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The IRS has provided temporary relief (Notice 2023-11, released December 30, 2022) to certain FFIs from the requirement to report US TINs for certain accounts in existence before the effective dates of FATCA and associated IGAs.

Background

Under FATCA, FFIs must report information on certain US account holders, as well as accounts held by certain entities owned or controlled by US persons. In jurisdictions that have entered into Model 1 IGAs, FFIs report to their local tax authority, which shares the information with the IRS. In Model 2 IGA countries, FFIs report directly to the IRS. The vast majority of IGAs are Model 1. Notice 2023-11 concerns only Model 1 jurisdictions.

Before FATCA, which became effective on July 1, 2014, most jurisdictions did not require a US account holder to provide its US TIN to open an account. Model 1 IGA countries committed, by the beginning of 2017, to establish rules requiring their FFIs to obtain US TINs from US account holders. Nonetheless, many FFIs do not have US TINs for all reportable US account holders, which impairs the IRS's ability to use the reported information. The IRS has developed a series of "TIN Codes" for FFIs to use, in lieu of a US TIN, to provide additional information about those account holders. For example, "222222222" indicates "Preexisting individual account with only U.S. indicia being a U.S. place of birth."

If a Model 1 FFI is deemed to be significantly noncompliant with the IGA by the IRS and fails to comply within 18 months, the FFI would be treated as a nonparticipating FFI and subject to 30% withholding under FATCA on US-source "withholdable payments." The IRS has continued to insist that FFIs obtain US TINs for all accounts to be reported, including preexisting accounts, but so far has refrained from declaring Model 1 FFIs significantly noncompliant for that reason.

Temporary relief for Model 1 FFIs

According to Notice 2023-11, the IRS will not treat Model 1 FFIs that follow the procedures described next as significantly noncompliant solely because they failed to report a required US TIN for a preexisting account, provided the Model 1 country also takes certain additional steps. The relief applies for calendar years 2022 through 2024.

Requirements for Reporting Model 1 FFIs

For each US reportable account missing a US TIN (including new accounts), Reporting Model 1 FFIs must take the following steps to be eligible for relief under the notice:

1. Obtain and report the date of birth of each account holder that is an individual, as well as each controlling person, who is reported without a US TIN
2. Annually request, beginning in calendar year 2023, any required missing US TIN for both new and preexisting accounts
3. Annually search, beginning in calendar year 2023, electronically searchable data maintained by the reporting FFI for any missing required US TINs
4. Report an accurate TIN Code for each applicable account

FFIs requesting missing TINs may use whatever method of communication they deem most likely to reach the account holder. The request must include either:

1. The web address of the State Department's Joint FATCA FAQs

or

2. A copy of those FAQs and either:

a. A copy of the relief procedures provided by the IRS for certain former citizens

or

b. The web address for those procedures

According to Notice 2023-11, the IRS will update the list of TIN Codes in early 2023.

Model 1 FFIs will be required to update their policies and procedures to adopt the new requirements. The updated policies and procedures must be retained until the end of calendar year 2028 to document that the FFI complied with the new requirements.

EY observes: While the first two requirements are tailored to accounts held by individuals, the relief provided by the notice appears to extend to preexisting entity accounts as well.

EY observes: Adding the TIN Codes to US reportable accounts without TINs may be a substantial implementation project and may be impractical for Model 1 FFIs with a significant number of those accounts. Those FFIs will need to make a business decision regarding whether to seek relief under Notice 2023-11 or accept the risk of an IRS determination of significant noncompliance.

EY observes: In most cases, an account that does not have a US TIN is treated as a US reportable account because of the presence of one or more indicia of US status. These account holders may ultimately be determined to be non-US persons. In those cases, FFIs should obtain a valid self-certification of foreign status from the account holder along with sufficient documentation to cure the US indicia. This would remove the account from the population of the FFI's reportable accounts for FATCA. Of course, the account may then become reportable under the Common Reporting Standard.

Requirements for Model 1 Jurisdictions

Model 1 FFIs are eligible for relief for a calendar year only if their country makes "good faith efforts" within nine months after the end of the relevant year to:

1. "Encourage" US citizens in the jurisdiction to provide their US TINs to FFIs when requested
2. Take measures to enforce compliance by Model 1 FFIs that the U.S. Competent Authority has identified as "potentially noncompliant"
3. "Encourage" Model 1 FFIs not to discriminate against US citizens who provide US TINs
4. Take steps to conclude Competent Authority Arrangements with the U.S. Competent Authority, to implement an IGA, amend an Annex II to an IGA, or exchange country-by-country information when notified by the U.S. Competent Authority

Notice 2023-11 does not explain what "encourage" means.

To provide FFIs with a transition period, the notice deems Model 1 jurisdictions to have satisfied these conditions for 2022.

EY observes: Model 1 FFIs that want to qualify for relief should work with their tax authorities to make sure that their jurisdiction will satisfy these requirements.

EY observes: The IRS has received complaints from US citizens living abroad that FATCA has made FFIs reluctant to open accounts for US persons. Item 3 seems to be an attempt to provide nonresident Americans some relief, but jurisdictions are not required to take measures against FFIs that discriminate.

EY observes: "Country-by-country information" refers to a separate international initiative to require multinational enterprises to report information to prevent base erosion and profit shifting. It is not clear why the IRS is making compliance with country-by-country reporting a precondition for US TIN relief under FATCA.

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Published by NTD’s Tax Technical Knowledge Services group; Maureen Sanelli, legal editor