The unpopular bank reporting requirements that are part of the Foreign Account Tax Compliance Act, or FATCA, are going to be delayed somewhat by the Internal Revenue Service. By unpopular we mean that offshore banks in particular are opposed to the FATCA’s requirements. By delayed, we mean that the IRS will not implement some of the requirements for one, two or three years.
However, the IRS has said that the delay in implementing new requirements is not an indication that it intends to weaken the FATCA provisions or be lax about enforcing them. On the contrary, the IRS says the move is an indication that it fully intends to enforce the provisions, and that banks should move to comply with the FATCA now so that they are ready for its implementation, rather than fight the new requirements and hope they will not come into actual force.
Offshore banks, however, are happy that at least the timeline has been pushed back. The banks main concern about FATCA is that there will be a requirement to withhold 30 percent of payments that might have originated in the United States, even indirectly. The banks feel this provision is too broad, and would wreak havoc on their operations, and their agreements with holders of these offshore bank accounts.
Orange County offshore bank account attorneys note that the IRS is expected to issue further guidance on FATCA compliance later this year.
For now, the banks will not be required to make the 30 percent withholding on non-compliant American account holders until 2014. The withholdings on potentially indirect American sourced payments will not begin until 2015.
Source: Bloomberg “IRS Delays Offshore Bank Reporting Rule Without Touching Policy” 7/14/2011