A federal court has ruled that U.S. banks must report to foreign governments on the holdings of nonresident alien account holders under the intergovernmental agreements that the Treasury Department has signed with other countries’ tax authorities in an effort to implement 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. citizens and residents to the Internal Revenue Service or else face stiff penalties, to combat offshore tax evasion. To overcome the objections of foreign countries and banks to the law, the Treasury has been negotiating a series of intergovernmental agreements with officials from abroad to provide reciprocity of reporting, so U.S. banks would report on the holdings of foreign citizens and residents to their respective tax authorities. As part of that effort, the IRS issued regulations in 2012 requiring U.S. banks to report the amount of interest earned by accountholders residing in foreign countries.

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