Foreign Banks to Report on US Taxpayers  

 The recently-enacted 2010 HIRE Act requires foreign financial institutions to enter into information-sharing agreements with the IRS in order to avoid a 30-percent withholding tax on certain income the institutions receive from U.S. financial assets they hold.  Under these information-sharing agreements, the foreign financial institutions must: 

• disclose the identity of all U.S. individuals who hold accounts with the institution or its affiliates; 

• report annually on the account balance, gross receipts, and gross withdrawals and payments from all accounts U.S. individuals hold with the institution or its affiliates;

• deduct and withhold 30 percent from pass-through payments to account holders who don’t comply with information requests the institution makes to determine whether the account is a U.S. account or who refuse to waive the protection of any applicable foreign bank secrecy laws;  and

• deduct and withhold 30 percent from pass-through payments to financial institutions that haven’t entered into their own information-sharing agreements with the IRS. 

 Congress expects that foreign financial institutions will comply to avoid paying the 30-percent withholding tax.  The withholding tax applies generally to payments made after December 31, 2012.

While the IRS’s Offshore Voluntary Compliance Program expired on October 15, 2009, the IRS continues to accept voluntary disclosure requests under its traditional disclosure guidelines.  You may find those guidelines here.

 For more information, please contact Jimmy Martens (jmartens@textaxlaw.com) or Kelli Todd at (ktodd@textaxlaw.com) at (512) 542-9898.