In a letter to the Treasury Department and the Internal Revenue Service, SIFMA said that as the July 1, 2014, deadline for reporting and withholding approaches, big questions remain on the responsibilities of banks and uncertainties surround regulations and forms.
The group said its letter, released Dec. 18, is in response to Notice 2013-69, which among other things provided a draft agreement for foreign financial institutions (FFIs) to sign up for direct reporting under the law.
Enacted in 2010, FATCA seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of payments made to FFIs that do not agree to identify and report information on U.S. account holders.
SIFMA said more guidance is needed on the diligence procedures needed to validate both NFFEs that are reporting directly and sponsored NFFEs that are reporting directly. It will take “substantial time and resources” for both U.S. financial institutions and participating FFIs to design due diligence, reporting and withholding processes, the group said.
More guidance is also needed on:
• how to coordinate the FATCA rules with Form 1099 reporting;
• the coordination rules on backup withholding under tax code Section 3406;
• agreements for qualified intermediaries, withholding foreign partnerships and withholding foreign trusts;
• the treatment of a branch of a foreign financial institution that is in a jurisdiction whose laws do not allow it to comply; and
• the general responsibilities of participating FFIs.
According to the letter, the IRS needs to clarify the scope of the obligations faced by a “lead FFI” under both the agreement and the final regulations (T.D. 9610) the IRS unveiled in January.
SIFMA also queried whether a participating FFI that fails to inform the IRS within 90 days of any significant change in its circumstances can rely on a reasonable cause defense to avoid default.
In this area, the letter said the scope of the IRS's definition of a “significant change in circumstances” is too broad. SIFMA said it would require lead financial institutions and participating FFIs to monitor all changes in foreign laws, regulations policy or rulings of any court that materially affects whether any provision of the FFI agreement is valid.
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