Dec. 26 --The Internal Revenue Service unveiled the eagerly awaited final agreement for foreign financial institutions (FFIs) that want to sign up for direct reporting of their U.S.-owned accounts under the Foreign Account Tax Compliance Act in Rev. Proc. 2014-13.
The Dec. 26 move is key to many banks and other financial entities that will have to start reporting and withholding under the 2010 law on July 1, 2014. While the agreement is largely similar to the draft version the IRS issued in October, tax practitioners said a welcome change in the final FFI agreement gives new flexibility to institutions that have “Model 2” intergovernmental agreements (IGAs) with the U.S. to implement FATCA .
They also said the new agreement contains an approach toward definitions by cross-referencing that is very helpful. All the practitioners interviewed by Bloomberg BNA said they are looking forward to the two new sets of FATCA guidance that the IRS said it expects to issue in January. One attorney praised the fact that the government seemed to be indicating it would have an updated, more inclusive definition of a branch in that upcoming guidance.
A Treasury spokeswoman said the final agreement is substantially the same as the draft version, with a few improvements generally made to provide clarity. “The changes between the draft and final FFI agreements include corrections, clarifications, and conforming changes to take into account soon to be issued regulations under FATCA,” she told Bloomberg BNA via e-mail Dec. 26.
Since FATCA was enacted, the U.S. has been involved in negotiating IGAs with dozens of jurisdictions. Under Model 1 IGAs, financial institutions would report the information to their own governments, which then would share the data with the IRS. Model 2 accords generally provide for a modified version of direct reporting to the U.S.
So far, Japan, Switzerland and Bermuda have signed Model 2 pacts. As of Dec. 19, Treasury had negotiated a total of 18 signed IGAs. Eleven more agreements have been reached in substance and discussions with many other jurisdictions are continuing, Treasury announced on that day .
The guidance the government unveiled Dec. 26 is generally intended to be used by financial institutions for direct reporting outside of a Model 1 IGA, but it also affects entities that have signed Model 2 IGAs.
The agreement allows the financial institution to make that decision, rather than the Model 2 jurisdiction, he said. It also permits “quite a bit of flexibility regarding mixing and matching” between the IGA procedures and the FFI agreement procedures.
This is reasonable, he said, because they are both effective ways for FFIs to satisfy their FATCA obligations.
Jonathan Jackel, senior counsel with Burt, Staples & Maner LLP, said in a Dec. 26 interview that FFIs in Model 2 jurisdictions are likely to appreciate having the choice. Candace Ewell, a principal in the Washington National Tax Services group at PricewaterhouseCoopers LLP, told Bloomberg BNA Dec. 26 she too believes the flexibility will be welcome.
Jackel and Ewell both praised the cross-referencing approach that the agreement takes toward definitions.
Ewell said this approach “cuts back on the confusion that happens when you paraphrase a definition.”
Jackel said the agreement seems to preview that there will be a new definition of a branch that is more inclusive than the current approach, which looks at what it means to be a branch in the context of a limited branch. “It appears that it's going to be in the next set of regulations,” he said. “A definition that applies all across FATCA would be very, very helpful,” Jackel said.
All the practitioners interviewed said taxpayers really need the guidance the IRS said it plans to issue in January.
One set will provide clarifications to final regulations (T.D. 9610) the IRS unveiled 11 months ago . The other will offer help in how to coordinate the reporting requirements across several chapters, including Chapter 3, Chapter 4 and Chapter 61.
The importance of the latter set of rules “can't be understated,” Ewell said. “Having disparity between existing rules and FATCA is just a level of confusion that nobody needs,” she said.
Ewell said in the preamble to the Dec. 26 revenue procedure, the IRS also offered a glimpse of the approach it will be taking in forthcoming agreements for qualified intermediaries, withholding partnerships and withholding trusts. “It looks like they're not going to rewrite it,” she said. “They're just going to coordinate through cross-reference.”
The revenue procedure is scheduled to appear in Internal Revenue Bulletin 2014-3 dated Jan. 13, 2014.
To contact the reporter on this story: Alison Bennett in Washington at email@example.com
To contact the editor responsible for this story: Cheryl Saenz at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).