The document discusses recent updates from the U.S. Treasury regarding regulations on the Foreign Account Tax Compliance Act (FATCA). It outlines FATCA's goal of ensuring tax compliance for U.S. taxpayers' offshore financial assets and accounts. Key points include: expanded categories of compliant foreign institutions, extended timelines for requirements, and reduced burdens for foreign institutions. FATCA now joins existing disclosure regimes for foreign bank accounts, offshore entities, and specified foreign assets. Implementation of FATCA provisions will take place between 2013-2017.

1. Financial Services Newsletter:
News & Trends
FATCA Update – U.S. Treasury Releases
Additional Guidance
Update on US Efforts to Ensure Tax
Compliance Involving Offshore
Financial Assets and Accounts
Over the last several weeks the U.S.
Treasury has released additional
guidance with respect to the
reporting by U.S. taxpayers of non
U.S. domiciled financial assets. The
most recent guidance has come in
the form of newly issued proposed
regulations governing the
implementation of the FATCA rules,
which were added to the Internal
Revenue Code by the HIRE Act of
2010.
These voluminous proposed
regulations cover many topics,
including expanding the categories of
foreign financial institutions that are
“deemed compliant,” the phase-in of
requirements over a newly extended
timeframe, and the reduction of
certain of the burdens placed on
foreign institutions associated with
identifying U.S. accounts.
Also released were the final Form
8938 and related instructions, which
are to be used by individuals to
report specified foreign assets for the
2011 tax year and beyond.
This means that the U.S. Treasury
framework to ensure full disclosure
of all non-U.S. financial assets held by
those subject to U.S. taxation is now
comprised of four independent and
sometimes overlapping regimes.
These four regimes are:
1) Annual Report of Foreign Bank and
Financial Accounts (FBAR), required
to be filed annually to disclose all
foreign accounts over which a U.S.
taxpayer retains signature authority
(Form TD F 90-22.1).
2) Various Entity Disclosure Returns
required to be filed annually to
disclose ownership of certain
offshore entities, including offshore
corporations (Forms 5471, 8621, 926,
etc.), partnerships (form 8865) and
trusts (Forms 3520 & 3520A).
3) Statement of Specified Foreign
Financial Assets (Form 8938),
required to be filed annually by U.S.
individual taxpayers disclosing
offshore ownership of certain
financial assets in excess of
applicable thresholds. The
requirements are expected to be
extended to U.S. entities in the near
future.
4) Foreign Account Tax Compliance
Act (FATCA) instituting a new
disclosure and withholding regime
whereby foreign financial institutions
will be required to provide financial

2. information to the U.S. Treasury with
respect to their U.S. accounts, and
both U.S. and foreign institutions will
be forced to withhold on payments
between noncompliant or non
participating institutions.
Together these four regimes
represent a formidable attempt on
the part of the U.S. Treasury to
maintain awareness of all non U.S
financial assets of any person subject
to U.S. taxation, regardless of the
domicile of either the asset or the
taxpayer.
The annual FBAR and entity
disclosures (#1 and 2 above) have
been in existence for many years,
and their provisions are familiar to
many practitioners.
The annual Form 8938 filing
requirement (#3 above) became
effective for the 2011 U.S. tax year.
On December 21, 2011 the U.S.
Treasury released the final version of
the 2011 Form 8938, along with
complete instructions. The digital
links to both the Form 8938 and its
related instructions are as follows:
• IRS Form 8938: Here
• IRS Form 8938 Instructions:
Here
The new FATCA legislation (#4 above)
essentially ‘deputizes’ all foreign
financial institutions (FFI’s) in the
worldwide search for unreported
income taxable in the U.S. On
February 8, 2012 the U.S. Treasury
issued almost 400 pages of proposed
Regulations (REG-121647-10) in
connection with these new
requirements; their provisions begin
to phase in for the 2013 tax year. The
digital link to these newly proposed
regulations can be found here.
Briefly, the new FATCA framework
contains two distinct components; a
disclosure component requiring that
foreign financial institutions meeting
certain parameters report annually
to the U.S. Treasury on their
holdings of assets owned by persons
subject to U.S. taxation, and a
withholding component, requiring
that payments of U.S. source income
made to ‘non-compliant’ FFI’s be
subjected to 30% withholding. (A
non-compliant FFI is generally any
institution which does not adhere to
the disclosure requirements under
FATCA). Each FFI would be required
to enter into an ‘FFI Agreement’ with
the U.S. Treasury, whereby it agrees
to annually provide the subject
information, as well as undertake
due diligence and other internal
procedures to ensure compliance,
both on the disclosure and the
withholding side.
As one might expect the framework
is extremely complex, and it will
place a substantial burden on
financial institutions both within and
outside of the U.S. In partial
recognition of this fact, the U.S.
Treasury announced in February of
2012 that it had entered into
agreements with the governments of
five Eurozone countries: the UK,
France, Germany, Italy and Spain,
whereby each of these governments
will collect the sought after
information from its own financial
institutions and forward it directly to
the U.S. Treasury. This means that
FFIs in those countries would escape
some of the more onerous provisions
of FATCA, such as entering into FFI
Agreements, withholding on
‘passthru’ payments (payments
between FFI’s), and closing
recalcitrant accounts. The U.S. hopes
that this can become a model
approach going forward, in effect
delegating FATCA enforcement to
the country where a particular FFI is
located.

3. The implementation schedule for
selected FATCA provisions includes
the following :
2013 tax year: FFI’s need only
provide the name, address, TIN,
account number and account balance
of each U.S. account; withholding on
the payment of U.S. source income
to noncompliant FFI’s begins.
2015 tax year: Income reporting will
be added to the required disclosure.
2016 Tax year: Gross proceeds from
asset sales will be added to the
required disclosure.
2017 tax year: Withholding on
foreign ‘pass-thru’ payments begins.
As a final note, the U.S. Treasury has
reinstituted its offshore voluntary
disclosure program, which allows
U.S. taxpayers who in the past have
failed to report income from offshore
assets and/or failed to make the
required annual disclosure filings to
come forward and be brought into
compliance. And although the
penalty framework under this new
amnesty program is somewhat more
severe than under previous
programs, it is slated to go on
indefinitely.
To learn more about FATCA and
other tax planning, structuring and
compliance considerations, visit
www.odmd.com or call Eric Gelb,
Tom Riggs or Leo Parmegiani at (212)
286-2600.
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