On February 08, 2012 the IRS issued IR
2012-15, which contains proposed regulations that clarify the
manner in which non-US financial institutions will find and report
US persons to the IRS, which is required by the Foreign Account Tax
Compliance Act (FATCA), enacted by the US Congress in 2010. The new
regulations set forth: a) the type of information the financial
institution will search for; and b) the manner in which it will
search for that information.
Information the Financial Institution Will Search For
In order to determine whether an account holder is a US person,
the financial institution is required to search for the following
Identification of the account holder as a US person;
Whether the account holder was born in the US;
Whether the account holder has a US address or US telephone
Whether there are instructions to transfer funds to an account
maintained in the US; and
Whether power of attorney or signatory authority has been
granted to a person with a US address or telephone number.
If any of the foregoing are present, the institution must
require the account holder to complete a US information report
(form W-9) and that report will be submitted to the IRS. If the
report is not completed, or the account holder refuses to comply,
then the institution will be required to withhold 30% of any
distributions to the account holder and remit that amount to the
Manner in Which the Financial Institution Will Search For This
The manner in which the institution must search for indications
that an account holder is a US person depends on the balance of the
account, whether the account is new or existing, and whether the
account holder is an individual or an entity.
Existing accounts held by individuals
The financial institution is not required to conduct a search
provided the account had a balance of less than $50,000. However,
if the financial institution decides to make an inquiry, it must
follow the methodology described below.
If the account balance is at least $50,000 but less than
$1,000,000, the financial institution must review its
electronically searchable data for the information listed
If the account balance is $1,000,000 or more the financial
institution must review its electronically searchable data for the
same indications listed above. In addition, however, the
institution is obligated to search all non-electronic files for the
same information, including interviewing any relationship manager
associated with the account.
New accounts held by individuals
When an individual opens a new account, the financial
institution will be required to review all information provided
when opening the account under appropriate know-your-customer and
anti-money laundering rules. Accordingly, the institution will
generally not need to make significant changes to the information
collected during the account opening process in order to identify
US accounts, except to the extent that the above-referenced
information is identified.
So what does this mean for the US citizen who is resident in
Canada? First, if the individual meets the thresholds under a
preexisting account he may or may not be asked by the financial
institution if he is a US citizen. Second, when the individual
opens a new financial account in the future he will most likely be
asked for his place of birth, a copy of his passport, or asked
about ties to the US.
As stated in our previous blogs, on
January 09, 2012 the IRS extended the Offshore Voluntary
Disclosure programs indefinitely for US citizens who live abroad
and who are not current on their US tax obligations. The penalties
for taxes and non-filing are draconian, and do not appear to be
going away. Those who have not brought their filings current should
act quickly before FATCA compliance becomes effective.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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