The Internal Revenue Service has issued draft versions of two forms needed for overseas taxpayers to file in connection with the Foreign Account Tax Compliance Act.

FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions to report on the holdings of U.S. taxpayers or face heavy penalties. The law has provoked controversy in other countries, particularly among dual citizens and U.S.-born expatriates, as well as charges that its provisions violate banking secrecy laws and national sovereignty. In response, the IRS and the Treasury Department have been rolling out the FATCA regime slowly, extending several deadlines and softening some of the requirements in the regulations, while also negotiating intergovernmental agreements with other countries to share tax information with them.

The draft forms released Friday include Draft Form 1042, “Annual Withholding Tax Return for U.S. Source Income of Foreign Persons,” and Draft Form 1042-S, “Foreign Person's U.S. Source Income Subject to Withholding.” Earlier this month, the IRS released a draft version of Form 8957, which is used by financial institutions to register with the program (see IRS Releases Draft Form for FATCA Registration).

The IRS also warned about the upcoming May 3 deadline for foreign financial institutions that are considering applying for Qualified Intermediary, Withholding Foreign Partnership, or Withholding Foreign Trust status in conjunction with FATCA.

Beginning on Dec. 31, 2013, the existing Qualified Intermediary, Withholding Foreign Partnership, and Withholding Foreign Trust agreements will be expanded to incorporate a foreign financial institution’s requirements under FATCA.

To ensure the status is obtained prior to the date the registration portal opens, which is no later than July 15, 2013, financial institutions are required to submit their application and all required attachments no later than May 3, 2013.

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