The U.S.’s Internal Revenue Service Proposes a Tax Regulation Affecting Both Non-U.S. and U.S. Credit Unions - February 15, 2012
February 15, 2012
On February 8, 2012 the Internal Revenue Service (IRS), the United States tax authority that is a U.S. Treasury Department bureau, proposed a regulation that will affect many non-U.S. credit unions as well as U.S. credit unions when it is finalized.
The IRS proposed rule would implement the Foreign Account Tax Compliance Act (FATCA) which the U.S. Congress enacted in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. Congress enacted FATCA in order to make it harder for U.S. taxpayers to avoid U.S. income taxation by placing funds in overseas accounts. FATCA is therefore presumed to increase U.S. tax revenue without raising tax rates.
The proposed FATCA rules would regulate U.S. credit unions as well as “foreign financial institutions” (FFIs)—including non-U.S. credit unions—and would subject certain transfers that involve funds attributable to U.S. income sources (such as “gross” income—i.e. not yet taxed income—earned by a U.S. taxpayer) to a 30% “withholding” for tax compliance purposes. The IRS will be accepting public comments regarding the proposed rule until April 30, 2012.
The proposed regulation, if finalized as proposed, would require many non-U.S. credit unions to register with the IRS or be subject to penalties, and in some cases also require certain non-U.S. credit unions to, among other things, collect taxes on the IRS’s behalf and make regular reports about accounts held by U.S. taxpayers to the IRS or a tax or anti-money laundering (AML) authority in the credit union’s home country.
U.S. credit unions would be included in the proposed rule’s definition of “withholding agent,” and would be required to withhold taxes on certain transactions members make with FFIs as well as identify members’ accounts held by FFIs and determine those accounts’ status for tax compliance purposes using primarily AML information collected pursuant to the Bank Secrecy Act’s “know your customer” rules.
Please find attached a short, 7 page summary of the FATCA proposed rule’s implications for credit unions. We will be issuing a longer, comprehensive summary of the 388 page proposed rule in the near future.
Please do not hesitate to contact me if you have questions or concerns about the proposed IRS regulation. Thank you and have a nice day.