Source: http://www.bna.com/reporting-requirements-foreign-n17179890352/
Timestamp: 2016-10-01 10:24:37
Document Index: 48974572

Matched Legal Cases: ['§6013', '§6038', '§1', '§1', '§1471', '§1474', '§1', '§1']

Reporting Requirements for Foreign Accounts | Bloomberg BNA
Michael A.Heimos, Esq.
Michael A. Heimos PC, Denver, CO
The Foreign Account Tax Compliance Act (FATCA), enacted as partof the Hiring Incentives to Restore Employment (HIRE) Act in2010,1 imposes anobligation on specified U.S. persons - U.S. citizens, U.S.residents and nonresident spouses who elect under §6013(g) to betreated as U.S. residents for income tax purposes - who holdbeneficial interests in any foreign trusts (including a foreignretirement plan/ employee benefit trust) or foreign estates toreport such interests on Form 8938 on their U.S. income taxreturns.2 In the case of abeneficial interest in a foreign trust, this obligation existswhether or not the trust is treated as a grantor trust for U.S.income tax purposes, although in the case of a non-grantor trustthe U.S. person need report only the trust interest and not theassets held by the trust.
For U.S. persons who are treated as owning any portion of aforeign grantor trust, this reporting may be done by means of IRSForm 3520, Annual Return to Report Transactions with ForeignTrusts and Receipt of Certain Foreign Gifts, or, in the caseof a trust that must report, Form 3520A, Annual InformationReturn of Foreign Trust with a U.S. Owner (under section6048(b)). Special rules also apply for reporting the maximumvalue of an interest in a foreign trust, a foreign retirement plan,or a foreign estate.
The IRS has provided an exception to reporting so that aspecified U.S. person holding a beneficial interest in a foreigntrust or a foreign estate who does not know or have reason to knowof the interest is exempt from reporting the interest. For thispurpose, receipt of a distribution from a foreign trust or foreignestate causes the recipient to be deemed to have knowledge of thebeneficial interest. Other exceptions from reporting apply as tocertain special types of trusts; for example, a U.S. beneficiary ofa domestic bankruptcy trust or a domestic, widely-held fixedinvestment trust is not required to report on Form 8938 anyspecified foreign financial asset held by the trust.
In addition to the impositions on foreign trust and estatebeneficiaries, FATCA requires that "foreign financial institutions"must enter into disclosure compliance agreements with the IRSconcerning their U.S. account and equity holders, or else besubject to a 30% withholding tax on the institution's U.S. sourceinterest, principal and dividend payments and stock sale proceedsbeginning, in part, on July 1, 2014.3 Theterm "foreign financial institution" (FFI) is broadly defined andincludes any foreign depository, custodial or investment entity,including any foreign trust or family office that is professionallymanaged by an entity.4
The FATCA disclosure requirements (and the due diligence stepsrequired to determine whether an FFI has U.S. account or equityholders and to identify such holders) may conflict withconstitutional, anti-discrimination, privacy and other laws thatapply locally to FFIs. Nevertheless, FFIs must register with theIRS in order to be compliant with FATCA, leaving many FFIs in aquandary: to comply with FATCA and risk violating locallaws/duties, or divest of all their U.S. situs assets to avoidexposure to the 30% withholdings. In an attempt to make theFATCA pill less jagged, the Treasury Department has entered intoIntergovernmental Agreements (IGAs) with more than 20 countriesthat allow for the waiver of local bank secrecy laws and modifysome of the statutory and regulatory FATCA due diligence andreporting requirements.5 TheTreasury has prepared model IGAs as a starting point fornegotiations with various partner countries to implement FATCA.
Foreign investment entities that are not considered FFIs, suchas foreign trusts or family offices that are not professionallymanaged by an entity, are treated as "non-financial foreignentities" (NFFEs) that are subject to the 30% withholding tax onthe "withholdable payments" described above if they do not discloseto the relevant withholding agents their "substantial United Statesowners" (those U.S. persons directly or indirectly holding morethan a 10% interest in the NFFE). NFFEs are not, however, requiredto register with the IRS.
For more information, in the Tax Management Portfolios, seeHeimos, 806 T.M., Immigration and Expatriation Law for theEstate Planner, Rothschild and Rubin, 810 T.M., AssetProtection Planning, Heimos, 837 T.M., Non-Citizens -Estate, Gift and Generation-Skipping Taxation, Zaritsky andRosen, 854 T.M., U.S. Taxation of Foreign Estates, Trusts andBeneficiaries, Zaritsky and Rosen, 911 T.M., U.S. Taxationof Foreign Estates, Trusts and Beneficiaries, and in TaxPractice Series, see ¶7170, U.S. Income Withholding and ReportingRequirements and FATCA.
1 P.L. 111-147. See §6038D.
2 Reg. §1.6038D-3T, Reg. §1.6038D-5T
3 §1471-§1474.
4 Reg. §1.1471-5(e)(4)(i)(B), Reg. §1.1471-5(e)(4),Ex. (6).
5 See Notice 2013-43, 2013-13I.R.B. 113.