The Foreign Account Tax Compliance Act ('FATCA') targets non-compliant U.S. Taxpayers who have not reported the existence of their reportable Non-U.S. financial accounts and related asset structures to the Internal Revenue Service ('IRS'). It requires Foreign Financial Institutions ('FFI') to register with the IRS and do FATCA specified electronic reporting to the IRS in the same way as U.S. Financial Institutions ('USFI'). To enforce its required reporting, it contains a mechanism for financially penalizing FFIs that do not comply. In other words, FATCA conscripts FFIs to act as reporting and withholding agents for the U.S. Government.
Suitably offering FATCA implementation consulting services to FFIs requires years of experience in working with U.S. Taxpayers and with the U.S. Internal Revenue Code ('IRC') in the space of U.S. International Taxpayer Compliance and working within the internal compliance environment of Financial Institutions ('FI').
U.S. licensed CPAs are compliance specialists, working day-to-day with Taxpayer compliance, IRS forms, and with the IRS. U.S. licensed CPAs are government regulated at the state and federal levels, are U.S. university schooled and are required to invest in 80 hours of continuing education every two years. Those who work as U.S. Taxpayer and FI compliance experts are well prepared to offer FATCA implementation consulting services to FFIs. Because being able to communicate compliance in the language of FI is a qualification for working and consulting effectively in the FATCA space, U.S. licensed CPAs working in U.S. International Taxpayer Compliance and working within the internal compliance environment of FIs are well able to communicate with FFI clients in their FFI clients' language. Those that offer FATCA implementation consulting services who are not part of this group of U.S. licensed highly trained set of consultants do not possess the same inherent FATCA consulting services qualities.
FATCA is Chapter 4 of the Internal Revenue Code. It was signed into law by U.S. President Barak Obama on March 18, 2010. Developing regulatory and administrative guidance to implement FATCA took more than four years from the date of its passage to reach the point of FATCA implementation on July 1, 2014. It is an evolving project. Its first permanent regulations published in 2012 were more than 500 pages in length. Its second round of permanent regulations published in 2013 were also more than 500 pages. By themselves, the FATCA permanent regulations encompass more than 1,000 pages without considering the related regulations in IRC Chapter 3, Chapter 61 and IRC Code Section 3406. Further permanent regulations are expected. Meanwhile, IRS regularly publishes clarifying Revenue Procedures.
Because of its complexity, implementation that began on July 1, 2014 was merely a first step in a phased implementation of the FATCA regulations. Development of detailed rules to implement complex tax concepts is normally a refining process requiring repeated meetings and clarification. Developing regulations for implementing FATCA was no exception. Multiple attempts were required for devising the regulations necessary for instituting the structure and compliance mechanisms for FATCA. At the end of the day, an interconnected and intricate web of regulations, governmental procedures, agreements between financial institutions, Intergovernmental Agreements ('IGAs'), and forms and instructions were developed to establish the needed structure and compliance procedures for implementing FATCA. The complexity of coordinating IRC regulations under FATCA with IRC Chapter 3, Chapter 61, and Section 3406 is without precedent. Understanding and interpreting the thousands of pages of FATCA regulations requires an underlying understanding of their words, a new vocabulary and the spirit behind their wording to avoid being inadvertently victimized by FATCA sanctions and problems with U.S. correspondent FIs.
FFIs whose local FATCA consultants have left them experiencing FATCA initial and ongoing implementation issues continue approaching us. Don't be a victim of your own making. If you have questions or second thoughts regarding the effectiveness of your FATCA consultant's training or advice, check your FATCA consultant's history with your other FFI local associates or FFIs in other jurisdictions regarding their FATCA consultant(s) and their satisfaction.