(Adds details, background and lawyer comment, paragraphs 3, 5-12)
By Patrick Temple-West
May 2 (Reuters) - The U.S. Treasury Department said on Friday that the Internal Revenue Service (IRS) this year and next will take into account “good faith efforts” by foreign banks to comply with a new U.S. anti-tax evasion law set to take effect on July 1.
The Foreign Account Tax Compliance Act (FATCA), approved in 2010, will require foreign banks and other financial institutions to hand over information to the Internal Revenue Service about Americans’ accounts worth more than $50,000.
Already delayed twice, the law will be implemented in a “transition period” in 2014 and 2015, with IRS enforcement taking into account good efforts to comply with it, according to guidance published by the IRS.
“Today’s notice outlines several measures to help institutions comply with FATCA in a timely manner,” said Deputy Assistant Secretary for International Tax Affairs Robert Stack in a statement.
FATCA was enacted after a scandal involving Americans hiding money in Swiss bank accounts. The law’s start date was delayed as Treasury and IRS officials struggled to implement its rules and as banks complained they needed more time to prepare.
Companies worrying about how to comply with FATCA will welcome this latest round of relief, said Michael Hirschfeld, chairman of the American Bar Association tax section and a lawyer at Dechert LLP.
“This is excellent,” Hirschfeld said. But he said there could be could be confusion about what qualifies as a “good faith effort,” which was not clearly defined.
Foreign firms that do not comply with FATCA face a 30 percent withholding tax on their U.S. investment income and could effectively be frozen out of U.S. capital markets.
The latest round of relief only applies to financial institutions that must register directly with the IRS for FATCA.
These firms are in jurisdictions that have not negotiated FATCA agreements with the United States.
Nearly 60 of these government-to-government FATCA pacts, known as intergovernmental agreements (IGAs), have been reached. But some key financial jurisdictions, including Singapore and Hong Kong, have not agreed to IGAs.
Treasury said the new relief was needed in part because multinational banks with branches in some unnamed jurisdictions are prohibited from registering for FATCA by their local government. (Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Chris Reese)