Non-residents Aliens receive relief from FATCA withholdings

IRS announces relief for accounts opened recently by non-residents aliens

Jeffrey S. Freeman, J.D., LL.M

notice on October 16, 2014 (Notice 2014-59, 2014-44 IRB) the IRS announced changes to the temporary regulations issued earlier this year under the Foreign Account Tax Compliance Act (FATCA). The changes provide relief from withholding from payments to nonresident aliens and foreign corporations that opened accounts between July 1, 2014 and January 1, 2015.

Under previous FATCA regulations in Chapter 4, withholding agents were required to withhold 30% of certain payments to a foreign financial institution (FFI) unless the FFI had entered into a FFI agreement with the IRS. The agreements typically outline that the FFI will report select information on U.S. accounts to the IRS to ensure that taxes are paid on the foreign assets.

Changes were published in February 2014 by the IRS under the temporary coordination regulations that would be effective for payments made by withholding agents and payers on or after the implementation of FATCA regulations on July 1, 2014. The circumstances where a withholding agent had reason to know if a payee’s claim of foreign status is unreliable or incorrect was amended.

The newly announced temporary relief is relief for non-resident aliens, but more importantly for financial intuitions that are trying to comply with the regulations. FATCA requires institutions to terminate a client relationship or impose a 30% tax withholding on Non-Participating FFIs and Recalcitrant Account Holders in Non-IGA Countries. Huge amounts of time and energy have been spent by the financial industry to develop a complex withholding scheme in order to be FATCA compliant.  The additional time granted allows them to continue fine tuning their withholding processes.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws.

Compliance with FATCA needs a distinctive approach. A simple change of processes or leveraging new IT infrastructure may not suffice.  FTL has partnered with Newgen Software (Newgen) to offer a unique end to end solution for our clients to offer a comprehensive compliance strategy. Newgen buildings on two decades of domain expertise in Banking and Compliance along with its market leading BPM, Case Management, ECM and CCM applications. Utilizing Newgen’s FATCA Compliance Software along with the creation of proper procedures and training offered by FTL of the financial organization staff, allows for the creation of systematized approach to negotiating the finer aspects of FATCA.

With FATCA, the stakes of non-compliance are simply too high.  Contact us today for a consultation to discuss how to further integrate your technology with the legal requirements of FATCA