Fox Rothschild LLP Partner Matthew D. Lee recently authored an updated version of the Foreign Account Tax Compliance Act Answer Book, published by Practising Law Institute. Lee’s book provides a detailed analysis of the international tax compliance regime imposed by the Foreign Account Tax Compliance Act and its impact on foreign financial institutions, withholding agents and U.S. citizens and residents with offshore bank accounts and investments.

In the updated book, Lee describes the latest developments regarding FATCA implementation, including updates concerning the reporting obligations imposed upon foreign financial institutions, the responsible officer compliance certifications required to be filed this year and enforcement efforts by the Internal Revenue Service and the Justice Department.

Lee is a former U.S. Department of Justice trial attorney who concentrates his practice on all aspects of white-collar criminal defense, federal tax controversies, financial institution regulatory compliance and complex civil litigation.

For more information, please contact Lee directly at mlee@foxrothschild.com or visit the PLI website.

About Practising Law Institute (PLI)

Practising Law Institute (PLI) (www.pli.edu) is a nonprofit continuing legal education and professional business training organization, dedicated to providing the legal community and allied professionals with the most up-to-date, relevant information and techniques, through Seminars and Workshops, Live Webcasts, and On-Demand Learning including interactive skills courses in the Interactive Learning Center. PLI publishes comprehensive Treatises, Answer Books and practice-focused Course Handbooks, which are also available through Discover PLUS, our searchable online research database.

The Foreign Account Tax Compliance Act (FATCA) requires a foreign financial institution to appoint a “Responsible Officer” who is obligated to submit periodic compliance certifications to the Internal Revenue Service attesting to the institution’s compliance with various FATCA duties.  For most Participating Foreign Financial Institutions (FFIs) and Reporting Model 2 FFIs, the first deadline for their Responsible Officers to submit such compliance certifications is July 1, 2018.  The first certification required to be filed addresses the FFI’s due diligence with respect to pre-existing accounts (referred to as a “Certification of Pre-Existing Accounts”), and the second certification addresses the FFI’s compliance with various FATCA obligations (referred to as a “Periodic Certification”).  Both of these certifications will be used by the IRS to measure each FFI’s FATCA compliance.

Yesterday the IRS published long-awaited drafts of the compliance certifications in order to assist Responsible Officers in preparing to meet the upcoming certification deadline. The following variations of the Certification of Pre-Existing Accounts are now available in draft form:

• Participating Foreign Financial Institution (Including Reporting Model 2 FFIs)
• Consolidated Compliance Group
• Registered Deemed-Compliant FFIs – Local FFI
• Registered Deemed-Compliant FFIs – Restricted Funds
• Sponsoring Entity of Sponsored FFIs

The following variations of the Periodic Certification are now available in draft form:

• Participating Foreign Financial Institution (Including Reporting Model 2 FFIs)
• Consolidated Compliance Group
• Registered Deemed-Compliant FFIs – Local FFI
• Registered Deemed-Compliant FFIs – Nonreporting Member of PFFI
• Registered Deemed-Compliant FFIs – Qualified Collective Investment Vehicle
• Registered Deemed-Compliant FFIs – Qualified Credit Card Issuer or Servicer
• Registered Deemed-Compliant FFIs – Restricted Funds
• Sponsoring Entity of Sponsored FFI
• Sponsoring Entity of Sponsored Direct Reporting NFFEs
• Sponsoring Entity of Sponsored FFI and Sponsored Direct Reporting NFFEs
• Trustee Documented Trusts
• Direct Reporting NFFEs

Yesterday’s announcement by the IRS also appears to contain a bit of good news regarding the upcoming compliance deadline.  It appears that the July 1 deadline will be extended by up to 90 days, because the IRS FATCA Registration Portal will evidently not be ready to accept compliance certifications before July 2018.  Here is the text of the IRS announcement:

The due date for submitting both FATCA certifications (one that relates to an entity’s preexisting accounts (“COPA”) and another that relates to the entity’s compliance with various FATCA requirements (“periodic certification”)) is July 1 following the third full calendar year after the date the entity registered and received a GIIN. The update to the FATCA Registration Portal containing FATCA certifications will not be available prior to July 2018. For entities that have certifications due by July 1, 2018, please note, any Responsible Officer (RO) that is required to certify will have no less than 3 months from deployment of the certifications on the FATCA Registration Portal to submit them.

We are continuing to monitor developments in this area and will post updates as they become available.

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In the midst of the tax reform debate currently embroiling Congress, Senator Rand Paul (R-Kentucky) has introduced an amendment seeking to repeal the Foreign Account Tax Compliance Act (FATCA), an anti-tax evasion law enacted in 2010 that requires foreign banks to annually disclose to the Internal Revenue Service the identities of their U.S. customers, or face steep financial penalties.  Senator Paul has long been a critic of FATCA, calling its provisions unconstitutional and an invasion of U.S. citizens’ privacy rights in their financial records.  In 2015, Senator Paul and a group of U.S. citizens residing abroad filed a federal lawsuit challenging the constitutionality of FATCA; the suit was dismissed by the district court and, on appeal, the dismissal decision was affirmed.  In April, Senator Paul introduced legislation to repeal FATCA.

