28/10/19

US: IRS and FATCA Update

As published on offshorenewsflash.com, Friday October 25, 2019.

The US Internal Revenue Service has eased the rules of FATCA compliance by telling banks overseas that they are not required to close the accounts of their accidental Americans clients who have not provided their tax identification number by January 2020.

FATCA was passed in 2010 and forces banks wanting to operate in the US to report any assets held by American citizens overseas. While the measure is aimed at tax avoidance, it has created problems for many American expats and dual nationals who have been rejected by retail banks seeking to avoid hassle and risk.

Thousands of ‘accidental’ Americans have been told by their banks that they will lose their accounts unless they provide a US tax number before October 1.

However, the IRS amended its FATCA guidance page to ease the transition period. It now states that failure to obtain an accountholder’s US TIN is not necessarily ‘serious non-compliance,’ and does not imply that the client’s account must automatically be closed.

Instead, it sets out a procedure for resolving the difficulty, at least in jurisdictions which have a so-called Model 1 FATCA agreement with the US.

Even if the IRS deems the financial institution to be in “significant non-compliance”, it will discuss the problem with the foreign jurisdiction’s tax authority over the following 18 months.

The US taxes individuals globally based on their citizenship, meaning they must file income, estate and gift tax returns with the IRS. About 9 million Americans reside abroad, according to the US Department of State.