Foreign Financial Institutions Receive Some Relief from FATCA TIN Reporting Requirement

Originally published by Thompson & Knight LLP.

Posted by Joe Rudberg, John Cohn, and Jana Benson

             

In September, the IRS released Notice 2017-46 providing much anticipated official relief to foreign financial institutions (FFIs) facing requirements to obtain and report taxpayer identification numbers (TINs).  Earlier this year, regulations were released under the Foreign Account Tax Compliance Act (FATCA) that require certain FFIs to report TINs to the IRS for foreign financial accounts held by U.S. taxpayers and foreign entities with U.S. owners.  Under the regulations, each FFI was required to report this information to its taxing authority, which then must exchange the information with the IRS.  Beginning with the 2017 tax year, the regulations stated that a FFI that did not include a reportable person’s TIN would be considered in significant non-compliance with FATCA and trigger a notice to the foreign taxing authority concerning such non-compliance.  If the FFI did not remedy the lack of a TIN after such notice, the U.S. could treat the FFI as a “nonparticipating FFI” subject to 30% withholding under FATCA.

Banks and withholding agents responsible for reporting under FATCA were concerned they would not be able to satisfy the TIN requirements for the January 1, 2017 effective date, which would lead to excess withholding and incomplete information reported to the IRS.  Banks and withholding agents expressed this concern to the IRS.  On August 29, 2017, the IRS confirmed that it would move the effective date to January 1, 2018, but banks and withholding agents still waited for an official response in writing.

The IRS and Treasury Department then released Notice 2017-46 and revealed their intent to amend the temporary regulations in the following ways:

• Narrow the circumstances in which TINs are required;
• Add exceptions from the TIN requirement; and
• Provide phase-in rules for obtaining TINs.

Additionally, Notice 2017-46 provides that FFIs required to report TINs will not be considered in significant non-compliance under FATCA for the 2017-2019 tax years if, unable to provide the TIN, they instead do the following:

• Search the FFI’s electronically searchable records (and do not find the TIN);
• Report the account holder’s date of birth; and
• Request annually from the account holder the missing TIN.

Members of the financial community affected by the FATCA regulations have welcomed the relief.  Banks and withholding agents should be aware of the flexibility provided under Notice 2017-46 so that they can plan and act accordingly.

Please contact one of the above attorneys or the Thompson & Knight attorney with whom you regularly work if you would like to discuss the information contained in this post.

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