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IRS Postpones FATCA Implementation by Six Months.
(Parker's Federal Tax Bulletin: July 26, 2013)

The IRS has revised the timelines for implementing the requirements of the Foreign Account Tax Compliance Act (FATCA) and for implementing guidance on the treatment of financial institutions located in jurisdictions that have signed intergovernmental agreements (IGAs) for the implementation of FATCA but have not yet brought those IGAs into force. Notice 2013-43.

The Hiring Incentives to Restore Employment Act of 2010 added new Code Secs. 1471 through 1474. These provisions require withholding agents to withhold 30 percent of certain payments to a foreign financial institution (FFI) unless the FFI has entered into an agreement (FFI agreement) with the IRS to, among other things, report certain information with respect to U.S. accounts. The provisions also impose on withholding agents certain withholding, documentation, and reporting requirements with respect to certain payments made to certain nonfinancial foreign entities (NFFEs).

According to the IRS, comments have indicated that certain elements of the phased timeline for the implementation of FATCA present practical problems for both U.S. withholding agents and FFIs. In addition, while comments from FFIs overwhelmingly supported the development of intergovernmental agreements (IGAs) as a solution to the legal conflicts that might otherwise impede compliance with FATCA and as a more effective and efficient way to implement cross-border tax information reporting, some commentators noted that, in the short term, continued uncertainty about whether an IGA will be in effect in a particular jurisdiction hinders the ability of FFIs and withholding agents to complete due diligence and other implementation procedures.

As a result of these comments, and to allow for a more orderly implementation of FATCA, the IRS intends to amend the final regulations to postpone by six months the start of FATCA withholding, and to make corresponding adjustments to various other time frames provided in the final regulations. In addition, the IRS intends to provide a list of jurisdictions that will be treated as having in effect an IGA, even though that IGA may not have entered into force as of July 1, 2014.

Under the revised timeline, withholding agents generally will be required to begin withholding on withholdable payments made after June 30, 2014, to payees that are FFIs or NFFEs with respect to obligations that are not grandfathered obligations, unless the payments can be reliably associated with documentation on which the withholding agent can rely to treat the payments as exempt from withholding. The definition of grandfathered obligation will be revised to include obligations outstanding on July 1, 2014 (and associated collateral).

Notice 2013-43 does not affect the timing provided in the final regulations for withholding on gross proceeds, pass-through payments, and payments of U.S. source fixed or determinable annual or periodical income with respect to offshore obligations by persons not acting in an intermediary capacity.

For a discussion of FATCA, see Parker Tax ¶203,180.

Parker Tax Publishing Staff Writers


Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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