5 Takeaways from New IRS FATCA Guidance

On February 8, 2012, the Internal Revenue Service issued its long-awaited proposed regulations for implementing the Foreign Account Tax Compliance Act (FATCA). The new rules lay out a step-by-step process for US account identification, information reporting, and withholding requirements for non-US financial institutions and other foreign entities.

For your reference, five takeaways from the proposed FATCA regulations: 

1. The new rules should ease the burden of compliance:

“The Proposed Regulations are intended to … reduce the administrative burdens associated with identifying U.S. accounts by calibrating due diligence requirements based on the value and risk profile of the accounts and, in many cases, by permitting FFIs to rely on information they already collect, including information received in compliance with anti-money laundering/‘know your customer’ rules.” (U.S. Government Issues FATCA Proposed Guidance & Approach to Automatic Exchange of FATCA Information by Akerman Senterfitt) 

2. Implementation of key FATCA provisions has been delayed: 

“Previously, the Treasury delayed implementation of FATCA until 2014 (with some added delays for portions of the legislation). [T]he Treasury, among other things, delayed until 2017 FATCA’s withholding tax imposed on so-called ‘pass-through payments’ received by financial institutions, which adds some breathing room to work out this very complex provision.” (FATCA Update for Latest Government Guidance by Dechert LLP) 

3. The US has enlisted the support of its allies:

“In connection with the issuance of the proposed regulations, the Treasury issued a Joint Statement from the United States, France, Germany, Italy, Spain, and the United Kingdom setting forth the framework for an intergovernmental approach to FATCA implementation in lieu of requiring FFIs established in those countries to report directly to the Service.” (An Intergovernmental Approach to FATCA: US Treasury Issues Joint Statement From the U.S., France, Germany, Italy, Spain and the U.K. in Connection With the Issuance of Proposed FATCA Regulations [updated] by White & Case LLP) 

4. Procedures for identifying US accounts have changed:

“[For existing accounts] the financial institution is not required to conduct a search provided the account had a balance of less than $50,000… If the account balance is at least $50,000 but less than $1,000,000, the financial institution must review its electronically searchable data… If the account balance is $1,000,000 or more the financial institution must review its electronically searchable data [and] search all non-electronic files for the same information, including interviewing any relationship manager associated with the account.” (New Regulations Clarify How Non-US Banks Will Find And Report US Customers To The IRS by Moodys LLP Tax Advisors) 

5. The proposed rules address a broad range of other changes:

“IRS and Treasury identify the following significant modifications and additions to the guidance provided in previous FATCA notices:

  • Expanded scope of ‘grandfathered obligations’;
  • Transitional rules for affiliates with legal prohibitions on compliance;
  • Additional categories of deemed-compliant foreign financial institutions…
  • Guidance on procedures required to verify compliance;
  • Refinement of the definition of financial account;
  • Extension of the transition period for the scope of information reporting; and
  • Passthru payments.” 

(IRS, Treasury Release Proposed Foreign Account Regulations; New Rules May Provide Relief from Earlier Guidance by K&L Gates LLP) 

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