The Internal Revenue Service won’t fully enforce FATCA — the Foreign Account Tax Compliance Act — in July 2014 as originally planned but will wait until 2015.
In its May 2 guidance, the IRS said it postponed the enforcement date to allow for an orderly transition for withholding agents and foreign financial institutions (FFI) to meet the law’s requirements.
Since its passage by Congress in 2010, FATCA has stirred controversy and opposition. The intention of the law is to find out where U.S. taxpayers hold offshore bank accounts. The law requires foreign banks to look for clients with U.S. connections and then share the information with the IRS.
Critics say the law will be expensive for banks to implement, and they will pass the costs along to account holders. Some also say the new law creates discincentives for wealthy individuals to live in the United States and increases the threat of identity theft.
The original schedule would have placed financial firms that had not fully implemented FATCA by July 1 on an FFI list — and then risk blacklisting by FATCA-compliant firms and registered FFIs.
During the newly announced transitional period, good-faith efforts to comply are still required. The IRS will take into account, for example, if the financial institution made reasonable efforts to modify its account-opening practices.
“An entity that has not made good faith efforts to comply with the new requirements will not be given any relief from IRS enforcement during the transition period,” the IRS guidance said.
The IRS’s May 2, 2014 FATCA guidance is here.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.