On Thursday, the IRS released a large package of regulations needed to implement the Foreign Account Tax Compliance Act (FATCA). FATCA, enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, requires U.S. withholding agents to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents. FATCA withholding goes into effect July 1, 2014.
Final regulations under FATCA were published in January 2013 (T.D. 9610). The first part of Thursday’s regulations, issued under Secs. 1471 to 1474 (T.D. 9657), contains more than 50 amendments and clarifications to those regulations, many of which were made, the Treasury Department reports, in response to comments. One significant change is to accommodate direct reporting by certain entities about their substantial U.S. owners to the IRS rather than to withholding agents. Other key changes relate to the treatment of certain special-purpose debt securitization vehicles, the treatment of disregarded entities as branches of FFIs, the definition of an expanded affiliated group, and transitional rules for collateral arrangements before 2017.
The second part of the regulation package (T.D. 9658) addresses the overlap of the FATCA reporting and withholding rules with the existing rules for foreign reporting and withholding under chapter 3 of the Code (Secs. 1441 to 1464), the information-reporting rules under chapter 61 (Secs. 6001 to 6117), and the backup withholding requirements under Sec. 3406. These rules were all in existence before FATCA was enacted, and the existing regulations adopted to carry out their purposes sometimes conflict with the FATCA rules and often duplicate them. These new regulations address those issues.
The regulations will be effective when they are published in the Federal Register. As of this writing they had not yet been posted to the Federal Register website.