Bulletin No. 2010-37September 13, 2010

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Notice 2010–58, page 326.This notice provides guidance in Q & A format to taxpayerson electing the 3, 4, or 5 year carryback of net operatinglosses or a 4 or 5 year carryback of losses from operationsunder section 13 of the Worker, Homeownership, and BusinessAssistance Act (WHBAA) of 2009.

Notice 2010–60, page 329.This notice provides preliminary guidance regarding priority is-sues and requests comments involving the implementation ofchapter 4 of the Code.

EXEMPT ORGANIZATIONS

Announcement 2010–55, page 346.The IRS has revoked its determinations that the Buyer’s Fund,Inc., of Salt Lake City, UT; Unicorn Development Corporationof Saint Joseph, MI; Ameri-Home Foundation, Inc., of Lenexa,KS; Credit Counseling Bureau of San Diego County, San Diego,CA; Exegetical Institute, Inc., of Kingsland, GA; Family HomeFoundation, Inc., of Orem, UT; Home Downpayment Gift Foun-dation, Inc., of Washington, DC; and Xelan Foundation, Inc.,of Tampa, FL, qualify as organizations described in Sections501(c)(3) and 170(c)(2) of the Code.

Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

September 13, 2010 2010–37 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousExpanded Carryback of NetOperating Losses and Lossesfrom Operations

Notice 2010–58

This notice provides guidance relatedto § 13 of the Worker, Homeownership,and Business Assistance Act of 2009, Pub.L. No. 111–92, 123 Stat. 2984 (Novem-ber 6, 2009) (the WHBAA). Section 13of the WHBAA amends §§ 172(b)(1)(H)and 810(b) of the Internal Revenue Codeto allow taxpayers to elect to carry backan applicable net operating loss (NOL) fora period of 3, 4, or 5 years, or a lossfrom operations for 4 or 5 years, to offsettaxable income in those preceding taxableyears. This notice addresses certain issuesthat have arisen under § 172(b)(1)(H), asamended by the WHBAA. This notice ap-plies to losses from operations of a life in-surance company under § 810 in the samemanner as to NOLs under § 172.

BACKGROUND

In general

Section 172(a) allows a deduction equalto the aggregate of the NOL carryoversand carrybacks to the taxable year. Section172(b)(1)(A)(i) provides that an NOL forany taxable year generally must be carriedback to each of the 2 years preceding thetaxable year of the NOL. Section 172(b)(3)provides that any taxpayer entitled to a car-ryback period under § 172(b)(1) may makean irrevocable election to relinquish thecarryback period for an NOL for any tax-able year.

Section 56(a) provides certain adjust-ments that apply in computing alternativeminimum taxable income (AMTI), inlieu of the treatment applicable in com-puting the regular tax. Section 56(a)(4)provides that the alternative tax net op-erating loss (ATNOL) deduction shallapply in lieu of the NOL deduction al-lowed under § 172 in determining theamount of alternative minimum taxableincome. Section 56(d)(1) provides cer-tain adjustments and limitations used indetermining the ATNOL deduction forthe taxable year. Under § 56(d)(1)(A)(i),the ATNOL deduction generally cannot

exceed 90 percent of AMTI, determinedwithout regard to the ATNOL deductionand the deduction under § 199 (the 90percent limitation).

Section 810(b)(1)(A) provides that lifeinsurance companies may carry back a lossfrom operations for any taxable year toeach of the 3 years preceding the taxableyear of the loss. Section 810(b)(3) pro-vides that any taxpayer entitled to a carry-back period under § 810(b)(1) may makean irrevocable election to relinquish thecarryback period for a loss from operationsfor any taxable year.

American Recovery and Reinvestment Actof 2009

Section 1211 of the American Recoveryand Reinvestment Tax Act of 2009, Div.B of Pub. L. No. 111–5, 123 Stat. 115(February 17, 2009) (ARRA), amended§ 172(b)(1)(H) to allow an eligible smallbusiness (ESB) to elect to carry back a2008 applicable NOL for a period of 3,4, or 5 years (ARRA election). Unlikethe § 172(b)(1)(H) election under theWHBAA (WHBAA election), the ARRAelection is applicable only to an NOL at-tributable to an ESB. The ARRA electionis irrevocable and may be made for onlyone taxable year. Rev. Proc. 2009–26,2009–19 I.R.B. 935 (April 25, 2009),modifying and superseding Rev. Proc.2009–19, 2009–14 I.R.B. 747 (March 16,2009), advises taxpayers how to make theARRA election.

Worker, Homeowner, and BusinessAssistance Act of 2009

Section 172(b)(1)(H)(i), as amended bythe WHBAA, permits a taxpayer to electto carry back its applicable NOL to 3, 4, or5 years preceding the taxable year of theapplicable NOL. This election is not lim-ited to an ESB. Section 172(b)(1)(H)(ii)provides that the term “applicable net oper-ating loss” means the taxpayer’s NOL fora taxable year ending after December 31,2007, and beginning before January 1,2010. Section 172(b)(1)(H)(iii) providesthat the election under § 172(b)(1)(H) isrequired to be made in a manner prescribedby the Secretary, and must be made by thedue date (including extensions) for filing

the return for the taxpayer’s last taxableyear beginning in 2009. The electionis irrevocable and, in general, may bemade for only one taxable year. However,§ 172(b)(1)(H)(v) allows a taxpayer thatmade or makes an ARRA election also tomake a WHBAA election.

Section 172(b)(1)(H)(iv) limits theamount of an applicable NOL that a tax-payer elects under § 172(b)(1)(H)(i) tocarry back to the 5th taxable year precedingthe taxable year of the loss (5th precedingtaxable year) to 50 percent of the tax-payer’s taxable income for the 5th preced-ing taxable year. The taxable income forthe 5th preceding taxable year is computedwithout regard to the NOL for the loss yearor any taxable year thereafter. The excessof the amount of the loss over 50 percentof the taxable income, as determined under§ 172(b)(2), for the 5th preceding taxableyear is carried to later taxable years. Forthe carryback of an ATNOL to the 5th

preceding taxable year, the 50 percentlimitation is applied separately based onthe AMTI. The limitation on the amountof an applicable NOL that may be carriedback to the 5th preceding taxable year doesnot apply to an NOL carryback under theARRA election.

Section 13(b) of the WHBAA amends§ 56(d)(1)(A)(ii) to provide that the 90percent limitation does not apply to anATNOL deduction attributable to anapplicable NOL for which a taxpayermade an election under § 172(b)(1)(H).

Section 13(e)(4) of the WHBAA pro-vides that a taxpayer that has elected under§§ 172(b)(3) or 810(b)(3) to forgo a car-ryback for a loss for a taxable year end-ing before the date of enactment of theWHBAA (November 6, 2009) may revokethat election before the due date (includ-ing extensions) for filing the return for thetaxpayer’s last taxable year beginning in2009. An application under § 6411(a) forthe applicable NOL is treated as timely iffiled before that due date.

Section 13(f) of the WHBAA providesthat the election under § 172(b)(1)(H) isnot available to certain taxpayers that re-ceive benefits under the Emergency Eco-nomic Stabilization Act of 2008, Title I ofDiv. A of Pub. L. No. 110–343, 122 Stat.

2010–37 I.R.B. 326 September 13, 2010

3765, and certain affiliates of these taxpay-ers.

