Draft Instructions for Form 8966 (FATCA Report)

The IRS recently posted draft instructions to the Form 8966 (FATCA Report) dated August 9, 2017, with some changes pertaining to participating foreign financial institutions (PFFIs) and others reflecting the final and temporary Chapter 4 regulations released in January of this year.  The Form 8966 reports information with respect to certain U.S. accounts, substantial U.S. owners of passive non-financial foreign entities (NFFEs), specified U.S. persons that own certain debt or equity interests in owner-documented FFIs, and certain other accounts as applicable based on the filer’s status under Chapter 4 of the Internal Revenue Code.  A Model 1 FFI files the Form 8966 (or its equivalent) with its host country’s tax authority which, pursuant to the Model 1 IGA, shares the information with the IRS.  A Model 2 FFI directly files a Form 8966 with the IRS pursuant to its FFI agreement (see prior coverage regarding deadline for renewal of FFI agreement).

The changes reflected in the draft instructions are summarized below.  The draft instructions are before the official release.

  • Reporting on accounts held by nonparticipating FFIs. For 2017, a PFFI (including a Reporting Model 2 FFI) does not need to report on accounts held by nonparticipating FFIs in Parts II and V of the Form 8966.  Specifically, PFFIs should not check the box for “nonparticipating FFI” on line 5 of Part II, should not check the pooled reporting type “nonparticipating FFI” on line 1 of Part V, and should not complete line 3 of Part V.  This reporting obligation only applied for 2015 and 2016.
  • Limited FFIs and limited branches. The statuses for limited FFIs and limited branches expired on December 31, 2016.  Accordingly, the references to limited FFI and limited branch statuses are removed for the 2017 Form 8966.
  • Reporting Model 2 FFI related entities or branches. The instructions for limited FFIs and limited branches are revised to apply to Reporting Model 2 FFIs with related entities and branches that are required by the applicable Model 2 IGA to report U.S. accounts to the IRS to the extent permitted.  Thus, a related entity or branch of a Reporting Model 2 FFI filing Form 8966 should select the filer category code for limited branch or limited FFI (code 03) on line 1b of Part I.
  • Reporting Model 2 FFIs reporting on non-consenting U.S. accounts. For a preexisting account that is a non-consenting U.S. account, the Reporting Model 2 FFI should use the pooled reporting category for either recalcitrant account holders that are U.S. persons or recalcitrant account holders that have U.S. indicia.  For a new individual account that has a change in circumstances that causes the Reporting Model 2 FFI to know or have reason to know that the original self-certification is incorrect or unreliable, and the Reporting Model 2 FFI is unable to obtain a valid self-certification establishing whether the account holder is a U.S. citizen or resident, the Reporting Model 2 FFI should use the pooled reporting category for recalcitrant account holders with U.S. indicia.
  • U.S. branches. The draft instructions under Special Rules for Certain Form 8966 Filers reflect the updated reporting requirements for U.S. branches in the final Chapter 4 regulations published in January 2017.  On line 1b of Part I, all U.S. branches of a FFI not treated as U.S. persons should select the filer category code for PFFIs (code 01), and U.S. branches that are treated as U.S. persons should select the code for withholding agents (code 10).
  • PFFIs (including Reporting Model 2 FFIs) that are partnerships. The draft instructions for line 4d of Part IV for PFFIs (including Reporting Model 2 FFIs) are updated to conform to temporary Chapter 4 regulations published in January 2017 with respect to the amounts required to be reported by a partnership-PFFI reporting a partner’s interest in the partnership.
  • Mergers and bulk acquisitions of accounts.  New instructions under Special Rules for Certain Form 8966 Filers are added for combined reporting after a merger or bulk acquisition of accounts.

Testing Period Scheduled for Form 8966 Electronic Submission Process

The IRS announced that it will conduct a test of the International Data Exchange Services (IDES) system beginning on July 18, 2016.  The IDES system allows financial institutions and foreign tax authorities to securely transmit data directly to the IRS.  One of the forms that financial institutions must submit through the IDES system is Form 8966, “FATCA Report,” which is used by foreign financial institutions to report certain U.S. accounts, substantial U.S. owners of passive non-financial foreign entities, and other required information.

Any foreign financial institution that will submit a Form 8966 through the IDES system once the system goes into effect may want to participate in this testing period.  Participation in the testing period is open to any financial institution that has completed IDES Enrollment before 5:00pm EST on July 14, 2016, which can be done online.  The testing period is scheduled to close on July 29, 2016.