FATCA Guidance: IRS Releases Preliminary Guidance on the FATCA Provisions of the HIRE Act

Sullivan & Cromwell LLP - September 13, 2010

On August 27, 2010, the IRS and Treasury Department issued Notice 2010-60 (the “Notice”) providing initial guidance on many of the foreign account tax compliance provisions of the “Hiring Incentives to Restore Employment Act” (the “Act”). The IRS and Treasury Department intend to issue proposed regulations incorporating the content of the Notice.

The Notice sets forth the IRS’s current expectations for:

  • how the “grandfathered obligation” rules will be applied;
  • how the term “financial institution” will be interpreted;
  • what foreign financial institutions (“FFIs”) that enter into withholding and information-reporting agreements with the Treasury Department (such an agreement, an “FFI Agreement,” and such FFIs, “Participating FFIs”) will need to do to identify and classify their account holders;
  • what U.S. financial institutions (“USFIs”) that make withholdable payments will need to do to identify and classify their account-holder payees;
  • how to apply exemptions from withholding (including the proposal of a new exempt category for non-financial foreign entities (“NFFEs”) that are engaged in an active trade or business);
  • providing each Participating FFI with an employer identification number (“EIN”) that the Participating FFI can use to document that it is a Participating FFI; and
  • what information a Participating FFI will be required to report.

The IRS and Treasury Department also solicit comments on a variety of topics addressed in the Notice. Such comments should be submitted by November 1, 2010. The Notice generally does not cover provisions of the Act governing: (i) bearer bonds; (ii) substitute dividend and “dividend equivalent” payments; (iii) U.S. taxpayer self-disclosure of foreign assets or (iv) certain trusts.