QUESTIONS AND ANSWERS

ARRA and WHBAA Elections

Q–1. A taxpayer makes a valid ARRAelection for an NOL for 2008. May the tax-payer revoke the ARRA election to makea WHBAA election for the 2008 NOL?

A–1. No. The ARRA election is irrev-ocable and a taxpayer may not change orrevoke the ARRA election made for 2008.

Q–2. A fiscal-year taxpayer has NOLsfor its taxable years beginning in 2007,2008, and 2009. The taxpayer makes avalid ARRA election for its taxable yearbeginning in 2007. May the taxpayer makea WHBAA election for its taxable yearbeginning in 2008 and another WHBAAelection for its taxable year beginning in2009?

A–2. No. Section 172(b)(1)(H)(v)(I)provides that, in the case of an ESB thatmade or makes an ARRA election, a§ 172(b)(1)(H) election may be made for 2taxable years. The ARRA election and theWHBAA election are both § 172(b)(1)(H)elections. Accordingly, the taxpayer mayonly make one ARRA election and oneWHBAA election. If the taxpayer makesan ARRA election for its taxable year be-ginning in 2007, the taxpayer may makea WHBAA election for either the taxableyear beginning in 2008 or the taxable yearbeginning in 2009, but not both.

Q–3. In the taxable year ending in2008, a taxpayer has an NOL that is partlyattributable to a business that is an ESBand partly attributable to a business thatis not an ESB (a non-ESB). The taxpayermakes a valid ARRA election for the por-tion of the NOL attributable to the ESB.May the taxpayer make a WHBAA elec-tion for the portion of the NOL that is at-tributable to the non-ESB?

A–3. Yes. The ARRA election is appli-cable only to the portion of the NOL that isattributable to an ESB. The taxpayer maymake a WHBAA election for the portionof the 2008 NOL that is attributable to thenon-ESB.

Q–4. Assume the same facts as inQ–3 and that the taxpayer makes a validWHBAA election for the portion of theNOL attributable to the non-ESB for thetaxable year ending in 2008. May the

taxpayer make a second WHBAA electionfor another taxable year?

A–4. No. The taxpayer may not makea second WHBAA election because thetaxpayer may make only one election un-der the ARRA and one election under theWHBAA.

Q–5. In the taxable year ending in2008, a taxpayer has an NOL that is partlyattributable to an ESB and partly attribut-able to a non-ESB. For this taxable yearthe taxpayer makes a valid ARRA elec-tion for the portion of the NOL attribut-able to the ESB and elects a 5-year car-ryback for this NOL. The taxpayer carriesback the portion of the NOL attributableto the non-ESB 2 years. After the enact-ment of the WHBAA, the taxpayer makesa valid WHBAA election for the portion ofthe NOL attributable to the non-ESB andelects a 5-year carryback for this NOL. Indetermining the NOL deduction for the 5th

preceding taxable year, how does the 50percent of taxable income limitation ap-ply?

A–5. The taxpayer computes taxableincome for the 5th preceding taxable yearwithout deducting the portion of the 2008NOL for which the taxpayer previouslymade the ARRA election and without de-ducting the portion of the 2008 NOL forwhich the taxpayer is making an electionunder the WHBAA.

Q–6. If a taxpayer previously made anARRA election, must the taxpayer con-tinue to qualify as an ESB in the yearof the WHBAA NOL in order to make aWHBAA election?

A–6. No. A taxpayer must qualify as anESB only for the taxable year of the ARRAelection.

Q–7. A taxpayer makes an ARRAelection for an NOL for 2008. However,the Internal Revenue Service rejects theelection because the NOL is attributableto a non-ESB. May the taxpayer make aWHBAA election for the 2008 NOL?

A–7. Yes. Because a non-ESB maymake a WHBAA election, the taxpayermay make a WHBAA election for the 2008NOL, provided it is timely filed.

Alternative Tax Net Operating LossDeduction

Q–8. A calendar-year taxpayer makesan ARRA election for the taxpayer’s NOLin 2008 and a WHBAA election for the

taxpayer’s NOL in 2009. Does the 90 per-cent limitation on the use of the ATNOLdeduction apply for either the 2008 NOLor the 2009 NOL?

A–8. No. Under § 56(d)(1)(A)(ii)(I),the 90 percent limitation does not apply tothe 2008 ATNOL for which the taxpayermakes an ARRA election or to the 2009ATNOL for which the taxpayer makes aWHBAA election. The 90 percent limita-tion does not apply to any extended carry-back election under § 172(b)(1)(H). There-fore, even if the taxpayer makes only theARRA election for 2008, the 90 percentlimitation does not apply.

Q–9. A taxpayer has an applicableNOL resulting from losses in certain in-vestment arrangements that took the formof “Ponzi” schemes and qualify as theftlosses. Section 172(b)(1)(F)(ii)(I) pro-vides a 3-year carryback period for NOLsresulting from theft losses. May the tax-payer make the WHBAA election to carryback its applicable NOL to the 3rd pre-ceding taxable year for the purpose of notbeing subject to the 90 percent limitationon deducting the ATNOL from the year ofthe theft loss?

A–9. Yes.Q–10. A taxpayer incorporates in 2006

and adopts a calendar taxable year. Thetaxpayer has an NOL in 2008. May thetaxpayer make the WHBAA election andelect to carry back its 2008 NOL to the 3rd

preceding taxable year for the purpose ofnot being subject to the 90 percent limita-tion on deducting the ATNOL from 2008?

A–10. No. The taxpayer cannot make aWHBAA election because it does not havea 3rd, 4th, or 5th preceding taxable year towhich to carry back its NOL.

Q–11. A taxpayer incorporates in 2006and adopts a calendar taxable year. Thetaxpayer has NOLs in 2006, 2007, 2008,and 2009. May the taxpayer make theWHBAA election to carry back its 2009NOL to the 3rd preceding taxable yearfor the purpose of not being subject tothe 90 percent limitation on deducting theATNOL from 2009?

A–11. Yes. The taxpayer has a 3rd pre-ceding taxable year to which to carry backits 2009 NOL, even though each of the tax-able years preceding 2009 has a loss andnone of the NOL is used in those years.Any 2009 NOL that is unused in the tax-able years preceding 2009 also is not sub-

September 13, 2010 327 2010–37 I.R.B.

ject to the 90% limitation when applied totaxable years after 2009.

50 Percent Limitation

Q–12. In 2002, a taxpayer has an NOLof $100,000 that it carries over to 2003.The taxpayer has an NOL of $200,000 in2005 that it carries back to 2003. In 2008,the taxpayer has an NOL of $500,000 andmakes a WHBAA election to carry backits NOL 5 years to 2003. In 2003, the tax-payer has $400,000 taxable income beforeany NOL carryback or carryover. Howmuch of the 2008 NOL may the taxpayerdeduct in 2003?

A–12. The taxpayer’s 2003 taxableincome in the amount of $400,000 isfirst reduced by the $100,000 NOL car-ryover from 2002, and also reduced bythe $200,000 NOL carryback from 2005.Accordingly, the 50 percent limitation isapplied to the remaining $100,000 of tax-able income. The taxpayer may deduct$50,000 of its 2008 NOL in 2003. Thetaxpayer’s taxable income for 2003, afterdeducting the 2008 NOL, is $50,000.

