On July 14, 2011, the Internal Revenue Service (“IRS”) and Treasury Department (“Treasury”) announced a phase-in schedule which effectively delays implementation of the Foreign Account Tax Compliance Act (“FATCA”)1 for one year and, in some cases, until 2015. Notice 2011-53 (the “Notice”) will likely be welcomed by foreign financial institutions; however, it does not change the basic structure of the FATCA regime which is designed to enlist foreign financial institutions in the hunt for non-compliant U.S. taxpayers.
FATCA imposes a new 30% U.S. withholding tax on any U.S. source “withholdable payment” made on or after January 1, 2013 to a foreign financial institution (“FFI”).2 The new 30% withholding tax applies unless the FFI agrees, pursuant to an agreement entered into with Treasury (“FFI Agreement”), to provide information with respect to each “financial account” held by “specified U.S. persons” and “U.S.-owned foreign entities.”
According to the Notice, after the IRS and Treasury published preliminary FATCA guidance in Notice 2010-603 and supplemental guidance in Notice 2011-34,4 they received numerous comments concerning the practical aspects of implementing the FATCA rules by January 1, 2013. The comments identified challenges relating to the time required to develop compliance, reporting, and withholding systems necessary to comply with FATCA, Notice 2010-60, and Notice 2011-34.
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