Fatca finale — the deadline is in three days. July 1, 2014, precisely, is when foreign banks and foreign financial institutions in more than 100 countries, Bermuda included, having registered and entered into agreements with US Internal Revenue Service will start reporting data on foreign financial accounts held by US taxpayers or foreign entities in which US taxpayers have control or hold substantial ownership.

Who will this effect?

— US citizens and US Green card holders resident in the United States with foreign accounts.

— US tax residents, those foreign nationals who have breached the US substantial presence test or other criteria.

— US citizens residing overseas.

— US dual citizens with other countries, resident abroad.

— US Green Card Holders residing overseas (and who have not technically renounced this status – note that this is a complicated issue).

— Certain foreign nationals who have complicated US connections.

How did this happen? Late last year, the Bermuda Government signed an Intergovernmental Agreement (IGA2) with the United States in order to implement Fatca (the US Foreign Account Tax Compliance Act) tax reporting and withholding procedures. The bilateral agreement of IGA2 meant that “Bermuda will direct and legally enable foreign financial institutions (in various categories, and except those that are exempt) in Bermuda to register with and report information required by Fatca about consenting US accounts directly to US Internal Revenue Service.” There will also be a government-to-government exchange of information regarding certain pre-existing accounts (US Treasury announcement December 19, 2013).

Bermuda foreign financial institutions of all types (more than 1,200) have registered with US IRS: local banks, investment firms, pension administrators, insurance companies, trust companies, foreign mutual funds, hedge funds, private equity funds and related entity types (see source information for the total list of Bermuda registered firms).

Why is this happening now? Fatca, the most ambitious unprecedented tax law enforcement in recent times, became US law in March 2010 and is now activated. The objective of Fatca is the reporting of foreign financial assets: by US taxpayers about certain foreign financial accounts and offshore assets, and by foreign financial institutions about financial accounts held by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. Withholding on foreign financial institutions is the cost of not reporting.

More than 77,000 foreign financial firms have registered compliance, and many more, possibly estimated in hundreds of thousands, are expected to register this year, according to Professor William Byrnes on his Tax and Financial Planning blog (search under Fatca Facts).

Foreign financial firms that have not registered, or have not agreed to report, or have US account holders who are not compliant with Fatca, will face 30 percent withholding of all US source payments or transactions due to them by their US correspondent banks or other US withholding agents, a compliance “encouragement” that may be severely detrimental to firms conducting international business.

For US persons who have not complied with Fatca — whether non-compliance is considered willful or non-willful — time is running out.

Recently, the new IRS Commissioner of the IRS, John Koskinen announced two action categories relative to US persons with foreign accounts.

1. Expansion of the IRS Streamlined Procedures for the the non-willful ordinary US persons generally residing permanently abroad who are not compliant because they simply are not aware of, or have attempted to comply, or do not understand the complexity of their US tax filing and reporting responsibilities.

It has been well documented by many individuals’ anecdotal evidence, non-profit advocacy organisations assisting Americans residing offshore, such as American Citizens Abroad, the Association of Americans Overseas, and even the United States Taxpayer Advocate, Ms Nina Olson in her annual reports to the United States Congress since the year 2007, that certain US persons, particularly ordinary long-term overseas residents, are simply unable to understand, and lack the ability to comply with the cost and complexity of their US tax reporting obligations. These individuals may be considered low compliance risks and may be eligible for this new Streamlined Procedures programme designed to bring about US tax compliance without additional penalties or follow-up actions.

2. Stricter information requirements and higher penalties are now part of the OVDP (IRS Offshore Voluntary Disclosure Programme) for those US persons who have willfully failed in their US tax filing and reporting responsibilities. These individuals cannot qualify for the IRS Streamlined Programme, and will need to focus on seeking certainty and relief from criminal prosecution.

There is a further severe warning deadline of August 4, 2014. US taxpayers who have undisclosed foreign accounts, who have not become compliant with US IRS voluntarily and have accounts at foreign institutions already under IRS investigation, have only until August 3, 2014 to step forward. At August 4, 2014, the penalty will rise from 27.5 percent to 50 percent of the highest account balance. The IRS recently published a list of ten foreign financial institutions or facilitators already under investigation. Among them are Butterfield Bank, HSBC India, and CIBC First Caribbean International Bank. More financial institutions are expected to be added, in due course.

It was evident to many international tax professionals (I started writing on this topic in 2003) as early as the year 2000 that US government through the US IRS were intent on implementation of a world-wide programme to bring US persons hiding assets in foreign jurisdictions into compliance. It has taken almost 15 years for full recognition of the Fatca programme. Now Fatca is close to being universally applied, and interestingly, being copied by other governments in other countries. Are we moving toward a global tax system? (See “Uncle Sam’s Hands Across the Water”).

Disclosure: This article is for general information purposes only and is not intended to be United States tax advice, or considered advisory in nature for any individual’s personal financial situation. It is strongly recommended that any concerned individual consult with international experienced legal and tax professionals - United States Attorneys licensed to practice before US Internal Revenue Service and fully experienced in US IRS Offshore Voluntary Disclosure Programmes. See a list of US attorneys under Sources.

Sources and references

Prof William Byrnes extensive Fatca reporting blog and author and editor of LexisNexis® Guide to FATCA Compliance. See detailed descriptions of the IRS new Streamlined Procedures and the IRS 50 percent penalty OVDP.

http://profwilliambyrnes.com/2014/06/11/why-is-the-irs-softening-the-offshore-voluntary-compliance-program/

IRS Fatca website http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA

Bermuda Government IGA2 http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Bermuda-12-19-2013.pdf

List of Bermuda firms registered for Fatca compliance http://apps.irs.gov/app/fatcaFfiList/flu.jsf

Financial firms under investigation by US IRS http://www.irs.gov/Businesses/International-Businesses/Foreign-Financial-Institutions-or-Facilitators

Summary of Fatca Reporting for US Taxpayers http://www.irs.gov/Businesses/Corporations/Summary-of-FATCA-Reporting-for-U.S.-Taxpayers

Federal Tax Crimes blog by Atty Jack Townsend with a List of US attorneys who specialise in OVDI/OVDP offshore voluntary disclosure practices. http://federaltaxcrimes.blogspot.com/p/ovdi-attorneys.html

Uncle Sam’s Hands Across the Water. (Qualified Intermediary) The Practical Accountant, July 1, 2004 | Myron, Martha Harris | Copyright. http://www.highbeam.com/doc/1G1-119782411.html

Martha Harris Myron CPA CFP Masters of Law: International Tax and Financial Services, Summa Cum Laude

Appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland

President: The Pondstraddler* Life™ Consultancy providing international financial planning for the challenging lifestyles of multinational individuals and their families residing, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle. Specific focus for residents of Bermuda, the premier international finance centre. www.marthamyron.com Contact: martha@pondstraddler.com

* Pondstraddler. A person with one foot on each shore whose heart resides in both countries*