IRS, OECD and Cayman Islands release information reporting updates
The month of June brought several new tax information reporting announcements from multiple sources. These developments are most relevant for qualified intermediaries (QIs), financial institutions resident in the Cayman Islands, insurance companies and retirement funds in jurisdictions that have adopted the Common Reporting Standard (CRS) and persons with expiring Individual Taxpayer Identification Numbers (ITINs). Specifically, the IRS has recently published a new Foreign Account Tax Compliance Act (FATCA) FAQ clarifying the good faith standard for QIs and has issued an announcement reminding individuals with expiring ITINs to renew their ITINs before Dec. 31, 2018. Alongside the announcements from the IRS, the Organisation for Economic Cooperation and Development (OECD) has published new Common Reporting Standard FAQs addressing issues for insurance companies and retirement funds, while the Cayman Islands has announced that their Automatic Exchange of Information (AEOI) portal for filing FATCA and CRS reports that was previously scheduled to close on July 31, 2018 will now remain open until Aug. 31, 2018.
More information on all of these developments can be found below:
IRS publishes new FATCA FAQ on 'Good Faith Standard' for QIs
The IRS has recently published a new FATCA FAQ addressing how a QI, that is not acting as a qualified derivatives dealer, should take into account the good faith standard with respect to section 871(m) transactions for purposes of its periodic review.
Notice 2016-76 stated that the IRS will take into account a withholding agents good faith effort to comply with the section 871(m) regulations when enforcing those regulations for calendar year 2017 (for delta one transactions), and calendar year 2018 (for non-delta one transactions). Notice 2017-42 extended the good faith standard provided for in Notice 2016-76 to encompass the 2018 calendar year for delta one transactions and the 2019 calendar year for non-delta one transactions. This standard applies to withholding agents, including QI’s acting as withholding agents and intermediaries with respect to payments on section 871 transactions.
Per the FAQ, a QI acting as a withholding agent should disclose, in its review, any section 871(m) transactions that the QI feels should be subject to the good faith standard for purposes of its period certification that includes the 2017-2019 years. This disclosure should be made by uploading an attachment to the Qualified Intermediary/Withholding Foreign Partnership/Withholding Foreign Trust Application Management System, and should include a brief description of the issues, how the issues will be addressed by the QI prior to 2018 and an explanation as to why the good faith standards should apply.
For more information regarding previous QI FATCA FAQs, see our alert: Key updates in U.S. tax information reporting have operational impact
OECD issues new FAQs for CRS
In June 2018, the OECD updated and added new FAQs for the implementation of the CRS that impact insurance companies and retirement funds. Specifically, the new version of the FAQs address:
- Accountholders for cash value insurance contracts
- Compartmentalization of broad participation retirement funds
- Income from the investment of the capital of insurance companies
A June version of the OECD’s CRS FAQ page can be found here.
Cayman AEOI Portal to remain open until Aug. 31, 2018
The Cayman AEOI Portal, which reopened on June 20, 2018 at 5:00 PM EST, Cayman’s Department for International Tax Cooperation (DITC) is now scheduled to remain open until Aug. 31, 2018 to permit Cayman Financial Institutions additional time to fulfil their FATCA and CRS reporting obligations. However, filers still only have until July 31, 2018 to submit 2017 reports without penalties. In Cayman’s announcement regarding the additional time through Aug. 31, 2018 that it will accept reports, Cayman’s DITC specifically stated that completion of 2017 CRS and US FATCA reporting obligations on or before July 31, 2018 will not result in compliance measures being taken for late filing and will not attract adverse consequences, enforcement measures or penalties.
For more information regarding Cayman’s DITC statement, see our prior alert: Cayman Islands effectively extends FATCA and CRS reporting deadline
IRS urges taxpayers to renew ITINs now
The IRS released an announcement reminding over 2 million taxpayers with ITINs scheduled to expire at the end of this year to renew their numbers now. Under the Protecting Americans from Tax Hikes Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire Dec. 31, 2018. In addition, ITINs with middle digits 73, 74, 75, 76, 77, 81 or 82 will also expire at the end of the year. Affected taxpayers who expect to file a tax return in 2019 must submit a renewal application as soon as possible.
For more information on RSM’s FATCA and Global Information Reporting services or for assistance with any of the issues discussed in this alert, please refer to our FATCA site.