The Internal Revenue Service is one step closer to strengthening an international community devoted to fighting tax evasion and sharing information about potential tax cheats.
After several stops and starts, the agency announced it has unveiled a new online registration for American and foreign financial institutions that need to comply with the Foreign Account Tax Compliance Act.
The move represents one of the last steps the tax agency needed to take to get its FATCA implementation off the ground by July 2014. Although financial institutions are not required to comply with FATCA and distribute information about account holders who may be evading federal tax law, they may face significant reputational damage and find it more challenging to compete in an international economy.
Under existing rules, U.S. taxpayers with more than $50,000 in foreign accounts must report information on those accounts. Individuals who fail to file these reports face penalties of up to $50,000, in addition to other penalties for underpayment. The rules also enable U.S. banks that are receiving funds transfers from overseas to withhold 30 percent of the cash for Americans who fail to comply with the regulations. The penalty could essentially freeze foreign institutions that disregard the rules out of U.S. financial markets.
“FATCA is an actual reality now for most banks who assumed that FATCA deadlines would continue to be pushed,” Reetu Khosla, a global director at risk, fraud, and compliance at software provider Pegasystems, told American Banker. “More and more banks will need to ramp up to meet next year’s deadlines to implement their rules, processes and technology to meet FATCA requirements.”
The IRS will begin approving firms’ registrations in 2014, as banks and institutions must register by April 25, 2014, to avoid FATCA’s withholding penalties. In June 2014, the agency will publish a list of all the firms complying with FATCA, according to Reuters.
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