WASHINGTON (7/10/13)--A House Financial Services Committee member, Rep. Bill Posey (R-Fla.), said in a recent letter to Treasury Secretary Jack Lew that regulations that would require U.S. credit unions and banks to collect information on interest paid to nonresident aliens, and to report that information to regulators, would create burdensome compliance costs for those institutions.
Citing this and other issues, Posey called for The Foreign Account Tax Compliance Act (FATCA) to be "either substantially amended or repealed, and replaced with a cooperative scheme that penalizes actual tax evasion without harming the innocent."
Posey's concerns mirror those aired earlier this year by the Credit Union National Association.
FATCA is designed to create a tax information reporting and withholding system for certain payments that are made to foreign financial institutions (FFIs) and other entities. Some provisions would apply to U.S. credit unions that make international payments. U.S. credit unions would also be required to identify and withhold on so-called "pass-thru payments" to FFIs involving transfers of U.S.-sourced investment or interest income an FFI that has not yet been subject to taxation.
Portions of FATCA that impact Form 1042-S filings are already in effect. Other provisions will be phased in between January 2014 and January 2017.
To cope with the FATCA changes, credit unions would need to establish procedures and practices, including staff training, for ongoing identification of covered entities and transactions, and take additional steps to ensure they met their reporting and withholding compliance responsibilities when facing transactions that come under IRS regulations.
CUNA in a May letter to Congress said legislators did not appear to have U.S. credit unions nor banks in mind when it developed the FATCA provisions in 2010. "Yet U.S. financial institutions will be required to bear a large proportion of FATCA's compliance burdens," CUNA President/CEO Bill Cheney said.