The first guidance on the implementation of chapter 4 (sections 1471-1474) was issued on August 27, 2010. Notice 2010-60 announces that it provides preliminary guidance on priority matters, which would seemingly indicate that the guidance provided by Notice 2010-60 may be subject to change. In fact, Notice 2010-60 is tentative in many areas as well as not providing any developed guidance with respect to other issues such as entities that have U.S. investments but purport to have no U.S. account holders.
Notice 2010-60 addresses which foreign financial institutions will be treated as subject to the more extensive due diligence, withholding, and reporting provisions of section 1471 (FFIs) and which foreign entities will be subject to the less burdensome requirements imposed on non-foreign financial entities (“NFFE”) Importantly, Notice 2010-60 provides details on how an FFI’s due diligence obligations may be met, with somewhat less burdensome temporary requirements for existing accounts, i.e., accounts opened prior to the execution of an FFI’s agreement with the IRS. Moreover, Notice 2010-60 provides guidance for U.S. financial institutions (“USFI”) that will be the primary withholding agents for withholdable payments made to FFIs and NFFEs. In addition, guidance is provided for grandfathered obligations, the treatment of U.S. branches of foreign financial entities, controlled foreign corporations, retirement plans, certain insurance companies, and entities exempt from chapter 4.
Significantly, arm’s-length payments made for goods and services in the ordinary course of business by withholding agents that are not USFIs to NFFEs engaged in an active trade or business are not exempt from the chapter 4 procedures. However, Notice 2010-60 states that the IRS and Treasury are considering allowing reliance on the chapter 4 status certifications as long as the withholding agent does not know or have reason to know that such certification is not correct.
Many questions remain, however, because Notice 2010-60 requests numerous comments and leaves many open questions for later guidance. Draft certifications and FFI Agreements will be released for comment at a later date.