Summer Brings FATCA Relief After an April Shower of FATCA Guidance: Notices 2011-34 and 2011-53

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Prior to the release of Notice 2011-53 1 on July 14, 2011, Treasury officials had acknowledged in public remarks2 the need for transition rules and pointed to the broad regulatory authority given to Treasury relating to implementation of the Foreign Account Tax Compliance Act (FATCA). With 18 months remaining until the January 1, 2013, effective date and only two notices addressing limited, albeit important, issues, it had become increasingly clear that transition rules would be needed to phase in the FATCA provisions. Concern was rising among foreign financial institutions (FFIs) about their ability to be ready for compliance without the benefit of even proposed regulations.

As computer systems and new account opening procedures need to be developed, local country regulators may need to approve new contractual arrangements, and personnel need to be trained, Notice 2011-53 provides a phased-in FATCA implementation schedule that should permit FFIs to become prepared for FATCA compliance, the first stage of which will begin as of January 1, 2014. FFIs will need to enter into an FFI Agreement (FFIA) with the Internal Revenue Service (IRS) before June 30, 2013, in order to ensure not being subject to withholding as a nonparticipating FFI (Non-PFFI). In public remarks, IRS Commissioner Douglas Shulman noted that the phase-in schedule provided by Notice 2011-53 ‘‘recognizes the operational realities faced by financial institutions.’’ 3 If anyone had any doubts about whether the FATCA provisions would be implemented, it is clear from Notice 2011-53 and the accompanying IRS news release 4 that implementation will occur.

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