United States: FFI Agreements Specifically Permit The IRS To Request Account Information

In an IRS Technical Assistance Memorandum issued by the Office of Associate Chief Counsel (International) in December 2020, the IRS determined that it may request from specified foreign financial institutions ("FFIs") information regarding the accounts held by them by certain US individuals.¹ The IRS may request this information for each year under the terms of § 6.02 of the FFI agreement. This request is permitted under the FFI agreement regardless of whether the United States has a tax-exchange agreement in effect with the country of residence of any of the participating foreign financial institutions ("PFFIs").

Analysis

Under § 1471(a), an FFI that does not meet the requirements of § 1471(b) is subject to withholding on withholdable payments made to it at the rate of 30%. The requirements of § 1471(b) are met with respect to any FFI that has an agreement in effect between it and the IRS under which the FFI agrees to (among other things) obtain information on each accountholder of each account maintained by the institution as is necessary to determine which (if any) of those accounts are US accounts.² Under § 1471(b)(1)(E), the FFI must also agree to comply with requests by the IRS for additional information with respect to any US account maintained by the institution.

An FFI may comply with § 1471(b) by registering with the IRS to enter into an FFI agreement to become a PFFI.³ A PFFI includes both an FFI in a jurisdiction with a Model 2 IGA in effect (a reporting Model 2 FFI) and an FFI in a jurisdiction with no IGA in effect.⁴The FFI agreement requires a PFFI to report certain information for each calendar year to the IRS on Form 8966, FATCA Report, with respect to its US accounts, which include accounts held by individuals who are US citizens or residents.

Section 8.04(A) of the FFI agreement permits the IRS to request certain other information from a PFFI that is not a reporting Model 2 FFI. According to the information-reporting forms and tax returns (including Form 8966) filed by the PFFI with the IRS for a calendar year, the IRS may request from the PFFI additional information with respect to the information reported, or required to be reported, on such forms and may also request the account statements described in Treasury Regulations § 1.1471-4(d)(4)(v).

The IRS is also permitted to request from the PFFI any additional information to determine a PFFI's compliance with its FFI agreement and to assist the IRS with its review of accountholder compliance with tax-reporting requirements. The FFI agreement requires that a PFFI produce, in the ordinary course of its business, account statements that summarize the activity of an account (including withdrawals, transfers, and closures) for any calendar year in which the account was required to be reported to the IRS to retain a record of those account statements for the longer of six years or the retention period under the FFI's normal business procedures. In addition, a PFFI may be required to extend the six-year retention period if the IRS requests such an extension prior to the expiration of the period.

Footnotes

1. IRS Mem., CC:INTL:B01:C.Rioux - POSTN-115115-20

2. See § 1471(b)(1)(A).

3. Treas. Reg. § 1.1471-4(a)

4. Treas. Reg. § 1.1471-1(b)(91).

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