WASHINGTON (5/1/12)--U.S. credit unions should not be subject to any of the Internal Revenue Service's (IRS) recently proposed changes to Foreign Account Tax Compliance Act (FATCA) regulations, as the compliance burdens and overhead costs credit unions would face as a result of these proposed changes would far exceed any benefit to the IRS, the Credit Union National Association (CUNA) said in a Monday comment letter.
The planned FATCA changes are designed to create a tax information reporting and withholding system for certain payments that are made to foreign financial institutions (FFIs) and other entities.
Under the proposed regulations, credit unions and other domestic financial institutions as "withholding agents" would be required to identify members or customers that are FFIs and determine their compliance with FATCA and whether or not they have entered into a reporting agreement with the IRS. Credit unions would also be required to identify members that are foreign entities that are not financial institutions, and be able to verify whether such entities have any substantial U.S. owners.
U.S. credit unions would also be required to identify and withhold on so-called "pass-thru payments" to FFIs involving a transfer of funds to a customer of the FFI that should be subject to withholding, but is not having withholding tax taken out of their account.
Credit unions are concerned that the proposal would impose new compliance requirements on them at a time when credit unions are already subject to a range of additional regulatory responsibilities from a variety of other agencies, the letter said.
To cope with the FATCA changes, credit unions would need to establish procedures and practices, including staff training, for ongoing identification of covered entities and transactions, and take additional steps to ensure they met their reporting and withholding compliance responsibilities when facing transactions that come under IRS regulations.
CUNA said Congress did not appear to have credit unions in mind when it developed the FATCA provisions, and urged the IRS to "weigh the minimal benefits related to reporting and withholding that might be obtained from applying these requirements to U.S. credit unions."
The IRS should exempt domestic financial institutions from the requirements, CUNA said. At a minimum, CUNA added, the IRS could exempt remittance transfers from the reporting requirements of the final rule.
For the full comment letter, use the resource link.