Q–13. A taxpayer has an NOL in 2009of $100,000 and makes a WHBAA elec-tion to carry it back 5 years to 2004. In2004, the taxpayer has taxable income of$50,000 before the NOL carryback. Thetaxpayer has no NOLs from taxable yearsbefore 2009 that it may carry to 2004.Because the taxpayer is electing to carryback its NOL to the 5th preceding tax-able year, the taxpayer may deduct only$25,000 (50 percent of $50,000) of the2009 NOL in 2004. The portion of thetaxpayer’s 2009 NOL that may be carriedto 2005 and thereafter must be determinedin accordance with § 172(b)(2). Section172(b)(2) provides that the portion of anNOL carried to a taxable year is the ex-cess of the NOL (if any) over the sum ofthe taxable income for prior taxable yearsto which the NOL may be carried. Forthis purpose, taxable income for prior tax-able years is computed with certain modi-fications. If the taxpayer’s taxable incomefor 2004, as determined with the modifica-tions required under § 172(b)(2) (modifiedtaxable income), is $60,000, how much ofthe taxpayer’s 2009 NOL may be carriedto 2005?

A–13. Taxpayer’s 2009 NOL is ab-sorbed by 50 percent of the taxpayer’smodified taxable income for 2004, that

is, $30,000 (50 percent of $ 60,000). Thetaxpayer carries the unabsorbed portion ofthe 2009 NOL, $70,000, to 2005.

Other Issues

Q–14. Under § 301.9100–2(b) of theProcedure and Administration Regula-tions, a taxpayer that files a timely returnhas 6 months from the unextended duedate for filing its federal income tax re-turn for the last taxable year beginning in2009 to make a WHBAA election on anamended return. Does a taxpayer that filesa timely return similarly have 6 monthsfrom the unextended due date for filingits federal income tax return for the lasttaxable year beginning in 2009 to file aForm 1045 or 1139 to carry back an appli-cable NOL for which a taxpayer makes aWHBAA election?

A–14. Yes, whether a taxpayer makesa WHBAA election on an original oramended return or on a Form 1045 or1139, the taxpayer has until 6 monthsfrom the unextended due date for filingits federal income tax return for the lasttaxable year beginning in 2009 to makethe election.

Q–15. A calendar year C corporationis dissolved in June 2008. The taxpayerfiles the final tax return for the short tax-able year by the due date, September 15,2008, without an extension. The corpora-tion files a Form 1139 in March 2009 tocarry back its 2008 NOL to 2006. Maythe corporation file an amended Form 1139to make a WHBAA election for the 2008NOL, and if so, by when?

A–15. The corporation may amend itsForm 1139 to make a WHBAA electionfor the 2008 NOL. The due date to makea WHBAA election and file an applica-tion for tentative refund is determined as ifthe corporation remained in existence andon a calendar taxable year for all of 2008and 2009. Accordingly, the due date forthe corporation to make a WHBAA elec-tion by filing an amended Form 1139 isSeptember 15, 2010. The same due dateapplies if the corporation dissolves in 2009instead of 2008.

Q–16. A taxpayer has an NOL in2008 and elects to waive the carrybackperiod under § 172(b)(3). May the tax-payer revoke its § 172(b)(3) election under§ 13(e)(4)(A) of the WHBAA without

making a WHBAA election for the 2008NOL?

A–16. No. The taxpayer may revokeits § 172(b)(3) election for 2008 only if thetaxpayer is making a WHBAA election forits 2008 NOL.

Q–17. If, before the enactment of theWHBAA, a taxpayer makes an electionunder § 168(k)(4) not to claim the addi-tional first year depreciation for a taxableyear ending after 2007 and beginning be-fore 2010, may the taxpayer revoke thiselection to make a WHBAA election foran NOL in that taxable year?

A–17. A taxpayer may revoke the elec-tion not to claim the additional first yeardepreciation if the Service authorizes therevocation in a private letter ruling. See§1.168(k)–1(e)(7)(i). However, the Ser-vice generally will not issue a private let-ter ruling allowing the taxpayer to revokean election not to claim the additional firstyear depreciation if the taxpayer is usinghindsight to create or increase an NOL inthat taxable year that is more beneficial tothe taxpayer.

Q–18. A calendar year taxpayer has anNOL in 2008. After December 31, 2009,but before the due date of the taxpayer’s2009 return, the taxpayer files a Form 1045to carry back its 2008 NOL to 2006. Is thetaxpayer’s Form 1045 timely?

A–18. No. The taxpayer’s Form 1045does not constitute a WHBAA election forthe 2008 NOL because it is not an electionto carry back the 2008 NOL for a periodof 3, 4, or 5 years. If the taxpayer doesnot make a WHBAA election for the 2008NOL, the Form 1045 must be filed within12 months following the end of the lossyear.

Q–19. A farming loss generally is car-ried back to each of the 5 taxable years pre-ceding the taxable year of the loss under§ 172(b)(1)(G). May a taxpayer make theWHBAA election for an applicable NOLattributable to the farming loss and carryback the NOL for a period of 3, 4, or 5years?

A–19. Yes. However, the taxpayermust timely waive its 5-year carryback pe-riod for the NOL under § 172(i)(3) in orderto make a WHBAA election to carry backthe NOL for a period of 3 or 4 years. Thetaxpayer does not need to waive the 5-yearcarryback period under § 172(b)(1)(G) toelect a 5-year carryback period under theWHBAA.

2010–37 I.R.B. 328 September 13, 2010

Q–20. If a corporate taxpayer makesthe WHBAA election and merges into an-other corporation in a later taxable year, isthe acquiring corporation that has not pre-viously made a WHBAA election allowedto make the WHBAA election for a tax-able year of the acquiring corporation end-ing after December 31, 2007, and begin-ning before January 1, 2010?

A–20. Yes.

DRAFTING INFORMATION

The principal authors of this notice areSeoyeon Park and Forest Boone of theOffice of Associate Chief Counsel (In-come Tax and Accounting). For furtherinformation regarding this notice, contactMs. Park or Mr. Boone at 202–622–4960(not a toll-free call).

Notice and Request forComments RegardingImplementation of InformationReporting and WithholdingUnder Chapter 4 of the Code

Notice 2010–60

PURPOSE

On March 18, 2010, the Hiring Incen-tives to Restore Employment Act of 2010,Pub. L. 111–147 (H.R. 2847) (the Act)was enacted into law. Section 501(a) ofthe Act added a new chapter 4 (sections1471 — 1474) to Subtitle A of the Inter-nal Revenue Code (Code). Chapter 4 ex-pands the information reporting require-ments imposed on foreign financial insti-tutions as defined in section 1471(d)(4)(FFIs) with respect to certain United Statesaccounts as defined in section 1471(d)(1)(U.S. accounts). Chapter 4 also imposeswithholding, documentation, and report-ing requirements with respect to certainpayments made to certain foreign entities.

