Snap Fact #193 -  President Obama Successfully Endorsed and Supported an Act To Close Offshore Tax Avoidance Loopholes!

Post date: May 16, 2012 8:21:25 PM

Snap Fact #193

President Obama Successfully Endorsed and Supported an Act To Close Offshore Tax Avoidance Loopholes!

More often than not, significant change takes a long time from inception by virtue of an Act passing Congress, and implementation of that law. In many of these cases the opposition does all it can to delay or kill the passed Bill.

Today’s SNAP-CAP was introduced and passed in 2009, the effective date is New

Years Day of 2013. This Act will be one of many far-seeing bricks in the wall that will help support the enhanced recovery during President Obama’s second term.

On October 27, 2009, the “Foreign Account Tax Compliance Act of 2009” (“FATCA”) was introduced by Democratic members in the House and in the Senate based on proposals included in President Obama’s 2010 Budget.

Motivated by incidents of U.S. citizens failing to report foreign account information, FATCA would broaden required disclosure and reporting by foreign financial institutions and other foreign entities (including, in general, foreign hedge funds, private equity funds and other investment vehicles) regarding U.S. account holders.

U.S. taxpayers and their financial advisors would be required to furnish information regarding foreign assets and transactions involving certain foreign entities. These information reporting requirements are backed up by expanded withholding and penalty provisions.

FATCA is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts. Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. In addition, it will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Short Summary: The Foreign Account Tax Compliance Act of 2009 - Amends the Internal Revenue Code to revise and add reporting and other requirements relating to income from assets held abroad, including by:

1. requiring foreign financial and nonfinancial institutions to withhold 30% of payments made to such institutions by U.S. individuals unless such institutions agree to disclose the identity of such individuals and report on their bank transactions;

2. denying a tax deduction for interest on non-registered bonds issued outside the United States;

3. requiring any individual who holds more than $50,000 in a depository or custodial account maintained by a foreign financial institution to report on such accounts;

4. imposing an enhanced tax penalty for underpayments attributable to undisclosed foreign financial assets;

5. extending the limitation period for assessment of underpayments with respect to assets held outside the United States;

6. requiring certain tax advisors who assist U.S. individuals in acquiring a direct or indirect interest in a foreign entity to file an information return disclosing the identity of the foreign entity and the individual investors;

7. requiring shareholders of a passive foreign investment company to file informational returns; enhancing tax rules and penalties relating to foreign trusts with U.S. beneficiaries; and

8. requiring withholding of tax on dividend equivalent payments received by foreign individuals.On March 18, 2010, the final version of the FATCA became law as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA dramatically changes the current system of withholding on payments made to non-US persons. The final version is generally similar to the original Bill introduced on October 27, 2009, but has been modified in response to public comments.

FATCA is viewed by some as an overreaching attempt to counter investors' desire to avoid U.S. taxation. The industry could be negatively impacted by FATCA's additional compliance burden and the lack of certainty surrounding its technical application even in advance of the January 1, 2013 effective date.