registration system contains help icons (question marks) throughout the registration with information on particular questions or fields. At the top of each page of the FATCA registration system there is a navigation bar with a “get help” option that will provide additional resources and contact information.

General System Questions
Q4.	What languages will the registration system be available in?	The registration system will be in English only; however only certain special characters will be accepted (~ ! @ # % ^ * ( ) ? , . ).
Q5.	Will there be a test environment or a beta version of the FATCA registration system?	No, there will not be a test environment or a beta version of the registration system. The registration system is currently open. The FI’s can input their data. On or after January 1, 2014, the FI will need to submit their registration.
Q6.	Will the system have certain mandatory fields or will they all be mandatory?	Not all fields in the online registration form are mandatory. Fields that are mandatory are marked with an asterisk at the end of the question. Also, depending on how you answer a question, the system will automatically skip some questions as appropriate.
Q7.	Will there be an automatic check of legal names against a database to prevent misspellings or to provide consistent formatting?	The system will validate that the legal name contains only valid characters, but will not check the legal name against any database for spelling or format issues. Valid characters include lower and upper case letters (a-z, A-Z), numbers (0-9), and the following special characters: blank space, ampersand (&), hyphen (-), forward slash (/), period (.), comma (,), apostrophe (‘), pound sign (#), and percent sign (%). The legal name cannot start with a special character.
Q8.	What is the maximum number of characters allowed for name fields?	Most name fields allow for up to 40 characters to be input. You will not be able to input more characters than allowed in a particular field. There are specific error messages to guide you when you click on the “Next” or “Save” button in the registration system if there is a problem with the input you provided.
Q9.	How should an FI enter the FI legal name in question 2 or the member FI legal name in question 12 (for lead FIs) if the FI legal name is longer than what the system allows, or has characters that the system does not allow?	At this time, the FATCA registration system can only capture 40 characters (spaces between names will count toward the character limit). Further, only upper and lower case letters (a-z, A-Z), numbers (0–9) and the following special characters are accepted: blank space, ampersand (&), hyphen (-), forward slash (/), period (.), comma (,), apostrophe (‘), pound sign (#), and percent sign (%). Parentheses and brackets are not accepted at this time. The legal name cannot start with a special character.To the extent that the full legal name can be entered, please do so. If however, the full legal name does not fit, please note the following: At least the first 10 characters must match the FI’s legal name. Any legal and numerical designations must be included in the remaining 30 characters. No abbreviations in the first 10 characters, but otherwise it is okay to abbreviate.
Q10.	How can a Financial Institution register an entity in a newly created country?	The FATCA registration system includes countries on the ISO 3166 listing, and as new countries are added, the system will be updated to include them. There is also an option to select “other” for the country if the system has not yet added a country to the drop down lists.
Q11.	Does the system have the capability to show the questions and responses before the registration is submitted? Can the questions and responses be printed or saved?	The registration is separated into four parts. In the online registration system, how each part displays depends upon how the questions are answered; accordingly, the Financial Institution (FI) will only see the parts of the form that are applicable to it. At the end of parts 1 through 3, there is an edit / review function which will display the questions and responses provided. The FI can use the print functionality from its browser to print each of these parts. Once the registration is submitted, there are options on the home page to review each of the applicable parts of the registration. There is also an option for the FI to print, view, and save (in pdf format) the agreement (part 4) of the form.An FI (except Sponsoring Entities) can view or save (in pdf format) its branch table information from the home page.A Lead FI can view or save (in pdf format) its member FI table from the home page. An FI can edit its registration by selecting the “Registration-Edit/Complete/Submit” option on its home page.

FATCA Account Creation and Access
Q12.	What is the maximum number of users that can access a FATCA account at one time?	Each Financial Institution (FI) will have its own FATCA Account, with a unique FATCA ID. Although the login credentials (FATCA ID and access code) can be shared between the Responsible Officer and up to five (5) points of contact designated on the registration form, only one person can access the account at a time.For Expanded Affiliated Groups, each member FI has its own FATCA ID and access code, so members can log into the system independent of other members of the group. The Lead FI has access to all of the member FI accounts from their home page, and if the Lead FI is accessing a member account, that member will not be able to log in. If a member FI is logged in, the Lead FI will not be able to access that member account until the member logs out; however it will be able to access its own lead account.
Q13.	What are the password requirements for FATCA Accounts?	When creating a FATCA account, a Single, Lead or Sponsoring Entity Type Financial Institution will create an access code (like a password) to be used with the systemically assigned FATCA ID for all future logins to the account. The access code must be between 8 and 20 characters and include at least one uppercase letter, one lowercase letter, one number, and one of the following special characters ~ ! @ # % ^ * ( ) ? , .For Member type FI’s, the registration system will generate a unique FATCA ID and a temporary access code for each member when the Lead FI creates the member accounts. The Lead FI will provide the login information to each of its member FIs. When each member FI logs into their FATCA account, they will be prompted to select a new access code, following the criteria described in the above paragraph.
Q14.	What are challenge questions used for?	Each Financial Institution (FI) will select two challenge questions from a list of predefined questions and provide an answer to each. For all FIs except Member Type FIs, this will be done as part of the account creation process. Lead FIs will create all member FI accounts, and the first time the Member FI logs into their FATCA account, they will be prompted to select and answer their challenge questions. Each FATCA account will have two challenge questions and answers provided by the FI.Challenge questions will be used by each FI to reset their own access code if they forget it. Challenge questions and answers can be reviewed and updated at any time by the FI when logged into their account. From the home page, the FI can select the “Challenge Questions – Edit/Review” option and review and make changes as necessary.
Q15.	Can a member of an Expanded Affiliated Group (EAG) create their own FATCA account?	A Member Financial Institution (FI) cannot create its own FATCA account. The Lead FI will create all their member accounts and provide each member FI with its login credentials. The member will then log into its account and complete its registration.
Q16.	What is the time lapse between the creation of the FATCA ID for the Lead FFI and the FATCA IDs for the Member FFIs?	Once the Lead FI creates its own FATCA account, and has completed Part 1 of the registration, it will create the FATCA accounts for each member by adding the members in Part 2, question 12 of the online registration. As soon as a member’s information is completed, and the “add another” button is clicked, that member FI will appear in the table below the question with its FATCA ID and temporary access code.

Registration Status and Account Notifications
Q17.	What type of notifications will the FATCA Registration system provide?	The FATCA Registration system will generate automatic e-mail notifications to the Responsible Officer (RO) to check the FATCA account when a financial institution (FI) registration changes between some statuses. There will also be messages posted on the FI’s message board, which it can access on the home page of its FATCA account.
Q18.	How can a Financial Institution check the status of its registration?	A Financial Institution (FI) can check the status of its FATCA registration by logging into its FATCA account and checking the account status displayed on its home page. The system will also generate automatic e-mail notifications to the Responsible Officer (RO) to check the FATCA account when a Financial Institution (FI) registration changes between some statuses. A list of statuses and their definitions can be found in the appendix of the FATCA Registration Online User Guide.
Q19.	Can the Responsible Officer (RO) list more than one e-mail address on the registration system?	The RO can only list one e-mail address in question 10 of the registration.
Q20.	Can the change of status e-mail notifications go to the Responsible Officer (RO) and the Points of Contact (POCs)?	The registration system will send an e-mail only to the Responsible Officer when the registration changes between some statuses. Therefore, the FI should carefully consider which email address is provided in question 10 of the registration.

Expanded Affiliated Groups (EAG)
Q21.	If a lead Foreign Financial Institution (FFI) of an Expanded Affiliated Group (EAG) registers and lists each Member on Part 2 of the registration, then would each member of the EAG still need to separately register?	Each member financial institution of the EAG will need to complete a registration, once the Lead has created its account. 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 will then need to log into the system and complete its registration.
Q22.	Once the lead Financial Institution (FI) has its FATCA ID, will it be possible for each of the member Expanded Affiliated Group (EAG) entities to log on at the same time to register?	Once the Lead adds a member under part 2 of the Lead’s registration, the system will generate a FATCA ID and temporary access code for the member (thus establishing the member’s account). The Lead will give that account information to the member and it can log into its member account. Each FI has its own account, so the Lead and member(s) can all be logged in at the same time to their own accounts. Because the Lead FI has access to member accounts, only one (either the Lead or Member FI) can access the member account at a time.
Q23.	How does the lead Financial Institution (FI) access its member FI accounts?	Once a lead FI creates its member accounts, it can access the member FI accounts by clicking on the “view member information link” from its homepage, and clicking on the name of the member FI in the table. The Lead FI can access each of its member accounts under its own lead FI account login – it does not need to log into each of the member accounts separately. However, since only one person can access the account at a time, the lead FI will get an error message if it tries to access the member account when the member FI is logged in, and the member FI will not be able to log into its account if the lead FI is accessing it.

