IRS issues final FATCA reporting form for non-US institutions, but leaves lingering questions

For many financial institutions, complying with the US Foreign Account Tax Compliance Act (FATCA) has meant taking two steps forward only to take one step back. The release of an essential FATCA reporting form by the Internal Revenue Service earlier this month, Form 8966, is a case in point.

Form 8966, simply titled “FATCA Report,” is intended to fulfill one of the primary goals of the US tax enforcement law. It will be filed by non-US institutions to identify their US account holders and report their account information to the IRS. As such, it is a critical FATCA document, and its issuance in a final version is likely to be welcomed by non-US institutions preparing their reporting procedures.

Yet even as Form 8966 helps compliance programs move forward, it brings its own set of challenges. The final version was released without instructions, even in draft format. The lack of instructions leaves unanswered questions about what certain fields mean and what information is needed. It also potentially limits its usefulness for institutions that are basing their data management and reporting systems in part on the form’s requirements.

The IRS is reportedly close to releasing instructions for Form 8966, but at the time of publication had not commented on when this could be expected. With less than 90 days before FATCA becomes effective on July 1, the US tax agency is running short on time to finalize several forms and regulations needed for FATCA implementation. Financial institutions worldwide are likewise in a crunch to translate those rules and forms into workable compliance programs.

Institutions also await final versions of other forms

FATCA is a far-reaching US law that requires a broad array of non-US financial institutions to report information on the accounts they house for US persons to the IRS. Non-US institutions, including banks, broker-dealers, investment and asset management funds, and some insurance providers, will also have to conduct due diligence to identify and monitor their US account holders.

Other FATCA-related forms also still awaiting finalization by the IRS. Forms W-8BEN-E and W-8IMY have been released in draft format, but a final version has not yet emerged, although the IRS posted a notice online promising it would come “very soon.” Form W-8BEN-E can be used by legal entities, including financial institutions, to confirm their status under FATCA, and will be one of the main documents that non-US institutions collect during their account due diligence reviews.

Many institutions are eagerly awaiting the final version of Form W-8BEN-E, in part because it is highly complex. The form runs ten pages long, with dozens of options for the entity filing it to select.

Form 8966 is brief, but requires depth of information

Comparatively, Form 8966 is far simpler, under one and a half pages long, but condensed in that brief format is much of the essential data needed for FATCA compliance.

The form is divided into five parts:

  • Part I identifies the institution filing the form, including the institution’s name, address and Global Intermediary Identification Number (GIIN). The GIIN is a designator assigned by the
    IRS that indicates an institution has registered with the US tax agency and is participating or otherwise compliant with FATCA.
  • Part II is used to provide information on the US account holder being reported. This includes their name, address, tax identification number, and (if the account holder is an entity) the type of US entity.
  • If the account is held by an entity, Part III is used to identify any US persons who own the entity. FATCA requires institutions to identify US owners of certain types of legal entities, mostly trusts and some investment vehicles, down to a 10% ownership stake.
  • Part IV covers the account information that non-US institutions must report on their US account holders. This includes the account number and balance, and the interest, dividends and “gross proceeds” paid into the account.
  • Part V is used for institutions to report information on accounts in aggregate. Under FATCA, certain accounts can be reported in aggregate, rather than individually. This includes dormant, or inactive, accounts. It also includes “recalcitrant accounts,” or those accounts held by persons who refuse to provide information (like a W-8 or W-9 form) that would allow an institution to confirm their FATCA status. Part 5 contains fields to report the number, aggregate balance and aggregate payments made to such accounts.

Without accompanying instructions, some of the form’s fields remain unclear, such as a field under the account information in Part IV simply labeled “Other.”

In contrast to several other FATCA-related forms, Form 8966 does not include a signature line requiring a filer to attest to the accuracy of the information, or any wording indicating the filer could be charged with perjury if the information reported is known to be false.

Form 8966 must be filed with the IRS no later than March 31st of the following year. For example, a financial institution reporting for the year 2014 must file the form no later than March 31, 2015. The form is filed electronically through the IRS’s FATCA online portal.

“Intergovernmental agreements” spread gradually

As reporting and due diligence forms gradually fall into place, FATCA’s rollout is also steadily progressing in the international arena. The US Treasury Department is reportedly in talks with over 60 nations to adopt “intergovernmental agreements (IGAs),” or treaties that commit jurisdictions to help implement FATCA.

So far in 2014, five nations have entered into IGAs, bringing the total to 25 agreements. Luxembourg, the tiny European nation sometimes criticized as a tax haven, is likely to be the next to join the ranks. Its finance ministers agreed to the terms of an IGA last month, although it has not been officially signed.

View Form 8966 here