This week, the Internal Revenue Service launched its new online registration system for American and foreign financial institutions that need to comply with the Foreign Account Tax Compliance Act. The new IRS system sends a clear signal to bankers: You have to sign up.
The website, according to reports, was one of the final steps the IRS needed to take before the anti-tax evasion law takes effect in July 2014.
Passed at the beginning of this decade, FATCA is meant to curb tax evasion among U.S. residents using offshore accounts. While American regulators can't force foreign banks to comply with U.S. tax laws, they face reputational and business risks from working with tax cheats.
Under the pending rules, U.S. taxpayers with more than $50,000 in foreign accounts must report information on those accounts on a new tax form (8939). Those who fail to file face penalties of up to $50,000, with other penalties for underpayment.
In addition, U.S. banks receiving funds transfers from overseas will have to withhold 30% of the cash for Americans who aren't following the rules.
The recently created IRS portal will allow bank compliance officials in the states and abroad to create online accounts, manage bank data, set up contacts to handle registrations and receive notifications as their status changes, among other features.
Foreign banks are expected to finalize their registrations with the IRS at the beginning of next year.
After their registration is approved, financial services companies, including investment funds and insurance companies, will receive a notice and a global intermediary identification number.
FATCA has already had its deadlines pushed back various times, says Reetu Khosla, a global director at risk, fraud and compliance at software provider Pegasystems.
"FATCA is an actual reality now for most banks who assumed that FATCA deadlines would continue to be pushed," says Khosla. "More and more banks will need to ramp up to meet next year's deadlines to implement their rules, processes and technology to meet FATCA requirements."
Pegasystems (PEGA) is a part of a group of consultants and tech vendors that are teaming up to provide advice and legal services to help banks comply.
Currently, as part of the deal, Pegasystems is selling customer relationship management software. The technology provides an overarching view of bank customers meant to ensure consistency across business lines, accounts and countries.
Other vendors, too, have launched software to help.
In fall of 2012, Fenergo launched an online FATCA self-certification tool to automate the collection of applicable tax forms, such as W-8s and W-9s.
That product satisfies a major FATCA requirement that those within its purview conduct an electronic search of their client data to identify American residences.
Regardless, FATCA is just another piece of regulation albeit a big piece that banks are now facing, says Alan Paris, a principal in the New York office of eClerx.
The financial services vendor sells a platform for tax management and tax form processing to banks and others.
"If you look at the blizzard of regulatory and compliance requirements that have hit the financial services world everything, not just FATCA, but cost-basis, Dodd-Frank, other regulatory requirements I think banks are trying to figure out how to centralize this, how to organize this, so they can come up with a holistic approach," he says.