Registration Updates
Q24.	Where does a Financial Institution (FI) send information to have updates made on its registration?	Updates cannot be made on paper. Once an account is established, (whether on the paper form 8957 or online), the FI will manage any updates to its registration form and account online. An FI that chooses to initially register on paper will have its logon information sent to it in the mail. The FI will log into the FATCA Registration System, and select the” Registration – Edit/Complete/Submit” option from its home page to edit the registration form data, or choose from other available account options.
Q25.	How can the access code for the FATCA account be changed?	The financial institution (FI) can change the access code by logging into the FATCA account, and selecting the “Access Code – Change” option from its home page.The FI can also reset its own access code if it forgets it by clicking on the “Forgot FATCA ID or Access Code?” link from the login page, and following the instructions to answer the challenge questions provided during registration.Member financial institutions will also be required to change their initial temporary access code provided by their Lead FI the first time they log into the system.
Q26.	How can the Responsible Officer (RO) or Points of Contact (POCs) be changed?	An FI can edit its registration by logging into its FATCA account and selecting the “Registration – Edit/Complete/Submit” option from its home page. To change the RO or POCs, the FI would edit Question 10 or 11 of the registration as appropriate, and resubmit the registration.Because the RO and POCs share the login credentials for the FATCA Account, the FI may want to change its access code when its personnel changes. The access code can be changed from the home page by selecting the “Access Code – Change” option.
Q27.	Can a Financial Institution (FI) that is limited change to a Participating FFI?	Yes, an FI can edit their registration by logging into its FATCA account and selecting the “Registration – Edit/Complete/Submit” option from its home page. The FI would change its classification in question 4, and resubmit its registration.
Q28.	How do I get my registration out of registration submitted status?	Notice 2013-43 stated that after January 1, 2014 the FI will need to submit a final registration. If an FI submitted a registration prior to this date, it can be changed by the FI. To change the status of your registration from registration submitted, go to your home page. Under Available Account Options: Select “Registration – Edit/complete/Submit.” You will be asked if you want to change your status to “initiated.” Select yes. After January 1, 2014, you may submit your registration as final.
Q29.	Why did my registration status change toRegistration Incomplete and how do I submit the registration again?	Notice 2013-43 stated that after January 1, 2014 the FI will need to submit a final registration. If an FI submitted a registration prior to this date, the registration status will be systemically updated to Registration Incomplete on December 31, 2013. The registration system will be unavailable during this time.Beginning on January 1, 2014, you can login to your FATCA account, and resubmit your registration by selecting “Registration – Edit/Complete/Submit” under the Available Account Options on your home page. You will be asked if you want to change your status to Initiated. Select yes, and review each page of the registration, making any necessary updates, and clicking the “next” button at the bottom of each page to continue. When you get to Part 4 of the registration, complete the information, and click on the Submit button. Your registration status will then be updated toRegistration Submitted. You can go back at any time to update information.

Global Intermediary Identification Number (GIIN) – Overview
Q30.	What is a GIIN?	A GIIN Composition Document is available along with other Registration Resources and Support Information, on the FATCA Registration Resources Page.
Q31.	Will Financial Institutions (FIs) and Branches that are limited be issued GIINs?	No, FIs and branches that are limited will not be issued GIINs.
GIIN Format
Q32.	What is the format of the GIIN?	The GIIN is a 19-character identification string that is a composite of different identifiers, including the FATCA ID, Financial Institution type, category code and country identifier. For more information see the full description in the GIIN Composition Document.
Q33.	Are the period (.) separators in the GIIN required?	Yes. The period separators comprise three characters in the 19-character identification number. Please see the GIIN Composition Document for more information.

FATCA Compliance Program and Manual

Fifty contributing authors from the professional and financial industry provide expert analysis within the LexisNexis® Guide to FATCA Compliance (2^nd Edition): many perspectives – one voice crafted by the primary author William Byrnes. The second edition has been expanded from 25 to 34 chapters, with 600 pages of regulatory and compliance analysis.

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. The chapters include in-depth analysis of such topics as 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.

See: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247

Posted in FATCA | Tagged: FAQ, FATCA, Foreign Account Tax Compliance Act, GIIN, Internal Revenue Service, IRS, January 1 2014, Legal name | Leave a Comment »

FATCA Frequently Asked Questions End-of-Year Update

Posted by William Byrnes on December 31, 2013

On December 27, 2013 the IRS issued a new FATCA FAQ (FAQ #29) to explain Notice 2013-43 (Revised Timeline and Other Guidance Regarding the Implementation of FATCA).

Q29.

Why did my registration status change to Registration Incomplete and how do I submit the registration again?

Notice 2013-43 stated that after January 1, 2014 the FI will need to submit a final registration. If an FI submitted a registration prior to this date, the registration status will be systemically updated to Registration Incomplete on December 31, 2013. The registration system will be unavailable during this time.Beginning on January 1, 2014, you can login to your FATCA account, and resubmit your registration by selecting “Registration – Edit/Complete/Submit” under the Available Account Options on your home page. You will be asked if you want to change your status to Initiated. Select yes, and review each page of the registration, making any necessary updates, and clicking the “next” button at the bottom of each page to continue. When you get to Part 4 of the registration, complete the information, and click on the Submit button. Your registration status will then be updated to Registration Submitted. You can go back at any time to update information.

Read my previous FATCA coverage of the recent end of year releases regarding the new FFI Agreement, Registration Portal, GIIN issuance, among related topics > herein <

FATCA Compliance Program and Manual

The previous 25 chapters have been substantially updated, including many more practical examples to assist a compliance officer contextualize the regulations, IGA provisions, and national rules enacted pursuant to an IGA. The nine new 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. Chapter 7 has been drafted for a financial institution’s compliance officer, Chapter 9 for the trust department compliance officer, and Chapter 10 for the insurance firm’s compliance officer. Chapter 7 provides a new section analyzing the compliance risks with the IRS’ released FFI agreement.

See: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247

Posted in FATCA | Tagged: BRIC, FATCA, Foreign Account Tax Compliance Act, Internal Revenue Service, IRS, Regulation, Regulatory compliance | Leave a Comment »

Final FATCA FFI Agreement released by IRS

Posted by William Byrnes on December 27, 2013

On December 26 the IRS released Rev Proc 2014-10: FFI Agreement for Participating FFI and Reporting Model 2 FFI. The final FFI agreement contains a number of changes to provisions of the draft FFI agreement that required correction or clarification. The Rev Proc provides four areas of such changes and clarifications that occur in the final FFI agreement.

First, several of the cross-references in the FFI agreement (notably, in section 2 of the FFI agreement) are modified in anticipation of the publication of two sets of temporary regulations to which the updated cross-references relate. Both sets of temporary regulations are expected to be published in early 2014.

Second, the FFI agreement contains revisions to correct minor technical errors in the draft FFI agreement.

Third, revisions are made to further clarify the FFI agreement and conform it to the temporary chapter 4 regulations. By example, as contemplated in Notice 2013-69, the FFI agreement provides that, with respect to calendar years 2015 and 2016, participating FFIs that are required to report foreign reportable amounts paid to nonparticipating FFIs shall report this information on Form 8966.

Finally, the FFI agreement also provides for a two-year transition period during which a reporting Model 2 FFI may elect to apply the due diligence procedures described in the FFI agreement in lieu of those in Annex I of an applicable Model 2 IGA and the FFI agreement is also revised to reflect that this election is made by the reporting Model 2 FFI and not the reporting Model 2 IGA jurisdiction. Read my previous FATCA coverage > herein <

FATCA Compliance Program and Manual

See: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247

Posted in FATCA, Uncategorized | Tagged: BRIC, FATCA, FFI, Foreign Account Tax Compliance Act, Foreign function interface, Internal Revenue Service, LexisNexis, Regulation | Leave a Comment »

FATCA FFI List Resources and Support Information Webpage and FFI List FAQs are Now Available

Posted by William Byrnes on December 23, 2013

On December 19, the IRS released FATCA News Issue Number 2013-16 wherein it announced the FATCA FFI List Resources and Support Information Webpage and the FATCA FFI List Frequently Asked Questions (FAQs) have been posted to the FATCA Website.

The IRS’ new FATCA FFI List Resources and Support Information includes the following information:

An FFI may agree to report certain information about its account holders by registering to be FATCA compliant. An FFI that has registered and that has been issued a global intermediary identification number (GIIN) will appear on a published FFI List. The FFI List can be downloaded in its entirety or searched for specific information (FI name, GIIN or country). Search results can also be downloaded. Withholding agents may rely on an FFI’s claim of FATCA status based on checking the payee’s GIIN against the published FFI List. This FFI list search and download tool is scheduled to be available beginning June 2014, and will be updated monthly.

Additional information on FATCA registration is available in the FATCA Registration Overview. More details about the GIIN are available in the GIIN Composition document.

FFI list Search and Download Capabilities

Beginning in June 2014, a search tool, partial list download, and a full downloadable list will be available on IRS.gov to the public. No login or password will be required to search or download the list. The data will be refreshed on the 1st of the month and will only include FIs and branches approved 5 business days prior to the first of the month. The date of the last update to the information will be displayed on the page. Previous months lists will not be available on IRS.gov.

