Foreign financial institutions that make a good-faith effort to comply with the requirements of the Foreign Account Tax Compliance Act (FATCA) will benefit from lighter enforcement during 2014 and 2015, the IRS announced on Friday. The IRS is treating those years as a “transition period” for the implementation of FATCA by withholding agents, foreign financial institutions (FFIs), and other entities with FATCA reporting and withholding responsibilities.
During the two-year transition period, the IRS says it will take into account the extent to which an entity subject to FATCA has made good-faith efforts to comply with FATCA regulations. Entities that do not make good-faith efforts to comply will not be given any relief from IRS enforcement.
The IRS also announced that it plans to amend the FATCA regulations to provide:
- That a withholding agent or FFI may treat an obligation (including an account) held by an entity that is opened, executed, or issued on or after July 1, 2014, and before Jan. 1, 2015, as a preexisting obligation for purposes of Secs. 1471 and 1472, subject to certain modifications described in the notice;
- Additional guidance under Sec. 1471 concerning the requirements for an FFI (or a branch of an FFI, including a disregarded entity owned by an FFI) that is a member of an expanded affiliated group of FFIs to be treated as a limited FFI or limited branch, including the requirement for a limited FFI to register on the FATCA registration website;
- A modification to the standards of knowledge for withholding agents under Regs. Sec. 1.1441-7(b) for accounts documented before July 1, 2014; and
- A revision to the definition of a reasonable explanation of foreign status in Regs. Sec. 1.1471-3(e)(4)(viii).
The IRS says that until the regulations are amended, taxpayers can rely on the provisions of Notice 2014-33 regarding these proposed amendments.
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Source: Alistair M. Nevius (www.journalofaccountancy.com)
