US President will likely pass executive order for full FATCA reciprocal reporting

Calling Upon Congress to Provide Additional Tools to Combat Illicit Financial Activity and Tax Evasion

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Letter from Treasury to Congress to pass legislation for Full FATCA reciprocal Reporting.

Obama actions against foreigners using USA for tax evasion

The Administration is taking actions to combat money laundering, terrorist financing, and tax evasion:

  • Full FATCA reciprocal reporting
    1. Calling on Congress to act on long-overdue proposals that help crack down on tax evasion. In a letter from Secretary Lew, the Administration is also calling upon the Senate to finally approve tax treaties that have been pending for several years, and that would help crack down on offshore tax evasion. We stand ready to work with Congress to act on the Administration’s legislative proposal, that ensures the United States is in line with international standards on tax information sharing.

      If US Congress does not pass this legislation, it is possible that the US President implements full FATCA reciprocal reporting through an executive order.

      An anlysis of the number of executive orders per US President.

  • The Administration is announcing new rules to increase transparency and disclosure requirements that will enhance law enforcement’s ability to detect, deter, and disrupt money laundering, terrorist finance, and tax evasion:
    1. Final Treasury regulations on "Customer Due Diligence" that enhance transparency and protect the integrity of the financial system by requiring financial institutions to know and keep records on who actually owns the companies that use their services;
    2. New proposed Treasury / IRS tax rules closing a loophole allowing foreigners to hide assets or financial activity behind anonymous entities established in the United States.

  • Putting forward new legislative proposals to strengthen our tools to fight corruption and money laundering:
    1. Increase transparency into the beneficial ownership of companies formed in the United States by requiring that companies know and report their true owners;
    2. Provide additional law enforcement tools to combat corruption and money laundering

Enhancing Financial Transparency Through "Customer Due Diligence" Rules

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is making public a final rule requiring financial institutions to know and verify the identities of the natural persons (also known as beneficial owners) who own, control, and profit from companies when those companies open accounts.

This rule also amends existing regulations under the Bank Secrecy Act (BSA) to enhance transparency and protect the integrity of the financial system by clarifying and strengthening the customer due diligence obligations of financial institutions. The CDD Final Rule advances the implementation of the BSA by helping to make available to law enforcement valuable information needed to disrupt illicit finance networks. This will in turn increase financial transparency and augment the ability of financial institutions and law enforcement to identify the assets and accounts of criminals and national security threats. This will also facilitate compliance with sanctions programs and other measures that cut off financial flows to these actors.

Closing a Loophole that Enables Foreigners to Hide Behind Anonymous Entities Formed in the United States

The Treasury Department and Internal Revenue Service (IRS) are issuing proposed regulations closing a loophole in U.S. laws that has allowed foreigners to hide assets or financial activity behind anonymous entities established in the United States. The rule will require foreign-owned entities that are "disregarded entities" for tax purposes, including foreign-owned single-member limited liability companies (LLCs), to obtain an employer identification number (EIN) with the IRS. These entities represent a narrow class of foreign-owned U.S. entities that have previously had no obligation to report information to the IRS or to get a tax identification number, and thus can be used to shield the foreign owners of non-U.S. assets or non-U.S. bank accounts. The proposed rule will strengthen the IRS’s ability to prevent the use of these entities for tax avoidance purposes, and will build on the success of other efforts to curb the use of foreign entities and accounts to evade U.S. tax.

In addition to getting an employer identification number from the IRS, foreign owners of domestic disregarded entities would have to file the Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code). The rules are intended to ensure that owners disclose all transactions with foreign related parties.

To ensure that these entities have to report all transactions with related parties, the rules create a new category of reportable transactions. This would include any transaction within the meaning of Treasury Reg. Section 1.482-1(i)(7), including any sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any property or money, as well as the performance of any services for the benefit of, or on behalf of, another taxpayer.