The FFI List search and download tool can be used for looking up individual or groups of FIs and their branches to determine if they are on the list of FATCA compliant FIs. To use the search feature, at least one of the following search fields must be filled in: GIIN, Financial Institution Name, or Country. The results will be displayed on the screen and can be exported in CSV, XML or PDF formats. Search tips will be available on this site.

A complete list of all FATCA compliant FIs and branches will also be available for download in CSV and XML formats. If you plan to import this file into your own database, additional information including the schema, is available on the FFI List Schema and Test Files page.

The IRS FFI List FAQs is available at http://www.irs.gov/Businesses/Corporations/IRS-FFI-List-FAQs

FATCA Compliance Program and Manual

Fifty contributing authors from the professional and financial industry produced LexisNexis® Guide to FATCA Compliance (2^nd Edition). The second edition has been expanded from 25 to 34 chapters, with 600 pages of regulatory and compliance analysis.

See: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247

Posted in Compliance, FATCA | Tagged: BRIC, FATCA, Financial institution, Foreign Account Tax Compliance Act, GIIN, Internal Revenue Service, IRS, LexisNexis | Leave a Comment »

IRS’ Announcement for Signing FFI Agreement and Finalizing FATCA Registration

Posted by William Byrnes on December 17, 2013

On Monday December 16, the IRS issued Announcement 2014-1 reminding foreign financial institutions (FFI) that have registered via the FATCA Portal to log back in after January 1, 2014 in order to sign the FFI agreement and finalize the registration process. The IRS and Treasury anticipate that the final FFI agreement will be published prior to January 1, 2014. The latest FFI Agreement draft has been covered previously (choose the FATCA tag on the left menu to read previous analysis).

Any FI submitting its registration information on or after January 1, 2014 may subsequently choose to revoke its status by revisiting its account and deleting its registration (if its GIIN has not yet been issued) or cancelling its registration (if its GIIN has already been issued).

The IRS stated that final qualified intermediary (QI), withholding foreign partnership (WP), and withholding foreign trust (WT) agreements will be published in early 2014. Any FI seeking to renew its status as a QI, WP, or WT should do so during the FATCA registration process.

The IRS also reminded FFIs that verification of a GIIN is not required for payments made prior to January 1, 2015 with respect to any payee that is a reporting Model 1 FI (pursuant to an intergovernmental agreement between its country and the U.S.). The IRS added that 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.

FATCA Compliance Program and Manual

The FATCA compliance officer responsible for an enterprise with multiple lines of business in multiple jurisdictions is particularly at risk of missing this critical registration deadline and other important compliance milestones, especially in jurisdictions that do not have a Model 1 IGA with the U.S. This LexisNexis® Guide to FATCA Compliance contains three chapters written specifically to guide a financial institution’s lead FATCA compliance officer in designing a plan of internal action within the enterprise, interaction with outside FATCA advisors with a view of best leveraging available resources and budget, and systems management [see Chapters 2, 3 and 4].

See: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247

Posted in Compliance, FATCA | Tagged: BRIC, FATCA, Financial institution, Foreign Account Tax Compliance Act, GIIN, Internal Revenue Service, IRS | Leave a Comment »

IRS’ FATCA Registration System Updates

Posted by William Byrnes on December 16, 2013

By Professor William Byrnes, – co-author of LexisNexis® Guide to FATCA Compliance; co-author of Foreign Tax & Trade Briefs

FATCA Registration Portal

FATCA requires that FFIs, through a responsible officer (a.k.a. “FATCA compliance officer”), make regular certifications to the IRS via the FATCA Portal, as well as annually disclose taxpayer and account information for U.S. persons, unless an intergovernmental agreement (“IGA”) allows for indirect reporting to the IRS via a foreign government. On Monday, August 19 the IRS opened its online FATCA registration system for financial institutions that need to register for compliance with the Foreign Account Tax Compliance Act. [See https://sa2.www4.irs.gov/fatca-rup/login/userLogin.do.]

This critical FATCA milestone was supposed to open July 15; however only on July 12 did the IRS issued a postponement, as well as a push back all of the corresponding impacted milestones and deadlines. See Lexis article: FATCA FFI Compliance Extended; FATCA Portal, Other Key Dates Pushed Back.

Participating FFI List to Avoid FATCA Withholding

FFIs will now have four months, until April 25, 2014, to register on this portal to be included on the Participating FFI List that the IRS will publish June 2, 2014. Beginning July 1, 2014, withholding agents will implement the 30 percent FATCA withholding on payments of U.S. source income, including portfolio interest and capital gains, made to FFIs not on the Participating FFI list.

Global Intermediary Identification Number (GIIN)

An FFI will be included on the Participating FFI (“PFFI”) List if the FFI has registered via the FATCA Portal that the FFI agrees to comply with the IRS’ Foreign Financial Institution Agreement (“FFI Agreement”). The IRS will begin issuing each PFFI a Global Intermediary Identification Number (GIIN) as portal registrations are finalized by April 25, 2014. The PFFI will then include on its certification to U.S. withholding agents that GIIN — allowing matching against the PFFI List. [On April 8. 2013 the IRS released a sample of the PFFI List schema with example GIINs. See http://www.irs.gov/Businesses/International-Businesses/IRS-FFI-List-Schema-and-Test-Files.]

The following changes were made to the FATCA Registration System on December 8, 2013. For more detailed information, refer to Appendix A in the updated FATCA Registration Online User Guide.

1. Corrections to reported problems:

(a) Corrects problems with Member PDF file – currently only displays last 50 members in list, times out when there is a large number of members

(b) Corrects problem with deleting PAI contracts in part 3, question 15

2. Wording updates

(a) Minor wording changes to registration screens (Questions 10, 11a, 11b, POC Authorization, Part 4 – Submit)

(b) Wording changes to help text, including “instructions” page and “get help” page

(d) Wording changes on FI home pages

(e) Updates to external content linked to from registration system

(f) Update to country drop down list for questions with countries

3. Enhancements

(a) Additional statuses added

(b) Additional information added on FI home pages, including link to manage branch information

(d) Added notifications to FI’s, including external email notifications to RO for certain status changes

For the period from the opening of the FATCA registration website through December 31, 2013, a financial institution (FI) will be able to access its online account to modify or add registration information.

FIs can use the remainder of 2013 to become familiar with the FATCA registration website, to input preliminary information, and to refine that information. On or after January 1, 2014, each FI will be expected to finalize its registration information by logging into its online account on the FATCA registration website, making any necessary additional changes, and submitting the information as final.

As registrations are finalized and approved in 2014, registering FIs will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN).

Below find a link to IRS instructions, user guide and video materials to assist you and your financial institution with FATCA registration:

“How-to” videos to assist financial institutions with FATCA registration:

FATCA Compliance Program and Manual

See: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247

Posted in Compliance, FATCA | Tagged: FATCA, Financial institution, Foreign Account Tax Compliance Act, Foreign function interface, Internal Revenue Service, IRS, LexisNexis | Leave a Comment »

FATCA just one tentacle of IRS’ Efforts to Uncover Noncompliant U.S. Taxpayers – the Swiss Non-Prosecution Program

Posted by William Byrnes on December 13, 2013

Professor William Byrnes is the primary author of LexisNexis’ Guide to FATCA Compliance. The 2nd edition features 600 pages of compliance analysis with practical examples, broken into 34 chapters, contributed by 50 experts from within financial institutions and large firms, and from interviews with tier 1 banks, trust company service providers (TSPs), and insurance companies.

The Tax Division of the Department of Justice > released a statement on December 12 < strongly encouraged Swiss banks that want to seek non-prosecution agreements to resolve past cross-border criminal tax violations to submit letters of intent by the Dec. 31, 2013 deadline required by the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (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.[1]

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 wish to cooperate and receive a non-prosecution agreement under the Program, known as Category 2 banks, must submit a letter of intent by Dec. 31, 2013. 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 all other Swiss banks to cooperate with the DOJ and fulfill the requirements of the Program.

The DOJ’s November comments respond to such as 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.

– 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 4 banks are a local business in accordance with the FATCA definition.

The international service of the Swiss Broadcasting Corporation (“SwissInfo”) reported that of 300 eligible Swiss banks, only a few had filed for non prosecution with the DOJ’s program (e.g. Migros Bank, Bank COOP, Valiant, Berner Kantonalbank and Vontobel). [2]

The DOJ reported that in July 2013, Liechtensteinische Landesbank AG, a bank based in Vaduz, Liechtenstein, 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.

Two court orders entered in November 2013 in a New York federal court will further aid these investigations by authorizing the IRS to serve what are known as “John Doe” summonses on five banks to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct the five banks to produce records identifying U.S. taxpayers holding interests in undisclosed accounts at Zurcher Kantonalbank (ZKB) and its affiliates in Switzerland and at The Bank of N.T. Butterfield & Son Limited (Butterfield) and its affiliates in Switzerland, the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta and the United Kingdom. The summonses also direct the five banks to produce information identifying foreign banks that used ZKB’s and Butterfield’s correspondent accounts at the five banks to service U.S. clients.

