The Internal Revenue Service has issued an announcement extending the “deemed compliant” status of countries that are treated as if they had an intergovernmental agreement with the U.S. Treasury Department in place for purposes of the Foreign Account Tax Compliance Act.

FATCA, which was included as part of the HIRE Act of 2010, requires foreign financial institutions to report on the holdings of U.S. taxpayers to the IRS or else face stiff penalties of up to 30 percent on their U.S. source income. The law has attracted controversy abroad, with London Mayor Boris Johnson recently saying he would refuse to pay taxes to the IRS on the sale of a property, even though he was born in New York and holds dual citizenship in the U.S. and U.K.

To ease the objections, the Treasury Department has been negotiating a series of intergovernmental agreements, or IGAs, with different countries to allow exchange of tax information under existing tax treaties.

In April, the Treasury Department and the IRS said they would treat 19 countries that have reached agreements in substance with the U.S. on FATCA as having those agreements in effect, until the end of 2014 (see Treasury and IRS Expand Jurisdictions Subject to FATCA Agreeements).

Last week, the IRS and Treasury extended that time period. Announcement 2014-38 provides guidance with respect to jurisdictions that are treated as if they had a FATCA intergovernmental agreement in effect, but that do not sign an IGA before Dec. 31, 2014. A jurisdiction that is treated as if it had an IGA in effect, but that has not yet signed an IGA, will be able to retain that status beyond Dec. 31, 2014, provided that it demonstrates firm resolve to sign the IGA as soon as possible. After Dec. 31, 2014, the Treasury will review the list of jurisdictions having an agreement in substance on a monthly basis to assess whether it continues to be appropriate to treat a jurisdiction as if it had an IGA in effect or whether the jurisdiction should be removed from the list.

By extending the deemed effective status of IGAs that were agreed to in substance beyond Dec. 31, 2014, the IRS is indicating that financial institutions in those jurisdictions can continue to rely upon those agreements to claim compliance with FATCA, as long as the jurisdiction “continues to demonstrate firm resolve to sign the IGA.” In addition, the IRS added 11 new jurisdictions to the list of jurisdictions treated as having a deemed effective IGA as of Nov. 30, 2014, noted a recent alert from the law firm Paul Hastings LLP. There are currently 64 jurisdictions that have IGAs agreed in substance.

The delay will give more assurance to foreign banks. “For the financial institutions, I think it’s helpful,” said Susan Grbic, a partner and co-head of the banking group at the accounting firm WeiserMazars LLP.

“That’s what the financial institutions were trying to get is assurance about those that have been deemed signed. We have been taking the position after those lists came out that we would register clients and treat them as being in an IGA jurisdiction, whether they were on the actually signed list or deemed signed list. This is going to eliminate the level of uncertainty of having to potentially undo things that had already been done.”

Banks can continue to take the position that an IGA in a deemed-signed jurisdiction will still be valid.

“The actual progress seems to be going much slower than perhaps was envisioned, but things do take time and the signed IGAs have been trickling in at a relatively slow pace,” said Grbic. “If the jurisdictions in question really still want to do this, then the IRS is going to keep the window open for them.”

However, officials with the foreign jurisdictions need to be able to demonstrate to the Treasury that they are taking the steps necessary to bring the IGA into force within a reasonable period of time.

“It’s our understanding that Treasury will be monitoring this deemed-compliant IGA list monthly, which is good because it is at least an incentive to continue to move forward,” said Colleen Waddell, director of the tax group at WeiserMazars LLP.

Banking clients are getting help from WeiserMazars on putting in place policies and procedures for FATCA compliance, along with training. “We’ve been undertaking that for a number of our clients, actually sitting with their relevant departments to educate them about FATCA, to describe what the requirements are in terms of new forms and how those forms will be validated. We’re teaching the people who are going to be responsible for ensuring that the process is working correctly and putting in place governance procedures. We’re seeing a lot of that in terms of getting ready for the New Year.”

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