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Tax Update: IRS Trims Back FATCA

On December 13, 2018, the Internal Revenue Service issued proposed regulations that eliminate certain types of withholding under Sections 1471-1474 of the tax code, which are commonly referred to as FATCA.  Under the proposed regulations, gross proceeds from the sale or other disposition of an asset will not be subject to FATCA withholding, and passthru payments will not be subject to FATCA withholding any earlier than two years after the publication of final regulations that define the term “foreign passthru payment.”  The proposed regulations also eliminate FATCA withholding on certain insurance premiums and provide other helpful guidance.

The purpose of FATCA is to reduce U.S. tax evasion by requiring certain “foreign financial institutions” to report information about U.S. holders of their non-publicly traded debt and equity interests and other “financial accounts,” and requiring certain other foreign entities to disclose information about their substantial U.S. equity owners.  Under the tax code, entities that fail to comply with FATCA may be subject to a 30% withholding tax on (i) U.S.-source income, (ii) gross proceeds from the sale or other disposition of an asset that produces U.S.-source income, and (iii) “passthru payments” attributable to U.S. assets.  As mentioned above, the proposed regulations eliminate withholding on gross proceeds and defer withholding on passthru payments.

Taxpayers generally may rely on the proposed regulations.

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About this Author

Linda Z. Swartz, Cadwalader, complex global mergers lawyer, joint ventures attorney
Partner

Linda Swartz, the Chair of Cadwalader's Tax Group and a member of the firm's Management Committee, focuses her practice on structuring complex global mergers and acquisitions, spin-offs, joint ventures, and restructurings, and on foreign tax planning strategies. She also has considerable experience advising clients on financings, derivative transactions, and executive compensation issues.

212 504 6062
Jason D. Schwartz, Tax attorney, Cadwalader law firm
Associate

Jason D. Schwartz focuses primarily on tax issues relating to structured notes, derivatives, domestic and cross-border lending transactions, collateralized debt obligations and other securitizations, hedge fund formation, and corporate reorganizations.

Jason received his B.A., cum laude, from New York University, his J.D., magna cum laude, from American University Washington College of Law, where he was inducted into the Order of the Coif, and his LL.M. in Taxation from New York University. He is admitted to practice in New York and the district of Columbia.

202 862 2277
Mark P. Howe, Cadwalader Law Firm, Corporate Taxation Attorney
Partner

Mark Howe's practice is concentrated in partnerships, financial products, securitization, the tax aspects of capital markets, general corporate finance, securities, and commodities. His work includes emphasis on the tax structuring of domestic and offshore investment funds and in the development, structuring, and implementation of a wide variety of financial and derivative products and transactions, such as fixed income, currency, equity, and commodity linked swaps, forwards, notes, options, and similar instruments and transactions, securities and other instruments with...

202-862-2236
Gary T. Silverstein, Cadwalader, Debt Issuances Lawyer, Asset Backed Securities Attorney
Partner

Gary Silverstein represents issuers, underwriters, insurers, and other parties in connection with the tax aspects of mortgage-backed and asset-backed securities, REMICs, CLOs, CRE-CLOs, and other debt issuances. He has extensive experience in structuring commercial and residential mortgage-backed securitizations and resecuritizations (including “RE-REMICs”), and in other capital markets transactions. Gary advises borrowers and lenders (including securitization vehicles) in connection with loan workouts, foreclosures, and restructurings. He is also involved in the...

212 504 6858
Edward Wei, Cadwalader Law Firm, Taxation Attorney
Partner

Edward Wei is a tax lawyer with extensive experience in U.S. and international tax matters, including taxable and tax-free mergers and acquisitions, divestitures, tax-free spin-offs, leveraged buyouts, initial public offerings, formation of funds, real estate transactions, equity and debt financings, and restructurings.

Ed routinely provides tax planning advice for multinational companies within and outside the affiliated group context and advises on structuring partnership and limited liability company formations (including publicly traded...

212-504-6799