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IRS issues FATCA updates and new guidance

IRS has announced that it has released six new YouTube videos explaining upgrades to the Foreign Account Tax Compliance Act (FATCA) Online Registration System, upgraded the Foreign Financial Institution (FFI) List Search and Download Tool, and added new frequently asked questions (FAQs) about general FATCA compliance. It also announced the dates on which the International Data Exchange Services (IDES) system, which allows IRS to exchange FATCA data with foreign tax authorities, will be open for testing.

Background on FATCA. The Hiring Incentives to Restore Employment Act of 2010 (P.L. 111-147) added Chapter 4 (Code Sec. 1471 through Code Sec. 1474, FATCA) to the Code. In general, Chapter 4 requires withholding agents to withhold and deduct 30% from certain payments made to a foreign financial institution (FFI), unless the FFI has entered into an “FFI agreement” with the U.S. to, among other things, report certain information with respect to U.S. accounts. 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).

In cases in which foreign law would prevent an FFI from complying with the terms of an FFI agreement, IRS has collaborated with other governments to develop two alternative model intergovernmental agreements (IGAs) that facilitate FATCA implementation. Reporting financial institutions under an applicable Model 1 IGA (reporting Model 1 FFIs) would satisfy their Chapter 4 requirements by reporting specified information about U.S. accounts to their government, followed by the automatic exchange of that information on a government-to-government basis with the U.S. Under a Model 2 IGA, reporting Model 2 FFIs would report specified information about U.S. accounts directly to IRS in a manner consistent with the final FATCA regs (as modified by the applicable Model 2 IGA), supplemented by a government-to-government exchange of information on request.

Background on FATCA registration and the FFI List. The FATCA Online Registration System is a web-based system that allows users to register (on behalf of themselves and their branches) and in most cases, obtain a global intermediary identification number (GIIN), online. The following types of users, among others, are eligible for FATCA registration:

  • An FFI that is treated as a reporting Model 1 FFI;
  • A “participating FFI” (PFFI), which includes an FFI that (i) has agreed to entered into an FFI agreement with IRS or (ii) is treated as reporting Model 2 FFI and is certifying that it will comply with the terms of an FFI agreement, as modified by the terms of the applicable Model 2 IGA;
  • A “direct reporting NFFE,” which is an NFFE that has elected to report its substantial U.S. owners to IRS under Reg. § 1.1472-1(c)(3); and
  • A “sponsoring entity,” which is an entity seeking to perform the due diligence, withholding, and reporting obligations on behalf of one or more “sponsored entity” under Reg. § 1.1471-5(f)(1)(i)(F).

In connection with its FATCA registration, a user would generally be included on the FFI List. Published monthly, the FFI List may be used by financial institutions and other withholding agents to among other things, determine:

  • Whether another financial institution to which a payment is to be made is a PFFI, and
  • If the payment is subject to U.S. tax withholding.

As an alternative to online FATCA registration, Form 8957 (Foreign Account Tax Compliance Act (FATCA) Registration) may be used.

Six new YouTube videos. IRS announced that it has released six new YouTube videos explaining upgrades to the FATCA Online Registration System. These videos educate viewers about the recent improvements that have been made to the FATCA Online Registration System, including:

  • How certain financial institutions may change their “Financial Institution Type”;
  • How member financial institutions can transfer to another Code Sec. 1471(e) “expanded affiliated group” (EAG);
  • How sponsoring entities can add sponsored entities by uploading a single file; and
  • How sponsoring entities can manage their sponsored entities and sponsored subsidiary branches.

The videos may be accessed here .

Upgrades to the FFI List Search and Download Tool. The FFI List Search and Download Tool performs three main functions. It can:

  • Download the entire FFI list;
  • Search the FFI list; and
  • Download a partial FFI list.

It can narrow down results by GIIN, financial institution name, and/or by country/jurisdiction of FFI or branch.