[1] See Supermarket banks sign up to US tax probe, SwissInfo, December 11, 2013, available at http://www.swissinfo.ch/eng/business/Supermarket_banks_sign_up_to_US_tax_probe.html?cid=37516028 (accessed December 12, 2013).

[2] See Mathew Allen, US tax deal could prove deadly for small banks, SwissInfo, December 10, 2013, available at http://www.swissinfo.ch/eng/politics/US_tax_deal_could_prove_deadly_for_small_banks.html?cid=37506872

Posted in Compliance, FATCA | Tagged: Banking in Switzerland, DOJ, FATCA, Foreign Account Tax Compliance Act, Swiss Bank, Swiss Financial Market Supervisory Authority, Switzerland, tax compliance, Tax Evasion, United States Department of Justice | 4 Comments »

TIGTA’s FATCA Report – Is the FATCA portal development better than that of the federal medical insurance exchange?

Posted by William Byrnes on December 10, 2013

Last week on December 5, 2013 the Treasury Inspector General for Tax Administration (TIGTA) publicly released its September 27 report titled: “Foreign Account Tax Compliance Act: Improvements Are Needed To Strengthen Systems Development Controls For The Foreign Financial Institution Registration System”.^[1] TIGTA’s objective was to assess the IRS’s systems development approach for the FATCA Registration Portal. Specifically, TIGTA evaluated the IRS’s established management controls and processes over information technology program management, security control processes, testing documentation, requirements management, and fraud prevention controls.

The IRS estimates that between 200,000 and 400,000 entities will register on its FATCA Online Portal. Industry groups have produced larger estimates based on by example various trust arrangements being categorized as Foreign Financial Institution (FFIs). April 25, 2014 is the deadline for registration to be included on the participating FFI (PFFI) list that will be issued in time to avoid FATCA withholding that will begin July 1, 2014.

Once an FFI is registered on the FATCA Portal, if it is not protected by an intergovernmental agreement (IGA) between the U.S. and its country or jurisdiction, the FFI will need to provide (and the IRS capture) identifying information for certain U.S. accounts maintained by the institution such as account number, balance, gross receipts, and withdrawals. TIGTA identified three key groups that FATCA directly impacts:

(1) taxpayers who meet the reporting requirements threshold for foreign financial assets;

(2) FFIs that report to the IRS foreign financial account information exceeding certain thresholds held by U.S. taxpayers; and

(3) withholding agents who withhold a 30 percent tax on taxpayers who fail to properly report their specified financial assets related to U.S. investments.

An October 2014 industry poll of 100 financial firms, half large firms, founds that more than 55 percent rated average to poor their understanding of FATCA.^[2] The four critical challenges identified in that survey include: (1) lack regulatory requirement clarity, (2) FATCA expertise scarcity, (3) operational impact, and (4) data issues. According to the tax department of a tier 1 European bank, the signature of IGAs could reduce cost estimates to roughly US$100 million per institution covered by the respective IGA. Given the U.S.-U.K. IGA, the national cost estimate of the U.K. Revenue for impacted U.K. financial institutions is a one-off cost of approximately £900 million – £1.600 billion with an ongoing cost of £50 million – £90 million a year.^[3]

In its report, TIGTA stated six recommendations for the IRS to improve system development, documentation, management, and testing.

(1) The Chief Technology Officer (CTO) and the Commissioner, LB&I Division, should ensure that the FATCA Organization PMO and FATCA information technology management timely identify and communicate system changes to minimize costs and reduce waste for future information technology development projects.

(2) The CTO should ensure that adequate program management controls are in place and are consistently followed to guide the future system development activities needed for the FATCA and to better position the IRS to accomplish its goals for improving the benefits of its FATCA goals and objectives.

(3) The CTO should ensure that the SCA Test Plan and Developer Security Test and Evaluation Plan are prepared so that all security requirements, security controls, and test cases are identified, traced, and tested, and all security testing is performed before deployment of Drop 1 to ensure that the FRS operates as intended.

(4) The CTO should ensure that all testing groups follow the recently established Internal Revenue Manual (IRM) procedures for documenting test cases for consistency in testing requirements and in detecting and correcting errors to ensure that the FRS meets all of its requirements as needed.

(5) The Commissioner, LB&I Division should establish IRM procedures for all testing groups to ensure that documentation of test cases is consistent with and supports the IT Organization requirements testing process.

(6) The CTO should ensure that IRM guidelines are followed so that the RTVM is established at the beginning of the testing life cycle and updated and maintained throughout the requirements management and testing processes, and that the RTVM is utilized on a regular basis to ensure that all FRS and future FATCA system requirements are included in test cases and tested.

Before the first version (Release 1.0) was shelved, the IRS expended $8.6 million of a $14.4 million forecast budget over 19 months on the FATCA Registration Portal (FFI Registration System or “FRS”). The current version (Release 1.1) is in development with a final forecast price tag to roll out a working version of the FRS of $16.6 million, i.e. $2.2 million over budget.

Examples of Key Capabilities and Features of FRS Release 1.0

Capabilities

Features

The FRS is a modern web-based application with 24/7 accessibility. Specifically, it:Ø Allows Financial Institution (FI) users to establish an online account, including the ability to choose a password and create challenge questions.Ø Displays a customized home page for FIs to manage their accounts.

Ø Ensures security for all data provided on behalf of FIs.

Ø Provides FIs with tools to oversee member and/or branch information.

Ø Establishes a streamlined environment for FIs to register in one place.

The FRS provides flexibility for FIs to report on and manage information throughout their corporate structure (branch and members). Specifically, the system:Ø Generates automatic notifications when an FI status changes.Ø Implements a universal numbering system (Global Intermediary Identification Number) that can be used by local taxing authorities.

Ø Allows FIs to appoint delegates (points of contact) to perform registration tasks.

Source: FRS overview presented by the IRS to the Treasury Inspector General for Tax Administration on February 21, 2013.

For further analysis see the Lexis Guide to FATCA Compliance: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

Commentary

In comparison of the expenditure overruns and technical glitches of the state and federal affordable health care (ACA or Obama Care) exchanges, the FRS budget overrun and push back seem quite successful. Of course, it remains to be seen if the FRS does not go further over-budget and if its roll out is not further pushed back. Yet it must be noted that the 2012 GAO report stated that: “In addition to its internal control deficiencies, IRS faces significant ongoing financial management challenges arising from its continued need to safeguard the large volume of sensitive hard copy taxpayer receipts and related information and to address its exposure to significant improper refunds based on identity theft.”

The 2012 TIGTA report on the Information Technology Program recognized that the IRS will have responsibility for the tax system but also for the Patient Protection and Affordable Care Act (PPACA). As a result of PPACA, the IRS has been assigned the job of overseeing all U.S. persons’ healthcare records in the new healthcare system. TIGTA identified weaknesses “over system access controls, configuration management, audit trails, physical security, remediation of security weakness, and oversight and coordination on security-related issues.” TIGTA further stated: “Until the IRS addresses security weaknesses, it will continue to put the confidentiality, integrity, and availability of financial and taxpayer information and employee safety at risk.”

Finally, the IRS was supposed to, has it already been five year ago now(?), have web-based access for each taxpayer of his/her IRS tax account. Still waiting on this customer service feature… But it must also be noted that over the past five years Congress has the IRS tasked with substantial new responsibilities without additional substantial resources to accomplish them all (too bad Congress pulled the plug on the additional 1099 reporting by all taxpayers – that would have been interesting to watch the IRS cope on top of the ACA and FATCA). Billions in incorrectly paid earned income tax credit payments has certainly made the headlines, with the implication being that Congress should have the IRS fix current challenges before forcing it to initiate new ones.

Maybe private enterprise would better accomplish certain tasks, or to take over certain functions – which leads to a different discussion about government / private partnerships and/or outsourcing of tax administration and collection (the Romans did that, as did feudal lords, and if I recall correctly, Bush II’s administration with regard to collections). But as a colleague shared with me today – medicare only has a 3% administrative cost whereas private enterprise runs as high as 70% administrative cost. So private enterprise may not be a cost effective solution. I look forward to discussing this topic in class….

[1] Available at http://www.treasury.gov/tigta/auditreports/2013reports/201320118fr.pdf (accessed December 9, 2013).

[2] NICE Actimize Financial Services Poll Finds That More Than 55 Percent of
Financial Institutions Rate Understanding of FATCA Legislation ‘Average’ to ‘Poor’, October 9, 2013.

[3] HMRC, Tax information and Impact Note – The International Tax Compliance (United States of America) Regulations 2013, August 7, 2013, http://www.hmrc.gov.uk/fatca/itc-regs-2013.pdf (accessed November 30, 2013).

