About
Foundational Principles In the Community Diversity, Equity & Inclusion Technical Excellence Alumni TIAG Membership
Careers
Why Cohen & Company Our Culture Total Rewards & Benefits Intern & Entry Level Opportunities Experienced Opportunities
Contact
Akron, OH Baltimore, MD Chicago, IL Cleveland, OH Detroit, MI Milwaukee, WI New York, NY Philadelphia, PA Pittsburgh, PA St. Clair Shores, MI Youngstown, OH
Client Portal
Services Industries Knowledge Center People

About Our Services

We offer tailored solutions — whether private company or owner; public or private fund, adviser or fund service provider; or Fortune 1000 enterprise. Learn how we can help you.

Learn More

Assurance Services

Employee Benefit Plan Audits Internal Controls Investment Company Audits Private Company Audits SOC Readiness & Compliance

Tax Services

Federal Tax Planning & Compliance High Net Worth & Wealth Transfer International Filings & Structuring Investment Company Tax State & Local Tax Tax Credits & Incentives Transaction Tax Planning

Advisory Services

Business Valuations Data & Insights Digital Finance Solutions IT Strategy & Implementation M&A Advisory Outsourced Accounting Solutions Risk Assurance & Advisory Transaction Services Turnaround & Restructuring

Our Industry Expertise

Our industry experience means you can find professionals who speak your language and bring earned insights to the table. Learn how we can help you.

Learn More

Key Industries

Digital Assets Investment Companies Manufacturing Private Companies Private Equity Real Estate & Construction Technology & Life Science
VIEW THE COMPLETE LIST

Knowledge Center

Our team wants to help your team stay up to date. Browse our thought leadership, events and news for insights and a point of view on business-critical topics.

Learn More

Insights

Browse valuable articles and publications our experts have written to help you and your organization answer key questions — and consider new ones.

Read Our Insights

Events

Join us in person and online for events that address timely topics and key business considerations.

Explore Our Events

News

Find out what is happening at Cohen & Company, from industry recognitions and growth updates, to where we are contributing to important media stories.

Read Our News
People
Foundational Principles In the Community Diversity, Equity & Inclusion Technical Excellence Alumni TIAG Membership
Why Cohen & Company Our Culture Total Rewards & Benefits Intern & Entry Level Opportunities Experienced Opportunities
Akron, OH Baltimore, MD Chicago, IL Cleveland, OH Detroit, MI Milwaukee, WI New York, NY Philadelphia, PA Pittsburgh, PA St. Clair Shores, MI Youngstown, OH
Client Portal
Back to Insights

FATCA Update: Proposed Regulations Provide Significant Relief

by Cynthia Pedersen

January 09, 2019 Federal Tax Planning & Compliance, Alternative Investment Funds

Global reporting regimes continue to be a focal point of today’s regulatory environment. However, with the Department of Treasury’s current focus on reviewing existing regulations to reduce unnecessary burdens on taxpayers, pursuant to recent Executive Orders, the IRS and Treasury have offered a rare gift of relief in the area of foreign filing requirements.
 
On December 13, 2018, proposed regulations were issued that will eliminate the impending requirement to withhold on U.S.-source gross proceeds under the Foreign Account Tax Compliance Act (FATCA). The proposed regulations also offer other forms of related relief discussed below. 

Elimination of Withholding on Gross Proceeds

Pursuant to IRC Section 1471(a) and 1472, FATCA requires 30% withholding on certain U.S.-source payments to foreign financial institutions and certain non-financial foreign entities that do not comply with investor identification requirements. These payments are known as “withholdable payments” and currently include U.S. source: 

  • Interest,
  • Dividends,
  • Rents,
  • Salaries, and
  • Other fixed or determinable annual or periodical (FDAP) income. 

Beginning on January 1, 2019, the definition of a withholdable payment was scheduled to expand to include gross proceeds from the sale or other disposition of property that can produce FDAP income, such as the sale of U.S. stock or U.S. debt instruments.
 
The IRS and Treasury have repeatedly deferred the implementation date of withholding on gross proceeds based on comments received by withholding agents on the burden of implementing the complex regulatory framework. Due to the success U.S. and foreign financial institutions have had in implementing the current regime and the onus on the Treasury to reduce taxpayers’ burdens, the IRS and Treasury have determined the current withholding requirements already serve as a significant incentive for FATCA compliance. Therefore, expanding the definition of a withholdable payment is no longer necessary. Financial institutions may currently rely on these proposed regulations, therefore, FATCA withholding will continue to apply only to U.S.-source FDAP income. 

Deferral of Withholding on Foreign Pass-Through Payments

Similarly, due to the success of Intergovernmental Agreements, also known as IGAs, which allow the IRS and foreign governments to report U.S. citizen accounts, the IRS and Treasury determined the impending requirement for foreign financial institutions to withhold on certain pass-through payments is also not currently necessary. This withholding requirement is deferred until two years after the publication of final regulations that define the term “foreign pass-through payment.” 

Elimination of Withholding on Non-Cash Value Insurance Premiums

A withholdable payment does not include “excluded nonfinancial payments,” such as services income, office and equipment leases, and software licenses. Due to the expanded foreign reporting requirements under other provisions of the Tax Cuts and Jobs Act, the IRS and Treasury amended the definition of a “nonfinancial payment” to also include premiums for insurance contracts that do not have cash value. 

Clarification of Definition of Investment Entity

The proposed regulations clarify an entity should not be considered an investment entity solely because the entity invests all or a portion of its assets in a mutual fund, an exchange traded fund, or a collective investment entity that is widely held and is subject to investor-protection regulation. 
 
Please contact a member of your service team or Cynthia Pedersen at cynthia.pedersen@cohencpa.com for further discussion. 
 
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
 
 

About the Authors

Cynthia Pedersen, JD, LLM

Director, Tax
cynthia.pedersen@cohencpa.com
410.891.0340

Sign Up for Our Emails & Events

Receive insights from our specialists in a variety of areas and timely information on upcoming events directly to your inbox as they go live in our online Knowledge Center.

Subscribe Today
Subscribe to our newsletter
About Contact Submit RFP Privacy Policy
LinkedIn Twitter Facebook
© 2023 Cohen & Company