IRS: 2014 Form 1099 may be used for FATCA compliance
IRS: 2014 Form 1099 may be used for FATCA compliance
IRS has posted to its website instructions that supplement its “2014 General Instructions for Certain Information Returns,” i.e., the general instructions for preparing forms in the 1099 series. The supplemental instructions allow some persons that have reporting obligations under the Foreign Account Tax Compliance Act (FATCA) to elect to use Form 1099 to meet those obligations for 2014.
Background. Chapter 4 (Code Sec. 1471 through Code Sec. 1474, the “Foreign Account Tax Compliance Act” or FATCA) of the Code requires withholding agents to withhold 30% of certain payments to a foreign financial institution (FFI) unless the FFI has entered into a “FFI agreement” with IRS to, among other things, report certain information with respect to U.S. accounts. (The withholding rules are essentially a mechanism to enforce new reporting requirements.) FFIs that have entered into FFI agreements are referred to as “participating FFIs.” Chapter 4 also imposes withholding, documentation, and reporting requirements on withholding agents with respect to certain payments made to certain non-financial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents.
For 2014, Form 8966, FATCA Report, is used to report information with respect to certain U.S. accounts, substantial U.S. owners of passive NFFEs, U.S. accounts held by owner-documented FFIs, and certain other accounts based on the filer’s chapter 4 status. (2014 Instructions for Form 8966)
Beginning in 2014, participating FFIs that have to report under chapter 4 can elect to be subject to the same reporting requirements as a U.S. financial institution. An electing participating FFI has to report by filing Forms 1099 as if it were a U.S. person and as if each holder of the account that is a “specified U.S. person” or “U.S. owned foreign entity” were a natural person and U.S. citizen. (Code Sec. 1471(c)(2); Reg. § 1.1471-4(d)(5)(i)(A)) A somewhat similar election applies to cash value insurance or annuity contracts that are financial accounts. (Reg. § 1.1471-4(d)(5)(i)(B))
In addition, beginning in 2014, participating FFIs that are U.S. payors (other than U.S. branches) may satisfy the chapter 4 reporting requirements with respect to accounts that the participating FFI is required to treat as U.S. accounts, or accounts held by “owner-documented FFIs,” by providing the information required under chapter 61 of the Code (“Information and Returns”) that is described under the FATCA reporting rules. (Reg. § 1.1471-4T(d)(2)(iii)(A)(1)) The term “U.S. payor” includes U.S. persons, the federal government and its agencies, etc., state governments and their agencies, etc., controlled foreign corporations, certain U.S. branches, and certain foreign entities connected with a U.S. trade or business. (Reg. § 1.1471-1(b)(131); Reg. § 1.6049-5(c)(5) )
A Sponsored FFI is an investment entity or an FFI that is a controlled foreign corporation having a Sponsoring Entity that performs certain due diligence, withholding, and reporting obligations on behalf of the Sponsored FFI. (Reg. § 1.1471-1(b)(131)) A Sponsoring Entity is an entity that has registered with the IRS to perform the due diligence, withholding, and reporting obligations of one or more Sponsored FFIs or Sponsored Direct Reporting NFFEs. (Reg. § 1.1471-1T(b)(124))
Each year, IRS issues forms in the 1099 series, instructions that are specific to specific 1099 forms, and “General Instructions for Certain Information Returns Reporting on Forms 1099.”
Newly-issued supplement to Form 1099 instructions. On its website, IRS has posted a supplement to the 2014 general instructions for preparing forms in the 1099 series that provides rules under which some FFIs may elect to use Form 1099 to meet reporting obligations under FATCA instead of Form 8966.
… Who may use Form 1099 to meet FATCA reporting obligations. Persons who are eligible to make, and do make, the elections under Reg. § 1.1471-4(d)(5)(i)(A), Reg. § 1.1471-4(d)(5)(i)(B) or Reg. § 1.1471-4T(d)(2)(iii)(A)(1) may use Form 1099 to meet FATCA reporting obligations.
IRS notes that one may make an election described in Reg. § 1.1471-4(d)(5)(i)(A) or Reg. § 1.1471-4(d)(5)(i)(B) either with respect to all such U.S. accounts or, separately, with respect to any clearly identified group of such accounts (for example, by line of business or by the location where the account is maintained).
… Who may not use Form 1099 to meet FATCA reporting obligations. IRS has specified that if an account is either a U.S. account held by a passive NFFE that is a U.S. owned foreign entity or an account held by an owner-documented FFI, the person with the chapter 4 reporting obligation should not file a Form 1099 with respect to such an account. Instead, it must file a Form 8966.
… How to complete Form 1099 to satisfy FATCA reporting obligations. FFIs, etc. that report on Form 1099 must file each appropriate Form 1099 with IRS and report the payments required to be reported by a U.S. payor with respect to the account.
In addition to the information otherwise required to be reported on the appropriate Form 1099, one also must include the following information for each account it is reporting as described in Reg. § 1.1471-4(d)(5)(i)(A), Reg. § 1.1471-4(d)(5)(i)(B) or Reg. § 1.1471-4T(d)(2)(iii)(A)(1) :
- 1. the name, address, and TIN of the account holder;
- 2. the account number; and
- 3. if applicable, the jurisdiction of the branch that maintains the account being reported by adding the branch’s jurisdiction after the payer’s name, that is, “Payer’s Name (Jurisdiction X branch).”
FFIs, etc. that report on Form 1099 must report the payee’s account number on each Form 1099 they file (regardless of the fact that the account number otherwise may be optional for purposes of reporting on the applicable Form 1099).
IRS provides special Form 1099 instructions for sponsoring entities that report a U.S. account on behalf of a sponsored FFI. For example, they must report on the appropriate Form(s) 1099 the following information in the payer boxes (if filing on paper) or in the appropriate fields of the payer record (if filing electronically): a) for the name, enter the sponsored FFI’s name on the first line and the sponsoring entity’s name on the second line; b) for the address, enter the sponsoring entity’s address; c) for the federal (or taxpayer) identification number, enter the sponsored FFI’s EIN.
Noting that calendar year 2014 is a transitional year for FFIs to report their U.S. accounts (see Reg. § 1.1471-4T(d)(7)(ii)(A)), IRS says that FFIs, etc. that elect to report on Form 1099 for 2014 must report the account, but are not required to report any payments. Even though reporting of payments to an account is not required for 2014, FFIs making the election described in Reg. § 1.1471-4(d)(5)(i)(A) or Reg. § 1.1471-4(d)(5)(i)(B) for 2014 are required to report accounts to which no payments are made on Form 1099-MISC and enter “$1” in Box 3.
… Effect on reporting party’s other reporting obligations. Where an FFI, etc. made payments to an account that it is otherwise required to report on Form(s) 1099 for purposes of chapter 61, making an election described in Reg. § 1.1471-4(d)(5)(i)(A) or Reg. § 1.1471-4(d)(5)(i)(B) does not affect its obligation to report such payments on the applicable Form 1099 in accordance with the requirements under chapter 61.
References: For reporting under FATCA, see FTC 2d/FIN ¶ O-13,230 et seq.; United States Tax Reporter ¶ 14,714 et seq.