Updated Rules Under Fatca

Freeman Tax Law

(855)935-5945

Updated Rules Under

FATCA

Several Changes

Freeman Tax Law (855) 935-5945 [email protected] www.freemantaxlaw.com

The IRS required all withholding foreign partnerships (WFPs) and withholding foreign trusts (WFTs) to renew their status with the IRS by the end of August 2014. This is the first of several changes that effect WFPs and WFTs under the commonly referred to FATCA "Chapter 3" rules.

Existing FATCA Rules


When a US person makes a payment to a non-US person of US source interest, dividends, or other income (excluding capital gains) they must withhold a 30% tax. Exemptions and reduced rates exist, but would require the beneficial owner to document on the appropriate Form W-8 their right to the exemption. Payments must be reported to the IRS on Form 1042-S even is the payment is exempt from withholding.

Changes Under New Procedures


Change is good and the changes that WFP/WFT are seeing give them more requirements that line up with those of qualified intermediaries. Logical and reducing procedural paperwork, the six changes listed below are positive changes for WFP and WFT alike.

- Withholding Responsibilities: The WFP or WFT is responsible for primary FATCA withholdings just as it was responsible for primary withholding responsibilities pre-FATCA.


Changes Under New

Procedures (continued)

- Account-level reporting: WFP or WFT that are not US, US-owned, or acting through a US branch will no longer need to perform payment-level 1099 reporting or backup withholding on US partners/beneficiaries accounts.- Assuming Primary Withholding Responsibilities: For a partner or beneficiary that is a foreign partnership or trust the WFP or WFT can now assume primary withholding responsibilities. Previously this was restricted and the WFP/WFT had to pass withholding tax documentation for "indirect" partners/beneficiaries to its withholding agent. Two limited exceptions existed, but now WFP/WFT have this ability.


Changes Under New

Procedures (continued)

-Use "Know Your Customer" Rules: WFP/WFT were previously restricted from using the "know your customer" (KYC) documentation and were only allowed to use IRS forms to document their partners or beneficiaries. This restriction has been lifted, for WFP/WFT located in a jurisdiction approved by the IRS to utilize KYC documentation to establish the status of its partners/beneficiaries in the same manner that a "qualified intermediary" (QI) is able to do so.- No More Audits: Read that again, WFPs and WFT will not have to undergo periodic external audits to prove compliance to their agreements. They will now have to adopt programs similar to QI where they develop internal compliance programs. There is a catch, these compliance programs will still have the requirement in them for periodic external review.- Renew: Hence the reason for all WFP/WFT renewing their status with the IRS in August 2014, all WFP/WFT agreements will expire periodically and will need to be renewed to maintain their status.

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Freeman Tax Law

About Freeman Tax Law


Freeman Tax Law is a boutique tax law firm with national

exposure equipped to handle all domestic and international tax

law matters. At Freeman Tax Law, the attorneys and

professional staff have vast experience with foreign tax

compliance, international tax planning, and resolving tax

controversies involving offshore banking matters. Freeman Tax

Law helps taxpayers and foreign entities become in compliance

with laws such as Foreign Account Tax Compliance Act

(FATCA) and Offshore Voluntary Disclosure Program (OVDP).

In addition to handling complex tax controversies, the Freeman

Tax Law team has extensive expertise in assisting clients with

wealth management and estate planning.