United States tax: Offshore compliance bill introduced

On 27 October 2009, the Chairman of the U.S. House Ways and Means Committee Charlie Rangel and Senate Finance Committee Chairman Max Baucus concurrently introduced the Foreign Account Tax Compliance Act of 2009, a compromise offshore compliance bill that is an amalgamation of proposals in Senator Carl Levin's Stop Tax Haven Abuse Act, the Obama Administration's FY 2010 Budget and a draft proposal circulated by Chairman Baucus earlier this year.

Notably the joint bill does not include many of the most controversial proposals in the Levin bill, including management and control changes to the residency rules and the establishment of a list of "offshore secrecy jurisdictions." Likewise, the joint bill, which is expected to partially offset the extension of 2009 expiring provisions, does not include any of the controversial business and international tax revenue raisers previously anticipated, including: carried interest, publicly traded partnership changes and repeal of the check-the-box rules for foreign entities.

The joint bill does include a series of information reporting, disclosure and penalty provisions that would require foreign financial institutions, foreign trusts and foreign corporations to provide information about their U.S. accountholders, grantors and owners, respectively. These proposals would:

- Require any individual that holds more than USD 50,000 in a foreign bank account or in "reportable foreign assets" to report information about these accounts and/or assets on their returns;

- Extend the statute of limitations for significant underreporting of income in connection with foreign accounts and/or assets;

- Add teeth to the Qualified Intermediary program by imposing a 30% withholding tax on undisclosed income on U.S. assets held by a foreign financial institution;

- Codify the passive foreign investment company reporting requirements; and

- Define dividends to include dividend equivalent and substitute dividend payments and require withholding when paid to non-U.S. persons.

The Foreign Account Tax Compliance Act, which is estimated to raise USD 8.5 billion over 10 years, is expected to at least partially offset the extension of 2009 expiring provisions. While the joint bill is a modest compromise bill that suggests that the tax-writing committee leadership in both Chambers remains inclined to continue to stay away from controversial revenue raisers that may impair the economy in the near term, taxpayers should remain vigilant as members continue to look for revenue to offset healthcare reform or filling the remain gap in funding 2009 extenders.