Powerpoint for lectures exploring the Code, Final Regulations, and Intergovernmental Agreements for FATCA. Read the Lexis' Guide to FATCA Compliance as preparatory material. To purchase LexisNexis® Guide to FATCA Compliance and save 20%, visit the LexisNexis Store. The link for the 20% discount is: book coverhttp://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp?pageName=relatedProducts&skuId=sku8140237&catId=cat2370006&prodId=prod19190327&couponId=FATCA13&utm_campaign=1-FATCA13_Author+Byrnes&utm_medium=digital+non-LN&utm_source=partner&utm_content=blog_link2_20pct&utm_term=Print

1. Foreign Accounts Tax Compliance Act
“FATCA”

2. Compliance with FATCA
a precursor for
Lexis’ Guide to FATCA Compliance
contact David Soborski to order
(David.T.Soborski@lexisnexis.com)

3. Author Contact Details
Prof. William Henry Byrnes,
Associate Dean,
Graduate & Distance Education
wbyrnes @ tjsl.edu
+1 619 961 4211
The information contained herein and during this presentation
is only for academic discussion, and not applicable to any
specific situation. The information is of a general nature and
based on authorities that are subject to frequent change.

4. biography
Associate Dean William H. Byrnes, IV, has
achieved authoritative prominence with more
than 38 book and compendium volumes, 25
book & treatise chapters, 750 articles, and a
monthly subscriber tax newsletter Tax Facts
Intelligence. His publishers include Lexis-
Nexis and National Underwriters. He
created the approach of Concept Mind-Maps
for Lexis-Nexis found on the Tax Law Center.

6. Q1: What is FATCA?
–New Information Reporting Regime on
Foreign Institutions & Entities to Assist the
Internal Revenue Service Collect
Identification and Financial Information
about US Individual Taxpayers
–Match this information to new Form 8938
Statement of Specified Foreign Financial
Assets (and the Foreign Bank & Financial
Accounts form FBAR)
–30% withholding

7. Q2: What Caused FATCA?
–60+ Tax Treaty EOI articles, 20+TIEAs,
MLATs, and Hague Evidence Convention
–FBAR (Foreign Bank & Financial Accounts)
• 1996 by BSA
• in 2003 FINCEN signed MOA for IRS to enforce
–QI Regime (2000)
• Approx. 5,500 financial institutions (vs. 100,000s)

8. Q2: QI Differences?
• Expanded application of reporting
– (names + specific account in(s)/out(s))
• Look through to UBO
• Expanded application of reporting persons
• Expanded application of reportable
transactions
• FFI cannot determine customer w/h pools
• Only approx. 5,500 QI v. 100,000s of FFIs and
FEs

9. Q2: What Caused FATCA?
Offshore Voluntary Disclosure Programs
2009 & 2011: 33,000 raised $5B
2012 remains open: 1,500
UBS headline case: 17,000 hide $20B,
$780m fine with $104m to convicted insider
whistleblower Bradley Birkenfield

10. Q3: Compliance Costs?
1. Financial Costs
2. Labor / Service / Software & Systems
3. Management

11. Q3: Financial Costs?
Treasury: $100m per large institution
Can. Bankers Association: $1B each for 5 largest
banks
Generally accepted: $250m per large bank
$30m-$80m for UK investment banks
E20-E50 per investor for investment funds, $1m per
fund
How much did Y2K cost?
EU Savings Directive? New expanded reporting?
QI regime?

12. Q3: Labor / Systems Costs?
Which department will wear the FATCA yoke?
(Tax, AML, Comp)
• Employ / Outsource add. compliance manager /
staff ?
• Employ / Outsource add. systems and software
integration staff (probably both, at least on
short term contracts)
• Employ / Outsource FATCA consultants
least cost is your Lexis FATCA Compliance
Handbook ;-)

13. Q3: Labor / Systems Costs?
- enterprise software programming/building
(AML, FATCA, Internal and External
treasury/client reports)
- new protocols and rules
- new onboarding procedures
- data entry
- middleware
- systems maintenance

14. Q3: Management
Enterprise Steering Committees
• Each business unit has working team
• Drilling down impact by country, product
Decision making process: CCO, CTO, AMLRO, CLO
(GC), and new FATCA “Responsible (Certification)
Officer”?
Investment Funds re-drawing investor agreements

15. Q3: Other EU Cost Concerns
Data Protection & Civil Law Privacy
- costs of obtaining each client’s signature on new
FATCA waiver,

16. Q4: Who does FATCA apply to?
Two Categories: FFI & NFFE
Foreign Financial Institution
Non-Financial Foreign Entity

17. Q4: What is an FFI?
Not Territory-Organized (aka TOFI)
- Accepts deposits in ordinary course of bus.
- Holds financial assets for 3rdp as sub. bus.
- bus. of investing, trading in securities,
commodities, p’shp interests, futures, forwards
Sign FFI agreement or IGA in place