Posted in book, Compliance, FATCA, information exchange, Reporting, Tax Policy | Tagged: FATCA, Financial institution, Foreign Account Tax Compliance Act, FRS, Internal Revenue Service, IRS, TIGTA, Treasury, Treasury Inspector General for Tax Administration | 2 Comments »

FATCA Foreign Financial Institutions (FFI) Agreement Draft Released

Posted by William Byrnes on October 29, 2013

On October 29, 2013, the IRS released the long awaited FFI draft agreement and an accompanying notice incorporating updates to certain due diligence, withholding, and other reporting requirements released earlier this year (click the FATCA category on the left for previous coverage). The FFI draft agreement provides the proposed guidance for FFIs to comply with the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA).

The IRS is committed to finalizing the FFI agreement by the end of 2013 because client due diligence and withholding requirements begin July 1, 2014. These due diligence and withholding requirements were this summer pushed back 6 months from January 1, 2014. The first FATCA information reports are due by PFFIs to the IRS in March 2015 via IRS Form 8966, FATCA Report, and includes the FATCA Report XML.

The IRS FATCA registration website for FFIs has been open since August 19, but also cast off to a late start of over a month. Since August 19, FFI have begun testing the registration process and entering information. The IRS expects to issue GIINs (Global Intermediary Identification Numbers) in early 2014. A Model 2 Reporting FFI (RFFI) that registers with the IRS to obtain a global intermediary identification number (GIIN) and complies with the terms of the FFI agreement, as modified by the applicable Model 2 IGA, will be treated as complying with the requirements of, and not subject to FATCA withholding.

The draft FFI agreement released today is for participating FFIs (PFFI) that directly engage in an agreement with the IRS and those RFFIs reporting through a Model 2 intergovernmental agreement (IGA). To date, Treasury has signed nine IGAs of which two are based on Model 2, has reached 16 agreements in substance, and is engaged in related conversations with many more jurisdictions. For an in-depth compliance analysis of the elements of these IGAs, see LexisNexis® Guide to FATCA Compliance. The Model 2 IGA framework allows FFIs to report directly to the IRS to the extent that an account holder consents or that such reporting is otherwise legally permitted. Non-consenting account holders information may be obtained via normal information exchange between the governments.

An FFI may register on Form 8957, FATCA registration, via the FATCA registration website available at http://www.irs.gov/fatca to enter into an FFI agreement on behalf of its branches (including its home office) so that each of such branches may be treated as a participating FFI. A reporting Model 2 FFI may also register on the FATCA registration website, on behalf of one or more of its branches (including its home office), to obtain a GIIN and to agree to comply with the terms of an FFI agreement, as modified by an applicable Model 2 IGA. The PFFI must appoint a responsible officer to establish a FATCA compliance program who then periodically reviews the sufficiency of the FATCA compliance program.

“The Agreement and forthcoming guidance have been designed to minimize administrative burdens and related costs for foreign financial institutions and withholding agents,” Deputy Assistant Secretary for International Tax Affairs Robert B. Stack is reported to have said with today’s notice release. “Today’s preview demonstrates the Administration’s commitment to ensuring full global cooperation and a smooth implementation.”

Treasury added comments directed at critics of the compliance costs of FATCA: “The regulations were intentionally designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years. For example, the final regulations exempt all preexisting accounts held by individuals with $50,000 or less from review. For similar accounts with less than $1,000,000, an FFI is only required to search the account information that is electronically available. In many cases, FFIs are permitted to rely on information that they already must collect for local anti-money laundering and know-your-customer rules.”

“Treasury is releasing necessary pieces of this FATCA puzzle very close to the compliance deadlines, given the necessary systems implementation required by PFFIs and RFFIs – albeit the longer than 2 week government shutdown certainly wasn’t on anybody’s radar screen”, said Professor William Byrnes. “Some firms will simply not be FATCA-compliant by next year’s deadlines, and I don’t think there will be another postponement of due diligence deadlines. Moreover, as it stands now, I don’t foresee the FATCA withholding refund procedures working smoothly either. Congress is making too many commitments for Treasury without giving Treasury the necessary resources to meet those commitments, and the shutdown didn’t help.”

The IRS Notice is available as a PDF at > FATCA October 29 Notice and Draft FFI Agreement <
For 440 pages of detailed FATCA analysis see http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327&ORIGINATION_CODE=00247
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Posted in Compliance, FATCA | Tagged: FFI, Foreign Account Tax Compliance Act, Foreign function interface, Internal Revenue Service, IRS, LexisNexis, Money Laundering, United States | 1 Comment »

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Posted by William Byrnes on October 11, 2013

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The LexisNexis® Guide to FATCA Compliance was designed in consultation, via numerous interviews and meetings, with government officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust companies, in consultation with contributors who are leading industry experts. The contributors hail from several countries and an offshore financial center and include attorneys, accountants, information technology engineers, and risk managers from large, medium and small firms and from large financial institutions. A sample chapter from the 25 is available on LexisNexis: http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

Analysis by FATCA Experts –

Kyria Ali, FCCA is a member of the Association of Chartered Certified Accountants (“ACCA”) of Baker Tilly (BVI) Limited.

Michael Alliston, Esq. is a solicitor in the London office of Herbert Smith Freehills LLP.

Ariene d’Arc Diniz e Amaral, Adv. is a Brazilian tax attorney of Rolim, Viotti & Leite Campos Advogados.

Maarten de Bruin, Esq. is a partner of Stibbe Simont.

Jean-Paul van den Berg, Esq. is a tax partner of Stibbe Simont.

Amanda Castellano, Esq. spent three years as an auditor with the Internal Revenue Service.

Luzius Cavelti, Esq. is an associate at Tappolet & Partner in Zurich.

Bruno Da Silva, LL.M. works at Loyens & Loeff, European Direct Tax Law team and is a tax treaty adviser for the Macau special administrative region of the People’s Republic of China.

Prof. J. Richard Duke, Esq. is an attorney admitted in Alabama and Florida specializing over forty years in income and estate tax planning and compliance, as well as asset protection, for high net wealth families. He served as Counsel to the Ludwig von Mises Institute for Austrian Economics 1983-1989.

Dr. Jan Dyckmans, Esq. is a German attorney at Flick Gocke Schaumburg in Frankfurt am Main.

Arne Hansen is a legal trainee of the Hanseatisches Oberlandesgericht (Higher Regional Court of Hamburg), Germany.

Mark Heroux, J.D. is a Principal in the Tax Services Group at Baker Tilly who began his career in 1986 with the IRS Office of Chief Counsel.

Rob. H. Holt, Esq. is a practicing attorney of thirty years licensed in New York and Texas representing real estate investment companies.

Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.

Denis Kleinfeld, Esq., CPA. is a renown tax author over four decades specializing in international tax planning of high net wealth families. He is Of Counsel to Fuerst Ittleman David & Joseph, PL, in Miami, Florida and was employed as an attorney with the Internal Revenue Service in the Estate and Gift Tax Division.

Richard L. Knickerbocker, Esq. is the senior partner in the Los Angeles office of the Knickerbocker Law Group and the former City Attorney of the City of Santa Monica.

Saloi Abou-Jaoude’ Knickerbocker Saloi Abou-Jaoude’ Knickerbocker is a Legal Administrator in the Los Angeles office of the Knickerbocker Law Group concentrated on shari’a finance.

Jeffrey Locke, Esq. is Director at Navigant Consulting.

Josh Lom works at Herbert Smith Freehills LLP.

Prof. Stephen Polak is a Tax Professor at Thomas Jefferson School of Law’s International Tax & Financial Services Graduate Program where he lectures on Financial Products, Tax Procedure and Financial Crimes. As a U.S. Senior Internal Revenue Agent, Financial Products and Transaction Examiner he examined exotic financial products of large multi-national corporations. Currently, Prof. Polak is assigned to U.S. Internal Revenue Service’s three year National Research Program’s as a Federal State and Local Government Specialist where he examines states, cities, municipalities, and other governmental entities.

Dr. Maji C. Rhee is a professor of Waseda University located in Tokyo.

Jean Richard, Esq. a Canadian attorney, previously worked for the Quebec Tax Department, as a Senior Tax Manager with a large international accounting firm and as a Tax & Estate consultant for a pre-eminent Canadian insurance company. He is currently the Vice President and Sr. Wealth Management Consultant of the BMO Financial Group.

Michael J. Rinaldi, II, CPA. is a renown international tax accountant and author, responsible for the largest independent audit firm in Washington, D.C.

Edgardo Santiago-Torres, Esq., CPA, is also a Certified Public Accountant and a Chartered Global Management Accountant, pursuant to the AICPA and CIMA rules and regulations, admitted by the Puerto Rico Board of Accountancy to practice Public Accounting in Puerto Rico, and an attorney.

Hope M. Shoulders, Esq. is a licensed attorney in the State of New Jersey whom has previously worked for General Motors, National Transportation Safety Board and the Department of Commerce.

