On May 2, 2014, the US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) announced in Notice 2014-33 (the Notice) that calendar years 2014 and 2015 will be regarded as a transition period for purposes of IRS enforcement and administration with respect to the implementation of the Foreign Account Tax Compliance Act (FATCA or Chapter 4). In addition, the Notice provides that this transition period will apply with respect to certain related due diligence and withholding provisions under Chapters 3 and 61 and Section 3406 of the Internal Revenue Code (Code) that were revised in coordinating regulations issued on February 20, 2014. This relief means that the IRS will take into account the extent to which withholding agents, foreign financial institutions (FFIs), and other entities are making a good faith effort to comply with FATCA and the modifications to existing information reporting and withholding obligations until calendar year 2016.
The Notice also announces that the Treasury and IRS intend to amend the regulations under Chapters 3 and 4 of the Code to provide that:
- FFIs and withholding agents may treat an obligation (including an account) held by an entity (but not an individual) that is opened, executed, or issued on or after July 1, 2014, and before January 1, 2015, as a preexisting obligation for purposes of Sections 1471 and 1472 in Chapter 4 (subject to certain modifications).
- The requirements of a limited FFI or branch of an FFI (including a disregarded entity owned by an FFI) that is a member of an expanded affiliated group (EAG) of FFIs will be modified.
- The standards of knowledge under Chapter 3 will be modified for withholding agents under Treas. Reg. § 1.1441-7(b) for accounts documented before July 1, 2014.
- The description of an individual’s reasonable explanation of foreign status for purposes of Chapters 3 and 4 will be revised.
The Notice states that the transition period and other guidance described in the Notice are intended to facilitate a smooth and orderly transition for withholding agents and FFIs to comply with FATCA’s requirements.