18. Q4: Examples of FFI?
- Investment, hedge, equity, mutual funds, unit
trusts
- Clearing houses, Brokerages
- Insurance (cash value), annuity, pension,
- Trust companies, custodians

19. Q4: Exempt from FFI?
“Low Risk of Tax Evasion”
Foreign governments, Central Banks

20. Q4: Registered Deemed Compliant ?
Still Register with Treasury but as compliant FFI
Certain local-only banks
if >98% accounts local and undertake US DD
on accounts after 2011
Qualified collective investment fund
no US investor over $50,000
Restrictive fund
< $175m assets & < $7m revenue
no US distribution + USDD after 2011

21. Q4: Certified Deemed Compliant?
Don’t register with IRS but certify to W/H agents
Certain small local banks with local accounts
< $175m assets
Low Value Accounts
< $50,000 & < $50m assets
Non-profits
Certain retirement plans

22. Q4: Certified Deemed Compliant?
Retirement Plans
organized locally, by local employer for local
employees, contributions tax exempt & no
employee has >5% or
< 20 participants, earned income only, if
outside local then < 20% of assets + < $250,000

23. Q: Challenges?
SWAPS – difficult to value, changing counter
parties in opaque market
Funds: lack access to information for approx.
40%-45% UBOs, distributors & transfer agents
must become PFFI
fund of funds
private equity funds & tie-up periods
Life Insurance: whole life touch points with
owner

24. Q5: NFFE?
10% shareholders

25. Q6: FFI Due Diligence ?
3 categories of accounts / 2 time periods
1. < $50,000
2. $50,000 - $1m
3. > $1m (high value accounts)
Current (look back) vs. New (onboarding)

26. Q6: FFI DD
$50k - $1m Electronic Search of AML records of
the KYC / CIP program
> $1m CCO -> RM communicate about account
holder and if necessary, review account file docs
for previous 5 years
W8Ben (foreign) or W9 (US): “Trust but Verify”

27. Q6: US Indicia
(1) Citizenship or residency in U.S.;
(2) U.S. place of birth;
(3) U.S. residency or mailing address;
(4) U.S. telephone number;
(5) any standing instructions to transfer funds to a
U.S. account;
(6) any power of attorney or other signatory
authority to any person with a U.S. address; or
(7) Whether the account holder has provided any
verified “in-care” or “hold mail” address with the U.S.

28. Q6: EDD for High Value Accounts
RM communicate about account holder using file
and KYC or CCO directly accesses file
• review account file KYC for previous 5 years
• account opening documents, signatory card
• POA / incapacitation or death instructions

29. Q6: DD for NFFE
W-9 on file ? specified U.S. person ?
• < $250,000 - Excluded from review, until
account balance exceeds $1,000,000.
• Search existing CIP/KYC info/account opening
docs to determine status
• Passive NFFEs – Must identify substantial U.S.
owners or certify that there are no substantial U.S.
owners.

30. Q6: specified US person is not
• Publicly traded corporation
• Affiliates of a publicly traded corporation
• Exempt organization or IRA
• REIT
• RIC / SEC registered (1940 Investment Company Act)
• The United States
• U.S. state, DC, or U.S. possession
• US bank
• Common trust fund
• Exempt trust under section 664(c)
• US registered dealer
• US Broker – 26 USC 6045(c)

31. Participating FFIs Systems
• Documentation: evolve current AML systems
to capture FATCA DD across enterprise
customer base
• Reporting: implementing then maintaining
annual reporting system with US (or IGA) for
US individuals, including identifiers, account
balances, gross payments
• Withholding: building system for 30%
withholding on recalcitrant account holders

32. 1. identity and residence of the beneficial owner;
2. name and address of the paying agent;
3. account number of the beneficial owner;
4. and amount of interest income earned
5. TIN if available
• If resident in a country different than passport
or I.D. card, then tax residence certificate
Q6: EU TSD Art 8 Info

33. • Report must contain
– Name / address / TIN
– Account No(s) / Balance(s)
– Annual Gross transactions
(receipt/deposits/payments/withdrawals)
• Can elect to report like US-FI (1099s)
• Or w/h and close account
Q6: Foreign Info Reporting?

34. 1. the name, address, and TIN of any person that is a
resident of FATCA Partner and is an Account
Holder;
2. the account number;
3. the name and identifying number of the U.S.
Financial Institution;
4. the gross amount of interest paid on a Depository
Account;
5. the gross amount of U.S. source dividends paid or
credited to the account; and
6. the gross amount of other U.S. source income paid
or credited to the account
Q6: US Info Report to IRS?

35. Q6: Withholding
WH agent (USWHA or PFFI) required to report
annually Form 1042 and Form 1042-S
• Form 1042 to IRS, with aggregated reportable
amounts and any tax withheld.
• Form 1042S to IRS, copy US specified person
with reportable amounts paid.
• Form 1042-S is required for each US person,
with separate Forms for each separate type of
payment.

