Recent Treasury Notice Regarding 'Transition Period' Not a Delay of FATCA Implementation

The U.S. Department of the Treasury recently announced that the current and next calendar years will be2015 Calendar a "transition period" for complying with the Foreign Account Tax Compliance Act's requirements. The creation of this transition period should not be seen as a postponement of FATCA's obligations, but rather as a time when affected entities can seek to implement policies that bring them into full compliance. Thinking that the new announcement has delayed the requirements imposed by the FATCA is erroneous and dangerous.

In early May, the US Treasury Department issued Notice 2014-33. That notice announced publicly that the years 2014 and 2015 would serve as "a transition period" for purposes of the Internal Revenue Service's enforcement of the implementation of FATCA. With the deadline for FATCA compliance looming, the Treasury Department saw the benefit of a transition period to facilitate an orderly adjustment to the new rules. The transition period applies to FATCA's withholding, reporting, and due diligence requirements.

While some might read that description of "transition period" and see a postponement of the extensive duties triggered by FATCA, this perspective is mistaken. The Treasury notice is not a delay, but rather fosters an opportunity for obligated entities to ramp up to full compliance over time. The new transition period does not give obligated entities the option to sit on the sidelines until 2016, however. The notice requires entities to make reasonable efforts to come into compliance this year. Entities not making such good-faith efforts can face IRS enforcement as early as this year.