United States

Key updates in U.S. tax information reporting have operational impact

Information reporting deadlines and developments abound

TAX ALERT  | 

Several important new developments in U.S. tax information reporting and withholding requirements have emerged this month. Specifically, the IRS has recently loosened foreign taxpayer identification number (TIN) requirements for certain jurisdictions, clarified Qualified Intermediary (QI) certification deadlines, published a new guidance on the treatment of dividend equivalent payments for derivatives referencing a partnership, and ended the offshore voluntary compliance program. Below is a more detailed discussion of these developments which come just ahead of looming reporting deadlines next month.

Expansion of Jurisdictions on No TIN List

The IRS has recently announced (see Notice 2018-20) that it will expand the list of jurisdictions that do not issue TINs to their residents to include Australia as well as any other jurisdictions that make a request to the U.S. competent authority to be included on the list. Withholding agents are not required to collect foreign TINs from residents of jurisdictions on this “No TIN” list. This is likely welcome relief for many withholding agents, who are currently struggling to implement systems and policies for reviewing explanations of missing TINs from customers and investors who fail to provide them as required on certain W-8 forms.

Generally, banks and other withholding agents (including U.S. branches of foreign banks) are required to withhold at a rate of 30 percent on the gross amount of payments and distributions of certain U.S. source income, unless the beneficial owner of the account provides a withholding certificate that contains a TIN issued by the account holder’s jurisdiction of tax residence or a reasonable explanation for why a TIN is not provided. However the IRS modified this requirement in previously released guidance (see Notice 2017-46 and our prior alert) by providing that withholding agents are not required to obtain a TIN for an account held by a resident of a jurisdiction identified by the IRS as not providing TINs to their residents.

The No TIN list is maintained by the IRS and previously included only three jurisdictions: Cayman Islands, British Virgin Islands, and Bermuda. However, in order to accommodate jurisdictions with laws restricting collection or disclosure of Foreign TINs for their residents, the IRS has announced that it will expand the No TIN list to include jurisdictions that request to be on the list, even if the jurisdiction issues a TIN to its residents. Notice 2018-10 added Australia to the No TIN list, and the Notice states that the IRS intends to add other jurisdictions as well, at the request of the foreign jurisdiction.

U.S. withholding agents who are currently struggling to implement systems and policies for reviewing explanations of missing foreign TINs should check the list periodically for new countries and take note of them as the compliance season marches forward.

IRS publishes new FATCA FAQ for Qualified Intermediaries with regard to the payment of dividend equivalents made with respect to a derivative referencing a partnership.

The IRS has also recently published a new Foreign Account Tax Compliance Act Frequently Asked Question (FATCA FAQ) clarifying that, for calendar year 2017, withholding agents will not be subject to interest, penalties or additional tax with regard to the payment of a dividend equivalent made with respect to a derivative referencing a partnership, provided the withholding agent withholds and reports such withholding on Form 1042 and Form 1042-S no later than Sept. 17, 2018. The FAQ also clarifies that when filing a Form 1042 for withholding made after March 15, 2018, the withholding agent should write, “Dividend Equivalent—Partnership,” on the center of the Form 1042 and that, when depositing withholding for a dividend equivalent payment made in 2017, the agent should designate the payment as being made for calendar year 2017.

Upcoming Closure of Offshore Voluntary Disclosure Program

Another significant development is that the IRS recently announced that it will begin the process of closing down the 2014 Offshore Voluntary Disclosure Program (OVDP) with the intent of shutting the program down in its entirety by Sept. 28, 2108, though other, less extensive, voluntary disclosure processes will remain available. For more on this announcement, see our previous alert. Taxpayers with unfiled returns and unpaid taxes with respect to foreign assets for prior years should evaluate the feasibility of making a voluntary disclosure before the Sept. 28, 2018 deadline. 

IRS Clarifies upcoming July 31, 2017 QI and FFI Certification Deadlines

The IRS has recently announced that the Qualified Intermediary (QI), Withholding Foreign Partnership (WP), and Withholding Foreign Trust (WT) Application and Account Management System will be available to begin accepting QI, WP and WT certifications in early April 2018.  According to the announcement, certification due dates will vary depending upon the year the QI/WP/WT selects for its periodic review, as well as whether the QI/WP/WT requires a waiver of the periodic review requirement. Generally, the certification due date for QI/WP/WT entities that have selected 2015 or 2016 for their periodic review will be July 1, 2018 which can be extended to Sept. 1, 2018. The certification due date for a QI/WP/WT that selected 2017 for its periodic review is Dec. 31, 2018. For these cases, the IRS will grant an extension to March 1, 2019 to provide the certification. QIs should confirm their periodic review dates and ensure that their QI system login information is correct well before the certification due dates. 

Conclusion

With upcoming deadlines for information return filings and related certifications looming, it is imperative that companies continue to monitor changes in requirements and update their policies and systems as appropriate.

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