Daily Tax Update - January 17, 2013: Treasury, IRS Issue Long-Awaited Final FATCA Regulations and Update Progress on International Coordination

TREASURY, IRS ISSUE LONG-AWAITED FINAL FATCA REGULATIONS AND UPDATE PROGRESS ON INTERNATIONAL COORDINATION: Today, the Treasury Department and the IRS issued comprehensive final regulations (T.D. 9610) implementing the Foreign Account Tax Compliance Act (FATCA) provisions of the Hiring Incentives to Restore Employment Act. The long-awaited regulations package is 544 pages.

    • According to a Treasury Department press release, the final regulations issued today:
    • “Build on intergovernmental agreements that foster international cooperation. The Treasury Department has collaborated with foreign governments to develop and sign intergovernmental agreements that facilitate the effective and efficient implementation of FATCA by eliminating legal barriers to participation, reducing administrative burdens, and ensuring the participation of all non-exempt financial institutions in a partner jurisdiction. In order to reduce administrative burdens for financial institutions with operations in multiple jurisdictions, the final regulations coordinate the obligations for financial institutions under the regulations and the intergovernmental agreements.
    • Phase in the timelines for due diligence, reporting and withholding and align them with the intergovernmental agreements. The final regulations phase in over an extended transition period to provide sufficient time for financial institutions to develop necessary systems. In addition, to avoid confusion and unnecessary duplicative procedures, the final regulations align the regulatory timelines with the timelines prescribed in the intergovernmental agreements.
    • Expand and clarify the scope of payments not subject to withholding. To limit market disruption, reduce administrative burdens, and establish certainty, the final regulations provide relief from withholding with respect to certain grandfathered obligations and certain payments made by non-financial entities.
    • Refine and clarify the treatment of investment entities. To better align the obligations under FATCA with the risks posed by certain entities, the final regulations: (1) expand and clarify the treatment of certain categories of low-risk institutions, such as governmental entities and retirement funds; (2) provide that certain investment entities may be subject to being reported on by the FFIs with which they hold accounts rather than being required to register as FFIs and report to the IRS; and (3) clarify the types of passive investment entities that must be identified and reported by financial institutions.
    • Clarify the compliance and verification obligations of FFIs. The final regulations provide more streamlined registration and compliance procedures for groups of financial institutions, including commonly managed investment funds, and provide additional detail regarding FFIs’ obligations to verify their compliance under FATCA.”
    • Today, Treasury also announced that Norway has joined the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain as countries that have signed or initialed model agreements. Treasury is engaged with more than 50 countries and jurisdictions to curtail offshore tax evasion, and more signed agreements are expected to follow in the near future.
  • For additional information, contact Philip R. West - pwest@steptoe.com or  Amanda Varma - avarma@steptoe.com
  • The regs can be accessed here.

GOVERNMENT FILES BRIEF WITH SUPREME COURT IN UK “WINDFALL TAX” FOREIGN TAX CREDIT CASE:  The government has filed its brief with the US Supreme Court in the widely watched case involving the creditability under US law of the United Kingdom windfall tax case.  The issue is whether the windfall tax is an “income tax” as required under the US foreign tax credit regulations.  The case is scheduled for oral argument Feb. 20 (PPL Corp. v. Commissioner, U.S., No. 12-43, government response filed 1/14/13).  The brief is attached.


Notice 2013-7 extends earlier guidance on the federal tax consequences of payments made to or on behalf of financially distressed homeowners under programs established pursuant to the Treasury Department’s Housing Finance Agency Innovation Fund for the Hardest-Hit Housing Markets and the Department of Housing and Urban Development’s Emergency Homeowners’ Loan Program.  This notice also extends earlier guidance on the information reporting requirements for these payments.  Notice 2011-14 and Rev. Proc. 2011-55 amplified and supplemented.

Notice 2013-8 provides guidance under the Administrative Taxpayer Relief Act, which retroactively increased monthly transit benefit limit for 2012 from $125 per month to $240 per month. This notice provides a special correction procedure for employers who paid benefits in excess of $125 per month in 2012 and wish to make corrections on their fourth quarter Form 941.

Revenue Procedure 2013-15 provides the 2013 cost-of-living adjustments for inflation for certain items, including the tax tables.  It also includes items whose values were specified in the American Taxpayer Relief Act of 2012 (ATRA), such as the beginning of the 39.6% income tax brackets; the beginning income levels for the limitation on certain itemized deductions, and the beginning income levels for the phaseout of the personal exemptions.  In addition Rev. Proc. 2013-5 modifies Rev. Proc. 2011-52 to reflect an amendment to section 132(f)(2) made by ATRA concerning qualified transportation fringe benefits.  Specifically, for 2012, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $240.

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.

STEPTOE & JOHNSON LLP - TAX PRACTICE  Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.