IRS yesterday released a draft version of Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, to accommodate the FATCA provisions of the Code’s Chapter 4. Instructions to the draft, which would expand the form from two to eight pages, haven’t been released yet.
Generally effective for payments made after Dec. 31, 2012, the HIRE Act established rules for withholdable payments to foreign financial institutions (FFIs) and for withholdable payments to other foreign entities by adding new Chapter 4 to the Code (Code Sec. 1471 through Code Sec. 1474). The rules provide for withholding taxes to enforce new reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S.-owned foreign entities.
Under Code Sec. 1471(a), a withholding agent must withhold 30% of any withholdable payment to an FFI that does not meet the requirements of Code Sec. 1471(b). A withholdable payment is, subject to certain exceptions:
- Any payment of interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income (FDAP income), if such payment is from sources within the US; and
- Any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the US (Code Sec. 1473(1))
An FFI satisfies Code Sec. 1471(b), if it either enters into an agreement (an FFI agreement) with IRS to perform certain obligations or meets requirements prescribed by IRS to be deemed to comply with Code Sec. 1471(b).
Switzerland and Japan are the latest additions to the list of countries that agreed to cooperate with US Treasury.
Treasury said on June 21, that the U.S. had signed separate joint statements with Japan and Switzerland to intensify cooperation in combatting international tax evasion by removing legal impediments to compliance with the Foreign Account Tax Compliance Act (FATCA). The approach taken under the joint statements with Japan and Switzerland permits foreign financial institutions (FFIs) to report information directly to the IRS, which is different from an earlier approach that called for FFIs to report information directly to their governments that would ultimately be shared with the U.S. on an automatic exchange of information basis.
The announcement expands the list of countries already cooperating with Treasury to implement FATCA. Treasury said in February it was negotiating with France, Germany, Italy, Spain and the U.K. (the so-called G5) to establish government-to-government information sharing arrangements. (See International Taxes Weekly, 02/14/2012). In April, Treasury also announced that Ireland had entered into discussions with Treasury regarding an intergovernmental approach to implementing FATCA.
Treasury’s joint statement with France, Germany, Italy, Spain and the U.K. envisages a two-step approach whereby FFIs report FATCA-required information to their own governments and then the governments exchange the information with the U.S. on an automatic basis.
Treasury’s separate joint statements with Japan and Switzerland contemplates the mutual intent to pursue a second model framework for intergovernmental cooperation, a senior Treasury official said. Under the second model for inter-governmental cooperation, FFIs would report information directly to the IRS to the extent permitted under the FFI’s domestic laws. Where consent is necessary and not granted by the account holder, the governments would then be able to obtain such information pursuant to a treaty request.
Last week IRS updated the FAQs on its website regarding reporting on Form 8938 and added few more questions. Few noteworthy clarifications are:
- Tangible assets held for investment (e.g., art, antiques, jewelry, and cars) do not have to be reported.
- Safe deposit box is not a financial account.
- The omission of Form 8938 with the original return requires an amended return to be filed with the form attached.
- Filing of Form 8938 does not remove the requirement to file Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), if otherwise required.
- Directly held precious metals, such as gold, are not specified foreign financial assets. Note, however, that gold certificates issued by a foreign person may be a specified foreign financial asset that you would have to report on Form 8938, if the total value of all your specified foreign financial assets is greater than the applicable reporting threshold.
Nonresident alien (NRA) athletes and entertainers performing independent personal services or participating in the U.S. and embassy and consulate employees in the U.S. can expect more enforcement and litigation, an IRS official said May 12.
Speaking at the American Bar Association Tax Section meeting in Washington, Lindsey D. Stellwagen, Special Counsel International, Office of Chief Counsel said that although there had been a lot of publicity on IRS measures to enforce compliance on U.S. persons with offshore wealth, her agency is also stepping up enforcement of NRAs and resident aliens (e.g. green card holders) that owe U.S. tax. She discussed the IRS programs pertaining to athletes and entertainers and the embassy project.
Foreign athletes and entertainers may pose a challenge to IRS enforcement because they come into the U.S. for a brief period of time, earn a lot of money, then leave. Such persons may be able to evade paying tax on their U.S.-source income and enforcement may be futile if they money earned has exited the U.S. without the imposition of withholding at source.
Nonresident alien entertainers or athletes performing independent personal services or participating in athletic events in the U.S. are generally subject to a 30 percent withholding on gross income. Stellwagen explained that under the central withholding agreement (CWA) program, such persons may be subject to reduced withholding provided that certain requirements are satisfied. The agreement is entered into by the NRA athlete or entertainer, a withholding agent and the IRS and is valid for a specific tour or series of events. Withholding is based upon the budget provided and estimated net profits.
CPA Global Tax & Accounting PLLC can assist athletes and entertainers with the CWA program and work with the IRS to minimize the exposures.
The IRS is aggressively using intelligence gathered from the agency’s Offshore Voluntary Compliance Program to study the movement of undisclosed funds abroad and to deter tax avoidance, an IRS official said February 18.
