Taxing resolutions

With 2014 firmly in the rearview mirror, CFOs should start kicking their FATCA compliance planning into higher gear. 

More time at the gym and less drinking will feature among most CFOs/CCOs New Year’s resolutions, but they should consider adding one more: contending with FATCA, which after a rather protracted “warning period” is finally upon us in a real way.

FATCA has been an utter nightmare for compliance teams. It began with CCOs initially being unsure about which entities in any given fund structure must register with the IRS. US Treasury was also painfully slow to get the FATCA registration process up and running and update all the tax forms needed to comply. Not long ago we reported that US tax officials see 2014 and 2015 as something of a transitional period for FATCA compliance, but some strict milestone dates are already on the horizon. 

Let's begin with January 1 2015. On this date, FATCA withholding generally began for certain types of US source income that is paid to non-US investment entities whose Global Intermediary Identification Number (or GIIN) cannot be verified on an online IRS monthly list of FATCA compliant entities. Though there are exceptions for certain types of “preexisting accounts” opened prior to 1/1/15, GPs and US withholding agents will generally be looking to document investors' FATCA compliant status now regardless.

Next comes March 15, the due date for Forms 1042/1042-S, which reports US source income paid to foreign persons subject to withholding tax. After some revisions last year, these once familiar forms are much more complex because of the addition of Chapter 4 in the IRS code, written for FATCA reporting purposes. Fund professionals and their advisors who expect to use a “SALY” (same as last year) approach to 2014 Form 1042/1042-S reporting will be in for a rude awakening when they see the forms and all the new lines and boxes; accordingly they would be well advised to have an early look at these new templates and consider how to complete them well in advance of the deadline.

And then there is the matter of “reportable accounts” – generally those of US individuals or US entities which are not expressly exempt from such reporting. For example, a fund organized in the Cayman Islands, besides registering with the IRS, will generally have to electronically submit to Cayman tax authorities that it is a “Reporting Cayman Islands Financial Institution” by March 31, and secondly a report for each reportable account it maintains by May 31, 2015. Cayman authorities will then relay the information to the IRS. It is critical, warns EisnerAmper tax partner Jay Bakst, that GPs familiarize themselves with the particular requirements of their country of domicile (if it signed a Model 1 IGA with the IRS, as most have) and make sure that responsibility for this compliance is properly delegated so that they are not caught in a last-minute frenzy, or miss it altogether.  

In other words, this compliance season GPs can’t just rely on what they have done in prior years now that FATCA has arrived. And unlike more exercise, that’s a resolution that must be kept past the end of January.