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OVDI CPA discusses FATCA Withholding | Expat CPA tax issues

OVDI CPA Expat CPA FATCA Withholding

Gary Bode, CPA: as the FATCA noose tightens, OVDI CPAs expect to see more applications. (910) 399-2705.

FATCA, Foreign Account Tax Compliance Act, made progress in 2012 with France, Germany, Italy, Spain, and the UK agreeing on key implementation features, including FATCA withholding. Expat CPAs expect another wave of OVDI (Offshore Voluntary Disclosure Initiative) applications as the FATCA noose tightens. Some clients ask which country will be the new Switzerland? The IRS answer? No country. Why? FATCA withholding – see below.

Foreign and American FATCA Withholding Compliance Costs

Beginning in 2014, FATCA withholding phases in with a 30% hold back on US source funds paid to a Foreign Financial Institutions (FFI). The definition of a FFI is broad enough to essentially include all foreign entities including banks, brokers, insurance companies etc. But exceptions exist. The type of funds paid (e.g. interest, rents etc.)is also comprehensive, but CPAs expect further clarification by the IRS. So, while most Internet chatter focuses on the cost of FFI compliance, American companies face reporting and documentation costs too.

Some Countries and FFIs won’t permit FATCA Withholding Compliance

Note that an FFI can enter into an agreement with the IRS to avoid the FATCA withholding requirement. This is analogous to American Subcontractors having to file a W-9 with the contracting company. Why? If they don’t, the contracting company has to withhold 30% of the Subcontractor’s pay. And then report it to the IRS and transfer the 30% to the Department of the Treasury. So, even if a FFI refuses to honor FATCA, the American source has to withhold, report and transfer the 30%. Expat CPAs expect few FFIs to refuse entering into such an agreement. The IRS further tightens any loophole by stating an FFI should ask the “US person” to waive the secrecy rights of the host country. If the US person declines, the FFI is expected to close the account.

Required Documentation for FATCA Withholding

W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, and/or Form W-9, Request for Taxpayer Identification Number and Certification.


As the FATCA noose tightens, OVDI CPAs expect to see more applications. The IRS has had great success with OVDI. Every OVDI CPA will tell you to follow the tax laws. The IRS maintains future compliance is its goal, not retroactive punishment. So, soft disclosure is still advocated by some advisors. But criminal charges are possible for nondisclosure.

I’m an OVDI CPA with a virtual office to serve Expats. Of course I handle other expat tax issues too. I prepare Form 5471, FBAR, Form 2555, Form 8938,Form 1116 etc. For a free phone consult call (910) 399-2705.

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