Questions and Answers About FATCA and Foreign Trusts

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The U.S. Treasury Department recently issued proposed regulations interpreting sections of the Internal Revenue Code (the Code) commonly referred to as the Foreign Account Tax Compliance Act (FATCA). The proposed regulations, which are lengthy and complex, raise reporting and withholding tax issues for trustees of non-U.S. trusts and, indirectly, U.S. citizen and resident beneficiaries of foreign trusts. These questions and answers address some of the most important of these issues. Please visit http://www.mwe.com/info/news/fatca.htm for a general discussion of the proposed regulations.

1. WHAT IS FATCA?

FATCA is U.S. legislation that was enacted in 2010 to prevent U.S. persons from using foreign accounts and foreign entities to evade U.S. tax. FATCA generally requires U.S. persons—including U.S. banks, brokers and companies—and foreign financial institutions that have entered into agreements with the Internal Revenue Service (IRS) to withhold 30 percent of certain payments (described below) made to a foreign entity unless the entity qualifies for an exemption or complies with specified reporting requirements that are designed to disclose U.S. persons holding accounts with or interests in the entity.

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