Refusal to Allow Closing Agreements on FICA Timing May Lead to Challenge

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January 17, 2017

In an IRS Chief Counsel Advice Memorandum released on January 13, the IRS concluded that it should not enter into closing agreements with employers who failed to subject amounts of nonqualified deferred compensation to FICA taxes under the special timing rule in Section 3121(v)(2)(A).  In the past, some employers have been able to obtain a closing agreement in such circumstances.  In the CCA, the IRS concludes that, because the regulations apply the general timing rule in such situations, closing agreements that would allow the avoidance of the harsh result prescribed by the regulations are inappropriate.

The unwillingness of the IRS to issue closing agreements on the issue going forward may bring to a head arguments that the IRS’s regulations under Section 3121(v)(2) are not well supported by the language of the statute. … Read More

First Friday FATCA Update

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January 6, 2017

Since our last monthly FATCA update, we have addressed several other recent FATCA developments, including a flurry of FATCA-related regulations released by the IRS and Treasury Department:

  • Late Friday, December 30, 2016, the IRS and Treasury Department released four regulation packages related to its implementation of FATCA (see previous coverage).   These regulations largely finalized the 2014 temporary FATCA regulations and 2014 temporary FATCA coordination regulations with the changes that the IRS had previously announced in a series of notices.
  • The final regulations released by the IRS under FATCA on December 30, 2016, finalized the temporary presumption rules promulgated on March 6, 2014 with no substantive changes, but several changes were made to the final coordinating regulations under Chapter 3 and Chapter 61, also released on the same date (see previous coverage).
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Final Regulations Make Minor Changes to FATCA and Chapter 3 Presumption Rules

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January 5, 2017

The final regulations released by the IRS under the Foreign Account Tax Compliance Act (FATCA) on December 30, 2016 finalized the temporary presumption rules promulgated on March 6, 2014 with no substantive changes, but several changes were made to the final coordinating regulations under Chapter 3 and Chapter 61, also released on the same date.

Under FATCA, withholding agents must conduct certain due diligence to identify the Chapter 4 status of their payees.  In the absence of information sufficient to reliably identify a payee’s Chapter 4 status, withholding agents must apply specific presumption rules to determine that status.

According to the preamble to the final FATCA regulations, a commenter requested that a reporting Model 1 foreign financial institution (FFI) receiving a withholdable payment as an intermediary or making a withholdable payment to an account held by an undocumented entity be permitted to treat such an account as a U.S.… Read More

IRS Says NFFEs Must Determine their Chapter 4 Status Under Treasury Regulations

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January 5, 2017

In the preamble to the final FATCA regulations released on December 30, 2016, the IRS rejected a request from a commenter that the regulations be modified to permit a non-financial foreign entity (NFFE) operating in an IGA jurisdiction to determine its Chapter 4 status using the criteria specified in the IGA.

In the preamble, the IRS responded to the request by indicating that although an NFFE may use the IGA to determine whether it is a foreign financial institution (FFI) or a NFFE,  it must look to U.S. Treasury Regulations to determine its Chapter 4 status once it determines it is an NFFE. … Read More

Temporary FATCA Coordination Regulations Bring U.S. Source Gross Transportation Income Saga to a Close

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January 4, 2017

On Friday, December 30, 2016, the IRS and Treasury Department released over 600 pages of new final, temporary and proposed regulations under Chapter 4 (FATCA), Chapter 3, and Chapter 61 (see earlier coverage).  The four packages finalize the temporary regulations issued in 2014 and make additional changes based on comments received by the IRS.  One issue addressed by the temporary FATCA coordination regulations issues under Chapter 3 addresses the outstanding question of whether withholding agents must document the foreign payees of U.S. source gross transportation income (USSGTI) and withhold under Chapter 3.  The temporary regulations amend the regulations under Section 1441 to specifically exempt USSGTI from amounts subject to withholding.… Read More

IRS Releases Four FATCA-Related Regulation Packages

Late Friday, December 30, 2016, the IRS and Treasury Department released four regulation packages related to its implementation of the Foreign Account Tax Compliance Act (FATCA).  Two of the packages include final and temporary regulations and two contain proposed regulations.  The packages are:

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IRS Provides Guidance on De Minimis Safe Harbor for Errors in Amounts on Information Returns

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January 4, 2017

The IRS today released Notice 2017-09 providing guidance on the de minimis safe harbor for errors in amounts reported on information returns.  The safe harbor was added to Sections 6721 and 6722 by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).

Under the statute, filers are not subject to penalties under either Section 6721 and 6722 if an amount reported on the return is within $100 of correct amount or within $25 if the amount is an amount of tax withheld.  However, if the payee requests a corrected return, the filer must file and furnish one or the payee is liable for potential penalties. … Read More

IRS Releases Final Qualified Intermediary and Foreign Financial Institution Agreements

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December 30, 2016

With the end of the year upon them, the IRS has kicked into high gear with a flurry of new administrative guidance. On the heels of yesterday’s release of final reporting rules on slot machine, bingo, and keno winnings, proposed rules on horse track, dog track, and jai lai winnings, and a revenue procedure on Certified Professional Employer Organizations, the IRS released final agreements for foreign financial institutions (FFIs) and qualified intermediaries (QIs) to enter with the IRS, set forth in Revenue Procedure 2017-16 and Revenue Procedure 2017-15, respectively.

FFI Agreement

FFIs enter into an FFI agreement with the IRS to become participating FFIs for purposes of Foreign Account Tax Compliance Act (FATCA) withholding and reporting obligations.… Read More

IRS Issues Final and Proposed Regulations on Treatment of Gambling Winnings

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December 30, 2016

Earlier this week, the IRS issued final regulations and proposed regulations governing the reporting and withholding obligations, respectively, associated with gambling winnings. The regulations are being seen as a win for the gambling industry, who desired the changes made by the final rule and proposed rule.

Final Regulations on Bingo, Slot Machine, and Keno Winnings

The final regulations, issued under Code section 6041, only affect payers and payees of $1,200 or more in bingo and slot machine winnings or $1,500 or more in keno winnings. The final regulations add a new section, Treas. Reg. § 1.6041-10, addressing reporting of such winnings, which requires every payer of “reportable gambling winnings” (a term defined in the new regulations) that is engaged in a trade or business to generally make a separate information return with respect to each such payment. … Read More

Two Notable FATCA Transition Rules Set to Expire January 1, 2017

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December 29, 2016

The Foreign Account Tax Compliance Act (FATCA) provided several transition rules that are set to expire on January 1, 2017, one related to limited branches and limited foreign financial institutions (FFIs), and one related to the deadline for sponsoring entities to register their sponsored entities with the IRS.

Limited Branches and Limited FFIs

FATCA included a transition rule to temporarily ease compliance burdens for certain FFI groups with members otherwise unable to comply with FATCA that will no longer be available beginning January 1, 2017. Under Treas. Reg. § 1.1471-4(a)(4), an FFI that is a member of an expanded affiliated group (EAG) can become a participating FFI or a registered deemed-compliant FFI, but only if all FFIs in its EAG are participating FFIs, registered deemed-compliant FFIs, or exempt beneficial owners.… Read More

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