Audit, Accounting and Tax Alerts
Do you have foreign accounts?
7/29/2010Earlier this year President Obama signed the HIRE Act into law, containing both payroll tax and income tax incentives for hiring the unemployed. The Act, however, also strengthened several lesser-known foreign provisions, with the hopes of offsetting some of the cost of the payroll-related tax benefits. These foreign provisions include new information reporting for individuals, foreign financial institutions and foreign companies, which are aimed at reducing tax evasion by U.S. persons through the use of foreign accounts.
For tax years beginning after March 18, 2010, the Act creates a new reporting obligation for individuals with offshore accounts and other foreign financial assets with values of $50,000 or more. Individuals must report these financial assets on their tax return or be subject to a penalty of $10,000. Also, the Act imposes a penalty of 40% of the amount of any understatement of income that is attributable to an undisclosed foreign financial asset.
Generally effective for payments made after 2012, the Act imposes a 30% withholding tax on certain investment income from U.S. financial assets held by a foreign financial institution unless the institution takes steps to disclose the identity of U.S. individuals with an account at the institution. The foreign financial institution must also report annually on the account balance, gross receipts, and gross withdrawals/payments from the accounts.
Also effective for payments made after 2012, the Act requires foreign entities to provide withholding agents with the name, address, and tax identification number of any U.S. individual that is a substantial owner of the foreign entity. To be a substantial owner the U.S. person must generally own, directly or indirectly, more than 10% of the interests in the entity. This information will then be provided to the U.S. Treasury by the withholding agent. Publicly-held and certain other foreign corporations are exempt from this reporting requirement. Any withholding agent making a payment subject to withholding to a foreign entity that does not comply with these disclosure and reporting requirements is required to withhold tax at a rate of 30%.
If you would like more information on these foreign account provisions, please contact Doug Yoakley or Heather Martin at (800) 270-9629.