as any payment to the extent that it is attributable toa withholdable payment.
FFIs and NFFEs can avoid withholding, but only by agreeing to collect and share specified informa-tion with the IRS. For instance, FFIs must enter intoan agreement with the IRS to become a participat-ing FFI and identify and report on their U.S. ac-count holders, follow due diligence rules, andwithhold on payments to a nonparticipating FFI orrecalcitrant account holders. NFFEs must disclosethe identity of any U.S. persons who directly orindirectly own more than 10 percent of the NFFE.An FFI’s reporting requirement on a U.S. accountalso encompasses accounts maintained by the sameU.S. account holder at another FFI that is a memberof the same expanded affiliated group. An ex-panded affiliated group is an affiliated group asdefined in section 1504(a) except that ‘‘more than 50percent’’ of vote or value is substituted for ‘‘at least80 percent,’’ and the threshold is determined with-out regard to paragraphs (2) and (3) of section1504(b).
According to the latest guidance, an expandedaffiliated group will have to designate one of theFFIs as a lead FFI for purposes of the FFI registra-tion process.
As detailed below, the lead FFI willlikely have to start the registration process for allother FFIs in the expanded affiliated group. Further,the lead FFI may be in the best position to addressmisunderstandings or disputes arising with the IRS.It is important to note that the lead FFI doesn’tnecessarily have to be a parent company. As aresult, leadership at FFIs should think carefullyabout their designation.
Even when FFIs and NFFEs fully disclose theirU.S. account holders and owners, the current with-holding regime under sections 1441 et seq
continueto apply. Withholding agents will still be required tocomply with all existing documentation, withhold-ing, and reporting rules. In other words, FATCA isan overlay on the existing withholding regime.Congress slated this overlay of FATCAwithhold-ing to commence on January 1, 2013; however,interim guidance has pushed this date back to January 1, 2014, for U.S.-sourced FDAP paymentsand to January 1, 2015, for all other withholdableand passthrough payments.
2. FATCA implementation team.
It is well knownthat Treasury and the IRS Office of Associate ChiefCounsel International (collectively, the guidanceteam) are working on the forthcoming proposedregulations for release by December 31.
In addi-tion to the efforts of the guidance team, earlier thisyear the Large Business and International Divisionorganized a team headed up by an LB&I executiveon permanent reassignment from another operatingdivision of the IRS. That new executive wisely brought on board a group of seasoned IRS profes-sionals with prior experience on informationtechnology-intensive projects. The team is nation-wide and involves IT professionals, business man-agers, national office and field attorneys, revenueagents, territory managers, directors, technical ad-visers, customer service representatives, public re-lations personnel, cyber-security employees, andothers. It is helpful to think of this collection ofindividuals as the ‘‘implementation team.’’
The implementation team is essentially chargedwith building an online FFI registration portal andlaying the groundwork for a future FATCA office.The former involves serving as a liaison betweenthe guidance team and the IRS’s in-house IT depart-ment known as Modernization and InformationTechnology Services (MITS). The FFI registrationportal is essentially a website that will allow FFIs toregister as participating or deemed-compliant.There had been speculation that the IRS was goingto contract out the building of a website; the currentunderstanding, however, is that MITS has alreadystarted coding. If true, that is a huge accomplish-ment and underscores the commitment of key IRSemployees to make (if not beat) the January 1, 2013,deadline.Organizationally, the implementation team in-volves a lot of dotted lines, especially because of thediversity of its makeup. Within LB&I, the teamregularly briefs the director of international busi-ness compliance as well as the deputy commis-sioner (international). The team has also provided
Notice 2011-34, 2011-19 IRB 765, Section IV.B,
2011 TNT 69-16
Depending on future guidance, it may even be possible todesignate a U.S. financial institution a lead FFI. That may beideal given the possible extensive nature of interaction with theIRS.
Notice 2011-53, 2011-32 IRB 124, Section II.C,
2011 TNT 136-9
. Note that the notice provides thatthe January 1, 2015, withholding date on passthrough paymentsis the earliest date that withholding would be required. Thus,the date for that withholding may actually be later than January1, 2015.
Notice 2011-53, Section III.
It is instructive that the LB&I deputy commissioner (inter-national) most recently used this terminology.
Kristen A.Parillo and Stephanie Soong Johnston, ‘‘Proposed FATCA Regson Track to Be Issued by Year-End,’’
, Nov. 21, 2011, p.949,
2011 TNT 223-2
COMMENTARY / TAX PRACTICE1250 TAX NOTES, December 5, 2011
( C ) T ax A n al y s t s 2 0 1 1 .A l l r i gh t s r e s er v e d .T ax A n al y s t s d o e s n o t c l ai m c o p y r i gh t i n an y p u b l i c d om ai n or t h i r d p ar t y c on t en t .