Today Senator Paul introduced an amendment to H.R. 1, the Tax Cuts and Jobs Act, to repeal FATCA.  In a press release announcing his amendment, Senator Paul stated “[a]s we work to reduce the massive tax burden Washington has placed on the American people, we should also stand up for their Fourth Amendment right to privacy by rejecting the bulk collection of the financial information of Americans who live overseas.”  Senator Paul contends that FATCA “has impeded international financial transactions and investment by leading many foreign banks to simply deny services to Americans rather than navigate the burdens and costs of compliance.”

It is noteworthy that Senator Paul’s proposed amendment would not simply repeal FATCA’s annual reporting obligation imposed on foreign banks.  It would also repeal related FATCA provisions that:

• require U.S. taxpayers to annually report their foreign financial assets on a new reporting form called Form 8938, Statement of Specified Foreign Financial Assets;
• impose penalties for understatements attributable to undisclosed foreign financial assets; and
• extend the statute of limitations in the case of underreporting of foreign financial assets.

The proposed amendment would also repeal or significantly amend other international, but non-FATCA, reporting provisions, including:

• reporting by U.S. persons who are shareholders of passive foreign investment companies (PFIC);
• reporting of U.S. persons who are treated as owners of a foreign trust; and
• penalties that may be assessed for failure to report information relating to certain foreign trusts.

In light of the uncertainly currently surrounding the entire tax reform debate, it is impossible to predict whether Senator Paul’s proposed amendment stands any chance of passage, especially when the issues relating to FATCA seem to pale in comparison to the larger, structural reform issues currently being debated in Washington.  However, as we previously reported, the Treasury Department has included the FATCA regulations as among those it is currently reviewing as part of its larger effort to reduce regulatory burden imposed upon taxpayers.

In a report to the President recommending actions to eliminate or mitigate burdens imposed on taxpayers by eight specific tax regulations, the Treasury Department indicated that it is considering possible reforms of regulations issued pursuant to the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010 and fully effective as of July 1, 2014, FATCA is a wide-reaching anti-tax evasion law that requires foreign banks and financial institutions to annually disclose to the Internal Revenue Service the identities and other information regarding their U.S. clients. To date, 113 countries around the world have agreed to implement FATCA’s provisions through bilateral tax treaties with the United States. FATCA is not without its critics, however. Financial institutions have objected to the substantial compliance burdens imposed by the law, and Americans residing abroad have complained that as a result of FATCA, foreign banks no longer wish to do business with U.S. citizens.

Executive Order 13789 called for immediate action to reduce tax regulatory burdens and provide useful and simplified tax guidance. That order directed the Treasury Secretary to identify significant tax regulations issued on or after January 1, 2016, that impose an undue financial burden on U.S. taxpayers; add undue complexity to the federal tax laws; or exceed the statutory authority granted to the IRS. Earlier this summer, in an interim report to the President, Treasury identified eight such regulations.

As required by Executive Order 13789, Treasury submitted a second report to the President on October 2, 2017, setting forth recommendations as to specific actions to mitigate the burdens imposed upon taxpayers by the eight regulations previously identified for reform. In that report, Treasury recommended that those regulations be withdrawn entirely, revoked in part, or substantially revised.

As it relates to FATCA, Treasury’s report to the President also noted that Treasury and the IRS have undertaken a comprehensive review of all tax regulations, regardless of when they were issued. According to the report, “[t]his review will identify tax regulations that are unnecessary, create undue complexity, impose excessive burdens, or fail to provide clarity and useful guidance, and Treasury and the IRS will pursue reform or revocation of those regulations.” Treasury further stated that it is continuing to analyze all recently issued significant regulations and is considering possible reforms of recent regulations beyond the eight specific regulations identified earlier this summer. Treasury’s report specifically identifies regulations promulgated under FATCA as under review and subject to possible reform.

Since FATCA was passed by Congress and signed by the President in 2010, Treasury and the IRS have issued thousands of pages of proposed, temporary, and final regulations, and well as numerous corrections to such regulations. Treasury and the IRS have also issued sizeable “coordinating” regulations intended to harmonize existing regulations addressing tax withholding under other Internal Revenue Code provisions with the new FATCA withholding provisions. FATCA took full effect on July 1, 2014, and since that time financial institutions around the globe have been required to implement and maintain FATCA’s complex regime of due diligence and reporting obligations, or face severe withholding tax penalties. While the likelihood of repealing (or even reforming) FATCA would have been remote only a year ago, in the current political climate, with tax reform a top priority of the new administration, significant reform of FATCA’s long reach may well be a possibility.

The Internal Revenue Service has issued a reminder to foreign financial institutions to renew their Foreign Financial Institution (FFI) agreement if required. These FFIs have until October 24, 2017 to complete their renewal. Those that fail to renew their agreements could be removed from the November FFI list and be subject to a 30 percent tax on certain U.S. source payments.

“We’ve worked with foreign financial institutions to implement FATCA registration and information reporting,” said Large Business & International Commissioner Doug O’Donnell. “An important October deadline is approaching that some of these groups might overlook. We urge foreign financial institutions to make sure they timely renew their agreements, using the FATCA FFI Registration System, to avoid losing their status.”‎

Those who are required to renew their FFI agreement and do not by October 24, 2017, will be treated as having terminated their FFI agreement as of January 1, 2017.

The FATCA FFI Registration system has been updated to include the ability for FFIs to renew their agreements with the IRS. Once logged into the registration system, a financial institution can determine whether it must renew its FFI agreement using the link to “Renew FFI Agreement.” Once the determination is made, the system enables a financial institution to review and edit their registration form as needed. The financial institution will need to verify and update their registration information and submit to renew their FFI agreement.