Foreign Financial Institutions Get Relief on Reporting U.S. Taxpayer Identification Numbers

The IRS has issued Notice 2023-11 granting new temporary relief under the Foreign Account Tax Compliance Act (FATCA) for certain foreign financial institutions (FFIs) that continue to be unable to obtain and report U.S. taxpayer identification numbers (TINs) for certain preexisting accounts.

FATCA and TIN reporting requirement

Under FATCA, certain FFIs must report to the IRS information about financial accounts held by U.S. taxpayers and foreign entities in which U.S. taxpayers hold certain ownership interests. In the case of  non-compliance, FATCA generally requires withholding agents to withhold a 30% tax on certain U.S. source payments to FFIs that do not report the required information. 

To facilitate the exchange of information, the Treasury Department has developed two model intergovernmental agreements (IGAs) in collaboration with foreign governments, “Model 1” and “Model 2” IGAs. Under the Model 1 IGA, Model 1 FFIs report certain information on U.S. reportable accounts to the relevant jurisdiction’s tax authority, which then automatically exchanges the information with the U.S. Competent Authority. Each Model 1 IGA provides that a reporting Model 1 FFI will not be subject to withholding tax under Section 1471 if the Model 1 IGA jurisdiction and the FFI comply with their obligations under the IGA.

Among other information, Model 1 FFIs must report the U.S. TIN of each specified U.S. person that is a holder of a U.S. reportable account and, for a non-U.S. entity with one or more specified U.S. persons who are controlling persons, the U.S. TIN of each controlling person for the U.S. reportable accounts of the entity. 

Previous temporary relief and continuing concerns

The Treasury Department and the IRS previously provided temporary relief for Model 1 FFIs that were unable to obtain and report U.S. TINs for preexisting accounts in Notice 2017-46. That relief was limited to reporting for calendar years 2017–2019 and was intended to give Model 1 FFIs more time to implement practices and procedures to obtain required TINs. 

Notice 2023-11 indicates that despite years of relief provided by the Treasury Department and the IRS to Model 1 FFIs, the IRS continues to receive reporting from Model 1 IGA jurisdictions that does not include required U.S. TINs for all preexisting accounts. The notice also indicates that the Treasury Department and IRS have learned of concerns expressed about FFIs that – to avoid being treated as noncompliant and subject to withholding – were closing accounts of U.S. citizens who failed to provide U.S. TINs and refusing accounts to U.S. citizens that are resident in the FFI’s jurisdiction or only offering them less-favorable accounts, even when they provided a U.S. TIN.

New relief for reporting years 2022–2024

Under the new notice, the U.S. Competent Authority will not deem a Model 1 FFI to be in significant noncompliance with its reporting obligations solely due to a failure to report U.S. TINs on preexisting accounts for calendar years 2022–2024 if the FFI meets certain requirements. 

To qualify for the relief, the FFI must do each of the following:

• For each U.S. reportable account (including new accounts), obtain and report the date of birth of each account holder that is an individual and controlling person whose U.S. TIN is not reported.
• Starting in calendar year 2023, annually request from each account holder any missing required U.S. TIN.
• Starting in calendar year 2023, annually search electronically searchable data maintained by the reporting Model 1 FFI for any missing required U.S. TINs.
• Report an accurate “TIN Code” for each account that is missing a required U.S. TIN.

TIN Codes are designated codes provided by the IRS that Model 1 FFIs can use to populate the TIN fields when they do not have a TIN to report. They are intended to provide the IRS with additional information to better understand the issues facing Model 1 FFIs in obtaining TINs. For reporting for calendar year 2022, which is due by September 30, 2023, the notice states that reporting FFIs may use either the IRS TIN Codes issued in May 2021 or updated TIN codes issued by the IRS in early 2023. For reporting for calendar years 2023, which is due by September 30, 2024, and 2024, which is due by September 30, 2025, reporting FFIs must use the most recent TIN Codes.

Regarding the requirement that FFIs annually request the missing U.S. TINs, the notice specifies that the FFI must use its “reasonable judgment” in selecting the method of communication “most likely to reach the account holder.” The notice further specifies further information the communication must include and requires retaining certain records. 

(For reporting Model 1 FFIs to be eligible for the relief, the notice also requires that the Model 1 IGA jurisdiction take certain actions.) 

The notice also notes that “[i]f permanent relief is granted in the future” the IRS expects that the scope of accounts eligible for such relief “will be narrower than the scope of accounts” eligible for relief under the current notice. 

BDO Insights

FFIs will welcome the relief provided by Notice 2023-11. Nevertheless, substantial efforts will be needed to put in place the additional procedures required as a condition for the relief. Documenting the steps undertaken to implement these procedures will be crucial.