IRS Releases Draft Form for FATCA Registration

The Internal Revenue Service has released a draft version of the form that financial institutions will use to register in accordance with the Foreign Account Tax Compliance Act, or FATCA.

FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions to report on the assets of U.S. account holders or face stiff penalties. The law has provoked controversy from some other government officials, U.S.-born expatriates and dual citizens who have complained that the law violates national sovereignty and bank secrecy laws. In response, the IRS and the Treasury Department have been relaxing some of the requirements and extending the timelines for implementation, as well as signing intergovernmental agreements with other countries in conformance with existing tax treaties.

In posting the draft Form 8957, the IRS noted Thursday that FATCA registration can be accomplished most efficiently and effectively through an electronic online process that will avoid the need to print, complete, and mail paper forms. The online registration portal will be available in July 2013.

The form includes fields in which the foreign financial institution can specify whether it already has a withholding agreement with the IRS to be treated as a Qualified Intermediary, Withholding Foreign Partnership or Withholding Foreign Trust and whether it maintains a branch in the U.S.

The IRS noted that the questions that will be presented in the online process will look very similar to the questions shown on the draft form, but will be presented differently to simplify electronic completion of the process.  Financial institutions registering through the online process will receive notice of registration acceptance and obtain the Global Intermediary Identification Number, or GIIN, needed to demonstrate FATCA compliance on an expedited basis.

The IRS will also accept registrations that are made on paper forms.  The IRS cautioned, however, that financial institutions should not use the draft form to submit a paper registration.  A final paper registration form that can be used for registration will be made available in July 2013. Financial institutions, however, are strongly encouraged to use the online registration process after it becomes available in July 2013. “Paper registration forms will not be processed until October 2013 and financial institutions may experience a delay in receiving notice of registration acceptance and obtaining the GIIN needed to demonstrate FATCA compliance,” the IRS warned.

Separately, the IRS released Revenue Procedure 2013-23 on Monday, providing information to any individual who failed to meet the eligibility requirements of Section 911(d)(1) of the Tax Code because adverse conditions in a foreign country precluded them from meeting the requirements for taxable year 2012.

Generally, U.S. citizens or resident aliens living and working abroad are taxed on their worldwide income, the IRS noted. However, if their tax home is in a foreign country and they meet either the bona fide residence test or the physical presence test, they can choose to exclude from their income a limited amount of their foreign earned income ($91,500 for 2012).

Both the bona fide residence test and the physical presence test contain minimum time requirements, the IRS noted. The minimum time requirements can be waived, however, if the taxpayer must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Revenue Procedure 2013-23 provides the list of countries for tax year 2012 for which the minimum time requirements are waived.