New US Tax law targets Americans with overseas accounts


Banks and foreign governments are mounting a desperate push against a US tax law that will force overseas institutions to report their American clients to the IRS.

The Foreign Account Tax Compliance Act was passed by Congress last year and comes into force in 2013. Last week, senior bank executives implored Tim Geithner, US Treasury secretary, to modify the law, according to people familiar with the meetings.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in U.S. efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.

Under FATCA, U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on a new form attached to their tax return. Penalties apply for failure to comply with this new reporting requirement. Reporting is required in taxable years beginning on or after January 1, 2011.

In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. This new reporting regime applies with respect to payments made by foreign financial institutions to covered accounts on or after January 1, 2013.

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