On February 8, 2012, the U.S. Department of the Treasury ("Treasury") and the Internal Revenue Service ("IRS") issued the long-awaited Proposed Regulations with respect to the Foreign Account Tax Compliance Act ("FATCA").  FATCA is part of the Hiring Incentives to Restore Employment (HIRE) Act enacted in March 2010.  These extremely comprehensive Proposed Regulations implement the information reporting and withholding tax provisions of FATCA.

The areas where the IRS has revised the previous guidance on FATCA include: expanding the scope of grandfathered obligations; extending the transition period for phasing in FATCA; including additional categories of deemed compliant foreign financial institutions; and modifying due diligence requirements.

The Proposed Regulations lay out a step-by-step process for U.S. account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, and U.S. withholding agents. 

The Proposed Regulations implement FATCA's obligations in stages to minimize burdens and costs consistent with achieving FATCA's overall objectives of reporting. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.

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