U.S. IRS Unveils Eagerly Awaited Foreign Account Tax Compliance Act Guidance; Practitioners Say Many Challenges Remain
The Internal Revenue Service April 8 unveiled its eagerly awaited second notice on the Foreign Account Tax Compliance Act, offering what practitioners said is welcome guidance under the new law that requires foreign banks to disclose their U.S.-owned accounts or face a 30 percent withholding tax in some cases.
In Notice 2011-34, IRS further refined the methodology banks must use to determine how to identify their U.S. accounts, with a new focus on private banking. It also offered new guidance on “passthru payments” subject to the withholding tax, and on entities that will be deemed compliant for reporting purposes.
Practitioners interviewed by BNA said they are glad to see more guidance, although some said banks may be disappointed by an apparently narrow stance taken on some issues, such as how to calculate passthru payments and exceptions for expanded affiliated groups. The methodology for identifying accounts remains complex, some said.
The guidance follows Notice 2010-60, issued last August. FATCA was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act (Pub. L. No. 111-147) in March 2010.
IRS said it expects to issue proposed regulations on a variety of issues, but did not say when.
West Says Industry Will Be Disappointed
“I think Treasury has to be applauded for working hard for trying to get as much FATCA guidance out as possible as quickly as possible,” Phil West, a former Treasury international tax counsel, told BNA April 8. “Two substantial notices in roughly six months’ time is to be commended.”
However, he said, “I think financial institutions will be disappointed in the substance of the notice because although the procedures that FFIs will have to adopt are in some ways relaxed, in many ways they are not.”
West, now with Steptoe & Johnson LLP in Washington, D.C., told BNA that while the definitions provide some needed specificity, “they appear to remain burdensome in a way that is disproportionate to the benefit to be expected from these rules.”…