On December 30, 2022, the US Internal Revenue Service (“IRS”) released Notice 2023-11 (“Notice”), which provides temporary relief procedures for certain foreign financial institutions (“FFIs”) resident in Model 1 intergovernmental agreement (“IGA”) jurisdictions with respect to an FFI’s obligation to report US taxpayer identification numbers (“TINs”) (e.g., an individual’s US Social Security number) associated with preexisting accounts.1 The relief provided by the Notice is limited to calendar years 2022, 2023, and 2024. By following the procedures outlined in the Notice, an FFI will not be treated as being in “significant non-compliance” with its reporting obligations pursuant to the applicable Model 1 IGA solely as a result of its failure to report US TINs associated with its preexisting accounts.
The relief provided by the Notice, which imposes obligations on both Model 1 FFIs as well as Model 1 IGA governmental authorities, is the latest example of the IRS’s continued efforts to receive US TINs as part of Foreign Account Tax Compliance Act (“FATCA”) reporting. These expanded obligations being imposed on Model 1 FFIs, while welcomed, may also be accompanied by increased IRS scrutiny to ensure these obligations are being satisfied. In light of the potential of increased IRS enforcement, taking into account the recent $80 billion increase to IRS funding, impacted Model 1 FFIs should ensure they are appropriately considering the required actions provided by the Notice, including updating policies and procedures as necessary.
FATCA requires certain FFIs to report to the IRS information (including US TINs) about financial accounts held by US taxpayers or non-US entities in which US taxpayers hold certain ownership interests. In order to facilitate the exchange of information on financial accounts held by US taxpayers, the US Treasury Department collaborated with non-US governments to develop two alternative model IGAs (Model 1 IGAs and Model 2 IGAs) that are intended to provide an effective and efficient means for complying with FATCA while reducing the burden FATCA compliance imposes on financial institutions. The Model 1 IGA provides that a reporting Model 1 FFI will report certain information on US reportable accounts maintained by the FFI to its local tax authority, which will then automatically report this information to the IRS. Part of the information required to be reported by a reporting Model 1 FFI includes the US TIN for each specified US person that is an account holder and for each US person treated as a controlling person for certain accounts held by a non-US entity. Failure to comply with an FFI’s obligations pursuant to its Model 1 IGA, which includes adequate reporting, may result in the FFI being treated as in “significant non-compliance,” which may then result, if unresolved, in the FFI being subject to a 30% withholding tax pursuant to FATCA on certain payments received by that FFI.
FFIs and US citizens have expressed a number of concerns to the US Treasury Department and the IRS generally relating to the closure of bank accounts held by US citizens who have failed to provide US TINs. (This has come up in the context of “Accidental Americans.”)
Prior relief relating to Model 1 FFIs and US TINs was issued in 2017, 2019, and 2021 and offered limited relief and additional time for FFIs and taxpayers to comply with the requirement to obtain and report US TINs.2 For example, in 2021, the IRS developed a series of codes that a reporting Model 1 FFI could use to populate the TIN field (in the absence of having a US TIN to report) for 2020 data reporting (“TIN Codes”).3 These TIN Codes indicated that a required US TIN had not been obtained in specified scenarios (e.g., US indicia in the form of a US place of birth). As the problem persists, the IRS is attempting to implement mechanisms to collect better and more detailed information to better understand the issues surrounding obtaining and reporting of US TINs.
The Notice and Current Relief
As mentioned above, the Notice provides relief for reporting for calendar years 2022, 2023, and 2024 and is limited to reporting of US TINs on preexisting accounts. (In other words, the relief provided by the Notice does not apply to new accounts.4) Reporting Model 1 FFIs that follow specified procedures will not be treated as in significant non-compliance with their obligations under an applicable Model 1 IGA solely because of the failure to report a required US TIN with respect to a preexisting account.
In order to be eligible for the relief provided by the Notice, for each US reportable account (including new accounts) with a missing required US TIN, the reporting Model 1 FFI must:
- obtain and report the date of birth of each account holder that is an individual and controlling person whose US TIN is not reported;
- starting in calendar year 2023, annually request from each account holder any missing required US TIN by using the method of communication that is, in the FFI’s reasonable judgment, most likely to reach the account holder. Moreover, the communication must include either:
- the web address of the State Department’s Joint FATCA FAQs (https://travel.state.gov/content/travel/en/international-travel/while-abroad/Joint-Foreign-Account-Tax-Compliance-FATCA-FAQ.html); or
- a copy of the FAQs described in the preceding bullet and either (i) a copy of the relief procedures provided by the IRS for certain former citizens or (ii) the web address for these procedures (https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens);
- starting in calendar year 2023, annually search electronically searchable data maintained by the reporting Model 1 FFI for any missing required US TINs; and
- report an accurate TIN Code for each account that is missing a required US TIN. (For reporting on calendar year 2022, this condition may be satisfied by using either the TIN Codes issued by the IRS in May 2021 or updated TIN Codes that will be issued by the IRS in early 2023. For reporting on calendar years 2023 and 2024, this condition must be satisfied by using the most recent TIN Codes issued by the IRS.)
With respect to item 2 above, the Notice explicitly provides that an FFI must retain records of the policies and procedures adopted to satisfy this annual request requirement and documentation that those policies and procedures were followed to establish its compliance with this solicitation requirement until the end of calendar year 2028.
In addition to the above requirements, for a reporting Model 1 FFI to be eligible for the relief provided by the Notice with respect to reporting for a particular calendar year or other appropriate reporting period, the applicable Model 1 IGA jurisdiction must make good faith efforts, by the date that is nine months after the end of the calendar year to which the information relates, to:
- encourage US citizens resident in the jurisdiction to provide US TINs to FFIs when requested;
- take measures to enforce compliance by reporting Model 1 FFIs identified by the US Treasury Department to the Model 1 IGA jurisdiction as potentially non-compliant;
- encourage FFIs located in a Model 1 IGA jurisdiction to not discriminate against US citizens that do provide a US TIN; and
- if notified by the US Treasury Department, take steps to conclude Competent Authority Arrangements with the US Treasury Department, to implement an IGA, amend an Annex II to an IGA, or exchange country-by-country information, as applicable.
In order to provide a transition period, these conditions will be deemed to have been satisfied for reporting on calendar year 2022.
The IRS noted that the relief described in the Notice is intended to enable it to collect and analyze additional information for accounts without US TINs. If permanent relief is granted in the future, the IRS anticipates that the scope of the accounts for which an FFI may obtain relief with respect to missing US TINs will be narrower than the scope of accounts for which relief is granted under the Notice.
2 In 2017, the US Treasury Department and the IRS released Notice 2017-46, which provided relief and guidance for reporting Model 1 FFIs that were unable to obtain and report required US TINs for preexisting accounts. The relief provided by Notice 2017-46 was limited to reporting for calendar years 2017, 2018, and 2019. In 2019, the IRS issued relief procedures for certain persons who have relinquished, or intend to relinquish, their US citizenship in order to ease the tax obligations that are part of the US expatriation process.
3 See FAQ 6 under “Reporting” at https://www.irs.gov/businesses/corporations/frequently-asked-questions-faqs-fatca-compliance-legal#reporting.