IRS Issues "Corrections" to FATCA Regulations and Publishes FAQ
The IRS recently issued amendments to the final regulations under FATCA that were originally published on January 28, 2013 ("Final Regulations"). These amendments are described by the IRS as corrections or clarifications to the Final Regulations. However, while most of the amendments are indeed minor, there are a few substantive clarifications.
For example, under the Final Regulations, a foreign fund or other foreign financial institution ("FFI") can be "deemed compliant" if it is sponsored by another entity (such as a fund manager or general partner) that agrees to perform for the sponsored fund all due diligence, reporting, withholding and other FATCA duties. The Final Regulations originally provided that a "sponsoring entity" had to be able to "manage" the sponsored entity and to enter contracts on its behalf. The amendments provide that a sponsoring entity need only be authorized to perform FATCA compliance – wide-ranging management or contract authority is not required. This change conforms the Final Regulations to the "Sponsored Entity" rule in recent Intergovernmental Agreements ("IGAs").
Another amendment makes it clear that an Investment Advisor to a Fund that provides not only advice, but does actually manage a portion of the Fund, is not a financial institution and therefore is not required to register with the IRS.
A third amendment changes the definition of "branch" in the Final Regulations. As originally issued, the Final Regulations defined a "branch" as any unit, business or office of a foreign financial institution that (i) is treated as a branch or separately regulated under local law as separate from other offices, units and branches of the FFI and (ii) maintains separate books and records. The amendment eliminates the need for a branch to maintain separate books and records.
The IRS also recently released two new sets of frequently asked questions and answers ("FAQs") to help taxpayers deal with FATCA. One set deals with the online registration process that is used by FFIs to register under FATCA. The second set of FAQs deal with how foreign entities can become "qualified intermediaries, withholding foreign partnerships or withholding foreign trusts" under FATCA. This set also clarified that FFIs which are in countries subject to a Model 1 IGA must register with the IRS as "registered deemed-compliant" FFIs. FFIs in countries with a Model 2 IGA should register as "participating FFIs."
The FAQs can be found on the IRS website at:
Frequently Asked Questions (FAQs) - FATCA Registration System
and
See: IRS Corrections to FATCA.
See also: FATCA Portal Opened for Registration by FFIs (with Lofchie Comment) (August 19, 2013); IRS Issues Draft Tax Form under FATCA (August 16, 2013) Treasury Revises Model IGAs under FATCA (July 15, 2013) IRS Extends Commencement Date of FATCA Withholding, FATCA Registration and Other FATCA Deadlines for 6 Months (July 12, 2013); FATCA Chapter in Lofchie's Guide to Hedge Fund Regulation.