Daily Tax Update - October 24, 2012: IRS, Treasury Release Announcement on FATCA Timelines

IRS, TREASURY RELEASE ANNOUNCEMENT ON FATCA TIMELINES:  Today, the IRS and Treasury issued Announcement 2012-42, which provides timelines for withholding agents and foreign financial institutions ("FFIs") to complete due diligence and other requirements under the Foreign Account Tax Compliance Act ("FATCA") provisions of the Hiring Incentives to Restore Employment Act of 2010.  The announcement also provides additional guidance on gross proceeds withholding and the status of certain instruments as grandfathered obligations.  The guidance provided in Announcement 2012-4 will be incorporated in the final FATCA regulations.

    • Preexisting Obligations.  The announcement states that withholding agents, including participating FFIs and registered-deemed complaint FFIs, will generally be required to implement new account opening procedures by January 1, 2014.  The term "preexisting obligation" will be defined in the final regulations to refer to accounts, instruments, and contracts maintained or executed prior to January 1, 2014.  The final regulations will also provide the following rules with respect to preexisting obligations:
      • Prima facie FFIs.  Withholding agents, other than participating FFIs, will be required to document payees that are prima facie FFIs by June 30, 2014.  Participating FFIs will be required to perform the requisite identification procedures and obtain the appropriate documentation to determine whether a prima facie FFI payee is itself a participating FFI, deemed-compliant FFI, or nonparticipating FFI within six months after the effective date of its FFI agreement (that is, by June 30, 2014, for any FFI that enters into an FFI agreement on or before December 31, 2013).
      • Preexisting entity obligations.  Withholding agents, other than participating FFIs, will be required to document payees that are entities other than prima facie FFIs by December 31, 2015.  Participating FFIs will be required to perform the requisite identification procedures and obtain the appropriate documentation to determine whether an entity, other than a prima facie FFI, is itself a participating FFI by the later of December 31, 2015, or the date that is two years after the effective date of its FFI agreement.
      • Preexisting individual accounts.  A participating FFI will be required to perform the requisite identification procedures and obtain the appropriate documentation to identify preexisting individual accounts that are high-value accounts (as described in Prop. Reg. §1.1471-4(c)(8)(i)) by the later of December 31, 2014, or the date that is one year after the effective date of the FFI’s FFI agreement.  For accounts that are not high-value accounts, a participating FFI must perform the requisite identification procedures and obtain the appropriate documentation prior to the later of December 31, 2015, or the date that is two years after the effective date of the FFI’s FFI agreement.
    • Information Reports.  The final regulations will provide that a participating FFI will be required to file information reports with respect to the 2013 and 2014 calendar years not later than March 31, 2015.
    • Gross Proceeds.  The final regulations will provide that the term "withholdable payment" includes gross proceeds from any sale or other disposition occurring after December 31, 2016, of any property of a type that can produce interest or dividends that are U.S. source FDAP income.
    • Grandfathered Obligations.  The final regulations will modify the term "grandfathered obligation" to include (a) any obligation that produces or could produce a foreign passthru payment and that cannot produce a withholdable payment, provided that the obligation is outstanding as of the date that is six months after the date on which final regulations defining the term "foreign passthru payment" are filed with the Federal Register; (b) any instrument that gives rise to a withholdable payment solely because the instrument is treated as giving rise to a dividend equivalent pursuant to section 871(m) and the regulations thereunder, provided that the instrument is outstanding on the date that is six months after the date on which instruments of its type first become subject to such treatment; and (c) any obligation to make a payment with respect to, or to repay, collateral posted to secure obligations under a notional principal contract that is a grandfathered obligation.
  • The announcement can be accessed here.
  • For additional information, contact Philip R. West - pwest@steptoe.com or  Amanda Varma - avarma@steptoe.com

IRS REMINDS TAX RETURN PREPARERS TO RENEW THEIR PTINs: The IRS reminded the nation’s federal tax return preparers that they must renew their Preparer Tax Identification Numbers (PTINs) for 2013.  According to the IRS, "Anyone who is a paid federal tax return preparer must register with the IRS and have a PTIN, as must all Enrolled Agents. Additionally, some return preparers have new continuing education and competency test requirements."  Renewed PTINs will be valid for calendar year 2013.

  • Preparers who have forgotten their log-in information, password, or email address can use online tools to resolve these issues. Additional information is available via: http://www.irs.gov/Tax-Professionals/PTIN-Requirements-for-Tax-Return-Preparers.
  • Carol Campbell, Director, IRS Return Preparer Office said, "We ask that you renew your PTIN as soon as possible to avoid a last-minute rush. It’s easy to let this slip as the holiday season approaches. And, if you have a testing requirement and haven’t yet scheduled an appointment, please do so at the same time."

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE: 
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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