Less than two weeks before international governments were due to begin reporting American taxpayers’ bank accounts to the US Internal Revenue Service, the US Treasury Department has put the deadline back to 30 September 2016.
This extension applies to all jurisdictions that have signed a Model 1 inter-governmental agreement (IGA) to implement the Foreign Account Tax Compliance Act.
Under a Model 1 IGA, banks and other financial institutions in the relevant jurisdiction have to make annual reports of their US clients’ financial affairs to their own domestic tax authority. This body then forwards the reports en masse to the IRS.
The 30 September 2015 deadline related to banking transactions that took place in the 2014 calendar year and it is the deadline for this forwarding step that has been extended by the US Treasury’s latest notice, No. 2015-66. Overseas financial institutions are still obliged to report their US clients to their domestic tax bodies.
The reason for the deferral is that many of the 112 jurisdictions that have either signed a Model 1 IGA, or are accepted by the US as having done so in principle, are not yet ready to begin reporting.
Several of them have not even enacted the legislation to implement their IGAs, without which they are legally unable to exchange tax information with the US.
One Canadian pressure group, Maple Sandbox, has already instructed its legal counsel to notify Canada’s federal government of the development, and request them not to disclose US citizens’ banking information to the IRS.
The announcement provides a reprieve of sorts to non-compliant US taxpayers who maintain financial accounts at institutions in Model 1 jurisdictions. Such taxpayers now have extra time to take steps to become tax-compliant through the IRS’ various voluntary disclosure programs.
Once a foreign jurisdiction turns over account information to the US, non-compliant taxpayers generally cannot take advantage of the IRS disclosure programs and will be subject to audit or perhaps a criminal investigation.
- As well as deferring the start date for FATCA’s imposition of withholding penalties on gross proceeds and foreign pass-through payments, Notice 2015-66 also postpones several other FATCA start dates. However, the due diligence period for pre-existing accounts was not extended, and still ends on 30 June next year.
- We would urge all of our readers to take steps immediately to ensure that you secure your assets in ways that are 100% legal within the jurisdiction that you are domiciled. Those of you who wish to vote with your feet may wish to look at the various options outlined in our Citizenship and Residency Report, which is part of our Regular Membership Package.
- Please note: QWealth does not give tax advice due to the widely-varying laws applicable in different jurisdictions. Where applicable, we are happy to refer our members to accountants and attorneys qualified in this field. Please email us at [email protected]