U.S. Treasury and IRS Issue Final Regulations Under FATCA

February 4, 2013

On January 17, 2013, the U.S. Treasury Department and the Internal Revenue Service issued final regulations on the implementation of the Foreign Account Tax Compliance Act. The final regulations generally follow the proposed regulations issued in February 2012, but contain numerous changes and refinements, many of which reflect the extensive comments provided by the financial industry.

The final regulations reflect significant efforts by Treasury and the IRS to simplify the implementation of FATCA and to ease the costs and administrative burdens of compliance. Nonetheless, the resulting regime remains extraordinarily complicated and will impose substantial compliance costs and burdens on U.S. and foreign financial institutions. In addition, although the final regulations phase in FATCA’s requirements over time and grandfather important categories of outstanding obligations, the timetable for implementation provides U.S. and foreign financial institutions with a very short time period to develop and put in place new account on-boarding processes, to identify and begin withholding on certain holders of preexisting accounts, and in the case of foreign financial institutions, to register with the IRS.

The attached memorandum provides a more detailed summary of the principal implications of the final regulations. In the coming days, we plan to distribute two additional memoranda, providing a focused discussion of the implications of the final regulations for capital markets transactions and investment funds.