Under section 501(d)(1) of the Act,chapter 4 is generally effective for pay-ments made after December 31, 2012. TheDepartment of the Treasury (Treasury)and the Internal Revenue Service (IRS)intend to issue guidance in advance of theeffective date of chapter 4 to ensure thataffected persons have time to implementthe systems and processes necessary tocomply fully with the new withholding,

documentation, and reporting obligationsimposed by chapter 4. Consistent withthis intent, this notice provides prelimi-nary guidance regarding priority issuesinvolving the implementation of chapter 4,including the scope of obligations exemptfrom chapter 4 withholding under section501(d)(2) of the Act, the definition of anFFI under section 1471(d)(4), the scopeof collection of information and identifi-cation of persons by financial institutionsunder sections 1471 and 1472, and the in-formation that FFIs must report to the IRSpursuant to an agreement under section1471(b) (FFI Agreement) with respect totheir U.S. accounts. In addition, this no-tice announces the IRS’s intentions withrespect to the electronic filing of returnsfor purposes of implementing section6011(e)(4) as added by section 522 of theAct.

Treasury and the IRS intend to is-sue proposed regulations incorporatingthe guidance provided in this notice andaddressing other matters necessary to im-plement chapter 4. In future guidance,Treasury and the IRS intend to publisha draft FFI Agreement and draft infor-mation reporting and certification forms.Treasury and the IRS request commentson the issues addressed in this notice andthe priority of other issues that should beaddressed in future guidance.

Section I. Grandfathered Obligations

Section 501(d)(2) of the Act providesthat chapter 4 shall not require any amountto be deducted or withheld from any pay-ment under any obligation outstanding onMarch 18, 2012, or from the gross pro-ceeds from any disposition of such an obli-gation. Thus, any payment made pursuantto any obligation outstanding on March 18,2012 (or any gross proceeds from the dis-position of such an obligation) will not besubject to withholding under chapter 4.

Treasury and the IRS intend to issueregulations providing that the term “obli-gation” for purposes of section 501(d)(2)of the Act means any legal agreement thatproduces or could produce withholdablepayments. Regulations will provide, how-ever, that an obligation for this purposedoes not include any instrument treated asequity for U.S. tax purposes, or any le-gal agreement that lacks a definitive ex-piration or term. Thus, for example, sav-

ings deposits, demand deposits, and othersimilar accounts are not obligations forpurposes of section 501(d)(2) of the Act.For this purpose, a legal agreement thatproduces withholdable payments does notinclude brokerage, custodial and similaragreements to hold financial assets for theaccount of others and to make and receivepayments of income and other amountswith respect to such assets.

Treasury and the IRS also intend toissue regulations providing that an obli-gation entered into on or before March18, 2012 will be treated as outstanding onMarch 18, 2012 and that any material mod-ification of an obligation will result in theobligation being treated as newly issuedfor purposes of section 501(d)(2) of theAct as of the effective date of such mod-ification. In the case of an obligation thatconstitutes indebtedness for U.S. tax pur-poses, a material modification means anysignificant modification of the debt instru-ment as defined in § 1.1001–3. In all othercases, whether a modification of an obli-gation is material will be determined basedon all relevant facts and circumstances.

Section II. FFIs and NFFEs

Section 1471(a) requires a withholdingagent to deduct and withhold a tax equal to30 percent of the amount of any withhold-able payment to an FFI that does not meetthe requirements of section 1471(b). Tomeet the requirements of section 1471(b),an FFI is generally required to enter into anFFI Agreement, under which the FFI (par-ticipating FFI) agrees to undertake certaindue diligence, reporting, and withholdingresponsibilities.

Under section 1471(d)(4), an FFI is de-fined as any financial institution which is aforeign entity. A foreign entity is any en-tity that is not a United States person. Sec-tion 1473(5). A “financial institution” isdefined under section 1471(d)(5) as an en-tity that falls within one (or more) of threecategories. Although many entities maybe within two or more of these three cate-gories, an entity need only satisfy the def-inition of one of the three categories to bea financial institution for purposes of sec-tion 1471.

Section 1471(d)(5) provides regulatoryauthority to modify the definition of finan-cial institution. Significantly, a foreign en-tity that is excluded from the definition of a

September 13, 2010 329 2010–37 I.R.B.

financial institution is a non-financial for-eign entity, as defined in section 1472(d)(NFFE), and is subject to the documenta-tion and reporting requirements applicableto NFFEs unless an exception applies.

Pursuant to section 1471(b)(2), the Sec-retary may treat an FFI as meeting the re-quirements of section 1471(b) (a deemed-compliant FFI) if the FFI: (i) complies withsuch procedures as the Secretary may pre-scribe to ensure that such institution doesnot maintain U.S. accounts and meets suchother requirements as the Secretary mayprescribe with respect to accounts of otherFFIs maintained by such institution; or (ii)is a member of a class of institutions withrespect to which the Secretary determinesthat application of section 1471 is not nec-essary to carry out the purposes of section1471. Because such a deemed-compliantFFI would remain a financial institutionunder section 1471(d)(5), it would not bean NFFE, and therefore would not be sub-ject to withholding under section 1472.

Section 1471(f) provides that withhold-ing under section 1471(a) does not applyto any payment to the extent that the ben-eficial owner of such payment is (1) anyforeign government, any political subdi-vision of a foreign government, or anywholly owned agency or instrumentality ofany one or more of the foregoing, (2) anyinternational organization or any whollyowned agency or instrumentality thereof,(3) any foreign central bank of issue, or (4)any other class of persons identified by theSecretary for purposes of this subsection asposing a low risk of tax evasion. Withhold-able payments that are beneficially ownedby an entity described in section 1471(f)are exempt from withholding under sec-tion 1471(a), whether received directly orthrough an FFI.

This section discusses the definitionof “financial institution” for purposes ofchapter 4. This section also identifiescertain classes of foreign entities that willbe (i) excluded from the definition of afinancial institution and treated as NFFEs,(ii) treated as deemed-compliant FFIs, or(iii) identified as posing a low risk of taxevasion and exempted from withholdingpursuant to section 1471(f).

A. Section 1471(d)(5): Definition of“Financial Institution”

Section 1471(d)(5) provides that, ex-cept as otherwise provided by the Secre-tary, the term “financial institution” meansany entity that (A) accepts deposits in theordinary course of a banking or similarbusiness, (B) holds financial assets for theaccount of others as a substantial portionof its business, or (C) is engaged (or hold-ing itself out as being engaged) primarilyin the business of investing, reinvesting, ortrading in securities (as defined in section475(c)(2) without regard to the last sen-tence thereof), partnership interests, com-modities (as defined in section 475(e)(2)),or any interest (including a futures or for-ward contract or option) in such securi-ties, partnership interests, or commodities.As described in the following subsections,Treasury and the IRS intend to issue regu-lations providing guidance on each of thethree categories of financial institutions setforth in section 1471(d)(5).

1. Financial Institutions Under Section1471(d)(5)(A)

The first category of financial institu-tions described in section 1471(d)(5) areentities that accept deposits in the ordi-nary course of a banking or similar busi-ness. Such entities generally include, butare not limited to, entities that would qual-ify as banks under section 585(a)(2) (in-cluding banks as defined in section 581and any corporation to which section 581would apply except for the fact that it is aforeign corporation), savings banks, com-mercial banks, savings and loan associa-tions, thrifts, credit unions, building so-cieties and other cooperative banking in-stitutions. The fact that an entity is sub-ject to the banking and credit laws of theUnited States, a State, a political subdi-vision thereof, or a foreign country, or tosupervision and examination by agencieshaving regulatory oversight of banking orsimilar institutions, is relevant to but notnecessarily determinative of whether thatentity qualifies as a financial institutionunder section 1471(d)(5)(A).

