WASHINGTON (Reuters) - The Internal Revenue Service on Monday launched an online registration program for the hundreds of thousands of financial firms around the world that must comply with a U.S. anti-tax evasion law or risk being shut out of financial markets.
Starting the registration process, which is accessible on the IRS website, was one of the last steps the tax agency needed to take before the Foreign Account Tax Compliance Act (FATCA), enacted in 2010, takes effect in July 2014 with steep penalties for firms that do not comply.
FATCA requires foreign banks, investment funds and insurance companies to report to the IRS Americans’ offshore accounts worth more than $50,000. It was enacted after a Swiss banking scandal showed U.S. taxpayers hid substantial fortunes overseas.
Foreign financial institutions that fail to comply with FATCA face a 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.
To register in compliance with the law, a firm gives the IRS its name, mailing address, any branch offices and other basic information.
The IRS will start approving firms’ registrations in 2014. Firms must register by April 25, 2014, to avoid FATCA’s withholding penalties. In June 2014, the IRS will publish online a list of all the firms complying with FATCA.
The IRS will start collecting the firms’ customer account information in 2015.
The fact that the registration process started on schedule was a victory for the IRS, which has struggled to meet its own deadlines to implement FATCA, tax lawyers said on Monday.
The U.S. Treasury Department last month postponed the start of FATCA to July 2014 from January 2014.
Before the registration process was finalized, firms did not know what information they would need to tell the IRS, making it difficult to prepare their internal systems, said Michael Silva, a partner at law firm DLA Piper.
“We finally have something tangible to put our teeth into,” Silva said.
However, some challenges remain, Silva said. Foreign firms will need to register in English, an added headache for some, he said.
Additionally, it is unclear whether U.S. companies that have lending businesses abroad will need to comply with FATCA, Silva said. Many manufacturers have lending operations abroad to sell tractors, for example, and other products on credit.
Reporting by Patrick Temple-West; Editing by Howard Goller and Ken Wills