IRS Issues new Proposed Regulations under FATCA and Chapter 3 as Part of Burden Reduction

On Thursday, December 13, 2018, the IRS issued new proposed regulations under FATCA and Chapter 3 as part of Treasury's regulatory burden reduction effort. Among the changes included in the proposed regulations are certain changes specific to FATCA: (1) elimination of withholding on payment of gross proceeds (definition of FATCA withholdable payments would no longer include gross proceeds), (2) deferral of withholding on foreign passthru payments (until 2 years after the definition of such payments appears in final regulations), (3) elimination of withholding on non-cash value insurance premiums (these would be treated as nonfinancial payments), and (4) the clarification of the "managed by" criteria for defining an investment entity under FATCA.

In addition, the new proposed regulations contain additional guidance on due diligence for withholding agents under Chapter 3 and FATCA. There is an extension of the deadline for obtaining limitation of benefits information for treaty statements for pre-existing accounts and the removal of the 3-year validity period for treaty statements for certain entities.

Finally, under the preface of credits and refunds, the proposed regulations (1) make a change to the lag method used by partnerships for Form 1042-S reporting; (2) extend the time period allowed for the use of the reimbursement and offset procedures for cases of overwithholding; and (3) provide additional flexibility for certain FATCA-compliant nonqualified intermediaries in cases where they need to report on Form 1042-S to their account holders.

Taxpayers may generally rely on these proposed regulations until final regulations are issued. For revisions relating to credits and refunds of withheld tax (including, for example, the lag method change), taxpayers may not rely on the proposed regulations until Form 1042 and Form 1042-S are updated for the 2019 calendar year. Visit the proposed regulations.

In the meantime, should you have any questions on the proposed regulations and the potential impact please feel free to contact us at Mk-TaxSolutions@ihsmarkit.com

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