TaxNewsFlash-United States

August 30, 2010
No. 2010-396




Discussion: Notice 2010-60 and Request for Comments Regarding Implementation of Information Reporting and Withholding Under Chapter 4 of the Code

As reported on Friday, August 27, the IRS released Notice 2010-60 which provides preliminary guidance and requests additional comments with respect to certain priority issues involving the implementation of chapter 4 of the Code, including:

  • The scope of obligations exempt from chapter 4 withholding
  • The definition of a foreign financial institution (FFI)
  • The scope of collection of information and identification of persons by financial institutions
  • The information that an FFI must report to the IRS pursuant to an “FFI Agreement”

For an electronic version of the notice (62 pages): Notice 2010-60

The following provides a preliminary discussion of Notice 2010-60.


On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment Act, which includes as a revenue offset, provisions referred to as the Foreign Account Tax Compliance Act (FATCA).

The FATCA measures—enacted to prevent offshore tax abuses by U.S. persons—include a new Code chapter 4 withholding regime that is designed to achieve this stated intent by imposing a penal withholding tax on certain foreign entities that refuse to disclose the identities of these U.S. persons.

The effective date for the new regime is January 1, 2013, with certain grandfather provisions for debt obligations that are outstanding two years from the date of enactment.

Notice 2010-60

The recently released Notice 2010-60 sets forth the general framework with which the Treasury and IRS intend to follow when implementing this new withholding regime. Specifically, Notice 2010-60 covers the following priority issues:

  • Grandfathered Obligations. Notice 2010-60 describes the types of obligations that will be covered by the grandfather rule. In addition, it specifically excludes obligations that do not have definitive expirations or terms (e.g., a savings deposit).
  • Definitions of an FFI, as Well as Identification of Excluded FFIs. Notice 2010-60 provides that, for purposes of the third class of FFIs (i.e., those entities that are engaged primarily in the business of investing and reinvesting securities, partnership interests, etc.), the concept of “business” will be much broader in scope than other sections of the Code. In addition, Notice 2010-60 contains a list of entities that may be exempt from withholding under the new regime to the extent they satisfy certain requirements. For example, such entities may include certain holding companies, start-up companies, hedging/financing centers of a non-financial group, non-financial entities that are liquidating, retirement plans, and certain insurance companies and products. Notice 2010-60 also provides that the IRS intends to require U.S. branches of foreign financial institutions to enter into FFI Agreements when acting as an intermediary. Conversely, an FFI organized in a U.S. territory will not be required to enter into such an agreement and, instead, will be treated as a U.S. financial institution (USFI).
  • Collection of Information and Identification of Persons by USFIs and FFIs. Notice 2010-60 provides detailed information with respect to the requirements of account documentation for both USFIs and FFIs. The requirements are broken down into the requirements for accounts held by individual and entities as well as by those in existence on the date the participating FFI’s FFI Agreement becomes effective (for FFIs) or January 1, 2013 (for U.S. FIs) and those that are opened subsequent to those dates. Specific guidance is provided regarding the types of U.S. indicia that would mandate additional due diligence follow-up. Significantly, Notice 2010-60 indicates that documentation for purposes of chapter 4 will not be required for NFFEs that are engaged in an active trade or business.
  • Reporting on U.S. Accounts. In general, Notice 2010-60 provides that the information that must be reported to the IRS will include the name, address, taxpayer identification number (TIN), account number, account balance, gross receipts and withdrawals, as well as other information requested by the IRS. Notice 2010-60 provides that the account balance must be reported in U.S. dollars and discusses possible ways that the balance may be determined (e.g., average of highest month end balances during the year). It also specifically requests comments with respect to the suggested approaches as well currency translation conventions and how to minimize the burden on the gross receipts and withdrawal reporting requirements.
  • Requests for Specific Comments. Notice 2010-60 requests for specific comments relating to possible verification requirements applicable to participating FFIs, the treatment of passthrough payments, the appropriate scope of an FFI’s election to be withheld upon, sanctions with respect to recalcitrant account holders, the possible exclusion of vendor payments, as well as the possible exclusion of FFIs that are subject to prohibitions from maintaining U.S. accounts (e.g., investment vehicles that disallow U.S. owners).

Finally, Notice 2010-60 indicates that Treasury and the IRS will require most financial institutions to electronically file their returns with respect to chapter 3 and chapter 4 compliance electronically beginning in 2013, notwithstanding the fact that the institution may have less than 250 returns to file.

Comments to Notice 2010-60 are due and must be submitted by November 1, 2010.

Notice 2010-60 will be appear in Internal Revenue Bulletin 2010-37, dated September 13, 2010.



The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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