2. Financial Institutions Under Section1471(d)(5)(B)

The second category of financial insti-tutions described in section 1471(d)(5) are

entities that as a substantial portion of theirbusiness, hold financial assets for the ac-count of others. Such entities may include,for example, broker-dealers, clearing or-ganizations, trust companies, custodialbanks, and entities acting as custodianswith respect to the assets of employee ben-efit plans. As in the case of deposit-takinginstitutions under section 1471(d)(5)(A),the fact that an entity is subject to thebanking and credit laws or broker-dealerregulations of the United States, a State, apolitical subdivision thereof, or a foreigncountry, or to supervision and examinationby agencies having regulatory oversight ofbanking or similar institutions, is relevantto but not necessarily determinative ofwhether that entity qualifies as a financialinstitution under section 1471(d)(5)(B).

3. Financial Institutions Under Section1471(d)(5)(C)

The third category of financial institu-tions described in section 1471(d)(5) areentities that are engaged (or hold them-selves out as being engaged) primarilyin the business of investing, reinvest-ing, or trading in securities (as definedin section 475(c)(2) without regard to thelast sentence thereof), partnership inter-ests, commodities (as defined in section475(e)(2)), or any interest (including afutures or forward contract or option)in such securities, partnership interests,or commodities. Thus, this third cate-gory of financial institutions generallyincludes, but is not limited to, mutualfunds (or their foreign equivalent), fundsof funds (and other similar investments),exchange-traded funds, hedge funds, pri-vate equity and venture capital funds,other managed funds, commodity pools,and other investment vehicles.

Although the statute refers to the “busi-ness” of investing, reinvesting, or trading,the concept of “business” as used in sec-tion 1471(d)(5)(C) is different in scope andcontent from the concept of a “trade orbusiness” as used in other sections of theCode. For example, isolated transactionsthat might not give rise to a trade or busi-ness for other purposes may cause an entityto be engaged primarily in the business ofinvesting, reinvesting, or trading in securi-ties, depending on such factors as the mag-nitude and importance of the transaction incomparison to the entity’s other activities.

2010–37 I.R.B. 330 September 13, 2010

Treasury and the IRS anticipate thatregulations will provide that whether anentity is engaged primarily in the businessof investing, reinvesting, or trading in se-curities must be determined on the basis ofall relevant facts and circumstances. Al-though the analysis is ultimately fact-spe-cific, Treasury and the IRS contemplatethat future guidance will provide guide-lines for determining what types of activ-ity, carried on in whole or in part, consti-tutes the business of investing, reinvesting,or trading, and when an entity is primarilyengaged in such a business.

B. Entities Excluded from Definition ofFinancial Institution and/or OtherwiseExempt from Some or All of theObligations Imposed by Chapter 4

Treasury and the IRS intend to issueguidance identifying certain classes of en-tities that are included in or excluded fromthe definitions of the terms “financial insti-tution” and FFI, and describing the result-ing treatment of such entities under chapter4.

This section identifies entities thatTreasury and the IRS intend to excludefrom the definition of FFI and exemptfrom the requirements of section 1472. Inaddition, this section describes the treat-ment of certain specific classes of entities,including insurance companies, entitieswith certain identified owners, and entitiesorganized in a U.S. possession or territoryidentified in section 937(a)(1) (U.S. terri-tory).

1. Entities That Will Be Exempt FromWithholding Under Sections 1471 and1472

Treasury and the IRS intend to issueregulations providing that in general, a for-eign entity that otherwise satisfies the def-inition of a financial institution solely be-cause it is primarily engaged in investing,reinvesting or trading in securities will notbe treated as a financial institution if itfalls within one of the classes of foreignentities described in this subsection. Be-cause these entities are excluded from be-ing FFIs, they will be NFFEs. Treasuryand the IRS, however, also intend to issueguidance pursuant to section 1472(c)(1)exempting payments beneficially ownedby these entities from withholding undersection 1472(a).

• Certain holding companies: A foreignentity the primary purpose of whichis to act as a holding company for asubsidiary or group of subsidiaries thatprimarily engage in a trade or busi-ness other than that of a “financialinstitution,” as defined under section1471(d)(5) (an FI business), will be ex-cluded from the definition of financialinstitution. Such holding companieswould include, for example, a tradi-tional holding company of a groupof operating subsidiaries engaged pri-marily in a non-FI business. This classof excepted entities will not, however,include any entity functioning as an in-vestment fund, such as a private equityfund, venture capital fund, leveragedbuyout fund or any investment vehiclewhose purpose is to acquire or fundthe start-up of companies and thenhold those companies for investmentpurposes for a limited period of time.

• Start-up companies: A foreign start-upentity that is investing capital into as-sets with the intent to operate a busi-ness other than that of a financial in-stitution, but is not yet operating sucha business, will be excluded from thedefinition of financial institution forthe first 24 months after its organiza-tion. After such time, a foreign entitywill no longer qualify for this particu-lar exclusion from the definition of anFFI. For this purpose, the class of ex-cepted foreign start-up entities will notinclude a venture fund or other invest-ment fund that invests in start-up enti-ties.

• Non-financial entities that are liqui-dating or emerging from reorganiza-tion or bankruptcy: A foreign entitythat is in the process of liquidating itsassets or reorganizing with the intent tocontinue or recommence operations asa non-financial institution may be ex-cluded from the definition of financialinstitution if it was not a financial in-stitution before beginning the processof such liquidation or reorganization.

• Hedging/financing centers of a non-fi-nancial group: A foreign entity thatprimarily engages in financing andhedging transactions with or for mem-bers of its expanded affiliated group(as defined in section 1471(e)(2)) thatare not FFIs and that does not providesuch services to non-affiliates may

be excluded from the definition of fi-nancial institution, provided that theexpanded affiliated group is primarilyengaged in a non-FI business.

Treasury and the IRS request commentsas to how the classes of entities discussedabove may be more specifically defined inregulations, what mechanisms withhold-ing agents could use to properly identifysuch entities (including self-certification,as appropriate) and whether other classesof entities should be similarly excluded.

2. Insurance Companies

The definition of “financial institution”in section 1471(d)(5) is broad enough toencompass certain insurance companies.The statute grants the Secretary regulatoryauthority to exclude or include insurancecompanies and certain products sold by in-surance companies within the definitionsof “financial institution” and “financial ac-count.”

Treasury and the IRS do not view theissuance of insurance or reinsurance con-tracts without cash value as implicatingthe concerns of chapter 4. This would in-clude, for example, most property and ca-sualty insurance or reinsurance contractsor term life insurance contracts. Accord-ingly, Treasury and the IRS plan to issueregulations treating entities whose busi-ness consists solely of issuing such con-tracts as non-financial institutions for pur-poses of chapter 4.

However, other contracts such as lifeinsurance (other than term life insurancecontracts without cash value) or annu-ity contracts typically combine insuranceprotection with an investment component.Thus, such cash value insurance contractsor annuity contracts may present the risk ofU.S. tax evasion that chapter 4 is designedto prevent. Treasury and the IRS requestcomments with respect to the appropriatetreatment under chapter 4 of entities thatissue cash value insurance contracts, annu-ity contracts, or similar arrangements, andwith respect to the appropriate definitionof cash value insurance contracts, annuitycontracts and similar arrangements for thispurpose.

