United States: Internal Revenue Service Issues Guidance Extending FATCA’s Effective Date and Details a Timeline for Implementation

Originally published July 18, 2011

Keywords: Internal Revenue Service, IRS, guidance, FATCA, effective date, timeline, implementation, due diligence requirements

On July 14, 2011, the Internal Revenue Service (IRS) announced rules in Notice 2011-53 (the Notice) that modify FATCA's January 1, 2013 statutory effective date, as a result of the comments submitted to the IRS and Treasury Department (Treasury) relating to the practical challenges of implementing FATCA by the statutory effective date.1

The Notice provides a complex timeline that would phase in certain of the statutory and due diligence requirements described in Notices 2010-60 and 2011-34 over a period of time beyond what had previously been stated, provided that the foreign financial institution (FFI) enters into an FFI agreement by June 30, 2013.2 The IRS anticipates that it will be ready to enter into FFI Agreements no later than January 1, 2013.

As a general matter, no FATCA withholding taxes will be imposed until January 1, 2014; thus, to the extent that an FFI has entered into an FFI agreement by June 30, 2013, it should not have any withholding taxes imposed on payments made to it. The IRS will provide that the effective date of any FFI Agreement entered into prior to July 1, 2013 will be July 1, 2013. The effective date of an FFI Agreement entered into after June 30, 2013 will be the actual date the FFI enters into the agreement.

The IRS acknowledged concerns that withholding tax may be imposed on payments made to FFIs that enter into agreements after June 30, 2013, but before January 1, 2014. This could occur in the instance where a US withholding agent may not have sufficient time to identify whether the payee is a participating FFI.

Effective Date for New Account Due Diligence

An FFI that has entered into an FFI Agreement will be required to apply the rules in Notice 2010-60 relating to new accounts (i.e. identifying new US accounts) as of the effective date of its FFI Agreement with respect to accounts opened on or after the effective date of its FFI Agreement.

Effective Date for Preexisting Account Due Diligence

With respect to preexisting accounts, the IRS will require the FFI to implement the due diligence procedures identified in Notices 2011-34 and 2010-60 in several phases. First, within one year after the effective date of its FFI Agreement, an FFI will be obligated to conduct the due diligence applicable to private banking accounts that have a balance equal to or greater than $500,000 as of the effective date of the FFI Agreement. Second, as of the later of December 31, 2014, or a date that is one year after the effective date of its FFI Agreement, an FFI will be obligated to conduct the due diligence applicable to private banking accounts that have a balance less than $500,000. An FFI will be required to conduct the due diligence required by Notices 2010-60 and 2011-34 (and pursuant to forthcoming regulations) for all remaining preexisting accounts within two years of the effective date of its FFI Agreement.

Information Reporting for 2013

Any account for which a participating FFI has received a Form W-9 by June 30, 2014, must be reported to the IRS by September 30, 2014. Generally, this should include private banking accounts identified under the timeline discussed above, any new US accounts opened after the effective date of the FFI Agreement and any accounts documented as US accounts under the procedures in Notice 2011-34 relating to low value accounts, accounts subject to an electronic search of US indicia, or accounts with balances that exceed $500,000.

An FFI that does not undertake "1099 reporting," would only be obligated to report under the procedures described in Notice 2011-34, but in the first year would only be obligated to report certain identifying information regarding the owner (e.g., name, address, US taxpayer identification number), the account balance as of December 31, 2013 (or balance as of date of account closure, if the account was closed prior to December 31, 2013) and the account number. Reporting for future years would be made pursuant to the rules as described in Notice 2011-34.

An FFI that undertakes 1099 reporting would be permitted to report the identifying information of the owner and the account number for its first report filed by September 30, 2014.

To the extent that an account holder has not provided a waiver to the FFI, that client would be considered recalcitrant and would be subject to reporting as such pursuant to Notice 2010-60 (and future guidance).

Post 2013 Information Reporting

Reporting for post-2013 years will occur pursuant to the guidance issued in Notice 2010-60, Notice 2011-34 and future guidance.

Withholding Taxes on Withholdable and Passthru Payments

For payments made on or after January 1, 2014, withholding agents (whether US or non-US, including participating FFIs) will be obligated to withhold tax under section 1471(a) for only US source payments of "FDAP" (generally dividends, interest, rents, royalties and other fixed or determinable annual or periodic income). For payments made on or after January 1, 2015, withholding agents will be obligated to withhold pursuant to section 1471(a) for all withholdable payments (including both US source payments of FDAP and gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States.

Passthru payments made prior to January 1, 2015 are not subject to withholding by a participating FFI. Participating FFIs will not be required to compute or publish their passthru payment percentage until the first quarter of 2014.

Qualified Intermediary and Other Withholding Agreements

All Qualified Intermediary (QI) Agreements that are scheduled to expire on December 31, 2012 are to be extended through December 31, 2013. Any FFI that enters into an FFI Agreement on or before December 31, 2013, will be considered to have renewed its QI Agreement or other Withholding Agreement.

Substantive Guidance

The Notice also contains two items of substantive guidance. First, the Notice clarifies that future regulations will contain additional guidance regarding the due diligence procedures applicable to private banking accounts. In particular, this future guidance will provide that for purposes of applying the due diligence procedures applicable to private banking accounts: (i) although client relationship managers will continue to be required to disclose any actual knowledge they may have regarding the account holder's status as a US person, the review of client files may be accomplished by any person designated by the FFI, and (ii) accounts subject to due diligence procedures and identified as either US or non-US accounts will not be subject to additional due diligence procedures in subsequent years, unless the account undergoes a change of circumstance.

The Notice also provides additional guidance relating to the grandfathered obligation rule and passthru payments. In particular, the Notice provides that an obligation that qualifies for the grandfathered obligation rule includes any legal agreement that produces or that could produce passthru payments (including withholdable payments) but not including any instrument that is treated as equity for US tax purposes, or any legal instrument that lacks a definitive expiration or term.

Timeline for Future Guidance

Treasury and the IRS anticipate issuing proposed FATCA regulations by December 31, 2011. After the notice and comment period relating to the proposed regulations, it is expected that final FATCA regulations will be issued during the summer of 2012. In conjunction with the regulations, Treasury and the IRS will issue draft and, subsequently, final versions of the FFI agreement and reporting forms for use by withholding agents and participating FFIs in the summer of 2012.


1. The term "FATCA" is an acronym referring to the Foreign Account Tax Compliance Act of 2009, proposed legislation that was substantially incorporated into Subtitle A of Title V of the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act), P.L. 111-147, enacted on March 18, 2010. The HIRE Act, imposed new information reporting and withholding tax rules contained in chapter 4 (i.e., sections 1471 through 1472 of the Internal Revenue Code (the Code)).

All references herein, unless specified, are to the Code of 1986, as amended, and the regulations thereunder.

2. For more information please see our previous discussion of these requirements in US Treasury Department and Internal Revenue Service Issue Supplementary FATCA Guidance (April 28, 2011) available at http://www.mayerbrown.com/publications/article.asp?id=10895&nid=6, and US IRS Issues Preliminary FATCA Guidance Establishing Due Diligence Procedures and Information Reporting Rules for Foreign Financial Institutions (Sept. 16, 2010) http://www.mayerbrown.com/publications/article.asp?id=9644&nid=6.

Learn more about our Tax Transactions & Consulting practice.

Visit us at mayerbrown.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2011. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions