WASHINGTON (CN) - The Internal Revenue Service has announced an amendment to the "voluntary" tax compliance system to prevent U.S. taxpayers from "hiding" money in offshore accounts.
To achieve this goal, the IRS has extended the scope of the U.S. information reporting regime to include Foreign Financial Institutions (FFI's) that maintain U.S. accounts. It also imposes increased disclosure on certain Non-Foreign Financial Entities that "present high risk of U.S. tax avoidance."
It comes in the form of the recently added Chapter 4, which was added to the U.S. Internal Revenue Code by the Hiring Incentives to Restore Employment Act.
Chapter 4: Attempts to improve tax compliance of specified "U.S. Persons" who have offshore financial accounts; Requires FFI's to enter in to compliance agreements with the U.S. Treasury by June 30, 2013 and to identify and report U.S. accounts annually; Requires U.S. withholding agents to perform enhanced due diligence on foreign accounts and perform withholding and reporting in addition to their current regulatory obligations under Chapter 3; Requires non-financial foreign entities (NFFEs) to report substantial U.S. owners or certify no U.S. ownership; Requires U.S. withholding agents and FFIs to withhold 30 percent of payments made to foreign financial institutions and recalcitrant accounts that are not in compliance with [Foreign Account Tax Compliance Act] requirements; Requires FFI's to withhold foreign passthru payments through payments to recalcitrant accounts no earlier than 2017.
Chapter 4 applies generally to payments made after Dec. 31, 2013, and is projected to raise $7.6 billion in tax revenue over 10 years.
"This information reporting strengthens the integrity of the U.S. voluntary tax compliance system by placing U.S. taxpayers that have access to international investment opportunities on an equal footing with U.S. taxpayers that do not have such access or otherwise choose to invest within the United States," the IRS said.
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