Previous regulations would have resulted in financial penalties for those failing to comply
The U.S. Treasury Department and the Internal Revenue Service have announced a modification that alleviates companies utilizing offshore captive insurance from the need to file a specific IRS form with their annual tax filings. Prior to this modification, affected organizations would have faced mandatory financial penalties for non-compliance if they had not completed the filing.
The 50-page notice provides guidance related to the Foreign Account Tax Compliance Act, or FATCA. This matter is of particular interest to companies that own offshore domiciled producer-owned reinsurance companies, as well as their shareholders, third-party administrators (TPAs), and direct writing companies.
MarksNelson’s insurance tax practice leader, David Kaseff, an attorney and CPA who specializes in insurance company taxation, has spent many months closely monitoring the issue, which before this IRS clarification, had caused a great deal of confusion for a number of companies. “We are grateful this IRS modification finally puts to rest what many considered to be a vague definition,” said Kaseff. “We can now provide our clients with more clarity and assurance that they remain compliant in this area.”
The recently-released modification broadens the definition of a U.S. person in the chapter 4 regulations to include a foreign insurance company that is not a specified insurance company and that elects, pursuant to section 953(d), to be subject to U.S. income tax as if it were a U.S. insurance company.
Additionally, the notice provides guidance to the foreign financial institutions (FFIs) entering into agreements with the IRS to be treated as participating FFIs as well as guidance for reporting under Model 2 intergovernmental agreements (IGAs).
According to the IRS, the FATCA registration website will be modified, as will all relevant forms including Form W-8BEN-E. To read the full version of Notice 2013-69, visit http://www.irs.gov/pub/irs-drop/n-13-69.pdf.