Tax & Accounting Blog

FATCA Public Hearing: Requests for Postponement of Effective Dates but No Immediate IRS Response

1042-S, 1099, Document and WorkFlow Management, Information Reporting for Wealth Management, International Reporting & Compliance, ONESOURCE, Tax Information Reporting, Trust Tax, W-8 & W-9 Foreign Reporting, Withholding Management June 4, 2012

The IRS public hearing on the proposed regulations for FATCA (Foreign Account Tax Compliance Act), REG-121647-10, was held on May 15, 2012. More than 20 speakers were on the agenda, and 199 comment letters received by the IRS were posted online at!docketDetail;dct=O%252BSR%252BPS;rpp=25;po=0;D=IRS-2012-0009 (or see for Docket ID IRS-2012-0009). FATCA law established a new Chapter 4 of the Internal Revenue Code for documentation of foreign entity payees and withholding from payments in the absence of certain documentation. The existing withholding-at-source rules for documenting, withholding tax and reporting payments to foreign individuals and entities are now to be referred to as Chapter 3 withholding and reporting.

A common theme at the public hearing was a request to postpone the effective date for many FATCA requirements in order to provide time for systems and procedures to be developed and implemented. For example, postpone until the first calendar year that is at least one year after publication of the final regulations. Such a delay would mean that, if FATCA regulations are finalized before the end of 2012, FATCA reporting requirements would apply beginning with payments made in calendar year 2014 (instead of 2013), receiving customer documentation on specific forms would apply no sooner than January 1, 2014 (instead of 2013), and the initial FATCA withholding would begin on January 1, 2015 (instead of 2014). The proposed regulations already establish an extended transition period (up to January 1, 2016) for phasing in FATCA reporting and withholding on payments to Foreign Financial Institutions (FFIs) in jurisdictions where laws prevent full FATCA compliance, and up to January 1, 2017 for FATCA withholding applied to certain foreign passthrough payments.

Many sections of the proposed FATCA regulations will cause changes to be made to the more general withholding-at-source regulations, which have been in effect for more than a decade under Sections 1441 and 1442 of the Internal Revenue Code. The new regulations will not only change forms in the W-8 series and the Form W-9, but they will also change the way we use them in identifying payees under the existing provisions for Forms 1042 and 1042-S and even for Forms 1099. The proposed regulations specify new rules for doubting payee documentation and new presumption standards. Forms 1042 and 1042-S will change too, adding many more codes for us to track both as to payee types and income types, and also the reasons for exemptions.

There were requests for better coordination of FATCA due diligence rules with the established anti-money laundering and know-your-customer rules. Letter comments have requested that the regulations require FATCA documentation in relation to the legal entity that is the customer rather than in relation to specific account (so that adding an account to an existing relationship with a legal entity does not trigger the entire documentation and review process again for that entity).

The majority of written and public hearing comments have addressed FATCA issues in the context of reporting and withholding on FFIs. Fewer comments have been made on issues specific to FATCA reporting and withholding on Non-Financial Foreign Entities (NFFEs), for which the implementation dates are the same.