Dean T. Smith Cadesky and Associates LLPtoronto.stepwebcasts.com/wp-content/april2012/Smith_Presentation… · FATCA – Foreign Account Tax Compliance Act Part of the Hiring Incentives

Dean T. SmithCadesky and Associates LLP

2012 - April©Cadesky and Associates LLP 1

FATCA – Foreign Account Tax Compliance Act Part of the Hiring Incentives to Restore

Employment (“HIRE”) Act – Pub. L. 111-147 HIRE enacted March 18, 2010 Introduced new Chapter 4 – IRS §1471

through IRS §1474 Some provisions effective now (for 2011

filings)Others deferred until January 1, 2014


FACTA Joint Statement released Feb 8, 2012 Regulations (389 Pages!!) released Feb 8,

2012 Prior notices/preliminary guidance issued:◦ Notice 2010-60, 2010-37 I.R.B. 329◦ Notice 2011-34, 2011-19 I.R.B. 765◦ Notice 2011-53, 2011-31 I.R.B. 124


Purpose The purpose of F.A.T.C.A. is to curb offshore tax

evasion by U.S. citizens and residents, mainly by obtaining information on their offshore financial assets.

The goal is accomplished by imposing obligations on the global financial community (FFIs) and many non‐financial entities (NFFEs)

©Cadesky and Associates LLP 42012 - April

Foreign Financial Institutions – FFIsAccepts deposits in the ordinary course of a banking

or similar businessAs a substantial portion of its business, holds financial

assets for the account of othersIs engaged primarily in the business of investing,

reinvesting, or trading in securities, partnership interests, commodities, or any such interest in such securities, partnership interests, or commodities.


US withholding agents must withhold 30 % of any withholdable payment to an FFI that does not meet the requirements of IRC §1471(b)

Withholdable payment includes interest, dividends, rents, salaries, wages,…and other FDAP income.

IRC §1471(b) – enters into an agreement with the IRS to perform certain obligations and meet requirements (i.e., the FFI will turn you in!)


Obligations on FFIsFFI’s are generally in the best position to identify and report with respect to their U.S. customersAbsent such reporting, some U.S. taxpayers may attempt to evade U.S. tax by hiding money in offshore accountsStrengthens the integrity of the voluntary compliance system

7©Cadesky and Associates LLP 2012 - April

FFI's generally must collect and report owner identification and account information about "U.S. accounts"

U.S. accounts are US‐owned "financial accounts" including:Depository and custodial accountsNon‐publicly traded debt of the FFI and Non‐publicly traded equity interests in the FFI


A financial account is U.S.‐owned if it isDirectly owned by a U.S. person orIndirectly owned by any "substantial U.S. owner"


Substantial U.S. Owner A U.S. person with at least a 10% interest in a

foreign partnership, corporation or non‐grantor trust account holder or

A U.S. person with any interest in a foreign grantor trust or

A U.S. person with any interest in an investment vehicle account holder


FFIs will adhere to due diligence guidelinesPreexisting Individual AccountsAccounts with a balance or value that does not exceed

$50,000 (no review required)Certain cash value insurance and annuity contracts

with a value or balance of $250,000 or less (no review required)Offshore obligations that exceed the above thresholds

but do not exceed $1,000,000 – review of electronic data


New Individual Accounts

Review information provided at the opening of the account including data collected under AML/KYC rules


Preexisting Entity Account

Exempt from review if balance is $250,000 or lessBecome subject to review once account exceeds

$1,000,000For remaining accounts, rely on AML/KYC recordsPassive investment accounts that exceed

$1,000,000 must obtain information regarding all substantial owners or certify there are none.


New Entity Accounts

Accounts of another FFI are exempt (unless the FFI has agreed to do the reporting)Accounts engaged in an active nonfinancial trade or

business are exemptAll other entities must determine substantial U.S.

owners


What is to be reported? The information a participating FFI must report with respect to each U.S. account

includes:

The name, address and U.S. taxpayer identification number (TIN) of each specified U.S. person

For each account holder that is a U.S.‐owned foreign entity, the name, address, and TIN of each substantial U.S. owner

The account number

The account balance or value at year end, as reported to the account holder

The gross receipts and gross withdrawals or payments from the account determined for a yet to be identified period

If foreign law prevents the FFI from disclosing the required information absent a waiver and the account holder fails to provide a waiver the account must be closed.


What is to be reported? The gross amount of dividends paid or credited to the account

The gross amount of interest paid or credited to the account

Other income paid or credited to the account

Gross proceeds from the sale or redemption of property paid or credited to the account with respect to which the FFI acted as a custodian, broker, nominee, or otherwise as an agent for the account holder

When a U.S. account is closed or transferred during the year:

1) The income paid or credited to the account through the date of transfer or closure

2) The amount or value withdrawn or transferred

3) The fact that the U.S. account was closed or transferred


Reporting in 2014 and 2015 (for calendar years 2013 and 2014) FFI’s report; name; address, TIN, account number and account balance

Beginning with reporting in 2016 (for 2015 calendar years) must also report income associated

Beginning with reporting in 2017 (for 2016 calendar years) must also include gross proceeds from broker transactions


A withholding agent must withhold 30% of any withholdable payment made to an NFFE unless the requirements are met.

The beneficial owner (or payee) must provide the withholding agent with certification that there are no substantial U.S. owners or, if so, their name, address and TIN, and

The withholding agent does not know or have any reason to know the information is incorrect


The process has started Form 8938, “Statement of Specified Foreign

Financial Assets” must be included with the taxpayer’s 2011 return

In addition to Form TD F 90-22.1 “Report of Foreign Bank and Financial Accounts”

Similar yet different


FBAR REPORTING VS. FATCA DISCLOSURE

20

FBAR REPORTING Performed by individual Penalties for nonperformance Reporting goes to FinCen, interested in criminal, terrorist, and money laundering operations

Signature authority triggers obligation

FATCA DISCLOSURE Performed by FFIWithholding tax on FDAP, certain sales proceeds, and pass‐thru payments of recalcitrant account holders

Reporting goes to mainstream I.R.S.

Direct or indirect ownership triggers obligation


Documents

Dean T. Smith Cadesky and Associates LLPtoronto.stepwebcasts.com/wp-content/april2012/Smith_Presentation… · FATCA – Foreign Account Tax Compliance Act Part of the Hiring Incentives