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Update on Obligation to Help Find Unreported Income

USA
5 Mar 2012

While many have a difficult time feeling sympathetic toward financial institutions, the reality is that they are being subjected to an extraordinary amount of new regulations and significant changes to their former business models. The days of accountability are here. Financial institutions are responding to Dodd-Frank regulatory matters and mapping out recovery and resolution plans. The US government is now requiring financial institutions to help find unreported US taxable income. Taxand US addresses some of the more significant tax issues affecting financial institutions today.

FATCA Update
The Foreign Account Tax Compliance Act (FATCA) generally requires US citizens and US resident aliens to attach a statement to their tax returns identifying their investment in "specific foreign financial assets" over a certain threshold. However, FATCA also requires foreign financial institutions (FFIs) to report US account holders to the IRS whose investments in either non-US financial accounts or non-US entities meet specified thresholds.

Internal Revenue Code Section 6050W

For financial institutions that are also payment settlement entities, Internal Revenue Code (IRC) Section 6050W applies for tax years beginning after 31 December 2010. In order to match income and ensure that all income is reported, new IRC Section 6050W requires that payment settlement entities furnish Form 1099-K to the IRS for each merchant whose sales dollar amount and number of transactions meet specific criteria.

US Indictment of Swiss Banks
Wegelin & Co., Switzerland's oldest private bank, has been indicted by the US Department of Justice (DOJ) on charges that it enabled US persons to evade taxes. This appears to be the first time that a foreign bank has been charged with tax evasion in the United States. Three Swiss bankers at Wegelin were also previously indicted but have not (as of the publication of this article) been arrested.

Taxand US analyses the increasingly complex tax issues faced by US MNCs today

Taxand's Take


The US government is serious about finding its taxpayers and getting them to report their assets and income subject to US tax. In addition, the US government is working closely with its trading partners to get those jurisdictions to help enforce these US compliance efforts. For now, these efforts are concentrated not through audit activity or promoting more self-compliance, but rather through changing the rules applicable to financial institutions and their information reporting. It seems that these obligations will continue to increase on financial institutions. And as of now, the US government does not appear to be persuaded about costs of compliance exceeding the benefits. The name of the game is to ferret out the tax evaders.

Your Taxand contact for further queries is:
Layne Albert
T. +1 212 763 9655
E. lalbert@alvarezandmarsal.com

Taxand's Take Author