CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.

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comments on the recently enacted Foreign Account Tax Compliance Act (FACTA), as the government sets about drawing up draft guidance for the legislation.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 being extended.

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.