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US: Foreign Account Legislation Introduced in U.S. Congress

and other entities unless they acknowledge existence of accounts held by U.S. individuals to the Internal Revenue Service (IRS) and disclose relevant information including account ownership, balances, and amounts moving in and out of the accounts. There is a de minimis exception for accounts held by individuals where the account balance does not exceed $10,000 (or $50,000 for accounts that were in existence on the Bill’s date of enactment.)
• Individuals and entities would be required to report identifying information and maximum values of foreign financial assets with aggregate values of $50,000 or more on their tax returns. A failure to report would give rise to a minimum $10,000 fine. In some cases the statute of limitations will be extended to six years when offshore accounts are unreported or misreported For this purpose, foreign financial assets include stock in a foreign corporation unless such stock is held in an account maintained with a financial institution.
• Advisers who help to set up offshore accounts would be required to disclose their activities or pay a penalty. The Bill would also require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.
• Strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts could be made to U.S. beneficiaries, and requiring the reporting of transfers to foreign trusts by U.S. taxpayers.
• Treat dividend equivalent payments received by foreign corporations in the same manner as dividends for withholding purposes.
• Require any shareholder in a passive foreign investment company (PFIC) to file an annual report containing such information as the IRS may require.
US: Foreign Account Legislation Introduced in U.S. Congress

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On October 27, 2009, the Foreign Account Tax Compliance Act (“the Bill”) was introduced simultaneously in the U.S. Senate (S.1934) and the U.S. House of Representatives (H.R. 3933).1 The purpose of the Bill is to prevent tax evasion by providing the U.S. Treasury Department with significant new tools to find and prosecute U.S. individuals who hide assets overseas.

The Bill’s proposals include the following:

• Require 30-percent withholding on most payments of U.S. source income to foreign financial institutions and other entities unless they acknowledge existence of accounts held by U.S. individuals to the Internal Revenue Service (IRS) and disclose relevant information including account ownership, balances, and amounts moving in and out of the accounts. There is a de minimis exception for accounts held by individuals where the account balance does not exceed $10,000 (or $50,000 for accounts that were in existence on the Bill’s date of enactment.)

• Individuals and entities would be required to report identifying information and maximum values of foreign financial assets with aggregate values of $50,000 or more on their tax returns. A failure to report would give rise to a minimum $10,000 fine. In some cases the statute of limitations will be extended to six years when offshore accounts are unreported or misreported For this purpose, foreign financial assets include stock in a foreign corporation unless such stock is held in an account maintained with a financial institution.

• Advisers who help to set up offshore accounts would be required to disclose their activities or pay a penalty. The Bill would also require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.

• Strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts could be made to U.S. beneficiaries, and requiring the reporting of transfers to foreign trusts by U.S. taxpayers.

• Treat dividend equivalent payments received by foreign corporations in the same manner as dividends for withholding purposes.

• Require any shareholder in a passive foreign investment company (PFIC) to file an annual report containing such information as the IRS may require.

KPMG Note: Next Steps

The Bill is not currently scheduled for a vote in either chamber of Congress. There is a significant possibility, however, that it could be enacted as a revenue offset in other legislation, such as anticipated legislation to extend expiring provisions, which Congress will consider either later this year or early next year.

For a related article, see “Legislative Update: Foreign Account Tax Compliance Act of 2009—Unexpected Implications” in KPMG LLP’s TaxNewsFlash-United States 2009-526 (November 18, 2009).

Source: KPMG

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This entry was posted on Wednesday, December 2nd, 2009 at 9:12 pm and is filed under Equality, Expat, Tax, US. You can follow any responses to this entry through the RSS 2.0 feed.

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