Renewing a Foreign Financial Institution Agreement
Last week, the IRS officially urged foreign banks and other financial institutions to renew their Foreign Financial Institution (FFI) agreements. Those who are required to renew these agreements, but fail to do so by October 24 could be removed from the IRS’s official list and will also be subject to a 30 percent withholding tax on payments originating from a U.S. source. This can have serious consequences for those with businesses overseas or who hold accounts with foreign banks, so if you believe that you may need to renew an FFI agreement, you should strongly consider consulting with an experienced tax attorney who can explain your legal responsibilities.
Under federal law, the IRS is permitted to withhold and deduct as much as 30 percent from certain types of payments made to an FFI, unless that entity has previously entered into an FFI agreement with the U.S. In these agreements, participating financial institutions agree to report certain information to the IRS regarding U.S. accounts, including:
- The contact information and TIN of each account holder who is a U.S. person or entity;
- The account number;
- The account balance or value; and
- The gross receipts and withdrawals or payments from the account.
Ensuring that these agreements are renewed as directed is extremely important, as those that are not renewed are removed from the FFI List, which is published monthly. This list is then used by banks and withholding agents to determine whether a payment is subject to a significant tax.
Entities with FFI agreements were directed to submit their renewals by July 31, 2017 or risk being considered nonparticipating FFIs. However, the IRS recently announced a renewal extension, which gave those foreign entities that missed the initial deadline, but have otherwise complied with the agreement’s terms, extra time to submit their renewals. According to the IRS’s announcement, participating financial institutions now have until October 24, 2017 to renew their agreements and continue to be treated as participating FFIs. Foreign financial institutions that are required to renew their agreements, but fail to do so by the deadline will have their registration status changed to “incomplete” and will not be included on the IRS’s list of participating FFIs starting in November. If the situation is not rectified, the entity will be labeled a nonparticipating FFI on January 1, 2017 and so will be subject to the 30 percent tax withholding requirement.
Speak to a Dedicated Orlando Tax Attorney Today
The recent deadline extension offers a unique opportunity for FFIs that have not renewed their agreements with the IRS. If you have questions about whether you are required to renew an FFI or the consequences of having an account with a nonparticipating FFI, please do not hesitate to contact experienced Florida tax attorney Ronald Cutler, P.A. at 386-490-9949. A member of our legal team is standing by and eager to help you schedule a one-on-one meeting with a dedicated attorney who can evaluate your case and explain your legal options.