Foreign Tax Account Compliance and Foreign Bank Account Reporting Updates


By Nishant Patel

Update 1: Foreign Financial Institution (FFI) Registration

The Internal Revenue Service (IRS) released Form 8957 and instructions back in August 2013.  Form 8957 is required for FFIs to report certain information with respect to foreign financial accounts either held directly by U.S. taxpayers or foreign entities that are ultimately owned by U.S. persons, as required under Foreign Account Tax Compliance Act (FATCA).

Withholding agents are required to withhold 30% of certain payments unless the FFI has entered into an agreement with the United States to report certain information with respect to the U.S. accounts. In the final regulations issued earlier this year, the IRS provided for a phased-in approach for the implementation of the various requirements imposed on FFIs beginning January 1, 2014 and continuing through 2017, at which time reporting of the full scope of FATCA information will be expected.

The IRS encourages taxpayers to prepare and complete Form 8957 through its website at www.irs.gov.  Taxpayers were previously encouraged to create an account and pre-populate the form in order to be prepared for submitting when the IRS opened up the registration process.  This registration process is now open; however, if the taxpayer has previously pre-populated the form on the website, the taxpayer must log in and submit the registration or it will not be considered submitted.  The due date to register with Department of Treasury is April 25, 2014 in order to be included on the initial FFI List issued by the IRS.  Any changes will be updated on a monthly basis.

Update 2: IRS Releases Draft Form 8966

On August 13, 2013, the IRS released draft Form 8966, FATCA Report. The new form was issued under the FATCA regulations, whereby participating FFIs and, in limited instances, certain withholding agents are required to report to the IRS information on certain U.S. accounts and recalcitrant accounts. Form 8966 will be required to be filed beginning with the 2014 calendar year with the first filing due on March 31, 2015.

Update 3: Draft Forms 1042 and 1042-S

On November 1, 2013, The IRS issued draft 2014 Forms 1042 and 1042-S to incorporate the new reporting requirements in conjunction with FATCA. The revised form contains new boxes to request withholding agent to indicate whether the withholding is made under Chapter 3 (i.e., normal withholding rules for foreign persons and non-residents) or Chapter 4 of the Code (i.e., new FATCA provisions).  The form also requires additional information with respect to the payee, including account number, date of birth and foreign tax identification number. The most significant change is that a withholding agent’s Global Intermediary Identification Number (GIIN) will be required if the payor is a participating FFI or a registered deemed-compliant FFI.

Taxpayers should also note that the instructions provide a transitional rule for payments made on or before June 30, 2014, prior to the effective date of the Chapter 4 withholding requirements. Any payments made after June 30, 2014 will trigger a Form 1042 filing requirement by the withholding agent and also require determination of the Chapter 4 status of the payee.

Update 4: Foreign Bank Account Reporting (FBAR) Updates

Any U.S. person who has a financial interest in or signatory authority over foreign financial accounts must file an FBAR if the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

FBARs will be required now to be filed electronically using Form 114 through the Financial Crimes and Enforcement Network’s (FinCEN) BSA e-filing system for all reports filed after July 1, 2013. It should be noted that the e-filing requirement applies to taxpayers who are filing delinquent or amended FBARs for any prior tax years.

As of current date, the web-based BSA e-filing system used by FINCen is the only means available to file an FBAR.  Taxpayers or tax representatives can register and enroll using the BSA e-filing system through the FINCen’s website. In addition, FINCen has released specification for batch filing capabilities whereby practitioners or taxpayers can submit several FBARs simultaneously.

The IRS updated its Frequently Asked Questions (FAQs) for its Offshore Voluntary Disclosure Program (OVDP) to address delinquent FBARs.  FINCen has decided to make a subtle yet significant change to Form 114 for the upcoming year.  The new form has been updated to add a new field to allow taxpayers to provide reasons for late filing and reasonable cause.

FinCEN has also released a new form, Form 114(a) to allow any individual or entity with an FBAR filing obligation to authorize their spouse or third parties, such as representatives or preparers, to e-file the FBAR on their behalf.  The authorized individual or entity must be registered in the BSA e-filing system. Once the authorization is in place, the authorized individual or entity can then file FBARs, receive other information related to the FBARs, answer inquiries from FinCEN, and resolve issues relating the submitted FBARs.  Note, Form 114(a) is not required to be filed with FinCEN, but is instead retained by the FBAR filer and the authorized third party for their records.

If you have any questions about foreign tax compliance, please contact the SD Global Team.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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