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Updated FATCA FAQs and Certification Reminders!

Contributed by Comply Exchange
March 20, 2019

Who is Impacted

Any financial institution with an obligation to report under the Foreign Account Tax Compliance Act (FATCA) will be interested in recently published answers to Frequently Asked Questions (FAQs) from the Internal Revenue Service (IRS).

What Changed

The IRS shared a number of updates through FAQs on the general FATCA page and Alerts. This article will summarize and highlight important dates and issues.

Form 1042 and Form 1042-S Reporting Updates

FATCA FAQ 23: The IRS will not assess interest, penalties, or additions to tax on payments of dividend equivalents with respect to a derivative referencing a partnership, so long as the withholding agent withholds and reports as follows:

  • For any withholding after March 15, file Form 1042, if the dividend equivalent payments are the only payments for the year, otherwise file Amended Form 1042. Be sure to write 'Dividend Equivalent – Partnership' on the top center of the Form 1042.
  • For 2018 calendar year payments, file by September 16, 2019 (including Forms 1042-S).
  • When depositing tax withheld for a dividend equivalent payment, designate the payment as made for the applicable calendar year (2017 or 2018).

FATCA FAQ 24: The Proposed Regulations (please see our article) provide an extension for partnerships to file Form(s) 1042-S when they withhold after March 15 of the subsequent year and designate the withheld amount as deposited for the preceding year. This occurs when they are paying undistributed income from the prior year to a non-U.S. partner or beneficiary. The extended date is September 15, and the partnership or trust must keep the following rules in mind:

  • Write 'Withholding under the Lag Method' on the top center of the 2018 Form 1042. This will help avoid confusion.
  • The chapter 3 status code of the withholding agent must be partnership or trust (or Withholding Foreign Partnership or Trust) in order for this rule to apply.
  • Report any amount withheld in 2019 that is designated for 2018 on Line 65 as paid in subsequent year. This means that a partnership or trust must report the income and amounts withheld on a Form 1042-S for 2018.

For tax year 2018, when a partnership or trust applies these rules, the IRS will not assess any penalty associated with reliance on these proposed regulations. Further, the partnership or trust may abate penalties assessed under these rules.

FATCA Registration and Certification Updates

FATCA FAQ 17: Accounts that have one of the following statuses for six or more months will be deemed inactive and placed into 'Registration Rejected/Denied' status:

  • Initiated
  • Registration Incomplete
  • Under Review

Although the status is 'Registration Rejected/Denied', the message board will remain active, but no other account options will be available. Financial Institutions that have a Global Intermediary Identification Number (GIIN) and wish to register must submit a new FATCA registration.

FATCA FAQ 19: Because the IRS system does not display any closed/terminated Sponsored Entities in the Sponsored Entity table for selection, Sponsors should:

  • Use the business description text box to include the name(s) and GIINs of closed/terminated sponsored entities that are being included in the certification; and
  • Maintain as part of its records a list of the closed/terminated sponsored entities included in the certification, which the Sponsor may be required to provide to the IRS upon request.

If the provided space is not large enough to include all closed/terminated Sponsored Entities, then Sponsors should include a notation in the text box that additional entities are not listed, but part of the certification, and that a list of all Sponsored Entities will be provided upon request.

IRS Alert, Issue Number 2019-02: Qualified Intermediaries (QIs), Withholding Foreign Partnerships (WPs), and Withholding Foreign Trusts (WTs) that wish to form a Consolidated Compliance Group (CCG) under a Consolidated Compliance Program (CCP) must submit an application for certifications due in 2019, no later than April 1, 2019. The IRS will contact the Compliance Entity in order to request any information required to determine whether the CCG is acceptable and will address the final composition of the group members and sample design for any statistical sampling used during the periodic review. The CCG should select 2017 or 2018 as the periodic review year because the IRS will not approve CCG applications that select 2016 as the periodic review year for certifications due in 2019.

How to Implement

In the current regulatory climate, we should expect updates to trickle down from the IRS through FAQs and other alerts, rather than formal regulations. As such, and in order to prepare for what we already know, here are a few considerations:

  • Generally, for certification periods ending December 31, 2017, FATCA certifications were due no later than December 15, 2018; however, for Sponsoring Entities and Trustees of Trustee-Documented Trusts, they are due no later than March 31, 2019.
  • Confirm your systems and reporting applications are updated to date and able to make the additional notations for the FAQs related to dividend equivalent payments and the lag method.
  • For Certifications and Periodic Reviews, all Financial Institutions should verify that their account login credentials are up to date.
  • Confirm that all filings (including Forms 1042, 1042-S, 945, 1099, and 8966), and related payments are up-to-date.
  • Update your tax calendars to account for these dates, if applicable.

Do you find these new FATCA FAQs and extensions helpful? Let us know what you think in the comment section on LinkedIn or e-mail us! Best of luck to you in Form 1042 and 1042-S reporting this year!


Tags: Foreign Account Tax Compliance Act (FATCA)



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