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The IRS on December 30 issued Notice 2023-11 (Notice), providing temporary relief for certain foreign financial institutions (FFIs) required to report under the Foreign Account Tax Compliance Act (FATCA) US tax identification numbers (TINs) for certain pre-existing accounts as defined in an applicable Model 1 intergovernmental agreement (IGA). The Notice states that an FFI in an eligible Model 1 IGA jurisdiction that complies with procedures set forth in the Notice will be deemed to be in compliance with its reporting obligations under the IGA despite its failure to report US TINs associated with its pre-existing accounts.
A reporting Model 1 FFI seeking relief provided by the Notice must use codes provided by the IRS (TIN Codes) that identify features of these accounts that may explain why the reporting Model 1 FFI failed to report a US TIN. The IRS intends to use this information for accounts without US TINs to enhance its compliance procedures and to inform future options for Model 1 FFIs that continue to be unable to obtain and report a US TIN for certain accounts. The Notice states that if relief is granted in the future, the scope of the accounts for which FFIs may obtain such relief likely will be narrower than the scope of accounts for which relief is provided under this Notice.
Action item: FFIs should review the relief provisions — many of which require actions this year — and create processes intended to maintain compliance. The provisions relating to the solicitation for missing required US TINs may have the most significant external impact to the FFIs.
Each Model 1 IGA provides that a reporting Model 1 FFI will be deemed to be in compliance with FATCA if the Model 1 IGA jurisdiction complies with its obligations under the IGA with respect to the FFI and the FFI complies with its reporting and registration obligations in accordance with the IGA. A reporting Model 1 FFI must report the US TIN of each specified US person who is (1) an account holder or (2) a controlling person for a non-US entity’s US reportable accounts.
The US Competent Authority may notify the Model 1 IGA jurisdiction Competent Authority that a reporting Model 1 FFI is significantly noncompliant with its reporting requirements if it fails to report required US TINs. The United States may treat a noncompliant Model 1 FFI as a nonparticipating financial institution subject to FATCA withholding.
Observation: FFIs that are at risk of being treated as nonparticipating FFIs and subject to FATCA withholding should implement policies and procedures intended to avoid this status. FATCA withholding at 30% applies to US source interest, dividends, and other financial payments. Obtaining a refund of an overpaid amount can require significant effort by the FFI’s account holders.
Before 2017, a reporting Model 1 FFI was not required to report a US TIN for a pre-existing US reportable account if the US TIN was not in its records. Notice 2017-46 provided relief for reporting Model 1 FFIs unable to obtain US TINs for pre-existing accounts by January 2017 as required. If a reporting Model 1 FFI complied with the conditions in Notice 2017-46, the US Competent Authority would not determine that there had been significant noncompliance with obligations under an applicable Model 1 IGA solely because a reporting Model 1 FFI’s failure to obtain and report US TINs for each pre-existing account. The relief in Notice 2017-46 was limited to calendar years 2017, 2018, and 2019, and was intended to provide reporting Model 1 FFIs additional time to implement practices and procedures to obtain and report US TINs.
The Treasury Department and the IRS are aware of concerns expressed by Model 1 IGA jurisdictions, FFIs, and US citizens that FFIs are closing or may close bank accounts of US citizens who have failed to provide their US TINs. FFIs have indicated that these closures are based on their concerns about being treated as in significant noncompliance with their Model 1 IGA obligations.
Treasury and the IRS have heard that some FFIs are refusing to provide accounts to US citizens that are resident in the FFI’s jurisdiction, or otherwise providing access to accounts on less favorable terms than apply to other account holders, even if the US citizen provides a US TIN.
The Notice provides interim guidance intended to address the concerns of FFIs and Model 1 IGA jurisdictions while providing the IRS additional information to enhance compliance procedures.
Reporting for calendar years 2022 (due by September 30, 2023), 2023 (due by September 30, 2024), and 2024 (due by September 30, 2025), a reporting Model 1 FFI in an eligible Model 1 IGA jurisdiction (discussed below) that complies with the conditions set forth in the Notice will not be considered to be in significant noncompliance with its Model 1 IGA obligations with respect to reporting US TINs for pre-existing accounts solely because of its failure to obtain and report required US TINs. However, the Notice does not prevent a reporting Model 1 FFI from being deemed to be in significant noncompliance for failure to satisfy any other Model 1 IGA obligation.
A reporting Model 1 FFI is eligible for the relief provided by the Notice if, for each US reportable account (including new accounts) with a missing required US TIN, it:
For reporting for calendar year 2022, a reporting Model 1 FFI may use either the TIN Codes issued by the IRS in May 2021 or updated TIN Codes to be issued by the IRS in early 2023. Reporting Model 1 FFIs must use the most recent TIN Codes issued by the IRS when reporting calendar years 2023 and 2024.
To satisfy the requirement to make a solicitation from each account holder for missing required US TINs, reporting Model 1 FFIs must use the method of communication that it determines is the most likely to reach the account holder. In addition, the communication must include either:
An FFI must retain records of the policies and procedures adopted to satisfy this requirement and documentation that those policies and procedures were followed to establish its compliance with the requirements until the end of calendar year 2028.
For a reporting Model 1 FFI to be eligible for the relief, the applicable Model 1 IGA jurisdiction must make good-faith efforts, by the date that is nine months after the end of the calendar year to which the information relates, to:
In order to provide a transition period for the satisfaction of these conditions, these requirements will be deemed to have been satisfied for reporting on calendar year 2022.
Observation: FFIs will need to work with relevant stakeholders to incorporate the additional language in their annual solicitations. The Notice does not describe the path after the transition years, so FFIs should be diligent in documenting the steps taken to comply and attempt to reduce missing TINs.
Global and US Tax Knowledge Management Leader, PwC US