US Seeks Comment On Foreign Account Law
Friday, April 9, 2010
The US Treasury and Internal Revenue Service have issued an alert to solicit comments on the recently enacted Foreign Account Tax Compliance Act (FACTA), as the government sets about drawing up draft guidance for the legislation.
The FACTA was enacted as part of the Hiring Incentives to Restore
Employment (HIRE) Act of 2010 on March 18, and the legislation makes a
number of changes to tax law affecting individuals with foreign bank
accounts and assets held abroad.
The FACTA provisions of the HIRE Act amend the Internal Revenue Code
to revise and add reporting and other requirements relating to income
from assets held abroad by requiring foreign financial and nonfinancial
institutions to withhold 30% of payments made to such institutions by
US individuals unless such institutions agree to disclose the identity
of the individuals and report on their bank transactions. The law also
denies a tax deduction for interest on non-registered bonds issued
outside the United States.
Any individual who holds more than USD50,000 in a depository or
custodial account maintained by a foreign financial institution is required to
report on any such account under this legislation.
Underpayments of tax attributable to undisclosed foreign financial
assets will attract enhanced penalties under the new reporting
regime. In addition, the limitation period for assessment of
underpayments with respect to assets held outside the United States is
Other provisions require US shareholders of a passive foreign
investment company to file annual information returns, and allow the
Secretary of the Treasury to require certain financial institutions to
file returns related to withholding on transactions involving foreign
persons on magnetic media (currently, electronic filing is required
only for taxpayers filing at least 250 returns).
Furthermore, the FACTA imposes reporting requirements on owners of
foreign trusts and sets forth tax penalties for failure to report on
transfers to and distributions from such trusts.