New Procedures Help FFIs Comply with FATCA’s TIN, Date of Birth Requirements (Notice 2017-46)

The IRS will amend Foreign Account Tax Compliance Act (FATCA) regulations for foreign financial institutions (FFIs) that report taxpayer identification numbers and/or dates of birth for certain accounts under a Model 1 intergovernmental agreement (IGA). If a covered FFI complies with the procedures, the IRS will not determine that there is significant noncompliance with the IGA solely because of a failure to report U.S. TINs.

The amendments will limit and phase in the requirement for certain withholding agents to obtain and report the TIN issued by an account holder’s jurisdiction of tax residence (Foreign TIN) and an individual account holder’s date of birth. These changes are intended to facilitate an orderly implementation of the obligation to obtain and report TINs.

Before the amendments are issued, taxpayers may rely on this guidance regarding the content of the amendments.

Background

FATCA requires covered FFIs to report certain information to the IRS about financial accounts held by U.S. taxpayers and certain foreign entities with U.S. owners. The information reported includes U.S. TINs and individuals’ dates of birth. To facilitate the exchange of this information, the Treasury Department and foreign governments developed two model IGAs.

The Model 1 IGA provides that an FFI will report certain information on U.S. reportable accounts to its tax authority. That tax authority then automatically exchanges the information with the U.S. Competent Authority. Then, the FFI is treated as complying with, and not subject to withholding under, Code Sec. 1471. The FFI also is not required to withhold from or close accounts held by recalcitrant account holders.

New Procedures

The IRS intends to amend Reg. §1.1441-1T(e)(2)(ii)(B), related regulations, and form instructions as follows.

When Foreign TIN and date of birth are required

The amendments will narrow the circumstances in which a foreign TIN and a date of birth are required by clarifying the definitions of “accounts,” “account holders,” and “FFIs.” A withholding certificate must be treated as invalid only for payments of U.S. source income that are reportable on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Thus, withholding will not be required on certain payments when the account holder provides a withholding certificate that is valid but for the absence of a foreign TIN and the account holder’s date of birth.

Exceptions

The amendments will provide that a withholding agent is not required to obtain a foreign TIN (or a reasonable explanation for why an account holder has not been issued a foreign TIN):

– for an account held by a resident in a jurisdiction that does not have an income tax or other convention or bilateral agreement in effect with the U.S under which the U.S agrees to provide, as well as receive, tax information;

– for an account held by a resident in a jurisdiction that has been identified by the IRS as a jurisdiction that does not issue foreign TINs (Bermuda, the British Virgin Islands, and the Cayman Islands); or

– if the withholding agent has obtained an otherwise valid withholding certificate on which it can rely to treat the account holder as a government, an international organization, a foreign central bank of issue, or a resident of a U.S. territory.

Phase-in of Foreign TIN requirements

The rules for foreign TINS will be phased in as follows:

– For payments made before 2018, an otherwise valid withholding certificate will not be treated as invalid solely because it does not include the account holder’s Foreign TIN (or a reasonable explanation for why the account holder was not issued a Foreign TIN).

– For payments made on or after January 1, 2018, a certificate signed before January 1, 2018, with a three-year validity period or an indefinite validity period will not be treated as invalid solely because the withholding certificate does not include the account holder’s Foreign TIN (or a reasonable explanation for why the account holder was not issued a Foreign TIN), until the earlier of (1) December 31, 2019; (2) the expiration date of the validity period; or (3) the date when a change in circumstances requires a revised withholding certificate. However, for payments made after December 31, 2019, a withholding agent may rely on the alternative procedure discussed below to obtain a Foreign TIN (or reasonable explanation).

– Under the alternative procedure, an otherwise valid withholding certificate signed before January 1, 2018, that does not include the account holder’s Foreign TIN (or a reasonable explanation for why the account holder was not issued a Foreign TIN) will remain valid for payments made after December 31, 2019, if the withholding agent (1) obtains from the account holder its Foreign TIN (or a reasonable explanation for why the account holder was not issued a Foreign TIN) on a written statement (including an emailed statement) that the withholding agent associates with the account holder’s withholding certificate; or (2) otherwise has the account holder’s Foreign TIN in the agent’s files and associates it with the account holder’s withholding certificate. The certificate ceases to be valid for payments made after the earlier of the expiration date of its validity period, or the date when a withholding agent determines that a revised withholding certificate is otherwise required, and the withholding agent must obtain on a new withholding certificate the account holder’s Foreign TIN (or reasonable explanation).

Date of birth

To give withholding agents additional time to comply with the date of birth requirement, an otherwise valid withholding certificate signed before January 1, 2018, will not be treated as invalid for payments made before January 1, 2019, to an individual account holder solely because the certificate does not include the account holder’s date of birth and the date of birth is not in the withholding agent’s files. A withholding agent will be considered to have the account holder’s date of birth in its files if it obtains the date of birth on a written statement (including an emailed statement) from the account holder.

Revised Instructions

The instructions for Form 1042-S for calendar year 2017 will be revised with respect to withholding certificates furnished on or after January 1, 2017, to require the reporting of an individual account holder’s date of birth if the date of birth is on the withholding certificate or is available in the withholding agent’s electronically searchable information.

Beginning with reporting for calendar year 2018, the instructions for Form 1042-S will require the reporting of an individual account holder’s date of birth if it is on the withholding certificate or is identified in any of the withholding agent’s files. In addition, a withholding agent will be required to report on each Form 1042-S required to be filed with respect to a financial account maintained at a U.S. branch or office of the withholding agent the account holder’s Foreign TIN in any of the following cases:

– the account holder has furnished to the withholding agent a withholding certificate that includes its Foreign TIN;

– the withholding agent has obtained the Foreign TIN under the alternative procedure described above; or

– the withholding agent has identified the account holder’s Foreign TIN in any of the agent’s electronically searchable information.

Penalties for failure to comply with reporting obligations may apply to a failure to report an account holder’s foreign TIN or an individual account holder’s date of birth on Form 1042-S as required in the instructions.

Notice 2017-46

Other References:

Code Sec. 1471

CCH Reference – 2017FED ¶32,887.35

Tax Research Consultant

CCH Reference – TRC INTL: 33,056.20

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AUTHOR

CCHTaxGroup

All stories by: CCHTaxGroup