3. Entities with Certain Identified Owners

The definition of FFI under section1471(d)(5)(C) includes investment funds

September 13, 2010 331 2010–37 I.R.B.

and other entities that may have only asmall number of direct or indirect accountholders, all of whom are individuals orNFFEs that will not be subject to with-holding or reporting under sections 1471or 1472 or future regulations thereunder(excepted NFFEs). An example of suchan entity may be a small family trust set-tled and funded by a single person for thesole benefit of his or her children. Forsuch entities, the administrative burden ofentering into an FFI Agreement and com-plying with the reporting requirementsthereunder may be disproportionate to theamount of U.S. investments giving rise towithholdable payments or passthru pay-ments beneficially owned by such entity.

Treasury and the IRS intend to issueguidance under which certain foreign en-tities that are FFIs described in section1471(d)(5)(C), but are not described insection 1471(d)(5)(A) or (B), would betreated as deemed-compliant FFIs if thewithholding agent (i) specifically identi-fies each individual, specified U.S. person,or excepted NFFE that has an interestin such entity, either directly or throughownership in one or more other entities,(ii) obtains from each such person thedocumentation that the withholding agentwould be required to obtain from suchperson under the guidance described inSection III of this Notice if such personwere a new account holder or direct payeeof the withholding agent, and (iii) thewithholding agent reports to the IRS, insuch manner as will be provided in fu-ture guidance, any specified United Statesperson identified as a direct or indirectinterest holder in the entity (DocumentedFFIs). See Section III of this Notice forfurther details about the general documen-tation requirements applicable to financialinstitutions with respect to their accountholders.

Treasury and the IRS request commentsas to whether certain small FFIs should berequired, for purposes of applying chap-ter 4, to be treated as NFFEs, regardlessof whether withholding agents currentlydetermine the direct and indirect ownersof such entities for purposes of complyingwith local law or regulatory obligations.

4. Financial Institutions Organized inU.S. Territories

Although entities organized in a U.S.territory generally are treated as foreignfor purposes of the Code, under section1471(d)(4), except as otherwise providedby the Secretary, an FFI does not includea financial institution organized under thelaws of a U.S. territory (Territory-Orga-nized FI). Territory-Organized FIs are,however, withholding agents under chap-ter 4. Section 1473(4). Treasury and theIRS intend to coordinate with the territorialgovernments in the course of providingguidance regarding the treatment of Terri-tory-Organized FIs. In general, Treasuryand the IRS do not intend to treat Ter-ritory-Organized FIs as FFIs. However,Treasury and the IRS believe that addi-tional guidance is necessary to addressthe chapter 4 withholding obligations ofTerritory-Organized FIs and to addresspotential compliance concerns.

Because Territory-Organized FIs arewithholding agents under chapter 4, theyare required to withhold under sections1471 and 1472 if the withholding has notpreviously been satisfied by another with-holding agent. However, sections 1471and 1472 do not specify how withholdingapplies to withholdable payments madeto FFIs and NFFEs through Territory-Or-ganized FIs acting as intermediaries.Accordingly, it is unclear under sections1471 and 1472 whether a U.S. withhold-ing agent making withholdable paymentsto an FFI or NFFE through a Territory-Or-ganized FI acting in its capacity as anintermediary should apply withholdingunless the Territory-Organized FI col-lected documentation establishing thatwithholding did not apply and providedthat documentation to the U.S. withhold-ing agent. For chapter 3 purposes, thissituation is addressed by permitting cer-tain Territory-Organized FIs to assume thewithholding and reporting responsibilitiesapplicable to United States persons asdefined in section 7701(a)(30) (U.S. per-sons). See § 1.1441–1(b)(2)(iv). Sections1471 and 1472, however, do not expresslymake this treatment available to Terri-tory-Organized FIs for chapter 4 purposes.

To help relieve the burden on Terri-tory-Organized FIs receiving withholdablepayments on behalf of account holders,Treasury and the IRS intend to issue guid-

ance under which a Territory-Organized FIthat receives withholdable payments in itscapacity as an intermediary would be per-mitted to represent in writing to its with-holding agent that with respect to the pay-ment it is assuming the responsibilities im-posed on U.S. withholding agents undersections 1471 and 1472. A Territory-Or-ganized FI assuming such responsibilitieswould not be subject to withholding undersection 1471 or 1472 with respect to suchpayments.

In addition, Treasury and the IRS areconsidering issuing guidance providingthat a Territory-Organized FI that is de-scribed in section 1471(d)(5)(C) (and notin section 1471(d)(5)(A) or (B)) wouldnot be treated as a financial institution,and instead would be treated as an NFFEwith respect to withholdable paymentsor passthru payments that it receives forits own account. In that case, the Ter-ritory-Organized FI may qualify for anexception to section 1472 if the entity isorganized under the laws of a U.S. terri-tory and is wholly owned by one or morebona fide residents (as defined in section937(a)) of such U.S. territory. Section1472(c)(1)(C).

In addition, Treasury and the IRS intendto engage in discussions with the territo-rial governments for the purpose of explor-ing how the existing territorial informationreporting regimes might be used to sup-plement the obligations of Territory-Orga-nized FIs, such as by implementing infor-mation exchange or similar agreements toobtain information that is useful for iden-tifying account holders of Territory-Orga-nized FIs that are specified United Statespersons (specified U.S. persons), as de-fined in section 1473(3).

C. Classes of Persons Posing a Low Riskof Tax Evasion Under Section 1471(f)(4)— Retirement Plans

Pursuant to section 1471(f), withhold-ing under section 1471(a) does not applyto any payment to the extent that the ben-eficial owner of such payment is part of aclass of persons identified by the Secretaryfor purposes of section 1471(f) as posing alow risk of tax evasion. Although a retire-ment plan may qualify as a financial insti-tution under section 1471(d)(5), Treasuryand the IRS intend to issue guidance pro-viding that certain foreign retirement plans

2010–37 I.R.B. 332 September 13, 2010

pose a low risk of tax evasion for chapter 4purposes, and therefore payments benefi-cially owned by such retirement plans willbe exempt from withholding under section1471(a).

Treasury and the IRS anticipate that aforeign retirement plan will be identifiedas posing a low risk of tax evasion only ifthe retirement plan (i) qualifies as a retire-ment plan under the law of the country inwhich it is established, (ii) is sponsored bya foreign employer, and (iii) does not al-low U.S. participants or beneficiaries otherthan employees that worked for the for-eign employer in the country in which suchretirement plan is established during theperiod in which benefits accrued. Com-ments are requested on the definition ofa retirement plan for this purpose, and onhow such a plan could appropriately iden-tify or document itself to a withholdingagent to verify its compliance with anysuch definitional requirements. In addi-tion, comments are requested as to whetherother categories of foreign employee ben-efit or deferred compensation plans shouldbe subject to the same treatment as foreignretirement plans for chapter 4 purposes.

