Friday, January 18, 2013

The Treasury Department issued final regulations on the Foreign Account Tax Compliance Act (FATCA)

On January 17, 2013, the Treasury issued final regulations on the Foreign Account Tax Compliance Act (FATCA), and announced that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements relating to FATCA compliance. The voluminous final regulations, expanding over hundreds of pages, will be published in the federal register on January 28, and the pre-publication version is available here:

FATCA was enacted in 2010 to require foreign financial institutions ("FFIs") to report to the IRS information about financial accounts held by U.S. taxpayers (or by foreign entities in which U.S. taxpayers hold a substantial ownership interest). In order to avoid withholding under FATCA, an FFI will have to enter into an agreement with the IRS to identify U.S. accounts, report certain information to the IRS regarding U.S. accounts, and withhold a 30 percent tax on certain U.S.-connected payments to account holders who are unwilling to provide the required information. 

 The regulations finalize the step-by-step process for U.S. account identification, information reporting, and withholding requirements, build on intergovernmental agreements that foster international cooperation, phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements, expand and clarify the scope of payments not subject to withholding, refine and clarify the treatment of investment entities, and clarify the compliance and verification obligations of FFIs.


Thursday, January 3, 2013

Congress passes the "American Taxpayer Relief Act of 2012"

On January 1, 2013, Congress passed legislation, the "American Taxpayer Relief Act of 2012", to avert some of the January 1, 2013 tax increases resulting in the so-called fiscal cliff. The text of the legislation is available at

Highlights include:

  • The maximum income tax rate remains at 35% for taxpayers whose taxable income is under $400,000 (or $450,000 for married couples filed jointly). The maximum income tax rate for taxpayers whose taxable income exceeds these thresholds is 39.6%. 

  • Marginal income tax rates on long-term capital gains and dividends, currently 15%, continue for taxpayers whose taxable income is under $400,000 (or $450,000 for married couples filed jointly). The maximum marginal rate is 20% for taxpayers whose taxable income exceeds these thresholds. 

    •  Note that a new 3.8% surtax enacted by the 2010 healthcare reforms also took effect January 1, 2013 on investment income of taxpayers with modified gross income over $200,000 for individuals (or $250,000 for joint filers). 

  • The overall limitation on itemized deduction and the personal exemption phaseout apply only to taxpayers whose adjusted gross income exceeds $250,000 (or $300,000 for joint filers). 

  • The $5 million unified exemption amount (indexed after 2011) with portability for estate and gift tax is permanently extended, but with a new top rate at 40%. 

  • The alternative minimum tax exemption amount is increased permanently, to $50,600 (or $78,750 for joint filers) in 2012 and indexed thereafter. 
In addition, certain business tax relieves are also permanently extended including, for example, the reduction in recognition period for S corporation built-in gains tax, the look-through treatment of payments between related controlled foreign corporations, and the extension of certain bonus depreciations.