The IRS has updated its Frequently Asked Questions (FAQs) on taxpayer identification number (TIN) reporting requirements under FATCA.  While large banks are the main entities impacted, even small investment entities that are classified as a Foreign Financial Institution (FFI) will need to consider this topic.
Facts about FATCA
FATCA requires some foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold certain ownership interests.  Even if not directly to the IRS, FFIs in countries that have a Model 1 IGA in effect will need to consider how this impacts their reporting to the local tax authorities (that will be sharing this information with the IRS).

To facilitate the exchange of information on foreign financial accounts held by U.S. taxpayers, the IRS collaborated with foreign governments (FATCA partners) to develop two alternative model intergovernmental agreements (IGAs): Model 1 IGA and Model 2 IGA. These agreements provide a way for FFIs to comply with FATCA while reducing the burden compliance imposes on them.

Model 1 IGA Reporting
The Model 1 IGA provides that a Model 1 FFI will report certain information on U.S. reportable accounts maintained by the FFI to the FFI’s tax authority (FATCA partner), which will automatically exchange such information with the U.S. Competent Authority.

Generally, the Model 1 IGA requires an FFI to report the U.S. TINs of each U.S. person who’s an account holder or a controlling person of a non-U.S. entity that holds an account at the FFI (required TINs). Under a Model 1 IGA, FFIs generally aren’t subject to withholding if they comply with their reporting obligations.  However, if a reporting Model 1 FFI fails to report required TINs for U.S. reportable accounts, the U.S. Competent Authority may notify the partner’s tax authority that there is significant noncompliance with respect to the reporting Model 1 FFI. Noncompliant FFIs may be subject to the 30% withholding requirement on any US source income they receive.

Earlier IRS Guidance
In Notice 2017-46, the IRS provided transition relief for FFIs otherwise required to report the TINs of U.S. taxpayers. The notice provided that the IRS would not conclude that there was significant noncompliance by FFIs reporting under Model 1 IGA because of their failure to report TINs associated with reportable accounts if the reporting FFIs complied with the guidance. The relief applied to pre-existing accounts that were U.S. reportable accounts for calendar years 2017, 2018 and 2019.

The IRS has now updated its FATCA FAQs to provide an answer to the following question: After the transition relief under Notice 2017-46 expires, do FFIs reporting under Model 1 need to report all required TINs when providing 2020 and future tax year data?

The answer is yes. The transition relief for FFIs to obtain TINs that extended over a period ending on December 31, 2019, will be expiring with reporting for calendar year 2019. The first year a U.S. TIN will be required to be reported concerning a U.S. reportable account is for the 2020 tax year, which is due to be exchanged by a FATCA partner by September 30, 2021. But an FFI reporting under Model 1 is not required to immediately close or withhold on accounts that do not have a TIN beginning January 1, 2020.

Noncompliance and Correction
The FAQ notes that reports submitted by FFIs without all required U.S. TINs, or with made-up TINs (for example, 123456789 or 987654321), will generate an error message indicating that the TIN or TINs are missing or invalid. The error message provides 120 days to correct the issue.

If the FFI does not provide a valid TIN or TINs within 120 days, the IRS will evaluate the data received and determine whether there’s significant noncompliance after considering whether the FFI has adequate procedures in place to obtain TINs and investigating the FFI’s efforts to obtain them.

The FAQ states that the IRS won’t automatically conclude that the absence of a valid TIN is significant noncompliance. But, in the event the agency determines that an FFI is in significant noncompliance, it will work with the FATCA partner over the next 18 months to address the FFI’s noncompliance.

Thus, the FFI would have at least 18 months after submitting a noncompliant report to correct the TIN error or errors before the IRS took any further action, such as removing the FFI’s Global Intermediary Identification Number (GIIN) from its FFI list. An FFI without a valid GIIN may be subject to withholding on certain U.S. source payments made to the FFI.

Moore Emerson GmbH has been working with clients to make sure they are fully compliant under FATCA and CRS (the OECD’s version of FATCA).  We have often had to access a client’s GIIN number on the IRS portal to make sure they are properly registered and reporting.  If you need help with your FATCA compliance, please do not hesitate to contact us.