IRS Associate Chief Counsel Musher on FATCA Guidance, Withholding,

Jun 28, 2010   

IRS associate chief counsel (international), Steven Musher, told tax practitioners on June 21, 2010, that the IRS will attempt to balance the needs of taxpayers and their advisers when issuing guidance on the Foreign Account Tax Compliance Act (FATCA)(1). Musher stated that the IRS is weighing the benefits of issuing quick guidance against the push to make that guidance as comprehensive as possible. He explained that the government realizes how important FATCA guidance is to taxpayers, but issuing guidance too quickly may result guidance that is overly broad. During the conversation, Musher stated that the government intends to issue FATCA guidance in several parts over time.

FATCA was enacted on March 18, 2010 with a stated purpose to prevent perceived tax evasion, possible money laundering and terrorist financing activities. According to Musher, the IRSs plan is to issue an initial round of guidance that will attempt to answer important questions, as determined by meetings conducted by the IRS with stakeholders, in headline form. Musher said the initial round of guidance may include information about the following: which financial institutions will be subject to the rules; which accounts are subject to the regulations; exemptions available to entities from statute requirements; and an interpretation of the statutes grandfather provisions.

In addition to speaking with tax practitioners about FATCA guidance, Musher spoke about the acts withholding regime. FATCA, in part, contains a 30% withholding requirement on specific payments and a reporting requirement that financial intermediaries report US account holders to the Treasury. According to Musher, the IRS is trying to design a system that creates reporting rather than a withholding regime through a manner of processes. Musher added that if one were to obtain a refund, documentation, presumably to prevent fraud, would need to be produced.

Other items in FATCA that may need guidance include the types of payments subject to withholding. To that, Musher provided that congressional intent pointed to “business oriented payments” as being a possible payment category exposed to FATCA.

Musher concluded by stating that the rules are partly designed to minimize the need for refunds, but that some taxpayers will deserve refunded amounts, and thus the IRS will have to prepare a refund process.

If you have any questions regarding the FATCA or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

(1) FATCA was enacted by the Hiring Incentives to Restore Employment Act (P.L. 111-147), requiring, in part, that non US financial institutions disclose data to the IRS on entities that invest in accounts outside the United States. FACTA also requires non US entities to provide information about US account owners to withholding agents.