As reported in our March 15, 2012, Special Alert Advisory, the Internal Revenue Service on February 8, 2012, issued a massive set of proposed regulations under the Foreign Account Tax Compliance Act (FATCA). Generally speaking, FATCA requires foreign fi nancial institutions (FFIs) and other foreign entities to report U.S.-owned accounts and/or substantial U.S. owners in order to avoid the imposition of a 30 percent withholding tax on withholdable payments made to them.

Since the release of the FATCA proposed regulations, taxpayers and practitioners have heavily weighed in on various issues that they believe must be addressed and/or clarifi ed in forthcoming fi nal regulations. For example, a major complaint relates to timing—i.e., the extent to which foreign fi nancial institutions, in particular, will need more time to implement FATCA-compliant procedures to meet FATCA’s effective date of January 1, 2013, and how this issue is affected by the timetable envisioned for the issuance of fi nal regulations and the proposed intergovernmental agreements. Other key issues that have been put on the table by the private sector include the extent to which local “know your customer” and local antimoney- laundering statutes can be relied on when dealing with existing and new accounts, increased fl exibility for the various categories of deemed compliant (both registered and certifi ed) foreign fi nancial institutions, issues surrounding expanded affi liated group entities in different countries and adoption of uniform standardized intergovernmental agreements. In addition, many stakeholders have urged the government to abandon the “foreign passthru payment” regime that governs payments made by foreign fi nancial institutions to nonparticipating FFIs and recalcitrant account holders. Government offi cials have recently indicated that the upcoming fi nal regulations will likely not address the foreign passthru payment concept (since, under the proposed regulations, the regime is not effective until 2017 at the earliest) and that if a signifi cant number of FFIs become participating FFIs, the foreign passthru payment rules may not be necessary to address the problem of blocker structures that the rules are meant to address.

The IRS is reviewing the numerous comment letters that have been submitted in response to the proposed regulations and has recently indicated when stakeholders can expect the government to release revised forms, fi nal regulations and intergovernmental agreements. The IRS intends to release in the next few months several documents, including an individual draft FFI agreement and procedures that FFIs must follow to participate in FATCA, along with an attachment that would specifi cally address the obligations of qualifi ed intermediaries that wish to participate in FATCA. The IRS cautioned that taxpayers should generally not expect the IRS to create separate customized draft FFI agreements for particular countries or industries. Last week, the government released draft forms of a revised W-8BEN (for individuals) and a new W-8BEN-E (for entities), which will be used to document withholding under the general withholding and new FATCA withholding regimes. In the next months, the government also intends to release a model government-to-government agreement under which the United States and other countries (currently France, Germany, Italy, Spain and the United Kingdom) would agree on an alternative approach to FATCA that would allow banks to report information to their home countries (for automatic exchange of this information with the United States). According to IRS offi cials, the United States and the above countries are working closely to ensure the strict confi dentiality of information that would be exchanged under this alternative approach. It is reported that other countries are in the midst of negotiating similar accords. It is also understood that the government is planning to release information on another form of intergovernmental agreement, one that would involve direct reporting by an FFI under an intergovernmental approach using existing exchange of information agreements. Finally, fi nal regulations are expected to be issued by the end of the summer.