Last week, the IRS issued Notice 2023-11 providing relief procedures for foreign financial institutions (“FFIs”) in countries with Model 1 intergovernmental agreements (“IGAs”) that have failed to provide U.S. taxpayer identification numbers (“TINs”) for certain preexisting accounts.  Preexisting accounts are defined in Model 1 IGAs as a financial account maintained by a reporting financial institution as of June 30, 2014.  Those FFIs in eligible Model 1 IGA jurisdictions that comply with the procedures described in the notice will avoid being identified by the U.S. Competent Authority as being in significant non-compliance with the IGA. (A list of U.S. IGAs, including Model 1 IGAs, along with other useful information regarding the status of all IGAs may be found at the Treasury’s FATCA page.)

The notice details the history of the reporting requirements that applied to reporting Model 1 FFIs with respect to U.S. TINs of specified U.S. persons that are account holders and controlling persons of non-U.S. entities.  Before 2017, reporting Model 1 FFIs were not required to report U.S TINs for a reportable preexisting account if the TIN was not in the FFI’s records.  In lieu of reporting the U.S. TIN, the FFI was required to report the date of birth of the account holder if the FFI possessed it.  Subsequently, Treasury and the IRS issued Notice 2017-46, which provided relief and guidance for FFIs unable to obtain U.S. TINs for preexisting accounts if the FFI complied with the conditions of that notice. 

Although reporting Model 1 FFIs have had up to six years between the Model 1 IGAs and Notice 2017-46 to obtain the required U.S. TINs from account holders, the IRS continued to receive reports that did not include U.S. TINs for preexisting accounts.  Consequently, the IRS established voluntary TIN Codes for FFIs to identify the applicable reason that the FFI could not provide a U.S. TIN when the FFI reported 2020 data. The applicable codes and their meanings may be found under Reporting FAQ 6 on the IRS FATCA FAQs page. 

Notice 2023-11 explains that Treasury and the IRS learned that certain reporting Model 1 FFIs are either taking or considering taking adverse action against U.S. account holders, including closing accounts and providing less favorable terms for accounts, including without regard to whether the U.S. account holder has provided a U.S. TIN in certain cases.  This reaction from certain reporting Model 1 FFIs appears to be related to the concern that FFIs may be designated by the U.S. Competent Authority as non-compliant under the terms of applicable Model 1 IGAs. 

To address these concerns and to prevent negative actions against U.S. citizens, Treasury and the IRS have developed new procedures described in the new notice to limit the likelihood that reporting Model 1 FFIs will be identified as non-compliant while concurrently promoting greater reporting compliance for preexisting accounts.  In particular, for reporting years 2022, 2023, and 2024, Reporting Model 1 FFIs that follow the specified procedures in Notice 2023-11 will not be treated as non-compliant with their obligations under the Model 1 IGA solely due to the failure to report a required U.S. TIN for preexisting accounts. 

Section 3.02 of the notice provides that reporting Model 1 FFIs are eligible for relief with respect to certain preexisting accounts if the FFIs (1) obtain and report the date of birth of each individual or controlling person whose U.S. TIN is not reported; (2) beginning in 2023, annually request a missing U.S. TIN from each account holder; (3) beginning in 2023, annually search its electronically searchable data for any missing U.S. TINs; and (4) report the applicable TIN Code, as published and updated by the IRS, for each account missing a required U.S. TIN.  Further, for a reporting Model 1 FFI to be eligible for the relief with respect to a particular calendar year or appropriate reporting period, Section 3.05 of the notice requires the Model 1 IGA jurisdiction to make good faith efforts within nine months after the end of the calendar year to which the information relates to do the following:

• Encourage U.S. citizens resident in the jurisdiction to provide U.S. TINs to FFIs when requested;

• Enforce compliance by reporting Model 1 FFIs identified by the U.S. Competent Authority as potentially non-compliant;

• Encourage FFIs within the Model 1 IGA jurisdiction not to discriminate against U.S. citizens that provide a U.S. TIN; and

• If notified by the U.S. Competent Authority, take steps necessary to conclude Competent Authority Arrangements with the U.S. Competent Authority, implement an IGA, amend Annex II to an IGA, or exchange country-by-country information.

For purposes of establishing a transition period for the Model 1 IGA jurisdiction, the notice assumes the requirements of Section 3.05 are satisfied for calendar year 2022.  Accordingly, relief applies for reporting Model 1 FFIs for 2022 if the FFIs satisfy the requirements under Section 3.02 of the notice.  For 2023, the reporting Model 1 FFIs must satisfy the requirements of Section 3.02, and the IGA jurisdiction must satisfy the requirements of Section 3.05.