Fatca compliance slowing down after 'ambiguous' IRS notice

Banks are reining in their Fatca compliance programmes in light of a notice the US Internal Revenue Service (IRS) released in May outlining a transitional period for Fatca compliance, one expert warns.

Notice 2014-33 states that calendar years 2014 and 2015 will be regarded as a transition period for IRS enforcement and administration of Fatca implementation by withholding agents and foreign financial institutions (FFIs). During the transition period, the IRS says it will take into account the extent to which a participating or deemed-compliant FFI or withholding agent has made "good faith efforts" to comply with the requirements of the Fatca regulations.

However, three months after its release, one expert warns that the result of the notice is a slackening in Fatca compliance efforts.

"The announcement the IRS made that it's treating 2014 and 2015 as a transitional period in terms of enforcement and looking at banks' 'good faith' efforts means we have seen a little bit of a quieting time right now. I don't know if banks are as aggressively implementing regimes as they were before," says Tim Lind, Boston-based global head of financial regulatory solutions at Thomson Reuters.

Lind says the notice is ambiguous because it is unclear what the IRS means by 'transition period'. On top of this there is no clear indication on how institutions demonstrate good faith efforts. "These are all matters of opinion and subjective and that's a challenge. Banks have been looking for hard and fast rules that are what's withholdable and what's not withholdable and clarifications of Fatca terminologies. It introduces so many terms into our world and those terms aren't exhaustively defined, which means compliance can feel like a matter of opinion and argument as opposed to a matter of objective fact," Lind says.

He adds that the transition period offered by notice 2014-33 simply advances the current level of ambiguity where Fatca compliance is concerned. "It's a kind of get-out-of-jail card because it's ambiguous. What does a transition period mean? How do I demonstrate good faith?"

Debbie Pflieger, Washington-based principal and director of information reporting and withholding services at EY, disagrees. "I don't think I've seen quieting down of Fatca compliance programmes at all. The notice allowed everybody to take a deep breath because we were getting concerned about all the work that needed to be done by July 1. Most of my clients are not considering it a get-out-of-jail card because they've been working so hard on Fatca that the idea of 'getting out of jail' just doesn't seem feasible. That's not the way they see it going forward at all."

She argues that the notice gives institutions breathing space and the lack of aggression in Fatca compliance programmes Lind refers to is more likely to do with the July 1 deadline passing. "Obviously FFI registration has died down a lot. As of July 1 we were supposed to start looking at individual accounts differently. We've done a pretty good job of starting to do that so the anticipation of it, yes, that has slowed down, but I don't think it's any more than the fact that we've gone from planning to execution on some of the pieces."