Posts

FFI FATCA Requirements: Introduction | FATCA Tax Lawyer & Attorney

/in , /by

Since July 1, 2014, the Foreign Account Tax Compliance Act (“FATCA”) has imposed a heavy compliance burden on Foreign Financial Institutions (“FFIs”). Many of these FFIs have struggled with developing a good understanding of their new FATCA requirements even to this day. In this brief essay, I want to provide a general overview of these FFI FATCA requirements so that readers can begin to develop an understanding of FATCA.

FFI FATCA Requirements: Background Information

FATCA was enacted into law in 2010. The most important idea behind the new law was to combat US tax noncompliance of US taxpayers with foreign financial assets.

There are several important parts of FATCA, but the most important one of them was forcing FFIs to identify US owners of foreign financial assets, collect certain information about them and share it with the IRS. Failure to do so meant facing a FATCA penalty in the form of a 30% withholding tax on the gross amount of all transactions with a noncompliant FFI. In essence, FATCA turned FFIs around the world into free IRS informants.

FFI FATCA Requirements: Three Categories

What precisely does FATCA require FFIs to do in order to be FATCA-compliant? If we look broadly at the FFI FATCA requirements, we can group all of these requirements into three broad categories. Each of these categories consists of a myriad of smaller but still fairly complex FATCA compliance requirements and requires a deep understanding of new FATCA terms.

The first and most important category of FATCA requirements is to collect the required due diligence information concerning all account holders, investors and payees. “Collecting” here means obtaining the required due diligence information and documentation. In other words, FATCA has to be part of an FFI’s “Know Your Client” (“KYC”) procedures.

Additionally, these new due diligence requirements apply not only to new customers, but also to pre-existing account holders. Pre-existing account holders are the account holders who already had accounts with an FFI as of the time FATCA was implemented (i.e. July 1, 2014) or sometimes a different date.

The second requirement is to report to the IRS three categories of persons: (a) all US account holders; (b) recalcitrant account holders; and © non-participating (i.e. FATCA-noncompliant) FFIs. This means that, under FATCA, FFIs must turn over to the IRS the identifying information concerning accounts held by US persons as well as point out the “bad apples” who refuse to comply with FATCA.

Recalcitrant account holders is a fairly complex FATCA term. In its most basic form, it refers to an account holder who does not supply the required FATCA information and who does not fall under any types of a waiver. In a future article, I will provide a more detailed description of this term, but, at this point, I would like to refer the readers to Treas Reg § 1.1471-5(g)(2).

Finally, the FFIs are charged with the requirement to coordinate FATCA withholding as necessary. In other words, the FFIs are required to impose FATCA noncompliance penalties on any FATCA non-compliant FFI, thereby turning FATCA in a worldwide self-enforcing system from which no FFI can escape.

FFI FATCA Requirements Are Interconnected

Needless to say that all three of these FFI FATCA requirements are deeply related to each other. For example, the due diligence requirement is essential to an FFI’s ability to properly comply with its FATCA reporting and withholding obligations. It is important to keep this connection between different FFI FATCA Requirements in mind while building an effective FATCA compliance system.

Contact Sherayzen Law Office to Find Out More About Your FFI FATCA Requirements

Sherayzen Law Office is a US international tax law firm that specializes in US international tax compliance, including FATCA compliance. We also help FFIs develop an effective FATCA compliance program as well as analyze existing FATCA compliance programs.

Contact Us Today to Schedule Your Confidential Consultation!

DOJ Non-Prosecution Agreement with Bank Linth LLB AG

/0 Comments/in , /by

On June 19, 2015, the Department of Justice announced that Bank Linth LLB AG (Bank Linth) signed a Non-Prosecution agreement pursuant to the DOJ’s Swiss Bank Program.

Bank Linth Background

Bank Linth, one of the largest regional banks in Eastern Switzerland, was founded in 1848. It is headquartered in Uznach, Switzerland, which is approximately 35 miles southeast of Zurich. Bank Linth provided private banking and asset management services to U.S. taxpayers through private bankers based in Switzerland. It opened, serviced and profited from accounts for U.S. clients with the knowledge that many were likely not complying with their tax obligations.

Bank Linth’s cross-border banking business aided and assisted U.S. clients in opening and maintaining undeclared accounts in Switzerland and concealing the assets and income they held in these accounts. Bank Linth provided this assistance to U.S. clients in a variety of ways, including the following:

Opening and maintaining accounts in the names of sham entities;

Providing U.S. taxpayers with numbered accounts that hid the taxpayers’ identities;

Facilitating U.S. taxpayers’ withdrawal of cash from undeclared accounts; and

Agreeing to hold bank statements and other mail relating to accounts rather than sending them to U.S. taxpayers in the United States.

On several occasions, Bank Linth opened accounts for U.S. taxpayers through an external asset manager, and one of these accounts was opened in the name of a sham foundation. In that instance, Bank Linth knowingly accepted and included in account records forms provided by the directors of the sham foundation that falsely represented the ownership of the assets in the account for U.S. federal income tax purposes.

Participation in the Swiss Bank Program and the Non-Prosecution Agreement

In accordance with the terms of the Swiss Bank Program, Bank Linth described in detail the structure of its banking business, including its management and supervisory structure, and provided the names of management and legal and compliance officials. Bank Linth further provided detailed and specific information related to its illegal U.S. cross-border business, including the bank’s misconduct, policies that contributed to that misconduct and the names of the relationship managers overseeing the bank’s U.S.-related business. Bank Linth also obtained affidavits from bank employees regarding the bank’s conduct and related matters.

According to the terms of the non-prosecution agreements signed today, Bank Linth agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute Bank Linth for tax-related criminal offenses.

Since August 1, 2008, Bank Linth held 126 U.S.-related accounts, with over $102 million in assets. Bank Linth will pay a penalty of $4.15 million (this is a post-mitigation penalty).

Consequences for US Taxpayers with Undisclosed Bank Linth Accounts

Most U.S. taxpayers who enter the IRS Offshore Voluntary Disclosure Program to resolve undeclared offshore accounts will pay a penalty equal to 27.5 percent of the high value of the accounts. On August 4, 2014, the IRS increased the penalty to 50 percent if, at the time the taxpayer initiated their disclosure, either a foreign financial institution at which the taxpayer had an account or a facilitator who helped the taxpayer establish or maintain an offshore arrangement had been publicly identified as being under investigation, the recipient of a John Doe summons or cooperating with a government investigation, including the execution of a deferred prosecution agreement or non-prosecution agreement. This means that, starting June 19, 2015, noncompliant Bank Linth U.S. accountholders will now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.