New Guidance Phases in FATCA Implementation

Recently, the IRS issued Notice 2011-53, the third Notice that addresses the Foreign Account Tax Compliance Act (FATCA), which was enacted in March 2010. Title V of that Act was about making sure that Americans could not hide assets in foreign bank accounts and essentially evade U.S. tax laws.

FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

• Identify U.S. accounts,

• Report certain information to the IRS regarding U.S. accounts, and

• Withhold a 30% tax on certain payments to non-participating FFIs and account holders who are unwilling to provide the required information.

FFIs that do not enter into an agreement with the IRS will be subject to withholding on certain types of payments, including U.S. source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-thru payments.

The prior two Notices, 2010-60 and 2011-34 outlined the way in which the IRS expects to implement the law. These are the basis for "final regulations."

Many banks, brokers, funds and others affected by the impending regulations lobbied for repeal or significant revisions More recently, there have been calls for some kind of phased implementation to allow firms to assess the nature and scope of changes they need to make both to client-facing procedures such as account opening, and to back office systems which, in some cases, may need to be re-built.

Notice 2011-53 essentially spreads the implementation period out across 2013 to 2015 with different bits of the regulation coming into force at different times.

Notice 2011-53 provides a more workable timeline for FFIs and U.S. withholding agents to implement the various requirements of FATCA. Specifically, the notice phases in the implementation of FATCA in the following manner:

• An FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.

• Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on Jan. 1, 2015.

• Due diligence requirements for identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014.

• For purposes of the Notice, high risk accounts include private banking accounts with a balance that is equal to or greater than $500,000.

If you have any questions, please contact Saltmarsh, Cleaveland & Gund, (850) 435-8300.

© EisnerAmper LLP 2011


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