• IRS Provides New Timeline For Implementation of FATCA (IRS NOTICE 2011-53, July 14, 2011)
  • July 21, 2011 | Author: D. Graham Hill
  • Law Firm: Gunster - Fort Lauderdale Office
  • FATCA imposes a new global withholding and reporting regime intended to curb tax evasion and noncompliance by U.S. taxpayers. FATCA does this by expanding reporting and due diligence requirements on financial institutions, particularly foreign financial institutions. FATCA imposes a 30% withholding tax on specific U.S. source payments to most foreign financial institutions (“FFIs”) unless the FFI agrees to undertake new reporting and disclosure requirements - i.e., to become a “Participating FFI.” 

    On July 14, 2011, the IRS issued its third Notice, Notice 2011-53, providing guidance on the implementation of FATCA.  While FACTA is generally effective starting on January 1, 2013,   Notice 2011-53 provides for a phase-in approach delaying the impact of some portions of FATCA until 2014 for FFIs that enter into an agreement with the IRS (called an “FFI Agreement”) on or before June 30, 2013.

    Notice 2011-53 states that the IRS will begin accepting FFI applications through an electronic submissions process no later than January 1, 2013.   FFIs that enter into Agreements on or before January 1, 2014 will be considered as “Participating FFIs” but, according to the Notice, unless the FFI Agreement is entered into before June 30, 2013, the FFI “might not be identified as such in time to prevent withholding beginning on January 1, 2014.”  This means that FFIs wishing to participate may have to have systems in place by June 30, 2013 in order to apply for the FFI Agreement and to avoid withholding beginning on January 1, 2014.

    Once the FFI Agreement is in place, Participating FFIs will also need to commit to a strict timetable for completing due diligence on accounts:

    • Within one year of the effective date of its FFI Agreement (which is considered July 1, 2013 for any FFI Agreement filed before then), a participating FFI is required to complete the pre-existing account due diligence procedures for any private banking accounts opened before the effective date of its FFI Agreement and that have a balance or value of at least $500,000.
    • All other pre-existing private banking accounts will need to be completed by the later of December 31, 2014, or the date that is one year after the effective date of its FFI Agreement.
    • All other pre-existing accounts will need to be completed within two years of the effective date of the FFI Agreement.

    The Notice also provides that withholding on U.S. source dividends and interest will not begin until January 1, 2014 and withholding on all “withholdable payments” (which includes gross proceeds from the sale of assets giving rise to U.S. source interest and dividends) will not begin until January 1, 2015.