Tax Law

Further Guidance on Reporting on U.S. Accounts by Foreign Financial Institutions (FFIs)

[Editor's Note:  This narrative is derived from Rhoades & Langer, U.S. International Taxation and Tax Treaties § 27.02[1][j] (Matthew Bender).]

In 2010, Congress adopted a rather complicated set of rules designed to further enforce compliance of U.S. tax and money laundering laws by U.S. taxpayers. [New Chapter 4 (IRC §§ 1471, 1472, 1473 and 1474), as added to the Code by the Hiring Incentives to Restore Employment Act of 2010, § 501(a), PL 111-147 (H.R. 2847).] The entire approach Congress took to the problem is cumbersome and far-reaching. Essentially, Congress is trying to improve the U.S. taxpayer noncompliance problem by attacking foreign financial institutions (that are destined to be labeled "FFI"s). To do that, the new chapter in the Code creates a withholding regime that requires certain U.S. payors of what are called "withholdable amounts" to withhold tax from those payments unless the FFI complies with broad information requirements that will be generated by Treasury.

The result is that any payments due to, say, Barclays Bank in London, are subject to withholding unless Barclays has agreed to deliver the information about U.S. account holders that Treasury demands.

The new rules also contain withholding provisions applicable to non-FFIs and generally apply to payments made after December 31, 2012. The reason for that delayed effective date is to allow the world's FFIs to ramp up for the new rules.

Treasury has taken the pulse of the prospective FFIs and concluded that they cannot meet the December 31, 2012 deadline. [See Notice 2011-53, 2011-32 IRB 124.]  In order to make the FFI program work, Treasury has modified the earlier deadlines. First, as to FFI applications, the Service will begin accepting FFI applications "no later" than January 1, 2013. The Service has not indicated how much earlier than that date it will accept applications. The deadline for entering into an FFI Agreement is June 30, 2013. Actual withholding under the FFI program is to commence on January 1, 2014. An FFI Agreement that is entered into later than that date may not allow withholding agents to refrain from withholding on payments to the late FFI.


RELATED LIINKS: For a summary of the new rules, see: 

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