IRS Announces FATCA Timelines for Withholding Agents, Foreign Financial Institutions

IRS Announces FATCA Timelines for Withholding Agents, Foreign Financial Institutions

The IRS has announced (Announcement 2012-42) various timelines for withholding agents and foreign financial institutions (FFIs) to complete due diligence and other requirements under the Foreign Account Tax Compliance Act. The rules described in the announcement will be incorporated in the pending final FATCA regulations. Withholding agents, including participating FFIs and registered deemed-compliant FFIs, generally will be required to implement new account opening procedures by January 1, 2014. The definition of the term "preexisting obligation" will be modified in the final regs to distinguish between a participating FFI, a registered deemed-compliant FFI, and a withholding agent other than a participating FFI or a registered deemed-compliant FFI. Announcement 2012-42 includes transition rules for completing due diligence on preexisting obligations. Withholding agents other than participating FFIs will be required under the final regs to document by June 30, 2014, payees that are prima facie FFIs. Accordingly, a withholding agent will not be required to withhold on payments made to a prima facie FFI regarding a preexisting obligation before July 1, 2014, unless the withholding agent has documentation establishing the payee's status as a nonparticipating FFI. Starting July 1, 2014, a withholding agent will be required to treat a payee that is a prima facie FFI as a nonparticipating FFI until the date the withholding agent obtains documentation establishing that the payee should have a different status. The final regs also will provide that within six months after the effective date of its FFI agreement, a participating FFI will be required to perform the requisite identification procedures and obtain the appropriate documentation to determine whether a prima facie FFI payee is itself a participating FFI, a deemed-compliant FFI, or a nonparticipating FFI. Withholding agents other than participating FFIs will be required to document by December 31, 2015, payees that are entities other than prima facie FFIs. A participating FFI will be required to perform the requisite due diligence to determine whether an entity other than a prima facie FFI is itself a participating FFI by December 31, 2015, or the date that is two years after the effective date of its FFI agreement, whichever is later. A participating FFI must perform the requisite identification procedures and obtain the appropriate documentation to identify preexisting individual accounts that are high-value accounts by December 31, 2014, or the date that is one year after the effective date of the FFI agreement of the FFI, whichever is later. For preexisting accounts other than high-value accounts, a participating FFI must perform the necessary due diligence before December 31, 2015, or the date that is two years after the effective date of the FFI agreement of the FFI, whichever is later. The final regs will provide that a participating FFI will be required to file information reports for the 2013 and 2014 calendar years by March 31, 2015. Announcement 2012-42 also includes guidance concerning gross proceeds withholding and the status of some instruments as grandfathered obligations under sections 1471 through 1474.

For REG-121647-10, see Doc 2012-2485 <a href="//s3.amazonaws.com/pdfs.taxnotes.com/2012/2012-2485-1.pdf" title="PDF: 2012-2485"><img src="//s3.amazonaws.com/binary.taxnotes.com/image/etl/pdficon_small.gif" width="14" height="14" border="0"/></a> or 2012 TNT 27-7 <a href="/lr/resolve//vdbf"> <img src="//s3.amazonaws.com/binary.taxnotes.com/image/etl/doclink.gif" border="0" alt="2012 TNT 27-7: IRS Proposed Regulations"/></a>. Obsoleted by T.D. 9610, Doc 2013-1257 <a href="//s3.amazonaws.com/pdfs.taxnotes.com/2013/2013-1257-1.pdf" title="PDF: 2013-1257"><img src="//s3.amazonaws.com/binary.taxnotes.com/image/etl/pdficon_small.gif" width="14" height="14" border="0"/></a>.

Announcement 2012-42: Timelines for Due Diligence and Other Requirements under FATCA

The IRS has announced various timelines for withholding agents and foreign financial institutions to complete due diligence and other requirements under the Foreign Account Tax Compliance Act.

The IRS has announced (Announcement 2012-42) various timelines for withholding agents and foreign financial institutions (FFIs) to complete due diligence and other requirements under the Foreign Account Tax Compliance Act. The rules described in the announcement will be incorporated in the pending final FATCA regulations. Withholding agents, including participating FFIs and registered deemed-compliant FFIs, generally will be required to implement new account opening procedures by January 1, 2014. The definition of the term "preexisting obligation" will be modified in the final regs to distinguish between a participating FFI, a registered deemed-compliant FFI, and a withholding agent other than a participating FFI or a registered deemed-compliant FFI. Announcement 2012-42 includes transition rules for completing due diligence on preexisting obligations. Withholding agents other than participating FFIs will be required under the final regs to document by June 30, 2014, payees that are prima facie FFIs. Accordingly, a withholding agent will not be required to withhold on payments made to a prima facie FFI regarding a preexisting obligation before July 1, 2014, unless the withholding agent has documentation establishing the payee's status as a nonparticipating FFI. Starting July 1, 2014, a withholding agent will be required to treat a payee that is a prima facie FFI as a nonparticipating FFI until the date the withholding agent obtains documentation establishing that the payee should have a different status. The final regs also will provide that within six months after the effective date of its FFI agreement, a participating FFI will be required to perform the requisite identification procedures and obtain the appropriate documentation to determine whether a prima facie FFI payee is itself a participating FFI, a deemed-compliant FFI, or a nonparticipating FFI. Withholding agents other than participating FFIs will be required to document by December 31, 2015, payees that are entities other than prima facie FFIs. A participating FFI will be required to perform the requisite due diligence to determine whether an entity other than a prima facie FFI is itself a participating FFI by December 31, 2015, or the date that is two years after the effective date of its FFI agreement, whichever is later. A participating FFI must perform the requisite identification procedures and obtain the appropriate documentation to identify preexisting individual accounts that are high-value accounts by December 31, 2014, or the date that is one year after the effective date of the FFI agreement of the FFI, whichever is later. For preexisting accounts other than high-value accounts, a participating FFI must perform the necessary due diligence before December 31, 2015, or the date that is two years after the effective date of the FFI agreement of the FFI, whichever is later. The final regs will provide that a participating FFI will be required to file information reports for the 2013 and 2014 calendar years by March 31, 2015. Announcement 2012-42 also includes guidance concerning gross proceeds withholding and the status of some instruments as grandfathered obligations under sections 1471 through 1474.

Section 1471 -- Foreign Financial Institution Withholding

Section 1472 -- Foreign Entity Withholding

Section 1473 -- Foreign Financial Institution Withholding Definitions

Section 1474 -- Foreign Institution Withholding Special Rules

United States

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IRS Announces FATCA Timelines for Withholding Agents, Foreign Financial Institutions