Treasury and the IRS issued temporary relief procedures in Notice 2023-11 ("Notice") for a foreign financial institutions (FFI) that is subject to a Model 1 intergovernmental agreement (IGA) jurisdiction.
Model 1 FFIs that follow the procedures set forth in the Notice will not be in significant non-compliance with their obligations under an applicable Model 1 IGA solely because of a failure to report a required US taxpayer identification number (TIN) in relation to "preexisting accounts".
The Notice applies only to reporting for calendar years 2022, 2023, and 2024. Model 1 FFIs must use numerical codes ("TIN Codes") to indicate why a US TIN had not been reported and make good faith efforts to increase the likelihood US citizens will report their US TINs.The relief is intended to provide the IRS with information on why FFIs do not report US TINs and enhance compliance with the Foreign Account Tax Compliance Act (FATCA).
In 2017, Treasury and the IRS issued Notice 2017-46 which provided, with respect to reporting for calendar years 2017, 2018, and 2019, that the US would not determine that there had been significant non-compliance solely because a reporting Model 1 FFI failed to obtain and report each required US TIN for preexisting accounts. The relief was intended to give FFIs time to implement practices and procedures to report US TINs.
In effect, Model 1 FFIs had up to six years to obtain required US TINs and report information on such accounts without the US TINs. In addition, US citizens who resided abroad had six years to provide a social security number (SSN). To better understand the issues FFIs faced in obtaining required US TINs, the IRS shared TIN Codes that Model 1 FFIs could use for 2020 reporting which may indicate why a US TIN had not been reported.
Model 1 IGA jurisdictions, FFIs, and US citizens continue to have concerns that FFIs are closing or may close bank accounts of US citizens who fail to provide a required US TIN, including accounts of US citizens residing outside the US. The Notice aims to (i) provide relief to certain FFIs that they will not be treated as in significant non-compliance solely due to a failure to report a required US TIN for a preexisting account, (ii) collect information on why the FFIs did not provide US TINs, and (iii) ultimately enhance compliance with FATCA.
As mentioned above, the relief in the Notice applies only to reporting for calendar years 2022, 2023, and 2024.
There are two key takeaways arising from the Notice which Model 1 IGA jurisdictions and their FFIs should consider. First, the Treasury and the IRS will not treat those Model 1 IGA FFIs as being in significant non-compliance if they, and the Model 1 IGA jurisdiction in which they find themselves, can demonstrate they are making good faith efforts to obtain and report US TINs to meet their obligations under FATCA. Hence, FFIs and Model 1 IGA jurisdictions need to be proactive and make good faith efforts to collect information on the FFIs’ US account holders. The Notice does not provide whether permanent relief will be granted for FFIs who continue to be unable to obtain and report US TINs for certain accounts after 2024. It does clarify, however, that if permanent relief were granted in the future, the scope of the accounts for which an FFI may obtain relief would be narrower than the scope of accounts for which relief is given under the Notice. As such, FFIs and Model 1 IGA jurisdictions, or if necessary outside counsel, need to move quickly to obtain and report US TINs from US account holders that have not yet provided one, or make an accurate report to the IRS explaining why it may not report a US TIN.
Second, in order to qualify for relief, FFIs must retain until 2028 records of the policies and procedures adopted to communicate with account holders to annually request missing required US TINs (in the manner most likely to reach them). FFIs should take this as an opportunity to review their policies and procedures to determine if they are appropriately requesting, and documenting their requests for, missing required US TINs.
The entire Notice may be accessed here.