Jason Simpson, CAMS is the Director of the Miami office for Global Atlantic Partners, overseeing all operations in Florida, the Caribbean and most of Latin America. He has worked previously as a bank compliance employee at various large and mid-sized financial institutions over the past ten years. He has been a key component in the removal of Cease and Desist Orders as well as other written regulatory agreements within a number of Domestic and International Banks, and designed complete AML units for domestic as well as international banks with over three million clients.

Dr. Alberto Gil Soriano, Esq. worked at the European Commission’s Anti-Fraud Office in Brussels, and most recently at the Legal Department of the International Monetary Fund’s Financial Integrity Group in Washington, D.C. He currently works at the Fiscal Department of Uría Menéndez Abogados, S.L.P in Barcelona (Spain).

Lily L. Tse, CPA. is a partner of Rinaldi & Associates (Washington, D.C.).

Dr. Oliver Untersander, Esq. is partner at Tappolet & Partner in Zurich.

Mauricio Cano del Valle, Esq. is a Mexican attorney who previously worked for the Mexican Ministry of Finance (Secretaría de Hacienda) and Deloitte and Touche Mexico. He was Managing Director of the Amicorp Group Mexico City and San Diego offices, and now has his own law firm.

John Walker, Esq. is an accomplished attorney with a software engineering and architecture background.

Bruce Zagaris, Esq. is a partner at the Washington, D.C. law firm Berliner, Corcoran & Rowe, LLP.

Prof. William Byrnes was a Senior Manager then Associate Director at Coopers & Lybrand, before joining academia wherein he became a renowned author of 38 book and compendium volumes, 93 book & treatise chapters and supplements, and 800+ articles. He is Associate Dean of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Dr. Robert J. Munro is the author of 35 published books is a Senior Research Fellow and Director of Research for North America of CIDOEC at Jesus College, Cambridge University, and head of the anti money laundering studies of Thomas Jefferson School of Law’s International Taxation & Financial Services Program.

Posted in book, FATCA | Tagged: FATCA, Internal Revenue Service, law, LexisNexis | Leave a Comment »

IRS’ Technical Corrections for FATCA Final Regulations

Posted by William Byrnes on September 17, 2013

This document > IRS Link Here < contains the IRS’ corrections to the FATCA final regulations (TD 9610), which were published in the Federal Register on Monday, January 28, 2013 (78 FR 5874). The FATCA regulations relate to information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts and withholding on certain payments to FFIs and other foreign entities.

book cover

The final regulations contained a number of items that needed to be corrected or clarified. Several citations and cross references are thus corrected by this IRS Technical Correction.
The correcting amendments also include the addition, deletion, or modification of regulatory language to clarify the relevant provisions to meet their intended purposes. Additions, deletions, and modifications are also made to ensure that the rules in the final regulations are coordinated with other rules contained in other relevant regulations.
For example in §1.1471-3(c)(3)(iii)(B)(2), the definition of an FFI withholding statement was modified to add an applicable cross reference to the reporting on the statement that is required under chapter 61 (in addition to the reporting required under chapters 3 and 4); to delete an incorrect reference to a pool of payees exempt from chapter 4 withholding; and to add the modified requirements of an FFI withholding statement provided by a Qualified Intermediary that should have been referenced in this paragraph.nd modifications are also made to ensure that the rules in the final regulations are coordinated with other rules contained in other relevant regulations.

> LexisNexis Guide to FATCA Compliance is available here <

Posted in book, Compliance, FATCA | Tagged: FATCA, Federal Register, Financial institution, Foreign Account Tax Compliance Act, Foreign function interface, Internal Revenue Service, United State, Withholding tax | Leave a Comment »

IRS’ NEW “HOW TO” VIDEOS FOR FATCA Registration

Posted by William Byrnes on August 27, 2013

As registrations are finalized and approved in 2014, registering FIs will receive a notice of registration acceptance and will be issued a global intermediary identification number (GIIN).

The IRS will electronically post the first IRS Foreign Financial Institution (FFI) List by June 2, 2014, and will update the list on a monthly basis thereafter. To ensure inclusion in the June 2014 IRS FFI List, an FI will need to finalize its registration by April 25, 2014.

Below find a link to IRS instructions, user guide and video materials to assist you and your financial institution with FATCA registration:

FATCA Registration Overview (PDF)

FATCA Registration Online User Guide (PDF)

Tips for Logging into the FATCA Registration System

Instructions for Form 8957 (PDF)

Global Intermediary Identification Number (GIIN) Composition (PDF)

“How-to” videos to assist financial institutions with FATCA registration:

Creating a FATCA account for online registration

Logging into a FATCA Account

Recovering a FATCA ID or resetting a FATCA Access Code

Registration System Common Features and Navigation

Posted in FATCA | Tagged: FATCA, FI, Financial institution, Foreign financial institution, Internal Revenue Service, IRS, tax | Leave a Comment »

FATCA Registration Portal Finally Opens

Posted by William Byrnes on August 21, 2013

Update for subscribers of LexisNexis® Guide to FATCA Compliance [1]

FATCA requires that FFIs, through a responsible officer (a.k.a. “FATCA compliance officer”), make regular certifications to the IRS via the FATCA Portal, as well as annually disclose taxpayer and account information for U.S. persons, unless an intergovernmental agreement allows for indirect reporting to the IRS via a foreign government. On Monday, August 19 the IRS opened its new online FATCA registration system for financial institutions that need to register for compliance with the Foreign Account Tax Compliance Act.[2] This critical FATCA milestone was supposed to open July 15; however only on July 12 the IRS issued a postponement, as well as a push back of all corresponding impacted milestones and deadlines.

The full text of this article is available on the LexisNexis FATCA http://www.lexisnexis.com/legalnewsroom/tax-law/b/fatcacentral/archive/2013/08/21/the-race-to-register-with-the-irs-online-fatca-system-has-begun.aspx

[1] See http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

[2] See https://sa2.www4.irs.gov/fatca-rup/login/userLogin.do

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, FATCA Registration Portal, FFI, Financial institution, Internal Revenue Service, IRS, tax, Withholding tax | Leave a Comment »

IRS releases FATCA financial institution reporting form 8966

Posted by William Byrnes on August 19, 2013

The IRS issued this past week the draft of the financial institution FATCA reporting form (Form 8966 – “FATCA Report”). The FATCA Report form, dated August 13, 2013 but released the following day, is for foreign financial institutions and also withholding agents to report financial information about account holders.

The Form has 5 parts:

(1) Identification of Filer,

(2) Account Holder or Recipient Information,

(3) Identifying Information of U.S. Owners that are specified U.S. Persons,

(4) Financial Information, and

(5) Pooled Reporting Type.

The Financial Information part contains 7 reporting fields, being: (1) account number, (2) currency code, (3) account balance, (4) interest, (5) dividends, (6) gross proceeds/redemptions, and (7) other.

The “Pooled” Reporting requires the FFI to indicate firstly which of six buckets the underlying accounts fall into, then secondly, financial information about the bucket.

The 6 buckets are:

(1) Recalcitrant account holders with U.S. Indicia,

(2) Dormant Accounts,

(3) Recalcitrant account holders that are U.S. persons,

(4) Recalcitrant account holders without U.S. Indicia,

(5) Non-participating foreign financial institutions, and

(6) Recalcitrant account holders that are passive NFFEs

The reported financial information includes: (a) number of accounts, (b) aggregate payment amount, (c) aggregate account balance and (d) currency code.

You may link to the new > draft Form 8966 <

Find more information about FATCA, including complimentary chapter download, at Lexis’ Guide to FATCA Compliance

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, FFI, Finance, Financial institution, Foreign Account Tax Compliance Act, Internal Revenue Service, IRS, United State | Leave a Comment »

William Byrnes presents for Latin American Chamber of Commerce in Switzerland (LATCAM) and San Diego County Bar Association (SDCBA)

Posted by William Byrnes on July 23, 2013

Link to the story at the faculty page of Thomas Jefferson School of Law

Following on his lunch time CLE presentation for the San Diego County Bar Association with Procopio tax partner Patrick Martin, Associate Dean William Byrnes was invited in April to Zurich, Switzerland to deliver a week-long series of workshops on the implications of FATCA for large financial institutions on the LATAM market. The series of lectures and workshops began with a breakfast conference of the Latin American Chamber of Commerce in Switzerland, and continued through the week with banking workshops for HSBC, UBS, Credit Suisse, Julius Baer, Hinduja Bank, among others.

Professor William Byrnes’ workshop series was sponsored by Amicorp, a global company service provider, via an invitation by Thomas Jefferson international tax alumni and Swiss office managing director, Geralda Buckley.

William Byrnes stated, “I was intrigued to engage with the banks’ FATCA compliance teams in an open discussion format. The rush of back and forth Q&A and thinking on my feet felt like sixteen years ago when I was a Senior Manager with Coopers & Lybrand leading in-house workshops. Very complex issues but I’ve since been invited for other workshops so must have been well received.”

