You may have seen a post like the one below and concluded that the IRS had eased FATCA enforcement for everyone. That is NOT true. During the American Bar Association Section of Taxation meeting in Washington, DC from May 8th through 10th, senior officials of the IRS explained that the announcement made public on Friday, May 2nd, does not amount to an extension of the July 1, 2014 application date of FATCA. They also made clear that the “transition” period referenced below applies only to reporting for entities (corporations, partnerships, etc.) and NOT to individual accounts. Banks will be expected to meet the FATCA due diligence and reporting requirements for individual accounts as of July 1, 2014.
IRS Eases FATCA Enforcement for 2014 and 2015
The Internal Revenue Service said it would regard 2014 and 2015 as a transition period for purposes of IRS enforcement and administration of the Foreign Account Tax Compliance Act, or FATCA, for banks that have made a good-faith effort to comply.
FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to report on the holdings of U.S. citizens or else face stiff penalties. The controversial law has led to a record number of citizenship renunciations abroad, and protests that it would violate the banking secrecy and privacy laws in other countries. In response, the Treasury Department has been negotiating a series of intergovernmental agreements with the tax authorities of other countries. It and the IRS have also been delaying some of the provisions, but they are set to take effect this year.
The notice that the IRS issued Friday is not a postponement, but it indicates that if foreign banks and other entities have been making “good faith efforts” to comply, then they won’t be subject to onerous penalties.
In Notice 2014-33, the IRS announced that calendar years 2014 and 2015 would be regarded as a transition period for purposes of IRS enforcement and administration with respect to the implementation of FATCA by withholding agents, foreign financial institutions, and other entities, and with respect to certain related due diligence and withholding provisions.
During the transition period, the IRS said it would take into account whether a withholding agent has made “reasonable efforts” during the transition period to modify its account opening practices and procedures to document the status of payees, apply the appropriate standards of knowledge, and, in the absence of reliable documentation, apply the relevant presumption rules. In addition, the IRS will consider the good faith efforts of an FFI, but an entity that has not made good faith efforts to comply with the new requirements will not be given any relief from IRS enforcement during the transition period.