Now that the compliance deadlines for the Foreign Account Tax Compliance Act, or FATCA, are in sight, foreign banks and other financial institutions are finally getting their systems in order, even though there are still some holes in what the Treasury Department and the Internal Revenue Service are providing.

FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions, or FFIs, to report on the holdings of U.S. citizens or else face stiff penalties. The law has attracted controversy abroad, and the Treasury Department and the IRS have been pushing back some of the deadlines and negotiating intergovernmental agreements, or IGAs, with the tax authorities in other countries.

One of the most important deadlines is July 1, for the requirement to implement new account “onboarding” procedures for U.S. withholding agents, participating FFIs and so-called “registered deemed-compliant FFIs” (see Multiple FATCA Deadlines Approaching).

“I think there is a burst as we near the deadlines,” said Susan Grbic, partner and practice leader of financial services tax and FATCA at WeiserMazars, and co-head of the firm’s banking practice. “It has been abundantly clear the IRS isn’t going to extend these deadlines.”

She noted that in the first quarter, there was still some hope and petitioning by various international banking and securities industry groups for a delay. But the July 1 deadline is still in place, although an April 25 deadline for registering on the IRS’s FATCA portal has been pushed back to May 5.

“April 25 was a registration deadline of sorts,” said Grbic. “If you registered online through the IRS portal by that day, you were going to be on their first list, which is important in that you’ll be recognized by having your GIIN [global intermediary identification number]. That will be the identifier going forward for the foreign financial institutions in question, and that April 25 has become May 5, so it’s 10 extra days, not a big deal. The publication would be June 2, which I think is consistent with what we’ve known for quite a while.”

Grbic has been seeing a flurry of activity ahead of the registration. “Time really is running out, she said. “There’s not going to be another extension and so the focus right now is to register, get a number, and then start assessing your entities. You have to figure out what your group looks like.”

She pointed out that many banks do business in multiple countries and they need to look at each country’s agreements with the U.S. on FATCA. “If the country does not have an intergovernmental agreement with the U.S., or prospects of having one, then they are going to be governed by the final FATCA regulations and the requirements there,” said Grbic. “Among other things they’re going to have to enter into an FFI agreement with the IRS, which is a one-to-one agreement, meaning the foreign financial institution agrees with the IRS to be compliant with the provisions of FATCA as set out in the regulations.”

She noted that many countries at this point have either signed and completed intergovernmental agreements or have them in progress, and those IGAs provide a different way of meeting the FATCA obligations. An institution doing business in London, for example, would be governed by the U.K.’s intergovernmental agreement with the U.S., so they would not have to enter into an agreement with the IRS directly. They would still have to register and get a GIIN, but there would be a relaxation of some of the other requirements, as long as they follow the provisions of the U.K.’s agreement with the U.S. In addition, the U.K. has promulgated its own regulations for how to deal with their side of implementing the IGA.

Other countries, however, do not yet have an IGA with the U.S., and that includes China, and by extension Hong Kong. “That’s causing concern to many institutions because they don’t quite to know what to do with that,” said Grbic. “There are some privacy concerns in that country that would prevent the reporting that FATCA effectively obligates the institution to begin. It’s really becoming a problem. There is talk that China is in the program, so to speak, but apparently not at a level where they’ve been publicly put on a list by the IRS, because the IRS is publishing lists now of countries that can be considered as though they did have an intergovernmental agreement, presumably either because they’ve gotten an IGA in place that’s already initialed or very close, or at least there’s a good faith effort to know that there will be one before this year-end. That’s really very important for everyone concerned, for the withholding agents in evaluating those countries, as well as the various financial institutions all over the world.”

The Treasury and the IRS said earlier this month that they would treat 19 countries that had reached agreements in substance on FATCA with the U.S. as having agreements in effect, until the end of the year (see Treasury and IRS Expand Jurisdictions Subject to FATCA Agreements).

Grbic pointed out that India is now on that list of jurisdictions that have reached agreements in substance, which is helpful for institutions that are based there, as well as those that do business with banks and other financial institutions in India. However, despite the participation of Brazil and South Africa, many countries in South America and Africa have not yet been added to the list, as well as many countries in the Middle East.

In the meantime, clients have a variety of options. “There are some countries in which they’re going to have to rely on the final regulations and the requirements there from countries in which they have an intergovernmental agreement, and to add to the complexity, the IGAs are of two types,” said Grbic. “There’s a Model 1 and a Model 2, so you can understand that globally it becomes quite an intricate process just to do the assessment that is required to register before you even start coping with the actual due diligence and get ready to be able to actually do reporting and some withholding eventually.”

Bob Cummings, a partner in financial services consulting and insurance at WeiserMazars, is seeing insurance companies registering as FFIs under FATCA. “Many of them, because they’re probably less complex than some of our banking clients, have gotten through much of the registration aspect of FATCA,” he said. “Now they’re moving on to the operationalizing of the rules through the validation processes that they need to go through for the tax documentation, for the withholding reporting, so they’re moving along the phases of the overall FATCA work program, past registration as we start to hit these first deadlines.”

Grbic pointed out that the IRS has yet to come out with some of the necessary forms and instructions that will have a major impact on the implementation of systems that will be able to capture the required data fields. For example, the IRS is requiring information reports known as Forms W-8, and they come in different varieties. “Right now we are missing instructions to probably the most critical W-8 of all, which is the W-8BEN-E, and we’re also missing the form and instructions for another popular version of this, called the IMY [Form W-8IMY],” said Grbic. “There is actually a lot of missing information right now that we’re still waiting on the IRS for, despite the fact that we did get technical corrections to the final regulations and harmonization regulations that will now conform FATCA rules to the existing rules.”

She noted that the intergovernmental agreements provide for some leniency, however. “There is actually an ability to leverage some of the existing Know Your Customer rules in the given countries to accomplish the documentation requirements of FATCA,” she said. “There are three different ways of complying with FATCA in any given country. The documentation is also going to differ, and in some cases there will be an ability to leverage information that the bank or broker or insurance company already has in their files about a given customer so that they only need to actually seek additional information. To the extent that their compliance department is robust and has an extremely good process in place, they can leverage that process and accomplish FATCA in a more efficient way.”

Michael G. Flagiello, a partner in financial services consulting and insurance at WeiserMazars, pointed out that the banking and insurance industries have been hard hit in recent years by various compliance requirements, including FATCA. “These projects are a million-dollar expense for the large companies and they reach out globally,” he said. “It’s very complex. It’s not black and white. It’s not A or B. It’s very complex, and the insurance industry has been way behind the banking industry in the prospects of waking up to this. I’m sure other industries are also behind and waiting until the last minute before they move forward because it is a big spend. Our business is operating performance and helping companies increase their operating performance, and yet here’s another regulatory spend that really isn’t going to do very much for their bottom-line profit.”

Flagiello sees ways that accountants can help their clients comply with FATCA, advising them on what extent the law even applies to them and helping them implement the right systems if it does. “There are system changes that are going to be made, and there are specifications that are going to be determined,” he said. “There’s going to be training and education to make sure that the operating units know what to be doing in all the spots.”

“Because this is affecting global organizations as well as many different silos within an organization, companies really need strong program governance to oversee FATCA implementation from soup to nuts, because you are dealing with both internal and external stakeholders and also impacts to the front-facing clients both in banking and insurance,” said Cummings. “You want there to be as little business interruption as possible when dealing with something like this, so having that strong project management and strong program governance in place is key. Those are certainly some ways that accountants, both in a tax specialty and otherwise, can assist their clients.”