The IRS today released an advance copy of Notice 2011-53 which provides a timeline for the implementation of information reporting and withholding provisions under chapter 4 of the Code (referred to as “FATCA”), and discusses certain substantive and procedural matters that will be addressed in regulations to be issued by Treasury and the IRS.
- The regulations will provide that certain responsibilities of participating foreign financial institutions (FFIs) will commence in 2013.
- The regulations will provide that the section 1471(a) withholding obligations of withholding agents with respect to amounts described in section 1473(1)(A)(i) (i.e., U.S. source FDAP (fixed or determinable, annual or periodical) payments) will begin on January 1, 2014. FFIs that would otherwise be subject to chapter 4 withholding will be identified as participating FFIs and therefore would not be subject to such withholding if they have registered as participating FFIs and entered into FFI Agreements by June 30, 2013.
- The section 1471(b)(1)(D) withholding obligations of participating FFIs with respect to pass-thru payments will be specified in future regulations, but will begin no earlier than January 1, 2015.
For an electronic version of today’s 10-page notice:
Provisions enacted as part of the Hiring Incentives to Restore Employment Act of 2010 are referred to as the Foreign Account Tax Compliance Act (FATCA).
The FATCA measures—enacted to prevent offshore tax abuses by U.S. persons—added to the Code a new chapter 4 withholding regime, designed to achieve this stated intent by imposing a penal withholding tax on certain foreign entities that refuse to disclose the identities of these U.S. persons.
In August 2010, the IRS issued Notice 2010-60 to set forth the general framework that Treasury and the IRS intended to follow to implement the new FATCA withholding regime. Specifically, Notice 2010-60 addressed the following priority issues:
- Grandfathered obligations
- Definitions of a foreign financial institution (FFI) as well as identification of excluded FFIs
- Collection of information and identification of persons by U.S. financial institutions (USFIs) and FFIs
- Reporting on U.S. accounts
Notice 2010-60 also stated that most financial institutions would be required to electronically file their returns with respect to chapter 3 and chapter 4 compliance electronically beginning in 2013, notwithstanding the fact that the institution may have less than 250 returns to file.
In April 2011, the IRS issued Notice 2011-34 which includes:
- Procedures that participating FFIs are to follow in identifying U.S. accounts among their pre-existing individual accounts
- Guidance on the definition of “passthru payment” and the obligation of FFIs to withhold on passthru payments
- Guidance on certain categories of FFIs that are deemed compliant
- Guidance on the obligation of FFIs to report with respect to U.S. accounts
- Rules for the treatment of qualified intermediaries under section 1471
- Guidance for application of section 1471 to expanded affiliated groups of FFIs
- The effective date of FFI Agreements
For a detailed description of Notice 2011-34, see
In today’s notice, the IRS stated that it had received numerous comments concerning “practical difficulties in implementing aspects of the [FATCA] rules within the time frames provided in the Act and under Notice 2010-60 and Notice 2011-34.”
Notice 2011-53 provides that while the FATCA provisions are effective beginning in 2013 (under the 2010 Act), because these create the need for significant modifications to the information management systems of FFIs, withholding agents, and the IRS, “it is reasonable for regulations to provide for a phased implementation of the various provisions of chapter 4.”
Notice 2011-53 sets forth a timeline for the implementation of the FATCA information reporting and withholding provisions and describes other matters that will be addressed in future regulations.
FFI Registration, FFI Agreement
Under the timeline, FFI registration is to begin no later than January 1, 2013, with the IRS planning to accept FFI applications via its electronic submissions process. An FFI must enter into an FFI Agreement by June 30, 2013, so that it will be identified as a participating FFI in sufficient time to allow U.S. withholding agents to refrain from withholding beginning on January 1, 2014.
- The effective date of an FFI Agreement entered into before July 1, 2013, will be July 13, 2013.
- The effective date of an FFI Agreement entered into after June 30, 2013, will be the date the FFI enters into the Agreement.
- The effective date of an FFI Agreement will be used to determine the timeframe in which an FFI must exercise certain due diligence procedures with respect to new accounts as well as pre-existing accounts.
An account for which a participating FFI has received a Form W-9 from the account holder (or, with respect to an account held by a U.S. owned foreign entity, from a substantial U.S. owner of such entity) by June 30, 2014, must be reported to the IRS as a U.S. account by September 30, 2014.
Notice 2011-53 provides that reporting with respect to 2014 and subsequent years will be required as contemplated in Notice 2010-60 and Notice 2011-34 and as implemented in future regulations.
Withholding by withholding agents on withholdable payments will be implemented in two phases:
- For payments made on or after January 1, 2014, withholding agents (whether domestic or foreign, including participating FFIs) will be obligated to withhold under section 1471(a) only on U.S. source FDAP payments.
- For payments made on or after January 1, 2015, withholding agents will be obligated to withhold under section 1471(a) on all withholdable payments (including both U.S. source FDAP payments and gross proceeds described in section 1473(1)(A)(ii)).
Notice 2011-53 also provides that:
- All qualified intermediary agreements, withholding foreign partnership agreements, and withholding foreign trust agreements of entities qualifying as FFIs that expire on December 31, 2012, will be automatically extended until December 31, 2013.
- Any FFI that enters into an FFI Agreement on or before December 31, 2013, will be considered to have have renewed its qualified intermediary agreement, withholding foreign partnership agreement, or withholding foreign trust agreement, as the case may be.
- To clarify the scope of grandfathered obligations, future regulations will clarify that the term “obligation” means any legal agreement that produces or could produce passthru payments (including withholdable payments), but not including any instrument treated as equity for U.S. tax purposes, or any legal agreement that lacks a definitive expiration or term.
Expected Dates of Future Guidance (Regulations)
Treasury and the IRS anticipate issuing proposed regulations incorporating the guidance in Notice 2010-60, as amended and supplemented by Notice 2011-34 and Notice 2011-53, by December 31, 2011, and that final regulations are anticipated by the summer of 2012.
Also, it is anticipated that draft and final versions of the associated FFI Agreement and reporting forms for use by withholding agents and participating FFIs will issued in the summer of 2012.
Notice 2011-53 will appear Internal Revenue Bulletin 2011-32, dated August 8, 2011.
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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
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