IRS Eases FATCA Enforcement During ‘Transition Period’

The U.S. Department of the Treasury has released administrative guidance that could temporarily alleviate, but not eliminate, some of the upcoming filing requirements and actions required under the Foreign Account Tax Compliance Act (FATCA). This guidance, Notice 2014-33, announced that 2014 and 2015 will be regarded as a transition period for Internal Revenue Service (IRS) enforcement and administration. The notice is not intended to postpone the July 1, 2014, compliance deadline, but it indicates that entities making appropriate efforts to comply will not be subject to harsh penalties.

Transitioning to FATCA compliance

Enacted by Congress in 2010, FATCA was designed to ensure that U.S. taxpayers with foreign financial accounts comply with their U.S. tax obligations.

Notice 2014-33 is welcome relief for many in light of the rapidly approaching withholding deadline under FATCA. During the transition period, the IRS will take into account the extent to which withholding agents, U.S. and foreign financial institutions and other entities with FATCA responsibilities have made “good faith efforts” to comply with the requirements, including reporting, due diligence and withholding provisions.

For example, “good faith efforts” for withholding agents might include the following, according to the notice:

• Modifying account opening practices to document the status of payees
• Applying the appropriate standards of knowledge
• Applying relevant presumption rules

Good faith efforts for foreign financial institutions that are subject to FATCA might include identifying and facilitating the registration of other members of its expanded affiliated group.

Both U.S. and foreign parties who are subject to FATCA should be making efforts to satisfy the applicable reporting requirements. The IRS transition period may not help those who haven’t taken appropriate actions to comply with FATCA.

Kaufman Rossin’s international tax experts can assist both U.S. and foreign parties with FATCA compliance. If you have questions about your responsibilities under FATCA, please contact me or another member of our team.