36. Q7: Recaltrant Accounts

37. Q8: IGA
• No IRS agreements required for FFIs
• ƒNo officer certifications directly to the IRS
• ƒRetirement account issues addressed
• ƒData privacy concerns addressed
• ƒWithholding concerns addressed
• ƒCustomer identification issues addressed
• ƒNo closing accounts of recalcitrant account hold

38. Q9: Timeline Overview
TY 2011 Form 8938 (filed 4/17/12)
TBD: FFI agreement & electronic
registration

39. Timeline DD
1/1/14: PFFIs new account USDD
6/30/14: existing accounts USDD must
be completed (for prima facie FFI)

40. Timeline Overview
12/31/14 PFFIs complete review & documentation
of all other pre-existing high value individual
accounts (& certified completed by FATCA officer)
12/31/15 PFFIs complete review & documentation
of all other pre-existing individual accounts and all
pre-existing entity accounts not previously
identified as being held by prima facie FFIs (&
Certify by FATCA Officer)

41. Timeline Withholding
– 1/1/2013: Obligations issued before
are grandfathered (material
modification)
– 1/1/2014: Start withholding on FDAP
to non-compliant account holders
– 3/15/2015 start of annual report (for
2014) via Form 1042(S) of FATCA
withholding (Foreign Person’s U.S. Source Income
Subject to Withholding)

42. Timeline Withholding
1/1/2017: Start expanded withholding
on US-source gross proceeds arising
from sales and redemptions &
foreign pass through payments

43. Timeline Reporting
3/15/2015 start of annual report (for 2014) via
Form 1042(S) of FATCA reportable amounts
(Foreign Person’s U.S. Source Income Subject to
Withholding)

44. Timeline Reporting
3/31/2015 (for 2013 and 2014) annual report:
• US accounts (name, address, TIN and account
balance)
• recalcitrant account holders (aggregate reporting)
3/31/2016 + income associated with these US
accounts
3/31/2017 + gross proceeds

45. FORM 8938
A specified foreign financial asset is:
• Any financial account maintained by a foreign financial
institution
• Other foreign financial assets held for investment that are
not in an account maintained by a US or foreign financial
institution, namely:
– Stock or securities issued by someone other than a U.S. person
– Any interest in a foreign entity, and
– Any financial instrument or contract that has as an issuer or
counterparty that is other than a U.S. person.

46. 8938 thresholds
Individual / Filing Separate taxpayers in the US:
total value of specified foreign financial assets
> $50,000 on the last day of the tax year or
> $75,000 at any time during the tax year
(Joint = 2x threshold)
Living Abroad: foreign tax residence + bona fide
or 330 days in 12 months ending in tax year
> $200,000 / $300,000 (Joint = 2x threshold)

47. 8938 Foreign Financial Account
– Foreign bank accounts
– Foreign mutual funds
– Foreign hedge funds
– Foreign private equity funds
– Certain foreign insurance products

48. 8938 Foreign Financial Asset
– Stock or securities issued not by US person
– Any interest in a foreign entity
– Any financial instrument or contract that has
as an issuer or counterparty that is not US
person
– Foreign pensions and deferred comp plans
– Foreign estates

49. 8938 Foreign Property ?
Not if direct ownership of real property
Yes if -> foreign entity -> Property (FE interest)
Yes if mortgage (FA interest)
Not if direct ownership of movable assets
(e.g. metals, jewels, art works)

50. 8938 Questions
Part II Other Foreign Assets (see instructions)
Note. If you reported specified foreign financial assets on Forms 3520, 3520-A, 5471,
8621, or 8865, you do not have to include the assets on Form 8938. You must
complete Part IV. See instructions.
If you have more than one asset to report, attach a continuation sheet with the same
information for each additional asset (see
instructions).
1 Description of asset 2 Identifying number or other designation
3 Complete all that apply
a Date asset acquired during tax year, if applicable . . . . . . . . . . . . . . . . . .
b Date asset disposed of during tax year, if applicable . . . . . . . . . . . . . . . . .
c Check if asset jointly owned with spouse d Check if no tax item reported in Part III
with respect to this asset
4 Maximum value of asset during tax year (check box that applies)
a $0 - $50,000 b $50,001 - $100,000 c $100,001 - $150,000 d $150,001 - $200,000
e If more than $200,000, list value . . . . . . . . . . . . . . . . . . . . . . . . $
5 Did you use a foreign currency exchange rate to convert the value of the asset into
U.S. dollars? . . . Yes No

51. 8938 Questions
7 If asset reported in Part II, line 1, is stock of a foreign entity or an interest in a foreign entity,
report the following information.
a Name of foreign entity
b Type of foreign entity (1) Partnership (2) Corporation (3) Trust (4) Estate
c Check if foreign entity is a PFIC
d Mailing address of foreign entity
8 If asset reported in Part II, line 1, is not stock of a foreign entity or an interest in a foreign
entity, enter the following information for the asset.
a Name of issuer or counterparty
b Type of issuer or counterparty
(1) Individual (2) Partnership (3) Corporation (4) Trust (5) Estate
c Check if issuer or counterparty is a U.S. person Foreign person
d Mailing address of issuer or counterparty.