institutions will get another six months to start complying with a new law to prevent offshore tax evasion by Americans under a phased-in compliance schedule released on Thursday.
The Internal Revenue Service said it would give the institutions until June 30, 2013, to reach agreements with the agency on cooperation. These agreements previously had been expected to be concluded by the end of 2012.
'This tells me two things. First of all, it probably is true we're not going to be seeing regulations until close to the end of the year,' said Denise Hintzke, a director and global leader for FATCA compliance at Deloitte Tax.
'Second is that (the IRS) is serious about going through with this,' she said. 'We still see financial institutions out there that ... think it's really not going to happen.'
Under the Foreign Account Tax Compliance Act (FATCA), which was made law last year, new disclosures to the IRS are required by foreign banks and other institutions where accounts are held by U.S. clients with more than $50,000 in assets.
MANY BANKS, MUCH WORK
Thousands of banks, brokers and insurers worldwide are affected. All are highly regulated businesses, making compliance a complicated and time-consuming matter.
'There is just a tremendous amount of work to be done,' said Carol Tello, a partner and international tax lawyer at the firm of Sutherland Asbill & Brennan.
'This seems like it will take some of the pressure off and permit people to go about this in an orderly way ... assuming all the privacy law issues are resolved,' she said.
The next key event in implementing FATCA is the release by the Treasury Department of proposed regulations.
'People can't start building their systems until there are proposed regs, at a minimum. The Treasury is talking about end of the calendar year. If they do that and there aren't too many changes, there should be' enough time, Tello said.
After June 30, 2013, institutions without IRS agreements could face a withholding tax of 30 percent on payments, beginning on Jan. 1, 2014, on U.S.-source interest and dividend income, the agency said.
Withholding on all other payments, including gross proceeds from sales of assets, would begin on Jan. 1, 2015.
The phase-in schedule 'gives financial institutions, governments, withholding agents, everyone who is going to need to work with us on FATCA a road map for final implementation,' IRS Commissioner Doug Shulman said in an interview.
It also 'recognizes the operational realities faced by financial institutions. Our goal is to make sure we pace the implementation in a way that is workable,' he said.
'We've had a lot of dialogue with institutions which we're listening to ... We're very serious about implementing FATCA.'
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