Daily Tax Update - June 21, 2012: Treasury Announces Joint Statements with Japan, Switzerland for FATCA Implementation

TREASURY ANNOUNCES JOINT STATEMENTS WITH SWITZERLAND AND JAPAN FOR FATCA IMPLEMENTATION:  Today, the Treasury Department issued joint statements with Switzerland and Japan expressing "mutual intent to pursue a framework for intergovernmental cooperation to facilitate the implementation of the Foreign Account Tax Compliance Act (FATCA) and improve international tax compliance" based on the bilateral tax treaties between the United States and Switzerland and between the United States and Japan.

  • The joint statements provide a framework for facilitating FATCA implementation by Swiss and Japanese financial institutions by supplementing direct reporting to the IRS by those financial institutions with exchange of information on request pursuant to the tax treaties between the United States and Switzerland and the United States and Japan, respectively.
  • In February, the United States issued a joint statement with France, Germany, Italy, Spain, and the United Kingdom expressing intent to pursue a government-to-government framework for implementing FATCA.  Under that approach (“Model I”), foreign financial institutions (“FFIs”) would report information about U.S. account holders to their respective foreign governments, which would then exchange such information with the United States.  Under the approach announced today (“Model II”), foreign financial institutions would report certain information to the IRS, while foreign governments would agree to exchange certain additional information with the United States upon request. 
  • The approaches announced in the separate U.S.-Swiss and U.S.-Japan joint statements differ in certain respects.  For example, under the U.S.-Japan agreement, Japanese financial institutions would “register with the IRS and confirm their intention to comply with official guidance issued by the [Japanese Financial Services Agency] that is consistent with the obligations of participating FFIs under FATCA,” including applying FATCA due diligence and annually reporting U.S. account holders and the aggregate number and value of accounts held by recalcitrant account holders to the IRS.  Under the U.S.-Swiss agreement, Swiss institutions would conclude an FFI Agreement with the IRS and also report U.S. accounts and information about recalcitrant account holders directly to the IRS. 
  • The press releases issued by Treasury today also state that “Treasury, in consultation with the jurisdictions participating in the joint statement issued in February, has been developing a model agreement that will serve as the basis for bilateral agreements with countries interested in adopting the intergovernmental framework contemplated in Model I and aims to publish this model soon.”
  • Text of the U.S.- Swiss statement on FATCA implementation can be accessed here.
  • Text of the U.S. - Japan statement can be accessed here.
  • For additional information, contact Philip R. West - pwest@steptoe.com or Amanda Varma - avarma@steptoe.com.

FINAL REGULATIONS CLARIFY CALCULATION OF FOREIGN TAX CREDIT LIMITATION:  Today, the Treasury and the IRS issued final regulations regarding the recapture of overall foreign losses.  The regulations provide guidance in calculating gain for certain dispositions and coordinating foreign and domestic losses.  The final regulations generally adopt temporary and proposed regulations issued in 2007, with some changes.

  • Dispositions of Property Subject to the Recapture of Overall Foreign Loss Provisions
  • The new regulations clarify that, if a taxpayer disposes of trade or business property used or held for use predominantly outside of the United States, and gain is recognized irrespective of the section 904(f)(3) recapture of overall foreign loss provisions, the gain is recharacterized as foreign source income for U.S. tax purposes only to the extent of the section 904(f)(3) recapture amount.  Thus, the foreign source gain is equal to the lesser of the total recognized gain or the balance in the overall foreign loss account remaining after any other overall foreign loss recapture pursuant to section 904(f)(1) has been made.
  • Coordination of Section 904(b) Income Computation and Section 904(g) Recharacterization of Overall Domestic Loss
  • The new regulations clarify that the adjustments for capital gains and losses and qualified dividend income under section 904(b) must be taken into account before applying the overall foreign loss provisions of section 904(f) to determine how much U.S. source taxable income is available to recapture an overall domestic loss account.  The ordering rules in Treas. Reg. § 1.904(g)-3 have been revised to reflect this.  Also, the calculation of an overall domestic loss provided in the proposed regulations has been revised to coordinate with the calculation provided in Treas. Reg. § 1.904(b)-1(h)(1)(iii).
  • Corresponding changes have been made in adopting final Treas. Reg. § 1.1502-9.
  • The corresponding temporary regulations have been removed.
  • In the preamble, the Treasury and the IRS note that Treas. Reg. § 1.904(g)-3(i) is reserved and that forthcoming guidance will address adjustments required under section 904(f)(3) with respect to the disposition of property.
  • For additional information, contact Philip R. West - pwest@steptoe.com or Amanda Varma - avarma@steptoe.com
  • The regulations can be accessed here.

TAX BILLS INTRODUCED JUNE 20TH:

1. [112th] H.R.5974 : To amend the Internal Revenue Code of 1986 to extend bonus depreciation, and for other purposes.

Sponsor: Rep Levin, Sander M. [MI-12] (introduced 6/20/2012)  Cosponsors (14)

Committees: House Ways and Means

Latest Major Action: 6/20/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

2. [112th] H.R.5982 : To amend the Internal Revenue Code of 1986 to provide that the value of certain historic property shall be determined using an income approach in determining the taxable estate of a decedent.

Sponsor: Rep Shuler, Heath [NC-11] (introduced 6/20/2012)  Cosponsors (None)

Committees: House Ways and Means

Latest Major Action: 6/20/2012 Referred to House committee. Status: Referred to the House Committee on Ways and Means.