IRS Revenue Procedure 2014-13, which will be published in the January 13, 2014, Internal Revenue Bulletin, contains the revised text of the FFI Agreement between a participating FFI (foreign financial institution) and the Internal Revenue Service under section 1471(b) of the Internal Revenue Code and § 1.1471-4 of the Income Tax Regulations. It details the due diligence, tax withholding, and reporting to the IRS which the FFI agrees to undertake.
This Rev. Proc. also provides guidance to FFIs and branches of FFIs treated as reporting financial institutions under an applicable Model 2 intergovernmental agreement (IGA) on complying with the terms of the FFI agreement, as modified by the Model 2 IGA. A reporting Model 2 FFI will use the FFI agreement by substituting the term “reporting Model 2 FFI” for “participating FFI” except in cases where the FFI agreement explicitly refers to a reporting Model 2 FFI. The FFI Agreement facilitates compliance with FATCA, the Foreign Account Tax Compliance Act.
In general, the FFI agreement does not apply to a reporting Model 1 FFI (one whose country has signed a Model 1 FATCA IGA with the U.S.) because a Model 1 FFI will not report to the IRS, but will instead report to its country’s tax agency the required information about its U.S. accounts and the tax agency will automatically exchange the information with the U.S. A Model 1 FFI would only use the FFI Agreement if it needed to register a branch located outside its Model 1 jurisdiction. The IRS revised the FFI agreement to correct a few errors and coordinate cross-references to new temporary tax regulations, not yet released, under I.R.C. sections 3, 4 and 61.
A new provision added to the FFI agreement permits a reporting Model 2 FFI to elect, during a two-year transition period, to apply the due diligence procedures described in the FFI agreement in lieu of those in Annex I of an applicable Model 2 IGA. Note that an early release of this Revenue Procedure was incorrectly numbered 2014-10, but the correct title is Revenue Procedure 2014-13.