D. Treatment of Certain Other Classes ofEntities

1. U.S. Branches of FFIs

Section 1471 does not provide an ex-ception to the definition of an FFI in thecase of a foreign entity that has a U.S.branch. Section 1473(1)(B), however,does exclude from the definition of awithholdable payment income taken intoaccount under section 871(b)(1) or section882(a)(1) (the ECI exclusion). The ECIexclusion would relieve an FFI from beingsubjected to withholding under section1471(a) with respect to income it takes intoaccount under section 871(b)(1) or section882(a). The ECI exclusion does not, how-ever, cover all payments that may be madeto an FFI’s U.S. branch. For example, theECI exclusion is generally inapplicable towithholdable payments that a U.S. branchof an FFI receives on behalf of its accountholders, rather than for its own account.The ECI exclusion is also inapplicable towithholdable payments that a U.S. branchof an FFI is paid for its own account andthat are not taken into account under sec-tion 871(b)(1) or section 882(a).

Treasury and the IRS do not intend toexempt an FFI from the requirement toenter into an FFI Agreement, even if theFFI receives withholdable payments solelythrough its U.S. branch. Thus, where aU.S. branch of an FFI receives withhold-able payments that are not eligible for theECI exclusion, the FFI generally will berequired to execute an FFI Agreement toavoid being subjected to withholding un-der section 1471(a).

When a U.S. branch of an FFI receivesa withholdable payment as an intermedi-ary, however, Treasury and the IRS areconsidering permitting the U.S. branch todocument its account holders for chap-ter 4 withholding purposes under the re-quirements to be imposed on USFIs. SeeSection III of this notice for guidance onthe documentation requirements to be im-posed on USFIs. Treasury and the IRS an-ticipate that regulations will include rulescoordinating the reporting required of FFIswith U.S. branches under chapter 4 withother U.S. tax reporting obligations, so asto avoid duplicative reporting with respectto accounts maintained by the U.S. branchof the FFI.

Treasury and IRS also intend to issueregulations regarding the application ofthe ECI exclusion by withholding agentsmaking payments to U.S. branches ofFFIs. Treasury and IRS do not intendthat those regulations will incorporatethe type of special presumption includedfor chapter 3 withholding purposes in§ 1.1441–4(a)(2)(ii) for payments made tocertain U.S. branches of regulated banksand insurance companies. Comments arerequested as to other possible rules ormethods that withholding agents could useto determine the application of the ECIexclusion.

2. Controlled Foreign Corporations

A controlled foreign corporation (asdefined under section 957(a)) (CFC) thatqualifies as a financial institution undersection 1471(d)(5) is an FFI under section1471(d)(4). Treasury and the IRS havereceived comments requesting that CFCsbe treated as deemed-compliant FFIs un-der section 1471(b)(2) because CFCsalready are subject to various informationreporting requirements discussed below.Treasury and the IRS believe that it wouldnot be appropriate to treat financial insti-

tution CFCs as deemed-compliant FFIsunder section 1471(b)(2) (and exemptfrom the requirement to enter into an FFIAgreement) because the documentationand reporting requirements to which CFCsare currently subject are less stringent thanthose that apply to FFIs. Accordingly,such treatment could create a significantrisk of tax evasion, and thus would beinconsistent with the objectives of chapter4.

Although CFCs are U.S. payors as de-fined in § 1.6049–5(c)(5)(i) and are there-fore subject to the Form 1099 reportingrequirements applicable to such payors,these reporting obligations differ from theobligations imposed under section 1471(b)on FFIs in several respects. In particular,Form 1099 reporting obligations do not ap-ply with respect to two important classesof account holders whose accounts wouldbe subject to reporting or withholding obli-gations under section 1471. First, as U.S.payors, CFCs are not required to reporton certain payments to domestic corpora-tions, whereas FFIs are required to reportinformation on account holders that arespecified U.S. persons, which, pursuant tosection 1473(3), includes certain domes-tic corporations. Second, as U.S. payors,CFCs are not generally required to reporton the U.S. owners of foreign entities forwhich they maintain accounts, and the sec-tion 1472 requirements to identify and re-port certain U.S. owners of certain for-eign entities would apply only if a CFCmade a withholdable payment to an NFFE.In contrast, section 1471(c)(1)(A) requiresFFIs to report information with respect tosubstantial United States owners (substan-tial U.S. owners), as defined in section1473(2), of account holders that are UnitedStates owned foreign entities as definedin section 1471(d)(3) (U.S.-owned foreignentities). Such accounts are not limited tothose accounts to which an FFI has madewithholdable payments.

In addition to the disparities betweenthe information reporting obligationsdiscussed above, section 1471(b)(1)(F)requires FFIs to obtain waivers from ac-count holders when a section 1471(b)reporting obligation would otherwise beprohibited under foreign law (or, in theabsence of such a waiver, to close suchholders’ accounts). No comparable re-quirement would apply to FFIs that areCFCs if they were exempted from FFI

September 13, 2010 333 2010–37 I.R.B.

status. Accordingly, deeming CFCs to becompliant under section 1471(b)(2) wouldpotentially result in disparate treatmentof account holders of FFIs, depending onwhether they held accounts with FFIs thatare CFCs or other FFIs. Treasury and theIRS thus do not anticipate that financial in-stitution CFCs will be exempted from therequirements to be imposed on other FFIsunder section 1471(b). Treasury and theIRS do, however, anticipate coordinatingthe reporting required of financial institu-tion CFCs under chapter 4 with other U.S.tax reporting obligations, with the objec-tive of avoiding duplicative reporting.

E. Comments Requested

Treasury and the IRS request commentsconcerning the treatment under section1471 of the entities described above, aswell as the treatment of other foreignentities, including, for example, any for-eign charitable organizations that may fallwithin the definition of an FFI. In partic-ular, Treasury and the IRS request com-ments providing specific suggestions fordefining and identifying specific classes offoreign entities that should be: (i) excludedfrom the definition of FFI; (ii) deemed tomeet the requirements of section 1471(b)pursuant to section 1471(b)(2); or (iii)identified as posing a low risk of tax eva-sion pursuant to section 1471(f).

Section III. Collection of Information andIdentification of Persons by FinancialInstitutions Under Sections 1471 and1472

A. Overview

1. Statutory Framework

Section 1471 generally requires FFIs toenter into FFI Agreements to avoid with-holding under section 1471(a). An FFIAgreement provides that the participatingFFI agrees, among other requirements, to:(i) obtain such information regarding eachholder of each account maintained by theFFI as is necessary to determine which (ifany) of such accounts are U.S. accounts;(ii) comply with due diligence proceduresthe Secretary may require with respect tothe identification of U.S. accounts; and(iii) report certain information with respectto U.S. accounts maintained by the FFI.Section 1471(b) and (c).

U.S. accounts are financial accountswhich are held by one or more specifiedU.S. persons or U.S.-owned foreign enti-ties. Section 1471(d)(1)(A). A specifiedU.S. person is (except as otherwise pro-vided by the Secretary) any United Statesperson other than certain types of entitiesthat are expressly excluded under section1473(3). A U.S.-owned foreign entityis any foreign entity which has one ormore substantial U.S. owners. Section1471(d)(3). A substantial U.S. owner isgenerally defined in section 1473(2) toinclude a specified U.S. person whoseownership interests in an entity exceedcertain thresholds.

A participating FFI must also agree towithhold tax on certain payments madeto non-participating FFIs and recalcitrantaccount holders. Section 1471(b)(1)(D).Recalcitrant account holders are those ac-count holders that fail to comply with rea-sonable requests for information by a par-ticipating FFI in order for it to meet itsobligations under section 1471(b) and (c),or that fail to provide a waiver in any casein which any foreign law would (but forsuch waiver) prevent the reporting of anyinformation an FFI is required to reportunder section 1471(b) and (c). Section1471(d)(6).

