United States: IRS eases US TIN compliance concerns for FFIs under FATCA

Tax news and developments March 2023

In brief

Treasury and the IRS issued temporary relief procedures in Notice 2023-11 ("Notice") for a foreign financial institutions (FFI) that is subject to a Model 1 intergovernmental agreement (IGA) jurisdiction.   

Model 1 FFIs that follow the procedures set forth in the Notice will not be in significant non-compliance with their obligations under an applicable Model 1 IGA solely because of a failure to report a required US taxpayer identification number (TIN) in relation to "preexisting accounts".


Scope

The Notice applies only to reporting for calendar years 2022, 2023, and 2024. Model 1 FFIs must use numerical codes ("TIN Codes") to indicate why a US TIN had not been reported and make good faith efforts to increase the likelihood US citizens will report their US TINs.The relief is intended to provide the IRS with information on why FFIs do not report US TINs and enhance compliance with the Foreign Account Tax Compliance Act (FATCA).

Prior relief

In 2017, Treasury and the IRS issued Notice 2017-46 which provided, with respect to reporting for calendar years 2017, 2018, and 2019, that the US would not determine that there had been significant non-compliance solely because a reporting Model 1 FFI failed to obtain and report each required US TIN for preexisting accounts. The relief was intended to give FFIs time to implement practices and procedures to report US TINs.

In effect, Model 1 FFIs had up to six years to obtain required US TINs and report information on such accounts without the US TINs. In addition, US citizens who resided abroad had six years to provide a social security number (SSN). To better understand the issues FFIs faced in obtaining required US TINs, the IRS shared TIN Codes that Model 1 FFIs could use for 2020 reporting which may indicate why a US TIN had not been reported.

Current relief

Model 1 IGA jurisdictions, FFIs, and US citizens continue to have concerns that FFIs are closing or may close bank accounts of US citizens who fail to provide a required US TIN, including accounts of US citizens residing outside the US. The Notice aims to (i) provide relief to certain FFIs that they will not be treated as in significant non-compliance solely due to a failure to report a required US TIN for a preexisting account, (ii) collect information on why the FFIs did not provide US TINs, and (iii) ultimately enhance compliance with FATCA.

As mentioned above, the relief in the Notice applies only to reporting for calendar years 2022, 2023, and 2024.

Key takeaways

There are two key takeaways arising from the Notice which Model 1 IGA jurisdictions and their FFIs should consider. First, the Treasury and the IRS will not treat those Model 1 IGA FFIs as being in significant non-compliance if they, and the Model 1 IGA jurisdiction in which they find themselves, can demonstrate they are making good faith efforts to obtain and report US TINs to meet their obligations under FATCA. Hence, FFIs and Model 1 IGA jurisdictions need to be proactive and make good faith efforts to collect information on the FFIs’ US account holders. The Notice does not provide whether permanent relief will be granted for FFIs who continue to be unable to obtain and report US TINs for certain accounts after 2024. It does clarify, however, that if permanent relief were granted in the future, the scope of the accounts for which an FFI may obtain relief would be narrower than the scope of accounts for which relief is given under the Notice. As such, FFIs and Model 1 IGA jurisdictions, or if necessary outside counsel, need to move quickly to obtain and report US TINs from US account holders that have not yet provided one, or make an accurate report to the IRS explaining why it may not report a US TIN.

Second, in order to qualify for relief, FFIs must retain until 2028 records of the policies and procedures adopted to communicate with account holders to annually request missing required US TINs (in the manner most likely to reach them). FFIs should take this as an opportunity to review their policies and procedures to determine if they are appropriately requesting, and documenting their requests for, missing required US TINs.

The entire Notice may be accessed here.


Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.