IRS Announces Phased Implementation Of FATCA

On July 14, 2011, the Internal Revenue Service ("IRS") and Treasury Department ("Treasury") announced a phase-in schedule which effectively delays implementation of the Foreign Account Tax Compliance Act ("FATCA")¹ for one year and, in some cases, until 2015. Notice 2011-53 (the "Notice") will likely be welcomed by foreign financial institutions; however, it does not change the basic structure of the FATCA regime which is designed to enlist foreign financial institutions in the hunt for non-compliant U.S. taxpayers.

BACKGROUND

FATCA imposes a new 30% U.S. withholding tax on any U.S. source "withholdable payment" made on or after January 1, 2013 to a foreign financial institution ("FFI").² The new 30% withholding tax applies unless the FFI agrees, pursuant to an agreement entered into with Treasury ("FFI Agreement"), to provide information with respect to each "financial account" held by "specified U.S. persons" and "U.S.-owned foreign entities."