“When [taxpayers] come in and tell us about their offshore account in one bank in one country, they may tell us about another account in another bank in another country and about the bankers they used,” said Rebecca Sparkman, Acting Executive Director Investigations and Enforcement Operations Division of the IRS at the American Bar Association Section of Taxation meeting in San Diego. “As you can imagine we start looking at all that intelligence and it points the way for the next criminal investigation.”
Although her comments had undertones of the recent indictment of Wegelin & Co., Switzerland’s oldest private bank, she declined to speak directly on any specific matter. The bank has been charged with aiding tax offenders move their undisclosed accounts from UBS.
“We want to assure you that we are reviewing all the information that comes in from your clients to match up [and provide direction on] where we should look next,” she said.
She cautioned practitioners to be fully truthful when bringing their clients into compliance.
“Please be fully, fully truthful,” she told the audience. “Because there may be those folks that are tempted to only disclose that account in that one bank that they think we know about in that one country because they think we don’t know about [an account] somewhere else. But guess what? They come in, they come through the whole program, we get their name on a list for some other bank, some other country, all bets are off! Now they are facing criminal investigation because they were not fully truthful.”
Sparkman stressed that the time to come forward with all offshore account information is at the time a voluntary disclosure is made, not subsequently.
“When you walk in the door, that is the time to be fully truthful,” she said. “Don’t be hiding anything else.”
HIRE Act of 2010 enacted Code Section 6038D that provided that individuals as well as certain domestic entities with interest in “specified foreign financial assets” must attach a disclosure statement to their tax returns each year if the aggregate value of all such assets is greater than $50,000. Specified financial assets include depository or custodial accounts at foreign financial institutions, and to the extent not held in an account at a financial institution, (a)
stocks or securities issued by foreign persons, (b) any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a U.S. person, and (c) any interest in a foreign entity.
IRS issued Notice 2011-55 wherein it suspended teh reporting requirements until it releases the final Form 8938 – the draft Form was released in June 2011.
IRS today released the draft instructions that include the following:
The Instructions provide that individuals satisfy the reporting requirements if they have specified foreign financial assets of more than $100,000 at any time during the year or if the total value of their specified foreign financial assets on the last day of the tax year is more than $50,000 for unmarried taxpayers living in U.S., $100,000 for married taxpayers filing a joint return and living in the U.S., and $50,000 for married taxpayers filing separate returns and living in the U.S.
The Instructions also provide the reporting threshold for taxpayers living abroad, i.e., taxpayers who are bona fide residents of a foreign country or countries for an uninterrupted period that includes the entire tax year, or are present in a foreign country or countries during at least 330 full days during any period of 12 consecutive months ending in the tax year (in short meet S. 911 conditions). They meet the reporting obligation if they are not filing a joint return and the value of their specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $400,000 at any time during the tax year.
The Instructions also reminds the taxpayers that filing Form 8938 does not relieve a taxpayer of the requirement to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if he or she is otherwise required to file Form TD F 90-22.1.
Our last blog was a precursor to the latest IR 2011-81 issued yesterday by IRS. It says:
IRS officials today announced they are taking additional steps in their continuing efforts to improve the agency’s international operations.
First, the IRS Advance Pricing Agreement (APA) Program, concerned exclusively with reaching pre-filing agreements with taxpayers on transfer pricing, will shift from the office of IRS Chief Counsel to an office under the Transfer Pricing Director in the Large Business &International division’s international operation. In addition, the IRS Mutual Agreement Program (MAP), concerned primarily with the bilateral resolution of transfer pricing disputes with U.S. treaty partners, will shift to the same office.
The resulting “Advance Pricing and Mutual Agreement program” will be under the direction of a single executive and the IRS will increase staffing available to the two program areas. The combined office will allow the IRS to reduce the time needed to complete advance pricing agreements and to resolve transfer pricing disputes with its treaty partners. The Office of Chief Counsel will remain a vital partner in the analysis and resolution of legal issues.
Second, to facilitate IRS coordination with treaty partners in an increasingly global environment, the IRS will adjust its competent authority and international coordination functions under an Assistant Deputy Commissioner (International) who will:
- coordinate international activities across all IRS operating divisions,
- oversee the IRS Exchange of Information program and IRS participation in the Joint International Tax Shelter Information Centre (JITSIC),
- manage the activities of the IRS Tax Attaches in the agency’s foreign posts of duty,
- coordinate IRS participation at the Organisation for Economic Cooperation and Development (OECD) and other non-governmental organizations,
- support the Department of the Treasury in its negotiations of tax treaties and tax information exchange agreements, and
- pursue competent authority agreements with treaty partners on issues other than transfer pricing.
“Improving how we manage transfer pricing compliance and continuing to develop our capacity to coordinate effectively with our treaty partners is ever more critical to our job,” said IRS Commissioner Doug Shulman. “These latest changes move forward to fulfilling one of my top priorities — meeting the challenge of tax administration in a global economy.”