He continued, “But the best part of this lecture series was that I shared the floor with an international tax program alumni, and former federal IRS prosecutor, Robert Payne. It’s wonderful to see the positive impact that the international tax program has played in an alumni’s career.”

“After the workshops, I fielded questions from participants about Thomas Jefferson School of Law’s distance learning pedagogical leadership via video conference specific to a bank’s tax department.” William Byrnes said “I will continue to introduce Thomas Jefferson to a wider financial community via my alumni outreach, publications and subscribers, and invited lectures with the hope that embedded externships for the current JD and Master students may be established over the coming years.”

Conference information is available at:

San Diego County Bar https://www.sdcba.org/index.cfm?pg=events&evAction=showDetail&eid=11009&evSubAction=listAll

LATCAM http://www.puntolatino.ch/index.php?option=com_content&view=article&id=6240%3A160413-seminar-the-foreign-tay-compliance-act-fatca&catid=345%3Acamara-latinoamericana-de-comercio-en-suiza&Itemid=487&lang=de

Posted in Courses, FATCA | Tagged: FATCA, Hinduja Bank, HSBC, Julius Baer Group, LATAM, San Diego County Bar Association, Switzerland, Thomas Jefferson, UBS, United States Chamber of Commerce, Zurich | 1 Comment »

FATCA and Switzerland: Model II

Posted by William Byrnes on July 22, 2013

Note: The following is an excerpt from Chapter 19 of the LexisNexis® Guide to FATCA Compliance* – The title is now shipping to customers world-wide.

In General

…

Unlike Model I, the “Swiss” Model II does not establish automatic information exchange between governments. The Swiss government has thus not agreed to automatic information exchange between governmental authorities. Instead, the Swiss government has agreed that it will ensure that the Swiss financial institutions will be able to enter into an FFI agreement with the U.S. Treasury Department to directly report to the IRS (to become a “participating FFI”). In other words, the underlying mechanics of Model II are the same as under FATCA itself. The financial institutions organized under Swiss law annually report the U.S. accountholders and their U.S. beneficial owners.

For Switzerland it has become necessary to negotiate Model II, as Swiss law prohibits financial institutions from acting on behalf of a foreign government. Article 271 (1) of the Swiss Criminal Code states that “[a]ny person who carries out activities on behalf of a foreign state without lawful authority . . .”2 commits a crime. This provision would have put financial institutions in Switzerland in an untenable position where they would have had to decide whether they want to be in conflict with the Swiss Criminal Code or with FATCA. With the Model II Agreement, Swiss financial institutions have the guarantee that they will not be prosecuted in Switzerland if they report bank information to the IRS.3

… As regards existing U.S. accounts (and U.S. accounts yet to be opened), the relevant financial institution is to obtain prior consent from the accountholder regarding the reporting of bank information to the IRS. In particular, there is a duty to proceed actively. Where the accountholder declines consent, the financial institution may not deliver information to the IRS. Without prior consent it would violate Swiss banking secrecy rules, which are still in effect. What is reported, however, are “nameless aggregates” and the number of accounts that, in FATCA terms, belong to the “Recalcitrant Accountholders”.

This information is to form the basis of an IRS group request, through which the IRS, on request, can demandcomplete information on the Recalcitrant Accountholders.4 The group request provides the IRS, after a time lag, with the information that the financial institution would have reported according to the FATCA rules had it received consent to report (see article 2 2(c) of Model II).

It is interesting how the Model II agreement governs this group request mechanism, as the agreement includes no independent regulation, but refers in this regard to provisions of the double tax convention (article 2 2(a) of Model II). Nevertheless, the Model II itself provides that the group request and the requested information are “foreseeably relevant” within the meaning of the applicable relevant double tax convention. See article 2 2(b) of Model II: “The information requested […] shall be considered information that is foreseeably relevant […] covered by the Convention […].”5 The U.S. – Switzerland IGA Article 5 Exchange of Information provides that such requests shall be made pursuant to the Protocol of the Article 26 of the U.S. – Switzerland Double Tax Agreement when the Protocol enters into force. Furthermore, such requests shall apply only to information beginning upon the IGA’s entry into force. The requested information will be considered “…information that may be relevant for carrying out the administration or enforcement of the domestic laws of the United States …, without regard to whether the Reporting Swiss financial Institution or another party has contributed to noncompliance of the taxpayers in the group.”6

…

Analysis

…

The question now is what legal implications FATCA will entail in Switzerland, especially with regard to the group request reporting. The group request provision in Model II will, in our prediction, be tested in Swiss courts once the first account data of Recalcitrant Accountholders are the subject of an IRS group request. As regards the legal issues concerning this group request, the following points should suffice.

… read the entire chapter analysis excerpt at Lexis’ FATCA Central

______

[1] Agreement between the United States of America and Switzerland for Cooperation to Facilitate the Implementation of FATCA (February 14, 2013) (“U.S. – Switzerland IGA”) available at http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Switzerland-2-14-2013.pdf .

[2] Article 271 (1) of the Swiss Criminal Code. Emphasis added.

[3] Art. 4 of the U.S. – Switzerland IGA.

[4] Art. 5, Para. 1 of the U.S. – Switzerland IGA.

[5] Emphasis added. Model II also includes an exchangable phrase “may be relevant”.

[6] Article 5, para. 2 of the U.S. – Switzerland IGA.

[7] Article 6 of the U.S. – Switzerland IGA.

[8] Article 9 of the U.S. – Switzerland IGA.

[9] Annex II, Art. II, Para. A – Deemed-Compliant Financial Institutions.

…

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, Financial institution, Foreign Account Tax Compliance Act, Internal Revenue Service, LexisNexis, Switzerland, United State, United States Department of the Treasury | Leave a Comment »

Professor Denis Kleinfeld analyzes 6 month FATCA push back

Posted by William Byrnes on July 21, 2013

by Professor Denis Kleinfeld, Esq. (Contributing Expert Author, LexisNexis® Guide to FATCA Compliance. Author of Langer on Practical International Tax Planning. Attorney, Miami, Florida).

The U.S. Treasury announced on July 12, that due to overwhelming concern from countries around the world, the implementation of FATCA (the Foreign Account Compliance Tax Act) would be deferred from January 1, 2014 to June 30, 2014.

IRS Notice 2013-43 provides that this additional time is to:

… read Denis Kleinfeld’s entire expert analysis by linking to his article on the > LexisNexis FATCA Center <

Posted in Compliance, FATCA | Tagged: FATCA, Foreign Account Compliance Tax Act, Internal Revenue Service, tax, United State, United States Department of the Treasury, US Treasury, Withholding tax | Leave a Comment »

FATCA Withholding Compliance

Posted by William Byrnes on July 17, 2013

Note: The following is an excerpt from Chapter 11 of the LexisNexis® Guide to FATCA Compliance* – The title is now shipping to customers world-wide.

Importance of the Income Source

In cross-border transactions, the U.S. tax system, as well as the tax systems of most other nations or jurisdictions, contains rules to determine and identify items of income (or expense) derived from U.S. sources or foreign sources-referred to from the U.S, perspective as U.S. source income or foreign source income. This is generally referred to as the source of income rules. The U.S. Internal Revenue Code (IRC) contains source of income rules.1 Tax treaties also provide and often clarify source of income rules. The source of income rules provide the basis for taxation, but the operating rules are contained elsewhere in the IRC.

The income category generally determines the source of income rules. These rules attempt to assign income to a U.S. or non-U.S. source on a statutory basis by looking at the perception of what is the predominate situs (location) of the economic activity that generates the income, and the source of legal protections that facilitate such income generation.

Certain categories of U.S. source income are subject to withholding “at source”-i.e. in the U.S. Because the U.S. has no taxing authority or jurisdiction over foreign persons, the IRC finds one or more withholding agents who are required to withhold at source in the U.S. Generally when transfers of these certain categories of income are made to persons outside the U.S., the withholding agent in the U.S. withholds a certain percentage of the funds and remits the funds to the Internal Revenue Service (IRS). The withholding rules are generally described under the Qualified Intermediary (QI) program.

FATCA Is In Addition to QI

The U.S. added the Foreign Account Tax Compliance Act (FATCA) as an additional layer over QI.2 FATCA consists of worldwide reporting and withholding rules designed to greatly reduce U.S. tax noncompliance for accounts and certain assets held offshore by U.S. taxpayers. FATCA’s withholding rules are discussed in this chapter.

GENERAL RULE FOR WITHHOLDABLE PAYMENTS 3

…. read the entire chapter analysis excerpt at Lexis’ FATCA Central

_________

1 Primarily IRC §§ 861, 862, 863, 865.

2 See Chapter 10.

3 See Chapter 12.

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, Foreign Account Tax Compliance Act, Internal Revenue Service, LexisNexis, tax, Taxation in the United States, United State, Withholding tax | 1 Comment »

U.S. Treasury delays FATCA withholding until July 1, 2014

Posted by William Byrnes on July 12, 2013

In a major U.S. Treasury announcement about FATCA this morning (July 12, 2013) titled “Engaging with More than 80 Countries to Combat Offshore Tax Evasion and Improve Global Tax Compliance”, Treasury extended by 6 months the start of the Foreign Account Tax Compliance Act (FATCA) withholding and account due diligence requirements.

