Foreign Account Tax Compliance Act (FATCA)

FATCA is legislation that was enacted to combat tax evasion by U.S. persons with foreign financial assets. The IRS’ theory is that by “motivating” foreign financial institutions (“FFIs”) to report information on U.S. clients that those U.S. clients will come forward voluntarily. FFIs failing to turn over information on accounts owned by, or for the beneficial interest of, U.S. persons are subjected to a 30% withholding tax on certain payments.


Determining who is considered an FFI is not as clear-cut as you would think; it can include many different types of entities. Some examples of FFIs include:


  • Depository institutions (e.g., banks or brokerage houses)
  • Custodial institutions (e.g., mutual funds)
  • Investment entities (e.g., hedge funds, private equity funds, or holding companies)
  • Insurance companies that offer cash value insurance products or annuities


FFIs, U.S. Financial Institutions (USFI), some Non-financial Foreign Entities (NFFE), and other entities with U.S. clientele generally must register with the IRS and turn over information regarding their U.S. account holders. Excepted NFFEs do not need to register. To make matters even more complicated, determining which clients are U.S. persons isn’t always clear. For example, an FFI with a non-U.S. corporation as a client would likely think they need not report the corporation; but, if that non-U.S. corporation has a U.S. shareholder owning 10% or more of its shares – it needs to be reported. FATCA requires the FFIs dig deep into the organization of the entity to make sure all of the reporting requirements are met.


Like most IRS related issues, FATCA is confusing. Determining if you are an FFI and identifying which clients need to be reported to the IRS is complex. Esquire Group can help take the mystery out of FATCA.


Esquire Group will determine your FATCA classification, explain your reporting requirements, and ensure you get in compliance so you and your clients are not subjected to 30% withholding tax.


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