We’re sure in the depths of tax season – deep in the season. Yet, most of my “work” is taking place on the telephone and not at the computer keyboard. Client tax information is only trickling in this year, with most looking to take advantage of the overseas automatic two-month extension of time to file their tax returns.
No, most of my work for the past few days has been answering the phone, answering the questions, and doing a lot of informal training and explaining to clients, soon-to-be clients, former clients looking for a graceful way to rejoin the client list, and even you, dear readers.
I don’t mind it one bit. The gift of gab (and of Blarney – belated Happy St. Patrick’s Day) is one (or two) that I don’t mind sharing. Make the topic tax-related, and overdrive, here we come. But the topic of choice these past few days has been near unanimous. I’m talking about F.A.T.C.A.
F.A.T.C.A – What It Is
The Foreign Account Tax Compliance Act, better known as F.A.T.C.A. – or for this article “FATCA” to speed up my keyboard poking a little bit – is the child of the 2010 Hiring Incentives to Restore Employment – or “HIRE” – Act. Unlike its parent’s name, however, it’s proving to be more of a “disincentive” than any form of incentive that could possibly be related to restoring employment.
This two-pronged sword of economic justice has certain financial accounts and assets that are held in financial institutions outside of the United States as it’s reason for being. I say two-pronged because it’s wielded against the U.S. taxpayer and against the financial institutions outside of the U.S. that have U.S. taxpayers as customers. Both victims are prodded into compliance with the non-compliant being the target for draconian thrusts and slashes of its terribly sharp, uncaring blades.
All it really is can be simply called administrative reporting, for the most part, with a little tax implication for those who hold massive wealth outside of the U.S. and don’t report any of the income generated by that wealth in the form of interest, dividends, and royalties. That’s all. The “disincentive” comes into play with the various, uncoordinated processes around the world to implement it.
FATCA – The Problem
The problem with FATCA – the one that is giving your humble scribe cauliflower ear and hoarse voice – is its widespread misinterpretation and resulting error prone implementation around the world. Plagued with swarms of complaints, the Treasury Department has started to issue letter containing the proper forms and instructions to U.S. taxpayers known to reside outside of the United States. Still, Joe, Jane, Juan, and Precious Q. Taxpayer are confused, perplexed, and at their wits’ ends trying to comply.
Though signed into law some 5 years ago, it is only now being implemented in earnest. The reason for the delay can be found in both a desire by the Treasury Department and the IRS to avoid the snarled catastrophe that happened anyway with regard to a simple, easy implementation; and in those same departments and agencies not being prepared themselves to receive and process all of the Tetra-TerraBytes of information that they will be receiving annually for years to come from sources all across the globe.
The result? One living overseas can see it up close and personal whenever they visit their neighborhood bank. The Philippines is no exception. Each bank appears to have their own locally generated ideas of what the requirements are, who has what requirement to meet, and how the requirements are to be met. Thus, for the fellow on the other end of the finger madly poking away at the virtual keyboard of his tablet, the telephone calls come. The names and locations are different, but the reason for the calls is the same for each bending of the ear. The taxpayers are seeking sanity in an insane situation.
FATCA – What Is Required
For U.S. taxpayers who have a Social Security Number as their U.S. Tax Identification Number (TIN), the requirement placed on them (as far as interactions with their “foreign financial institution” goes) is simply to provide their foreign financial institutions with their TIN. This is accomplished by completing and signing an IRS Form W-9, and delivering that form to their foreign financial institutions. Simple, huh?
For U.S. taxpayers who have an IRS provided Individual Tax Identification Number (ITIN) as their U.S. TIN, and for others who do not have a U.S. TIN at all, the requirement placed on them is simply to provide their foreign financial institutions with their TIN, as well. They, however, accomplish this by completing and signing an IRS Form W-8BEN, and delivering that form to their foreign financial institutions. See the difference? Huh? See it?
I’m sure that all of you, dear readers, see the difference. Why is it that all of these financial institutions – the people you entrust with your hard-earned savings and other funds – cannot see it? Not only the small difference, they appear blind to the entire requirement.
Horror stories of numerous forms and IDs, and go here and go there, and even one instruction to have everything notarized — they abound. Additionally, there are the threats of dire consequences if the procedures aren’t followed to the letter, and if that letter is a “T” or an “I,” it better be crossed or dotted.
Most often, the threat involves the immediate closing of the account, freezing its contents until after they’ve been officially audited and certified, and then a “clearance” period of “X” number of business days (holidays, official or otherwise do not count) before the funds can be released to the owner of the closed account. “You are the owner, sir, are you not?”
FATCA – In Closing
Yes, you are between a rock and a hard place, and yes it’s the rock you’ll find yourself having to deal with. My advice, however, is just as simple as those requirements that I presented. “Don’t worry, be happy.” Fully complete and sign your appropriate form and, with a smile on your face and a pleasant attitude being emitted from every pore of your body, deliver your form to your financial institution of choice, thank them for their service, and try very daintily to slip away.
If you encounter any difficulties with the staff, keep smiling while you firmly ask to speak with the branch or office manager. Don’t settle for an assistant – you want to speak with the real deal. When you do speak with the manager, let the manager know – through your smiling and pleasant demeanor – that you have fully complied with the requirements of FATCA, and that the financial institution will not be mandated by the IRS to withhold 30% of your interest income from your account, wire the withholding to the IRS, and file the additional report of noncompliance associated with that withholding. All because you have complied in full with FATCA.
(I was going to provide a pleasant travelogue for this week’s article, but …… you know, it’s tax season.)