Stephen Ehrenberg
Stephen Ehrenberg

IRS delays FATCA implementation timeline

Announcement 2012-42 provides temporary reprieve from imminent application
of far-reaching foreign account requirements.

November 29, 2012
by Stephen Ehrenberg, CPA

With the close of 2012 fast approaching, the tax landscape for 2013 continues to unfold. In addition to the fiscal cliff that awaits if Congress and President Barack Obama do not act to extend the tax cuts set to expire at year end, tax practitioners must also be prepared to implement new laws and regulations that become effective in 2013.

In particular, the Foreign Account Tax Compliance Act (FATCA) has many individuals and businesses focusing on compliance with the new rules, which are set to go into effect Jan. 1. However, Treasury delayed the effective date for compliance with certain aspects of the law until 2014 with the issuance of Announcement 2012-42 in October.


Enacted in 2010 as part of the Hiring Incentives to Restore Employment Act, P.L. 111-147, FATCA was implemented in an effort to add transparency and consistency to the reporting requirements of U.S. persons holding investments in offshore accounts exceeding certain values. The main components of the FATCA rules are as follows:

  • It requires foreign financial institutions (FFIs) and withholding agents to disclose the balances, receipts, and withdrawals for U.S. account holders to the IRS. To the extent these disclosures are not made, the FFIs could be subject to a 30% withholding tax on certain payments from U.S. assets. Withholding may also be imposed on nonfinancial foreign entities (NFFEs) that do not disclose certain U.S. ownership information.
  • It also requires “specified individuals” to report their ownership in foreign financial assets to the IRS by filing Form 8938, Statement of Specified Foreign Financial Assets, when the value of these assets exceeds the reporting threshold during tax years beginning after March 18, 2010 (Temp. Regs. Secs. 1.6038D-1T and 1.6038D-2T). (Domestic entities may also be required to file this form beginning for 2012 tax years if regulations are finalized.)

While the Form 8938 filing requirements for individuals have not been amended by the issuance of Announcement 2012-42, the deadline for complying with the FFI reporting requirements has been delayed as the IRS and Treasury continue to refine these requirements.

The AICPA has a webpage that provides further details, as well as resources, about FATCA rules and regulations.

FFI requirements

In February 2012, the IRS issued proposed regulations concerning, among other things, FFI compliance. As part of the rules surrounding FATCA implementation, FFIs are required to enter into agreements to provide the required data about their U.S. account holders to the IRS and the offshore taxing authorities.

In response to this requirement, the IRS received comments about the Jan. 1, 2013, deadline for implementing certain due-diligence procedures described in Notice 2010-60. In particular, FFIs and withholding agents argued that the FATCA status of entity account holders may change during 2013 as FFIs enter into FFI agreements with the IRS. Withholding agents that implement new account opening procedures by Jan. 1, 2013, in an effort to comply with Notice 2010-60, could be required to undertake duplicative efforts to verify an FFI’s status when the FFI’s status has not yet been approved by the IRS. Withholding agents and FFIs also requested that deadlines consider the implementation time frame for FFIs that will comply through the use of intergovernmental agreements. 

Additionally, the IRS received comments about “grandfathering” of preexisting foreign passthrough payment obligations that do not give rise to withholding obligations. These obligations, the commenters argued, should receive grandfather treatment and not be subject to FATCA withholding requirements, provided that the obligations had been executed prior to the issuance of the final regulations. Accordingly, “grandfathered obligation,” as currently defined in Prop. Regs. Sec. 1.1471-2(b)(2), will be expanded to include obligations related to certain foreign passthrough payments that are not withholdable payments, an instrument that gives rise to a withholdable payment solely because it gives rise to certain dividend equivalent amounts, and certain obligations related to notional principal contracts that are grandfathered obligations. The definition has also been modified to generally align with the new Jan. 1, 2014, deadline to implement new account opening due-diligence procedures.

Implementation timelines

In response to these comments, the IRS delayed the effective date for adherence to the due-diligence policies as detailed in the chart below. Announcement 2012-42 sets a timeline for FFIs and withholding agents to implement certain due-diligence procedures:


New individual and entity accounts (implementation of new account opening procedures)

Preexisting accounts of prima facie FFIs (date by which due diligence must be completed for all accounts)

Preexisting accounts of entities other than prima facie FFIs

Preexisting high-value accounts of individuals

Preexisting accounts of individuals other than high-value accounts

Withholding agents other than participating FFIs and deemed- compliant FFIs

By Jan. 1, 2014

By June 30, 2014

By Dec. 31, 2015



Withholding agents that are participating FFIs

By later of Jan. 1, 2014, or effective date of FFI agreement

By the later of June 30, 2014, or six months after the effective date of the FFI agreement

By the later of Dec. 31, 2015, or two years after the effective date of the FFI agreement

By the later of Dec. 31, 2014, or one year after the effective date of the FFI agreement

By the later of Dec. 31, 2015, or two years after the effective date of the FFI agreement

Withholding agents that are registered deemed- compliant FFIs

By later of Jan. 1, 2014, or date of registration





Participating FFIs will be required to submit U.S. account holder information to the IRS covering calendar years 2013 and 2014 by March 31, 2015. Notice 2011-53 previously required reporting for certain account holders by Sept. 30, 2014. Withholding on gross proceeds originally scheduled to be imposed on payments made after Jan. 1, 2015, is now extended so that withholding on the payments will not begin until after Dec. 31, 2016. No change has been made to withholding on U.S. source fixed or determinable annual or periodic (FDAP) payments scheduled to apply starting Jan. 1, 2014.

Announcement 2012-42 is silent on the FFI agreement due dates, which are required to be entered into with the IRS by June 30, 2013, to prevent withholding on U.S. source FDAP payments beginning Jan. 1, 2014. Also, no further guidance has been given related to FFIs’ withholding obligations on passthrough payments. Previous guidance stated that withholding on passthrough payments would not begin before Jan. 1, 2015.


FATCA requires strict adherence, as noncompliance with the laws could result in substantial withholding taxes for FFIs and NFFEs. As tax practitioners await the issuance of final regulations to determine their ultimate administrative responsibilities, taxpayers should be aware of the complex filing requirements so they may plan accordingly.

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Steve Ehrenberg, CPA, is a tax principal in the Los Angeles office of Holthouse, Carlin & Van Trigt LLP.