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IRS continues to revise guidance on offshore reporting and disclosure under FATCA

The IRS continues to provide guidance and instructions relating to the disclosure and reporting of offshore assets under the Foreign Account Tax Compliance Act of 2010 (FATCA). FATCA was enacted to help the IRS identify U.S. taxpayers with financial accounts and other assets overseas, to curb tax evasion by taxpayers hiding assets, and to ensure that taxpayers were reporting all their income. After a long transition period, it is now coming into full force.

A major component of the IRS strategy to halt tax avoidance using offshore accounts is to offer a voluntary disclosure program, basically giving account holders a better deal now if they come forward voluntarily rather than wait until the IRS finds them by foreign bank reporting and other means. Just the past month the IRS has expanded streamlined procedures and made other changes to the Offshore Voluntary Disclosure Program (OVDP), while tightening some requirements and increasing penalties for intentional tax violations. The IRS has also been busy fine-tuning rules through updated frequently asked questions (FAQs), the development of new forms and instructions, and revisions to foreign financial institution agreements (FFI agreements) made between the IRS and foreign banks to enforce account disclosure.

Streamlined procedures

Streamlined procedures are now available to more U.S. taxpayers living abroad and to certain taxpayers living in the U.S. The IRS has eliminated the requirement that taxpayers owe $1,500 or less in taxes per year. Instead of filling out a risk questionnaire, taxpayers will attest (self-certify) that their previous noncompliance was due to non-willful conduct. The IRS will review their circumstances to ascertain their lack of intent.

New FAQs. The IRS released new frequently asked questions (FAQs) on the revised OVDP programs, including transition rules for taxpayers who applied under the existing OVDP and now want to participate in the revised streamlined procedures program. Q&A-5 states that taxpayers in the OVDP who are eligible for the streamlined program will pay the streamlined miscellaneous offshore penalty, instead of the OVDP penalty.

Revised forms

Beginning July 1, 2014, taxpayers are also subject to the reporting regime under the Foreign Account Tax Compliance Act (FATCA). The IRS has been revising forms and instructions for taxpayers, intermediaries and foreign institutions that must report. The IRS recently released revised instructions for Form W-8IMY, which has been updated to reflect FATCA’s withholding and documentation requirements.

Revised FFI agreements.

FATCA requires FFIs to identify their accounts that have U.S. owners and to provide information on the accounts. U.S. financial institutions that make payments to FFIs and to other entities maintaining foreign account must withhold 30 percent of the payments if the entity does not comply with the reporting and due diligence requirements of FATCA. The withholding requirements apply to payments made after June 30, 2014, with certain transition rules applicable. The IRS continues to fine-tune FFI Agreements, most recently in Revenue Procedure 2014-38, effective June 24, 2014, to ease the burdens of FATCA implementation and compliance.

If you have any questions regarding how FATCA might affect you and your IRS compliance obligations, please contact our offices.

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