H. Jacob Lager

Posts Tagged ‘FATCA’

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International tax law updates: Kansas and FATCA and whistleblowers, oh my!

In FATCA, U.S. Tax policies, Yes you must pay taxes on August 17, 2012 at 7:36 am

Although a “fly-over,” Kansas is indeed an actual state.  On August 15, the Tenth Circuit affirmed the Tax Court’s holdings denying an individual’s arguments that he was a “a citizen of Kansas that earned a living through activities occurring solely under the jurisdiction of Kansas” and therefore not a federal taxpayer; and that he did not receive taxable income.

Hmmmmm . . . This sounds familiar.  This kind of argument, with its hints of facial logic (“Citizen of California?  Makes sense to me!”) are very popular with the tax protest movement and very likely to get a proponent sanctioned.  In dismissing the taxpayer’s claim, the panel also mentioned the following similarly facetious anti-tax arguments:

  • “the authority of the United States is confined to the District of Columbia,”
  • “wages are not income,”
  • “the income tax is voluntary,”
  • “no statutory authority exists for imposing an income tax on individuals,” and
  • “individuals are not required to file tax returns fully reporting their income”

Quick rule of thumb for heavily-promoted tax dodges: if Mitt Romney isn’t doing it, it’s likely not legal. The full opinion can be found here.

More FATCA Forms Released  Yesterday, the IRS released a draft of the anticipated Form W-8IMY meant to accommodate impending FATCA regime. (For a brief recap of what FATCA check out this post.)

Chief among its new additions is a new enhanced “line 4” that features no less than 21 options for an entity to choose from when indicating its FATCA status designation and five extra pages relating to that choice.  Accompanying instructions and regulations have not yet been issued.

This is what we call “tax simplification.”

IRS Hails Whistleblowers  As part of an American Bar Association Section of Taxation webcast, IRS special trial attorney and division counsel John McDougal noted the utility of the Service’s whistleblower program.  According to McDougal, whistleblower data constitutes one of the most important sources of taxpayer information for enforcement efforts.  McDougal noted the IRS has just recently begun to distribute award payments to individuals who have supplied that information.  Because whistleblowers often present information on a particular financial institution or practice, the IRS is able to gain access to information outside the U.S. that is not otherwise easily available.  “It’s an incredibly valuable opportunity for us,” McDougal said.

Rat on your bank, a new “Occupy” strategy?

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FATCA is Coming

In Uncategorized on January 6, 2012 at 8:58 pm

On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010 was enacted into lawbrush wring a host of new information reporting requirements imposed on foreign financial institutions, which are often referred to as the Foreign Account Tax Compliance Act rules or “FATCA.”   FATCA imposes a 30 percent withholding tax on certain outbound payments to a foreign financial institution (an “FFI”), unless the FFI agrees to provide the IRS to comply with various information reporting and withholding requirements with respect to “U.S. accounts.” 

In essence, FATCA forces each participating foreign financial institution into an information exchange arrangement with the IRS akin to tax treaties typically between sovereigns. 

FATCA is meant to bolster the Service’s ongoing effort to halt US tax evasion activities involving offshore accounts. 

For individual taxpayers, FATCA requires The disclosure of  foreign financial assets with an aggregate value exceeding $50,000 on a new form (Form 8938) attached to the taxpayer’s annual tax return.  For most taxpayers, the 2011 tax return to be filed this year will represent the first such mandated report. Failure to report may result in a penalty of up to $50,000. Underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent. 

For foreign financial institutions (“FFIs”), these institutions will have to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To comply with these new reporting requirements, an FFI must enter into a special agreement with the IRS by June 30, 2013. Under this agreement a FFI must: 

(1) undertake certain identification and due diligence procedures with respect to its accountholders;

(2) report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership; and

(3) withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders who do not provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.

Given the anticipated reach of FATCA, those US taxpayers with undisclosed foreign assets may want to take advantage of the IRS’s recently announced voluntary disclosure initiative.