Mastering FATCA Compliance for NFFEs: Navigating Who, What, When and How Much

U.S. taxpayers that make payments to foreign persons are required to analyze and report information regarding payments both to foreign financial institutions and NFFEs under FATCA.

The FATCA provisions—Chapter 4 of the Code (§§ 1471 et. seq.)—may require 30% withholding on “withholdable payments” to foreign entities that have not provided an appropriate withholding certificate (such as Form W-8 or W-9) or other acceptable documentation.

Withholdable payments include payments of U.S. source FDAP income (basically, all gross income other than income from the sale of goods) and gross proceeds from the sale or disposition of assets that produce or can produce U.S. source interest or dividend income.

However, there are broad carveouts that apply to many payments made by NFFEs, including interest and OID on short-term obligations and payments for the following: the use of property, office and equipment leases, services (including wages and other forms of employee compensation), software licenses, freight, transportation, and interest on outstanding accounts payable arising from the acquisition of goods and services.

The withholding tax may apply whether the foreign entity receives the payments as beneficial owner or as agent for a client and whether the beneficial owner is a U.S. or foreign person. The withholding tax applies to many items not otherwise subject to FDAP withholding (e.g., portfolio interest and capital gains of foreign investors) and cannot be reduced or eliminated by treaty.

Listen as our panel of tax specialists explains the impact of the FATCA rules on NFFEs and the details that tax advisors to NFFEs need to know.

1. NFFEs
   1. NFFEs—identification and classification
   2. Qualifying as an exempted NFFE
   3. IRS required disclosures for certain NFFEs
   4. W-8 implications
2. Chapter 4 withholding
   1. Determining withholding agents
   2. Withholdable payments
   3. Interaction with Chapter 3 and Chapter 61 withholding
   4. Noncompliance penalties
   5. Best practices for compliance implementation

This discussion will focus on the rules applicable to NFFEs and withholding agents, including:

• Who is a Chapter 4 withholding agent?
• What types of payments are subject to Chapter 4 withholding? What payments are not “withholdable” items?
• Which NFFEs qualify for exemption from FATCA?
• What information needs to be provided to a Chapter 4 withholding agent to avoid withholding, and who should provide the documentation?
• What are the requirements applicable to the W-8 series of forms?
• How does Chapter 4 withholding interact with FDAP withholding, amounts taxed as effectively connected income, and income tax treaties?
• How does recovery of and crediting of Chapter 4 withholding by foreign payees work?
• What are the penalties for failure to withhold?
• What steps should withholding agents take to implement an effective Chapter 4 compliance program?

Learning Objectives

After completing this course, you will be able to:

• Ascertain the details of compliance with FATCA for NFFEs, including who qualifies as a Chapter 4 withholding agent
• Identify the types of payments subject to Chapter 4 withholding and NFFE exemption requirements
• Recognize FATCA interaction with W-8 Forms and FDAP withholding and the penalties for failing to properly withhold
• Establish an effective Chapter 4 compliance program

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, supervising other preparers/accountants, preparing complex corporate tax forms and schedules. Specific knowledge of rules governing foreign assets held by U.S. account holders and federal income tax treatment.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).