IRS recently announced that it has made upgrades to the FFI List Search and Download Tool, including:

  • Enabling users to locate sponsored entities and sponsored subsidiary branches on the FFI List;
  • Enabling users to search for branches by financial institution name; and
  • An updated country/jurisdiction of FFI or branch list.

IRS cautions that two or more valid GIINs for the same financial institution may be reflected on the FFI List for a short period of time because of new FATCA Online Registration System features for changing “Financial Institution Type” and transferring to an EAG.

The FATCA FFI List Search and Download Tool User Guide and FAQ have been updated for these enhancements.

New FATCA general compliance FAQ. On Dec. 7, 2015, IRS added seven new FATCA general compliance FAQs. Each of which are briefly discussed below.

First, in FAQ 12, IRS provides the physical mailing address for the filing of Forms 8966 (FATCA Report) and 1042 (Annual Withholding Tax Return for U.S. Source Income of Foreign Persons).

IRS states in FAQ 13 that a U.S. citizen living abroad must provide a Taxpayer Identification Number (TIN) (often, a Social Security number) to a foreign bank requesting such information as part of FATCA compliance. Otherwise, the foreign bank may close the bank accounts of, or impose withholding tax on payments made to, such U.S. citizen.

FAQ 14 explains the process for requesting an initial or additional extension of time to file Forms 8966 for tax year 2015. IRS instructs filers to use Form 8809-I (Application for Extension of Time to File FATCA Form 8966) to request an initial or additional extension of time to file Form 8966 for the current tax year. According to IRS, Form 8809-I should be filed as soon as it is evident that an extension of time to file is necessary, but not before January 1 of the filing year. Form 8809-I must be filed by the Form 8966 due date (generally, March 31 of the year following the reporting year of the return).

If an additional hardship extension is being requested, Form 8809-I must be filed by the first extended due date of Form 8966. However, IRS cautions that requests for an additional extension of time to file Form 8966 aren’t automatically granted, but instead, are generally granted only where it is shown that extenuating circumstances will prevent filing by the date granted by the first request.

In FAQ 15, IRS addresses how to submit a request to waive the requirement to file Forms 8966 electronically for tax year 2015. According to IRS, filers who are requesting a waiver from filing Form 8966 electronically should file Form 8508-I (Request for Waiver From Filing Information Returns Electronically) at least 45 days before the due date of the Form 8966. Form 8966 is due March 31 of the year following the reporting year, unless the filer is an FFI reporting under a Model 2 IGA with a different reporting date specified in the applicable Model 2 IGA. Waiver requests will be processed beginning January 1st of the calendar year the return is due. (Reg. § 301.1474-1(a)) IRS cautions that penalties under Code Sec. 6721 and Code Sec. 6724 may apply with respect to filers that are required to file electronically, but fail to do so and do not have an approved waiver on file.

FAQ 16 states that corporate business titles (e.g., President, Vice President, Treasurer), instead of business names, should be included in the responsible officer (RO) section of the FATCA Online Registration System.

IRS clarifies in FAQ 17 that a single financial institution that is not a sponsoring entity should have only one GIIN.

The complete list of “FATCA–FAQs General,” including the new FAQs discussed above, may be accessed here .

Open IDES testing sessions. IRS has announced that the IDES system will be open for testing from Monday, Dec. 21, 2015 at 8:00 am EDT to Thursday, Jan. 7, 2016 at 5:00 pm EDT. The IDES system allows IRS to exchange FATCA data with foreign tax authorities.

The test session will be open to users who have completed IDES enrollment by Thursday, Dec. 17, 2015 at 5:00 pm EDT. To participate, users must enroll and update the their profiles by the cutoff date. Enrolled users will receive an email with a link to the IDES test server web application and SFTP.

IRS cautions that production files submitted to the test environment will not be processed. As such, users should not submit production files to the test environment or test files to the production environment.

References: For reporting under FATCA, see FTC 2d/FIN ¶  O-13,230  et seq.; United States Tax Reporter ¶  14,714  et seq.

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