Whilst many of us were on leave and enjoying the seasons greetings and cheer, the IRS were slaving away at regulatory updates and decisions, delivering gifts for us to open upon the return to work. For Third Party Settlement Organisations (TSPO), you must have been very good last year, as your gift is a delay on new 1099-K reporting rules. For Financial Institutions (FIs), however, you must have been very naughty. Your lump of coal is new FATCA reporting requirements, and if you’re also a QI, your new rules on Publicly Traded Partnerships (PTPs) have now come into effect from 1st January 2023.
A small note regarding 1099-K reporting…
The IRS had previously stated that TSPOs would have a change in reporting threshold for the 2022 calendar year, to be filed in 2023. That drop, from recipient receiving over $20,000 in more than 200 transactions in the annual period, to recipient receiving over $600, regardless of number of transactions, will now start from the 2023 reporting period, to be filed in 2024. Please note, that if you have recipients receiving more than $20,000 in the 2022 period, that information will still need to be filed this year.
A much bigger note regarding FATCA…
Notice 2023-11 – Foreign Financial Institution (FFI) Temporary U.S. Taxpayer Identification Number Relief.
When it comes to FATCA reporting, TINs have always been a difficult area of enforcement – between pre-existing account holders that refuse to provide/ignore requests for their US TIN, and the requirement to report ‘unconfirmed’ US Persons on the basis of unresolved indicia, some UK FATCA returns can be rife with “000000000” entries on the TIN field. For those of us in a Model 1 jurisdiction, the relief from applying FATCA withholding to those US Persons without a TIN and penalties regarding non-compliance, has come with conditions:
To report a date of birth if no TIN is available
To make annual reattempts to obtain a missing TIN
To ensure electronically searchable data on file has been searched for missing TINs
In 2019, the IRS issued a series of codes that could be used in place of a missing TIN, to explain why no TIN was present on the report. This was an optional measure – with the clear hope to make the reportable data easier to analyse and establish the status of the reported account holder, and the level of compliance of the FFI who reported them. This list of codes can be found in the HMRC manual IEIM402040.
FATCA compliance has cost Financial Institutions a substantial amount of money over the past 10 years, and the ‘option’ to spend more on changes to procedures and reporting technology has not likely been a popular one. So, in addition to the 3 bullet points above, a 4th condition has been set upon Model 1 FFIs, to report a reason code in place of a missing TIN on the annual reports.
For the 2022 calendar year, the list already available (on that HMRC link above) is satisfactory for reports submitted in 2023. The notice from the IRS indicates that a new list will be issued very shortly, and after this year, must be complied with.
Assuming an update from HMRC in the coming days, but all UK FIs should start preparing for this now. If you have technology that assumes the “000000000” entry for a missing TIN, that will need updating. If you store “no TIN” reasons manually, they need reviewing and organising ASAP. Going forward, you will need a plan of how TIN status is logged and maintained from the point of discovering Indicia.
As always, if you are not sure where to start, or need assistance with these changes, contact us to see how we can help.
The 2023 US Qualified Intermediary Agreement
Late in December, the IRS released the updated version of the QI Agreement, which came into effect on the 1st January 2023. For those of you not familiar with this agreement, you might say it’s a little late in the day to publish rules that come into effect in a couple of weeks, but there’s no cause for concern, there’s nothing in here that hasn’t already been published and prepared for.
In general, the purpose of the QI Agreement is to lay down the framework, for FIs who wish to facilitate US sourced payments to their customers and apply relevant double taxation treaties with the US as Relief at Source. This concept has been around for many years, and the core elements have remained the same since day 1:
Documentation – collecting and validating the appropriate W-Series Forms for all accounts with US sourced payments, and US PersonsWithholding – applying the correct amount of US withholding tax to US sourced payments, dependant on documentation and treaty statusesReporting – annual filing requirements detailing all the US sourced income received and paid, and how much tax was applied and paid
If you are thinking about becoming a QI or have recently done so, and you need assistance with any area of the regulations, then EFI is here for you, contact us for more information on how we can assist.
Every few years, a new agreement is created to include any changes to the Internal Revenue Code or other legislation that impact on QI activity.
The most significant item this time is rules under Section 1446 re US PTPs. The proposed rules were actually published quite some time ago, with a view to going live at the beginning of 2022. This was extended to 1st January 2023 and is now definitely happening. Additional guidance specifically around this has also been published, in response to some of the queries and push back from QIs and brokers.
In short, these PTPs, will now be liable for a 10% transfer tax on any disposition by a non-US taxpayer. It might seem like a small change but it’s actually quite difficult to navigate, no matter which approach you’re taking.
If you decide to just sell out on these stocks and no longer facilitate them on your platform, you would think that was quite a simple process. However, they are not always easy to identify from their stock file information, and the list changes quite frequently – maintaining an up-to-date list in order to prevent any re-purchases or transfers in could prove difficult for many firms.
If you are maintaining the securities on your platform, then you have options from a withholding perspective. Most QIs are not used to withholding on trades, the US withholdable payments are generally income ones, so this will involve new processes to execute. Documented US taxpayers will be exempt, and the additional guidance issued has confirmed that late/backdated certifications can be applied after the transfer has taken place in certain circumstances.
QI status allows for FIs to elect whether they wish to Primary or non-Primary withholding. Primary withholding agents receive all payments gross and withhold the appropriate amounts themselves. Non-Primary withholding agents pass the correct information to upstream agents for different withholding pools, and they receive the income net of any US withholding taxes.
For PTPs, regardless of whether you are generally a Primary or Non-Primary withholding agent, you can elect to become Primary on any or all of the PTPs on your books. Any QI remaining entirely non-Primary will need to pass appropriate documentation and information to their upstream agents for the correct withholding to be applied to relevant trades. Any QI taking on these new requirements as Primary will need additional procedures in place for documentation, withholding and reporting.
If you are a QI struggling with PTPs, or any other element of the QI regime, EFI can help. Contact us here with queries of any shape and size.
www.irs.gov/pub/irs-drop/rp-22-43.pdf – the full 2023 US QI Agreementhttps://www.irs.gov/pub/irs-drop/n-23-08.pdf – additional guidance on PTPs