On March 18, 2010, President Obama signed HR 2847, unbeknown to most this law has several banking implacations/regulations and new taxes, even though it is not disclosed by its name: the Hiring Incentives to Restore Employment Act.
Much of the press and commentary about the resolution has centered on the tax benefits it affords to businesses that hire new employees between February 3 of this year and January, 1, 2011.
What has gone mostly unnoticed is how these incentives will be paid for by the Foreign Account Tax Compliance provisions known in Title V of the Act as Offset Provisions.
Part I: Increased Disclosure of Beneficial Owners
Financial institutions that make payments, on behalf of their customers, to Foreign financial and nonfinancial institutions must withhold 30% of payments made to those institutions, unless such institutions agree to disclose the identity of such individuals and report on their bank transactions.
The bank risk for not withholding the 30% is with the financial institution that initiated the transfer of funds – in other words, the bank will be responsible to send to the IRS the 30% it should have withheld. The individual sending the money will be responsible to get a refund from the IRS on their tax return. Also denies a tax deduction for interest on non-registered bonds issued abroad.
Part II: Under Reporting With Respect to Foreign Assets
Anyone with more than $50,000 in a depository or custodial account maintained by a foreign financial institution must report it. Underpayments resulting from undisclosed foreign financial assets will incur an enhanced penalty.
Part III: Other Disclosure Provisions
U.S. shareholders of a foreign investment company must file annual returns.
Part IV: Provisions Related to Foreign Trusts
A foreign trust has a U.S. beneficiary if the beneficiary's interest in the trust is contingent on a future event or such beneficiary directly or indirectly transfers property to such trust or uses trust property without paying compensation to the trust. Owners of foreign trusts must report them in their taxes, and they will be penalized if transfers to and distributions from such trusts aren’t reported.
Part V: Substitute Dividends and Dividend Equivalent Payments Received by Foreign Persons Treated as Dividends
A dividend equivalent payment is considered a dividend from a source within the United States for purposes of taxation of income from foreign sources and tax withholding rules applicable to foreign persons.
Delay in Application of Worldwide Allocation of Interest
Delays until 2021 the application of special rules for the worldwide allocation of interest for purposes of computing the limitation on the foreign tax credit.
Increases the required estimated tax payments for corporations with assets of not less than $1 billion in specified calendar quarters. Provides criteria for compliance with the Statutory Pay-As-You-Go Act of 2010.