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Thursday, June 21 2018 @ 02:51 AM EDT

IRS modifies FATCA Implentation - Again

Money MattersThe IRS Announcement 2012-42, dated 24 Oct 12, defers the implementation timelines for withholding agents and foreign financial institutions to complete due diligence requirements of the HIRE Act. The financial institutions will have until 1 Jan 2017 to start withholding taxes from US taxpayers’ investment gains and until 1 Jan 2014 to put in place the reporting requirements mandated under the HIRE Act provisions.

This is a direct response to the many issues raised by tax professionals and foreign bankers who have challenged the various provisions of the law.

I recently published an article titled “FATCA: Reality vs Rumor’ for the inaugural issue of the University of Louisville Panamá “Latitude” magazine which is available online through the Quality Leadership University webpage. What follows is a summary of some of the main points of that article.

The HIRE Act passed by the US Congress and signed into law Jan 2010 included an entire new chapter of the Internal Revenue Code, Chapter 4 – Taxes to Enforce Reporting on Certain Foreign Accounts.

Those IRC sections 1471 through 1474 have created much uncertainty and angst among not only US citizens who live and work outside the USA and dual nationals who hold US Green Cards or US passports, but the foreign financial institutions with which they interact and conduct business or have personal bank accounts. (more)

The full details of the reporting requirements are beyond the scope of this brief article, but the area of most concern to US individuals – including all dual nationals -- relates to transferring their own money from a US bank to a foreign bank for perfectly legitimate purposes and seeing 30% of it scooped up by the IRS and held until the US person files a tax return and claims the refund, which could be more than a year later. This could cripple real estate purchases and even endanger the health of expats who transfer funds to cover medical expenses.

In Panamá the local financial institutions have been making decisions to either divest themselves of any US person account holders and thereby avoid the problem, or to spend substantial amounts to reprogram their internal reports to generate the information which US based banks have been providing to the US Treasury Department for decades.

Now the immediate pressure has been relieved, but not eliminated. Those provisions were to become effective 1 Jan 2012, but have been deferred now twice, yet the local banks and other government agencies are moving ahead with implementing some of the requirements. Evidence of this are the recent demands of several local banks for signed agreements by US citizens to permit the bank to disclose the account holders’ information to the US Treasury Department – disclosures which are counter to the sovereign laws of the Republic of Panama.

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IRS modifies FATCA Implentation - Again | 2 comments | Create New Account
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IRS modifies FATCA Implentation - Again
Authored by: susangg on Monday, October 29 2012 @ 11:50 AM EDT

Thank you for this notice. I'm glad that the IRS has sent this crap back to the drawing board. However, I disagree with your conclusion that, as currently written, the FATCA law would have required a 30% withholding of "all funds sent from a US bank account to a Panamanian bank account." That is simply not correct. The funds that would be subject (absent changes) to such withholding would be limited to "US source income..." that is to say, taxable income earned by a US source that is being sent directly to a foreign account. For example: You have a USA corporation that does business and earns taxable income, but instead of having your earnings sent to the USA, you have it sent to your bank in Panama. The "US source" income withholding does not apply to other funds...for example, your savings in a US bank, or your social security deposits sent to your US bank which you then wire to your Panamanian bank (or, for that matter, your US social security benefits that you arrange to have deposited into your Panamanian bank accounts, as US social security regulations permit). Why? Because those funds are not "US source income" within the meaning of FATCA. Let me add that this is not my conclusion, this is the conclusion of virtually every well known tax law firm that has generated resource articles on the subject. You can find links to some of those articles on the panama laws for expats yahoo group, both by looking at the files of that group in the US tax laws folder, and also by doing a message archives search on FATCA. There are similar links on the Chiriqui Chatter website. You can also visit the various IRS websites for their guidance on this subject. Unfortunately, some people have been misinformed on this topic by a small group of companies peddling "offshore" products who are trying to scare people into thinking that they will have taxes withheld from their social security funds if they are wired to or deposited directly into Panama, or if they wire money to themselves in Panama from their USA savings accounts.