Foreign Account Tax Compliance Act rules are likely to be issued by the end of January, just in time for discussion at the mid-February ABA Tax Section meeting.  BNA Daily Tax RealTime (Jan. 19, 2012). Jesse Egert says that the drafters are "working around the clock" to make it happen.

These regs will be carefully scrutinized, since they carry out the requirement in the HIRE Act, enacted in early 2010, for foreign financial institutions to report U.S. owned accounts to the IRS or face the the applicability of a 30% withholding tax because of failure to comply with the enhanced "know your client" rules--a tax (with interest and penalties) ostensibly charged against the accounts, but for which the financial institution itself will be liable.  Impacted institutions are not just traditional banks, but also investment banks, private equity funds, hedge funds and similar members of the "shadow banking" system.

When I first began as an associate at a Wall Street firm in 1995, Treasury and the Service had just promulgated new withholding rules that were supposed to work better than the earlier requirements.  Banks of course lobbied hard for "know your client" rules that let transparency stop at their doors.  They'd not been providing the information that they were supposed to provide under the old rules, and these rules were supposed to make it better, because they would sign "qualified intermediary" agreements that would ensure their accountability.  The expectation was that tax compliance would improve:  banks would be more accountable, and US taxpayers would be more likely to satisfy their tax reporting obligations.  It obviously didn't work, as the Swiss bankers who visited the US just to sell their handy banking secrecy for offshoring assets and hiding them from revenue collectors made clear.  FATCA seems to be a reasonable response to that problem.

Earlier guidance is provided in Notices 2010-60 (generally explaining the provisions of the law and the way the IRS intends to issue regulations to address them), 2011-34  (supplementing Notice 2010-60) and 2011-53 (describing the timeline for phased implementation of the reporting requirements).  See also the IRS website on FATCA, which provides a summary of the key provisions and other important information.

For some of the commentary on the adoption of FATCA and its potential impact on banking and finance, see the following.   Just the few samples of the anti-FATCA screeds show that there is a substantial element of the investment banking industry that recognizes that tax evasion was very much a part of the allure of offshore banking.

FATCA: A shakeup in the world of finance and banking secrecy?, Asian Banking and Finance, June 1, 2011 (stating that "several international tax and banking experts have already declared that FATCA will lead to the end of banking secrecy as we know it.  This trend seems to have the support of most major nations behind it, all of whom have tax evasion problems similar to the U.S., and it may well evolve into a set of global FATCA-like standards").

Analysis and Commentary:  FATCA a real and present danger, TLP, Dec. 30, 2011 (a typical anti-FATCA commentary about potential impact on the investment industry)

An American Law that will hit investors here, Richard Hartung (Singapore), Dec. 13, 2011 (similar)