Overseas Taxes: The IRS has changed FATCA timeline

By ZM Ishmurzina

If you have not heard about FATCA and how it affects your return on overseas taxes, read What is FATCA. FATCA was included as a part of HIRE ACT of 2010.

The main purpose of FATCA is to combat international tax evasion. FATCA requires foreign financial institutions, including hedge funds, to report the financial information of U.S. taxpayers to the IRS or face harsh penalties.

FATCA has created a lot of controversy and has been extensively criticized by foreign banks, U.S. expatriates and dual citizens living abroad. FATCA requires American expatriates living abroad to disclose specified foreign financial assets on the return on overseas taxes if U.S. expatriates meet the requirements.

On October 24 the Internal Revenue Service has postponed the dates for foreign financial institutions and withholding agents to complete the due diligence procedures in order to identify accounts under the Foreign Account Tax Compliance Act. This new timeline will give banks more time to introduce and implement system changes as well as to achieve conformity between intergovernmental agreements and proposed regulations.

Now foreign financial institutions will start withholding taxes from the American taxpayers’ investment gains on January 1, 2017. Reporting requirements required by FATCA must be implemented on January 1, 2014 both by withholding agents and foreign financial institutions. FATCA will definitely have a profound effect on U.S. returns on overseas taxes.

This new timeline might affect due diligence procedures in the United Kingdom that signed the FATCA agreement in September 2012 per a Model I IGA agreement. The provision in Annex I of the intergovernmental agreement gives local banks a choice to use procedures from the regulations or the IGA.

Conclusion

American expatriates face severe penalties for a failure to comply with FATCA requirements. Although, the deadline has been extended for foreign financial institutions and withholding agents, the FATCA form must be filed by Americans as a part of a taxpayer’s return on overseas taxes effective in a tax year 2011. If you have questions about FATCA or your return on overseas taxes, please use the firm that provides international tax services. International tax experts at Artio Partners are here to help you.