The Internal Revenue Service (IRS), the US tax agency, announced its intention to amend temporary regulations it issued under the US Foreign Account Tax Compliance Act (FATCA) on March 6th 2014, to modify the effective dates of (1) the standards of knowledge that apply to a withholding certificate or documentary evidence to document a payee that is an entity under US Treasury Regs. Sec. 1.1441-7(b); and (2) the rules under Regs. Sec. 1.6049-5(c) describing the circumstances under which a withholding agent or payer may rely on documentary evidence a payee provides instead of a withholding certificate to document the payee’s foreign status (Notice 2014-59).
The IRS refers to the temporary regulations as co-ordination regulations because they co-ordinate the new FATCA requirements with existing backup withholding requirements under Sec. 3406. The temporary regulations amended the standards of knowledge for the circumstances under which a withholding agent has reason to know that a payee’s claim of foreign status is unreliable or incorrect.
In May, the IRS issued Notice 2014-33, which stated the IRS’s intention to amend the regulations under chapter 4 of the Internal Revenue Code to allow a withholding agent or foreign financial institution (FFI) to treat an obligation held by an entity that is issued, opened, or executed on or after July 1st 2014 and before January 1st 2015 as a pre-existing obligation.
After the issuance of Notice 2014-33, some commentators noted that, while the modifications to the temporary co-ordination regulations address the application of the revised reason-to-know standards for obligations that were documented before July 1st 2014, the notice does not address how Regs. Sec. 1.1441-7(b) applies to entity accounts opened on or after July 1st 2014 and before January 1st 2015 that are treated as pre-existing obligations by withholding agents and participating FFIs. Accordingly, the IRS announced its intention to amend the regulations to allow a new entity account to be treated as a pre-existing entity account for that period of time. In response to concerns that withholding agents would be unable to adapt their systems to meet the existing requirements, the rules will also be amended so that a withholding agent will not be required to treat the additional indicia that an account holder is a US person specified in Regs. Sec. 1.1441-7(b) as a change in circumstances before January 1st 2015.
Finally, to give payers additional time to modify their systems to implement the revised requirements of Regs. Sec. 1.6049-5(c)(1), the temporary co-ordination regulations will be amended to allow a payer to continue to apply, for accounts opened on or after July 1st 2014 and before January 1st 2015, the rules for using documentary evidence under Regs. Secs. 1.6049-5(c)(1) and (c)(4) in effect as of April 1st 2013 instead of the new rules in the temporary co-ordination regulations.
—Sally P. Schreiber (firstname.lastname@example.org) is a CGMA Magazine senior editor.
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