Much has been written, on our California tax blog and in the broader media, about the upcoming implementation of the Foreign Account Tax Compliance Act, also known as FATCA. Overseas financial institutions have been fretting about complying with the act's reporting provisions, but they can rest easy, at least for a time.
Last month, the Internal Revenue Service said that the dates on which FATCA was scheduled to become effective would be pushed back. The delay means that banks and other financial institutions will have until the start of 2014 to construct the framework that will allow them to comply with FATCA. Additionally, banks will not have to withhold taxes on U.S. clients' accounts until 2017.
Although the IRS did not provide an explanation for the change in FATCA's implementation date, some in the tax and accounting fields correctly anticipated the delay. Aimed at taxpayers who use offshore bank accounts to evade U.S. taxes, FATCA requires foreign financial institutions to provide the IRS with information on U.S. clients' accounts.
FATCA is just one facet in the IRS's crackdown on offshore tax evasion. In the past few years, the IRS and the Department of Justice have shown their willingness go after taxpayers and the largest Swiss banks. Penalties for non-compliance can be substantial. Taxpayers could face time in prison, while under FATCA, banks could be barred from participating in U.S. financial markets.
The Treasury Department has reached preliminary agreements with Japan and a handful of European nations to implement FATCA. A concord with the UK only needs Parliament's imprimatur to become final.
Source: Reuters, "U.S. IRS delays key start dates for global tax evasion law," Oct. 24, 2012
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