Relief arrives for certain Model 1 FFIs that do not transmit US TINs to IRS

Notice 2023-11, issued in December 2023, provided limited relief to certain foreign financial institutions (FFIs) that were not fully in compliance with the terms of their Model 1 FATCA Intergovernmental Agreement (IGA). Specifically, FFIs that did not did not collect and transmit US taxpayer identification numbers (TINs) to the IRS that relate to “preexisting accounts” maintained at the FFI could be found to be in significant noncompliance with the terms of their IGAs. Notice 2023-11 provided a basis for FFIs located in Model 1 IGA jurisdictions to remain in compliance with the terms of such IGA through 2024, even if such FFI did not did not collect and transmit US TINs to the IRS that relate to preexisting accounts maintained at the FFI.

To qualify for the administrative benefits provided by Notice 2023-11, the FFI had to:

collect the preexisting account holder’s date of birth and transmit it to the IRS,
request the preexisting account holder’s US TIN periodically,
annually search its electronic data to ascertain whether it had received the preexisting account holder’s US TIN, and
report the appropriate missing TIN code to the IRS.

The IRS had indicated that such an approach was warranted to permit the IRS to assess how to best address the practical fact that not all Model 1 FFI were able to transmit to the IRS the US TINs of each of their preexisting accounts held by specified US persons or substantial US owners (or US controlling persons).

On October 28, 2024, the IRS issued Notice 2024-78, which further extends the benefits provided in Notice 2023-11 through 2027, subject to two additional conditions. In addition to the four conditions stated in Notice 2023-11, in order to continue to avoid an IRS determination of significant noncompliance with the terms of the relevant Model 1 IGA, FFIs must also:

provide to the IRS, to the extent available, the client’s non-US TIN, and
using the “addressfix” element in the FATCA reporting schema, report to the IRS the client’s city and country of residence.

Both Notice 2023-11 and Notice 2024-78 impose additional conditions on the Model 1 FFI jurisdiction to permit FFIs in such jurisdiction to qualify for the benefits provided in these notices. These conditions remain unchanged in Notice 2024-78 and generally require the Model 1 FFI jurisdiction to encourage FFIs to obtain and clients to provide US TINs.

Eversheds Sutherland Observation: The IRS continues to struggle with the practical challenge of holding FFIs accountable when their preexisting account holders are specified US persons (or nonfinancial foreign entities with substantial US owners) who have not provided their US TINs to the FFI. The IRS recognizes that its ability to penalize Model 1 FFIs is effectively limited to a determination of whether the FFI is in significant noncompliance with the terms of its IGA and deserves to be “kicked out” of FATCA and treated as a nonparticipating FFI. At the same time, the Department of the Treasury and the IRS recognize that several Model 1 IGA jurisdictions have expressed a view that they do not support an effort to force FFIs to terminate account relationships over the lack of transmitting a US TIN for such account. Accordingly, the IRS finds itself forced to adopt a practical solution, such as the approach taken by Notice 2024-78, to allow additional time for negotiation between the IRS and its IGA partners in an effort to find a solution that would (1) prevent the IRS from unilaterally demanding such account closures and suffering the diplomatic fallout that would ensue, and (2) avoid the need to conclude that any such FFI that fails to provide a US TIN is in significant noncompliance with the terms of its IGA and therefore is a nonparticipating FFI.

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