The American Bankers Association urged the IRS to exempt foreign trusts with US corporate fiduciaries, such as banks and thrifts, acting as trustee from the definition of foreign financial institution under FATCA. In a letter to the IRS, the
noted that the proposed regulations implementing FATCA make a number of
references to foreign trusts that imply their designation as a foreign
financial institutions without making any explicit statements to this
According to the
ABA, this lack of clarity has led to considerable
confusion about the treatment of foreign trusts and the responsibilities of the
banks and trust companies that act as trustee for these trusts. For a number of
reasons, the ABA
strongly believes these foreign trusts should not be treated as foreign
financial institutions but rather should be considered non-financial foreign
Foreign trusts do not hold themselves out as engaged in the business of investing, reinvesting or trading in securities, partnership interests, commodities, noted the ABA, and are more akin to a non-financial foreign entity than a foreign financial institution.
The intentions and goals of FATCA may still be satisfied if foreign trusts with
U.S. corporate trustees
are designated non-financial foreign entities.
In these circumstances, the U.S.
corporate trustee already possesses and reports to the IRS the information
about the foreign trust’s U.S.
beneficiaries. The domestic bank or
trust company submits this information to the Service in Form 3520-A or, in
some circumstances, Form 1040-NR.
Thus, the IRS is currently receiving information about payments made to
by these foreign trusts. No new opportunity
for tax evasion is made available in this scenario, emphasized the ABA. Treating a foreign trust with a U.S. corporate trustee as a foreign financial
institution would only result in unnecessary duplicative reporting to the Service
and unnecessary FFI Agreements with the Service entered into by the U.S. corporate trustee
on behalf of the foreign trust.