Bankers Group Seeks Delay in Foreign TIN Reporting Requirements

1. Our overriding concern is that the requirements in the regulations and related announced deadlines do not allow sufficient time to obtain and accurately document customers' foreign TINs, or obtain a reasonable explanation why a foreign TIN was not provided. Even assuming that they already have the necessary resources and budget allocated (neither of which is the case), our members indicate that if they started a large scale document remediation project tomorrow, they would not be able to meet the requirements in time. Since a project of this magnitude generally takes at least 18 months to execute, we respectfully ask you to consider the following: (1) delay the commencement of mandatory withholding in cases where a foreign TIN (or a reasonable explanation for its absence) is not obtained, from January 1, 2018 to January 1, 2019; (2) as noted above, because of the absence at this time of detailed instructions for customers and requesters and the significant system and process requirements to properly implement this initiative, provide for a one-year extension of the validity period for Forms W-8BEN that are scheduled to expire on December 31, 2017, so that they remain valid through December 31, 2018 absent a change in circumstances; (3) delaying the deadline to obtain a foreign TIN (or a reasonable explanation for its absence) from each customer, from December 31, 2017 to December 31, 2018; and (4) waive any IRC Section 6721 and 6722 penalties for failure to include the beneficial owner's foreign TIN on 2017 and 2018 Forms 1042-S.

It is also important for us to address a source of perceived frustration held by government officials. On several occasions, in a variety of forums, there has been messaging from the government that our members "should have known" about these requirements and had the requisite systems and processes in place to capture and hold the required documentation. As noted above, our members are absolutely committed to following the regulations. That said, given the significant investments to change systems and processes, changes are not implemented until the specifics of the required changes are available. In our members' view, that information did not become available until the regulations were issued on December 31, 2016; and in fact, as noted elsewhere, some portion of required specific information is still not available due to the fact that updated instructions have not been issued.

Absent this relief, at least two negative consequences will result: one to customers, and the other to the tax authorities of foreign governments that might need to use the information collected.

With regard to customers, if our members are not able to obtain appropriate documentation from customers, they will be required to withhold on payments made starting on January 1, 2018. While problems are expected in getting the required documentation by that date (e.g., overseas mail may take weeks to reach its destination), our members do currently have the capability to commence withholding on deemed undocumented customers. Our members believe this will cause excess amounts to be withheld. This over withholding would seriously inconvenience and (in the case of withholding on gross proceeds and bank deposit interest) may even create severe and unexpected financial hardship for our customers, since we would need a "retroactive affidavit" from any customer requesting a refund of tax withheld from payments made more than 30 days before their completed documentation was received. This will likely also lead to a significant number of refund claims to be filed with the Internal Revenue Service (IRS) in the long run. This will cause a significant additional amount of administrative time and utilization of resources for our members, their customers and the IRS.

With regard to foreign government tax authorities, we understand that one of the reasons for the urgency is to respond to requirements that the United States Treasury be able to meet its obligations to share information with foreign jurisdictions. Again, the effort to obtain accurate documentation from customers typically requires multiple interactions and validation steps. We believe customers likely have "solicitation fatigue" from all the new forms and requirements over the last several years driven by FATCA and other initiatives (e.g., solicitation of pre-existing accounts for FATCA was required as of June 30, 2016). This will make a potential re-solicitation exercise particularly difficult. By "rushing" the implementation of these requirements, our members believe there is a high likelihood of errors and receiving incomplete or otherwise inaccurate data. The errors can be minimized if we are afforded the time to solicit customers in an orderly fashion throughout the normal three-year solicitation/re-solicitation cycle. Providing insufficient time for implementation may also lead to a large number of non-resident aliens being presumed U.S. because a foreign TIN is not provided or the written explanation is not associated with their withholding certificate. In addition, their information will not be reported on Form 1042-S. This would appear to run counter to the objectives of the IRS and Treasury and the needs of foreign revenue authorities for accurate and complete information.

2. Additional issues are generated by our understanding of the regulations. It appears that, with respect to 2018, the temporary regulations require a reasonable explanation for the absence of a foreign TIN be associated with a withholding certificate for it to be considered valid. The application of the regulation appears to depend on whether payments are made to a foreign person on or after January 1, 2018, rather than on a prospective basis (which, for new customers, is when they open their account and for existing customers is when their form is renewed on the three-year year cycle). Accordingly, in order to ensure that adequate documentation is in place, as noted above, it would appear that the regulations are requiring a withholding agent to re-solicit all foreign customers who have not provided a foreign TIN pursuant to FAQ 21 prior to January 1, 2018.

An example of the challenge is that some financial institutions that are solely U.S. based will likely not be familiar with the definition of a "financial account" and the exceptions (defined in Reg. § 1.1471-5(b)(1)-(2)) which have not been applicable to compliance for U.S. based accounts and compliance obligations prior to the new foreign TIN requirement and guidance in FAQ 20. Further, the definition of "account holder" in Reg. § 1.1471-5(a)(3) per FAQ 20 will require financial institutions to identify and obtain foreign TINs with respect to any beneficial owner Forms W-8 that are received with Forms W-8IMY provided by nonqualified intermediaries that are not financial institutions.

As noted above, it is also important to remember that the implementation of FATCA required significant remediation of customers' documentation over the last few years. Yet another required solicitation would be an additional significant burden on our members and to those customers. We also fear that customers will not understand the sense of urgency and repercussions of not completing yet another withholding certificate when the only additional item needed on an otherwise valid form is a single field containing a foreign taxpayer ID.

Accordingly, as outlined above, we urge you to apply the regulations prospectively and allow the exceptions noted above during a transition period. This will allow for a more orderly implementation of the new documentation requirements through appropriate form design, instructions, customer communications and processing and system technology changes. We respectfully point out that guidance (including how the new requirements apply to intermediaries) for withholding agents and related customer form instructions on what constitutes a "reasonable explanation" for not having a foreign TIN, and how a foreign TIN (or a reasonable explanation for its absence) must be provided so that it will be "associated with" the customer's withholding certificate, have not yet been issued. Additionally, the "associated with" requirement is unnecessary and should be removed. Since withholding agents can already associate a withholding certificate received from a customer with that customer and his/her/its accounts, it stands to reason that any foreign TIN or related explanation similarly received from that customer can also be associated with the customer and his/her/its accounts, without the intermediate step of "associating" it with the customer's withholding certificate. Again, the lack of detailed procedural guidance, particularly the fact that the IRS has not yet updated the Instructions for Form W-8BEN or the Instructions for the Requester of Forms W-8, adds to the challenges of implementation and communication with foreign customers.

3. With respect to the DOB requirements for individuals, we believe that such information is already available in our members' files. However, there is uncertainty under the new regulations and FAQs as to how the collection of DOBs will be audited and enforced. We request a transition period similar to the foreign TIN issue outlined above. Alternatively, the IRS should publicly indicate appropriate penalty relief will be granted for the failure to have or obtain a DOB in 2017 where financial institutions have made a reasonable effort to do so, given there was no time between the issuance of the regulation requiring the DOB and the effective date of the requirement.