Life insurance and annuity sellers may soon find themselves helping the Internal Revenue Service (IRS) identify U.S. persons who have invested in non-U.S. financial accounts.
Tax specialists at PricewaterhouseCoopers L.L.P., New York, talk about the new requirements, which are part of the Foreign Account Tax Compliance Act of 2010 (FATCA), in a bulletin on FATCA.
Congress passed FATCA in March 2010, as part of the Hiring Incentives to Restore Employment (HIRE) Act, the tax specialists say.
FATCA requires financial institutions to help locate the U.S. persons with the non-U.S. financial accounts. It defines insurance companies as financial institutions, and it defines many insurance contracts as financial accounts.
FATCA seems unlikely to apply to term life insurance, reinsurance or group benefits without cash value, but it could apply to group retirement and pension plans, and it seems most likely to apply to mutual funds, investment management operations, banking operations, and annuity products, life products and group benefits with cash value, the tax specialists say.
An insurer will have to analyze any foreign company before making a payment to determine if the company must comply with FATCA rules. If the insurer finds the company has not complied, the insurer must withhold a 30% withholding tax on the payment.
Non-U.S. insurers will have to tell the IRS about any U.S. policyholders and payments made by the U.S. policyholders, and non-financial foreign entities will have to “either provide the identity of any substantial U.S. owners or certify that there are none,” the tax specialists say.