New US Treasury-IRS FATCA ‘Notice’ puts FFI compliance onus and risk on ‘Responsible Officers’

If financial crime compliance professionals think that becoming the FATCA Responsible Officer (RO) at their non-US financial institution is an easy way to a career boost, they should read the latest “Notice” from the US Treasury Department-Internal Revenue Service. They will see there is nothing easy about the job they aspire to. The Notice also included a draft agreement the foreign financial institutions (FFIs) would be required to sign.

Buried in the Treasury and IRS 38-page, single-spaced document called the “Draft FFI Agreement,” are several pages listing the duties the RO will be required to perform. They are not light. The Treasury Department issued a press release saying it will have the final version of the agreement by December 31, 2013.

The Foreign Account Tax Compliance Act (FATCA) was enacted in March 2010, with its major compliance duties begin to take effect on July 1, 2014. It requires foreign financial institutions to identify and report to the US IRS US persons, not just “citizens,” who maintain financial accounts and other assets offshore. The act requires US financial institutions and other entities to withhold 30% of payments destined for FFIs and others that do not agree to identify and report information on US accountholders.

To implement FATCA, the Treasury has signed nine FATCA-related Intergovernmental Agreements, or IGAs, to date. It says it has reached 16 agreements with other nations and jurisdictions, and is negotiating with a reported 60 or so other jurisdictions on possible agreements.

The new Treasury-IRS Notice applies only to FFIs that are subject to a so-called Model 2 IGA. Under Model 2 IGAs, FFIs report account information directly to the IRS. Under Model 1, FFIs report to their respective tax authorities, which relay the information to the IRS.

‘Responsible Officers’ will carry the brunt of the compliance burden, risk

FATCA requires FFIs to name an RO to regularly certify to the IRS through the IRS FATCA online registration system, commonly called the FATCA Portal. The law also requires FFIs to disclose annually to the IRS taxpayer and account information of US persons.

The “Compliance Procedures” section, which details the tasks of the ROs, covers due diligence procedures, periodic compliance certification, how to make certifications, FFI inquiries and accountholder compliance, inquiries about “substantial non-compliance,” and inquiries about “significant non-compliance” for reporting Model 2 FFIs.

The Notice also covers general responsibilities and regulatory and forms updates, registration and reporting for participating FFIs and Model 2 FFIs, due diligence for documentation and identification of account holders and non-participating FFI payees, withholding and deposit duties, information reporting and tax return obligations, legal prohibitions on reporting US accounts, withholding, FFI withholding certificate, adjustments for overwithholding, underwithholding and refunds, FFI groups, and the various lengths of Model 2 IGA agreements.

While withholding requirements begin on July 1, 2014 and the first FATCA information reports are due in 2015, the IRS FATCA registration website, or portal, is now open so FFIs may test the process for registration and entering information.

To view the Treasury/IRS Notice and Draft Agreement:
IRS FATCA Draft 102913