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Tax news and developments March 2023

In brief

Treasury and the IRS issued temporary relief procedures in Notice 2023-11 (“Notice“) for a foreign financial institutions (FFI) that is subject to a Model 1 intergovernmental agreement (IGA) jurisdiction.   

Model 1 FFIs that follow the procedures set forth in the Notice will not be in significant non-compliance with their obligations under an applicable Model 1 IGA solely because of a failure to report a required US taxpayer identification number (TIN) in relation to “preexisting accounts”.


Contents

  1. Scope
  2. Prior relief
  3. Current relief
  4. Key takeaways

Scope

The Notice applies only to reporting for calendar years 2022, 2023, and 2024. Model 1 FFIs must use numerical codes (“TIN Codes“) to indicate why a US TIN had not been reported and make good faith efforts to increase the likelihood US citizens will report their US TINs.The relief is intended to provide the IRS with information on why FFIs do not report US TINs and enhance compliance with the Foreign Account Tax Compliance Act (FATCA).

Prior relief

In 2017, Treasury and the IRS issued Notice 2017-46 which provided, with respect to reporting for calendar years 2017, 2018, and 2019, that the US would not determine that there had been significant non-compliance solely because a reporting Model 1 FFI failed to obtain and report each required US TIN for preexisting accounts. The relief was intended to give FFIs time to implement practices and procedures to report US TINs.

In effect, Model 1 FFIs had up to six years to obtain required US TINs and report information on such accounts without the US TINs. In addition, US citizens who resided abroad had six years to provide a social security number (SSN). To better understand the issues FFIs faced in obtaining required US TINs, the IRS shared TIN Codes that Model 1 FFIs could use for 2020 reporting which may indicate why a US TIN had not been reported.

Current relief

Model 1 IGA jurisdictions, FFIs, and US citizens continue to have concerns that FFIs are closing or may close bank accounts of US citizens who fail to provide a required US TIN, including accounts of US citizens residing outside the US. The Notice aims to (i) provide relief to certain FFIs that they will not be treated as in significant non-compliance solely due to a failure to report a required US TIN for a preexisting account, (ii) collect information on why the FFIs did not provide US TINs, and (iii) ultimately enhance compliance with FATCA.

As mentioned above, the relief in the Notice applies only to reporting for calendar years 2022, 2023, and 2024.

Key takeaways

There are two key takeaways arising from the Notice which Model 1 IGA jurisdictions and their FFIs should consider. First, the Treasury and the IRS will not treat those Model 1 IGA FFIs as being in significant non-compliance if they, and the Model 1 IGA jurisdiction in which they find themselves, can demonstrate they are making good faith efforts to obtain and report US TINs to meet their obligations under FATCA. Hence, FFIs and Model 1 IGA jurisdictions need to be proactive and make good faith efforts to collect information on the FFIs’ US account holders. The Notice does not provide whether permanent relief will be granted for FFIs who continue to be unable to obtain and report US TINs for certain accounts after 2024. It does clarify, however, that if permanent relief were granted in the future, the scope of the accounts for which an FFI may obtain relief would be narrower than the scope of accounts for which relief is given under the Notice. As such, FFIs and Model 1 IGA jurisdictions, or if necessary outside counsel, need to move quickly to obtain and report US TINs from US account holders that have not yet provided one, or make an accurate report to the IRS explaining why it may not report a US TIN.

Second, in order to qualify for relief, FFIs must retain until 2028 records of the policies and procedures adopted to communicate with account holders to annually request missing required US TINs (in the manner most likely to reach them). FFIs should take this as an opportunity to review their policies and procedures to determine if they are appropriately requesting, and documenting their requests for, missing required US TINs.

The entire Notice may be accessed here.

Author

Paul DePasquale is a partner in Baker McKenzie's Tax and Global Wealth Management practice groups in New York. He advises individuals and multinational entities on international and domestic tax planning, cross-border transactions and investments, and wealth management. He also advises financial institutions on regulatory, compliance and strategy matters. Paul previously worked in the Firm's Zurich and Hong Kong offices. He is a frequent speaker and writer on international tax compliance and information reporting.

Author

Lyubomir Georgiev has practiced law since 2003 in the United States and Switzerland. He has assisted banks, insurance companies, fiduciaries, family offices, asset managers, and high net worth individuals. Lyubomir participated in the negotiations of the special arrangements between the Government of the Principality of Liechtenstein and the UK on voluntary disclosure, tax compliance certification and tax information exchange. He heads the International Tax and Global Wealth Management practice in Zurich. Lyubomir has worked in Washington, DC and New York. Previously he was a member of the EMEA Wealth Management Steering Committee and Knowledge Management & Training head. Lyubomir is admitted to practice in Washington, DC, US Tax Court, England and Wales, and Switzerland as a foreign-qualified solicitor. He has been ranked in Chambers Global since 2012 as a foreign expert in practice areas such as UK tax and private clients, US private clients, and Liechtenstein tax and general business law.

Author

Mathieu Wiener is an associate at the Firm's Zürich office, in the International Tax and Global Wealth Management practice groups. Before joining the Firm, Mathieu worked in the United States Tax Court in Washington, DC. Mathieu has experience assisting individuals and families with US and international tax, wealth planning, and regulatory matters. Mathieu assists clients in interdisciplinary matters in both English and French.
During law school, Mathieu worked in the United States Bankruptcy Court for the Central District of California, and the United States Attorneys’ Office for the Central District of California, Tax Division.

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