FATCA seeks to turn non-US financial institutions
FATCA seeks to turn non-US financial institutions into reporting agencies for the IRS. In essence, the regulation mandates that foreign (ie. non-US) financial institutions (FFIs) check their accounts for "indicia of US ties". That is, the FFIs need to identify their account holders who may be subject to US tax and report certain information regarding these accounts to the IRS.
FATCA can affect US persons living overseas in four ways (and one of these points also pertains to non-US persons with accounts in the US):
- In certain instances, the FFI will choose to get rid of all their US clients in order to avoid having to deal with FATCA - so American clients will be asked to transfer their accounts.
- In other cases, the FFI will comply, in which case there may be a request for certain information from the account holder. For most people who are not trying to hide their identity, this is not a big deal.
- Most of the FATCA agreements signed to date are reciprocal; that is, the participating country has agreed to send information on Americans' bank accounts held there to the IRS but the US has in turn agreed to provide information on the country's citizens and residents that have accounts in the USA. This is going to be a real mess and could mean that US financial institutions will be much less likely to deal with non-US residents. Also, it will mean that US financial institutions will be sharing account data with foreign governments, which may lead to taxation by the foreign governments on these accounts.
- Finally, there is a personal requirement under FATCA in that there is a new (for 2011 tax year) IRS form to be completed to report a US taxpayer's foreign holdings - form 8938. Check with your tax advisor on whether you need to complete this form.
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