Delays in implementing the Foreign Account Tax Compliance Act (FATCA) are nothing new. Writing about such delays today, the day after famed phrasemaker Yogi Berra died, one could rightly say that it's déjà vu all over again.
For example, in 2013, there was a six-month delay in the rollout of the requirement for foreign financial institutions (FFIs) to share information about their account holders with the IRS. We wrote about this in our December 24 post that year.
But FATCA, even with delays, was an offshore game changer. In this two-part post, we will take note of the Treasury Department's latest postponement of some aspects of the withholding requirement. We will also discuss how the pressure to take action remains on for U.S. taxpayers who are not in compliance with offshore reporting requirements.
Under FATCA, FFIs must either register with the IRS or face a "withholding" tax. This tax applies not only to account holders who are U.S. taxpayers, but to certain foreign entities with substantial ownership interests by U.S. taxpayers.
And even if an FFI registers with the IRS to report information on its account holders, it is possible that the FFI will be required to withhold 30 percent of certain payments to those account holders. This withholding may be required when the account holders don't disclose enough information about their offshore accounts to come into compliance with FATCA.
For some types of payments, U.S. authorities are postponing the start date for withholding by FFIs by two years. Instead of 2017, it will now be 2019 for certain transactions.
For foreign banks, this delay is a relief. Withholding is a huge headache for them. That is why many foreign banks have become reluctant to do business with U.S. taxpayers who live abroad.
But for U.S. taxpayers who are trying to comply with stepped-up U.S. reporting requirements for offshore accounts, the pressure to disclose is very real. In part two of this post, we will therefore address the status of the Offshore Voluntary Disclosure Program (OVDP), the limited amnesty program offered by the IRS.