Phased Implementation of FATCA Requirements Announced


On July 14, the IRS announced plans to phase in the requirements of the Foreign Account Tax Compliance Act (FATCA) (Notice 2011-53). The IRS has received numerous comments about the difficulty of implementing aspects of the FATCA requirements. The notice’s phased implementation is designed to give both foreign financial institutions and U.S. withholding agents adequate time to build the systems they need to comply with FATCA’s requirements.

Notice 2011-53 phases in implementation of FATCA on the following timeline:

  • A foreign financial institution must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating foreign financial institution in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.
  • Withholding on U.S.-source dividends and interest paid to nonparticipating foreign financial institutions will begin on January 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on January 1, 2015.
  • Due diligence requirements for identifying new and pre-existing U.S. accounts (including certain high-risk accounts) will begin in 2013. Reporting requirements will begin in 2014.

For purposes of the notice, high-risk accounts include private banking accounts with a balance of $500,000 or more.

FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, P.L. 111-147. It requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. In order to avoid being withheld upon under FATCA, a participating foreign financial institution must enter into an agreement with the IRS to:

  • Identify U.S. accounts;
  • Report certain information to the IRS regarding U.S. accounts; and
  • Withhold a 30% tax on certain payments to nonparticipating foreign financial institutions and account holders who are unwilling to provide the required information.

Foreign financial institutions that do not enter into an agreement with the IRS will be subject to withholding on certain types of payments, including U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities and passthrough payments.

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