FATCA prop. regs. amended to extend various deadlines.

• Author: Schreiber, Sally P.
• Position: Foreign Account Tax Compliance Act

The IRS is delaying various FATCA-related deadlines because it has received feedback that complying with the original deadlines and other requirements is proving to be impractical for some taxpayers (Announcement 2012-42). The announced changes modify the 388-page proposed regulations issued in February related to the Foreign Account Tax Compliance Act (FATCA) (REG-121647-10, see News Notes, "FATCA Prop. Regs.," 43 The Tax Adviser 209 (April 2012)). The announcement changes the due-diligence timelines, the withholding and documentation timelines, the date the first information reports are due, and the date gross proceeds will produce a with-holdable payment. It also clarifies the scope of grandfathered obligations by expanding the items included as grandfathered.

The first change to the due-diligence timelines is to the date an obligation will be considered a "preexisting obligation" that is not subject to FATCA withholding. The announcement amends Prop. Regs. Sec. 1.1471-1(b)(48) to change the requirement that a preexisting obligation for a withholding agent means any account, instrument, or contract maintained or executed by the withholding agent as of Jan. 1, 2014 (instead of 2013). For participating FFIs (foreign financial institutions that enter into withholding agreements with the IRS) and deemed-compliant FFIs (foreign financial institutions that do not have to enter into IRS agreements), the date is also changed so that the rules will not apply before Jan. 1,2014.

The announcement also amends the transition rules for completing due diligence on preexisting obligations. Under the new rule, Prop. Regs. Sec. 1.1471-2(a)(4)(ii) will provide that with respect to preexisting obligations, a withholding agent that is not a participating FFI will not be required to withhold on payments made to a prima facie FFI (payees that have indications of being FFIs) for a preexisting obligation prior to July 1, 2014, unless the withholding agent has documentation establishing that the payee is a nonparticipating FFI. With respect to a preexisting obligation, the final regulations will provide that a participating FFI 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 (June 30, 2014, for any FFI that enters into...