Treasury stated that “due to overwhelming interest from countries around the world, a six-month extension to will be provided to allow more time to complete agreements with foreign jurisdictions.” Boiled down, Treasury has granted a 6 month extension, to July 1, 2014, for foreign financial institutions to achieve FATCA compliance because just three days before the FATCA Registration Portal should have opened, only 7 IGA have been agreed and signed by the United States and foreign countries.

FATCA Portal Opening Delayed

Moreover, on Monday, July 15, Treasury was supposed to open its FATCA Portal that foreign institutions could begin to register with the IRS. However, the IRS released Notice 2013-43 in conjunction with Treasury’s announcement that its FATCA portal would not be available before August 19, 2013. Thus, the IRS has had to push back the other key dates for registration by an additional 6 months as well. After the FATCA registration website opens, a financial institution will be able to begin the process of registering by creating an account and inputting the required information for itself, for its branch operations, and, if it serves as a “lead” financial institution, for other members of its expanded affiliated group.

The IRS will not issue any GIINs in 2013. Instead it expects to begin issuing GIINs as registrations are finalized in 2014. The IRS will electronically post the first IRS FFI List by June 2, 2014, and will update the list on a monthly basis thereafter. To ensure inclusion in the June 2014 IRS FFI List, FFIs would need to finalize their registration by the new deadline of April 25, 2014 instead of the original October 25, 2013 deadline.

6 Month Extension for New Account Opening Procedures

FATCA withholding agents generally will be required to implement new account opening procedures by July 1, 2014 instead of January 1. For Participating Foreign Financial Institutions (“PFFI”), new account opening procedures are correspondingly extended to at least July 1, 2014, but even further to the effective date of its FFI agreement if it registers timely via the FATCA Portal.

6 Month Extension for Pre-Existing Obligations

The IRS will modify the definition of “preexisting obligation” to take into account the new extended compliance deadlines. Accordingly, the definition will be modified:

With respect to a withholding agent other than a PFFI or a registered deemed-compliant FFI: any account, instrument, or contract maintained, executed, or issued by the withholding agent that is outstanding on June 30, 2014;
With respect to a PFFI: any account, instrument, or contract maintained, executed, or issued by the PFFI that is outstanding on the effective date of the FFI agreement; and
With respect to a registered deemed-compliant FFI: any account, instrument, or contract maintained, executed or issued by the FFI prior to the later of July 1, 2014, or the date on which the FFI registers as a deemed-compliant FFI and receives a GIIN.

Deadline Extension Coordination with Current and Future Intergovernmental Agreements (IGAs)

Treasury intends to include a similar change to the definition of the term “Preexisting Account” in both model IGAs. Thus, it is expected that future IGAs will define the term “Preexisting Account” to mean a Financial Account maintained as of June 30, 2014. For IGAs in force that contain the previous definition of the term “Preexisting Account,” the partner jurisdiction will be permitted under the coordination provision of the IGA to permit its FFIs to substitute the definition of the term “preexisting account” from the amended final regulations for the definition of the term “Preexisting Account” in the IGA. For IGAs concluded before the coordination provision was added, the coordination provision will apply through the operation of the most-favored nation provision once an IGA containing the coordination provision is in force.

2013 Eliminated As A FATCA Reportable Year

The final regulations provide that a PFFI will be required to file information reports on its U.S. accounts with respect to the 2013 and 2014 calendar years no later than March 31, 2015. Treasury and the IRS intend to modify these rules to require reporting on March 31, 2015, only with respect to the 2014 calendar year (for U.S. accounts identified by December 31, 2014).

Treatment of Financial Institutions Operating in Jurisdictions That Have Signed an Intergovernmental Agreement to Implement FATCA

A jurisdiction will be treated as having in effect an IGA if the jurisdiction is listed on the Treasury website as a jurisdiction that is treated as having an IGA in effect. In general, Treasury and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA. The list of jurisdictions that are treated as having an IGA in effect is available at the following address:

http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCAArchive.aspx.

A financial institution resident in a jurisdiction that is treated as having an IGA in effect will be permitted to register on the FATCA registration website as a registered deemed-compliant FFI (which would include all reporting Model 1 FFIs) or PFFI (which would include all reporting Model 2 FFIs), as applicable. In addition, a financial institution may designate a branch located in such jurisdiction as not a limited branch.

A jurisdiction may be removed from the list of jurisdictions that are treated as having an IGA in effect if the jurisdiction fails to perform the steps necessary to bring the IGA into force within a reasonable period of time. If a jurisdiction is removed from the list, financial institutions that are residents of that jurisdiction, and branches that are located in that jurisdiction, will no longer be entitled to the status that would be provided under the IGA, and must update their status on the FATCA registration website accordingly.

FATCA Compliance Resource

For a 400 page analysis of how to cost effectively comply with FATCA, please see “LexisNexis® Guide to FATCA Compliance” containing 25 chapters for meaningful interactions among enterprise stakeholders, and between the FATCA Compliance Officer and the FATCA advisors and vendors, as well as analysis of the compliance requirements of the current IGAs signed by Treasury.

Posted in Compliance, FATCA, Taxation | Tagged: FATCA, Foreign Account Tax Compliance Act, IGA, Internal Revenue Service, IRS, LexisNexis, United States, United States Department of the Treasury | Leave a Comment »

E-book now available for LexisNexis® Guide to FATCA Compliance!

Posted by William Byrnes on June 27, 2013

… following on the heels of the successful hardcopy release for this critical tax compliance area in which most financial firms must begin registering with the IRS reporting portal this July until the October deadline to be included on the IRS’ December participating list …

http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&prodId=prod19190327

“LexisNexis Guide to FATCA Compliance” has now been released in electronic format. Print orders have already been mailed to Asia, Europe, North America, and the Caribbean.

Professor William Byrnes stated, “I built the international tax & financial services graduate program with a mission of facilitating professionals to become excellent communicators of the robust and complex area of international taxation, passing on the legacy of my mentors Walter Diamond, Jacobus (“Joop”) van Hoorn, Marshall Langer and Barry Spitz.

“The FATCA Compliance Guide was designed by a list of top industry FATCA experts via numerous interviews and meetings with government and central bank officials, NGO staff, large financial institution compliance officers, investment fund compliance officers, and trust company counsel, and of course, substantial analytic writing.

“It is amazing how many contributing experts that I can leverage with modern communications technology, and organize discussions and editing among multiple persons using online platforms. This method really leverages the learning technologies used in the online international tax program these past 18 years.”

When asked about the Guide’s subject, William Byrnes replied, “Simply put, the FATCA regulations require foreign financial enterprises to report financial information about US taxpayers to the IRS. Moreover, US financial institutions must begin reporting similar financial information on foreign taxpayers to the IRS that the IRS will automatically forward to the respective foreign government. Noncompliance leads to a 30% withholding on all payments made to the non-compliant institution, which will drive such institution out of the US market rather quickly.”

“FATCA became effective on January 1, 2013, albeit withholding begins only January 1, 2014. Though FATCA was enacted 3 years ago, there is substantial industry concern that many impacted compliance departments currently do not have access to sufficient, detailed information regarding which sources of the enterprises income are foreign and which are based in the U.S. and which of their customers are U.S. (taxable) persons (e.g. dual U.S. nationals, substantially presence U.S. tax residents), and which entities have substantial U.S. ultimate beneficial owners.”

“The 400 pages of the Guide are grouped in 3 parts: compliance, regulatory analysis, and intergovernmental agreement analysis.”

Posted in book, Compliance, FATCA, Taxation | Tagged: Compliance, FATCA, Foreign Account Tax Compliance Act, IRS, tax | Leave a Comment »

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Archive for the ‘FATCA’ Category

Eligibility

Compliance Risk Determination

Other Considerations

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Reporting and Privacy?

Does the IGA respect the privacy rights of Canadians?

Limits on Reporting?

Reciprocity?

U.S. Tax Filing Obligations?

I am a U.S. citizen living in Canada and was not aware that the U.S. wants me to file tax returns. Will the IGA mean that I now have to pay U.S. taxes?

What is the Government doing to protect dual citizens living in Canada against claims by the IRS?

U.S. Taxes and Penalties?

Does the IGA mean that Canada will be enforcing U.S. tax laws?

What are the benefits to Canada of the IGA?

Will Canada be signing similar agreements with other countries?

LexisNexis FATCA Compliance Manual

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Rev. Proc. 2014–13

FFI Agreement for Participating FFI and Reporting Model 2 FFI

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“How-to” videos to assist financial institutions with FATCA registration:

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