Section 1472(a) generally requires awithholding agent to deduct and withhold30 percent of the gross amount of a with-holdable payment made to an NFFE andbeneficially owned by that NFFE or an-other NFFE, unless the beneficial owneris a member of an enumerated class ofentities described in section 1472(c)(1)(excepted NFFEs), the payment is withina class of payments described in section1472(c)(2), or certain documentation andreporting requirements are met. In ad-dition, under section 1472, withholdingagents are required to report certain in-formation regarding the substantial U.S.owners of NFFEs, other than exceptedNFFEs, that beneficially own withhold-able payments.

Excepted NFFEs include (A) any cor-poration the stock of which is regularlytraded on an established securities market,(B) any corporation which is a member ofthe same expanded affiliated group as acorporation the stock of which is regularlytraded on an established securities market,(C) any entity which is organized under thelaws of a U.S. territory and which is wholly

owned by one or more bona fide residents(as defined in section 937(a)) of such U.S.territory, (D) any foreign government, anypolitical subdivision of a foreign govern-ment, or any wholly owned agency or in-strumentality of any one or more of theforegoing, (E) any international organiza-tion or any wholly owned agency or instru-mentality thereof, (F) any foreign centralbank of issue, and (G) any other class ofpersons identified by the Secretary for pur-poses of section 1472(c).

2. Responsibilities of Participating FFIsand USFIs

To comply with the obligations im-posed by sections 1471 and 1472, partic-ipating FFIs will need to determine (1)whether their individual account holdersare to be treated as U.S. persons or otherpersons and (2) whether their accountholders that are entities are to be treatedas U.S. persons, FFIs, entities describedin section 1471(f), or NFFEs. Participat-ing FFIs will then need to determine: (1)whether entities that are U.S. persons areto be treated as specified U.S. personsor other U.S. persons; (2) whether FFIsare to be treated as participating FFIs,deemed-compliant FFIs, or non-partici-pating FFIs; and (3) whether NFFEs areto be treated as U.S.-owned foreign enti-ties. For this purpose, an NFFE will betreated as a U.S.-owned foreign entity tothe extent that it is determined to have sub-stantial U.S. owners. Any entity that is anexcepted NFFE will be excluded from thedefinition of a U.S.-owned foreign entity.

To comply with the obligations im-posed by sections 1471 and 1472, USFIswill need to make determinations similarto those required of participating FFIs.In particular, USFIs making withholdablepayments to entities will need to deter-mine whether to treat those entities asU.S. persons, FFIs, entities described insection 1471(f), or NFFEs. USFIs willthen need to determine: (1) whether FFIsare to be treated as participating FFIs,deemed-compliant FFIs, or non-partici-pating FFIs; and (2) whether NFFEs are tobe treated as excepted NFFEs or as otherNFFEs.

Subsections III.B. and III.C. of thisNotice describe the procedures to be ap-plied by participating FFIs and USFIs tomake the determinations required to com-

2010–37 I.R.B. 334 September 13, 2010

ply with the provisions of sections 1471and 1472. Subsection III.B. generallydiscusses the procedures to be applied byparticipating FFIs to make the requisitedeterminations described above for pur-poses of complying with both sections1471 and 1472. For this purpose, Sub-section III.B. distinguishes procedures formaking such determinations with regard toeach of the following four categories of ac-counts: (i) preexisting financial accountsheld by individuals (preexisting individualaccounts); (ii) new financial accounts heldby individuals (new individual accounts);(iii) preexisting financial accounts held bypersons other than individuals (preexistingentity accounts); and (iv) new financialaccounts held by persons other than indi-viduals (new entity accounts).

Subsection III.C. generally discussesthe procedures to be applied by USFIsto make the requisite determinations forUSFIs to comply with chapter 4. For thispurpose, Subsection III.C. distinguishesprocedures applicable to preexisting entityaccounts from those applicable to newentity accounts.

B. Participating FFIs

1. Reliance on Existing Documentationand Issuance of FFI EINs

Under an FFI Agreement, participat-ing FFIs will be required to identify cer-tain of their account holders. For exam-ple, a participating FFI will be requiredto identify and report holders of financialaccounts that are specified U.S. personsor U.S.-owned foreign entities. In somecases, a participating FFI may already havedocumented some of its preexisting ac-count holders as U.S. persons. Form W–9(Request for Taxpayer Identification Num-ber and Certification) and Form W–8 BEN(Certificate of Foreign Status of Benefi-cial Owner for United States Tax With-holding) are collected by certain foreignpersons (including U.S. branches of FFIs,CFCs, qualified intermediaries and with-holding partnerships and trusts) for cer-tain U.S. tax purposes other than chapter4. To facilitate compliance with the obli-gations imposed by chapter 4, participat-ing FFIs will be permitted to rely on FormsW–9 they collect for other U.S. tax pur-poses (i.e., for purposes of chapters 3 and61 of the Code), and will generally be re-

quired to treat accounts of individuals thatare so documented as U.S. accounts forpurposes of chapter 4. Participating FFIswill also be required under chapter 4 tocollect Form W–8BEN or Form W–9 (oracceptable substitute forms) from certainof their account holders. This requirementwill be limited in scope, as described in theprocedures below.

Participating FFIs (as well as otherwithholding agents) also will be requiredto identify other FFIs as participating FFIs,deemed-compliant FFIs, or non-partici-pating FFIs (or as entities described insection 1471(f)). To facilitate this process,Treasury and the IRS contemplate thatthe IRS will issue employer identificationnumbers (EINs) to participating FFIs (FFIEINs) and that participating FFIs will usethese FFI EINs to identify themselves towithholding agents. Until withholdingagents are able to verify the status of FFIswith the IRS, withholding agents and par-ticipating FFIs will be permitted to relyon certifications provided by FFIs as totheir status as participating FFIs, unlessthe withholding agent or participating FFIknows or has reason to know that the cer-tification provided is incorrect.

2. Individual Financial Accounts —Identification by Participating FFIs forPurposes of Section 1471

For purposes of determining which (ifany) of the accounts maintained by a par-ticipating FFI and held by individuals areU.S. accounts, future guidance will pro-vide procedures that distinguish between(a) preexisting individual accounts and (b)new individual accounts.

a. Preexisting Individual Accounts

Preexisting individual accounts are fi-nancial accounts held by individuals asof the date that a participating FFI’s FFIAgreement becomes effective. In the caseof preexisting individual accounts, theparticipating FFI is required to determinewhether such accounts are to be treatedas U.S. accounts, accounts of recalcitrantaccount holders, or other accounts, ac-cording to the steps below.

1. The FFI may treat a depository ac-count as other than a U.S. accountif the average of the month-end bal-ances or values during the calendar

year preceding the entry into force ofthe FFI’s FFI Agreement (or, if thebalance or value is determined lessfrequently than monthly for purposesof reporting to the account holder, theaverage of the balance or value as de-termined for purposes of reporting tothe account holder during the year) ofall depository accounts held by the ac-count holder at such FFI was less than$50,000 (or the equivalent in foreigncurrency). An FFI will be permittedto elect not to apply this step.

2. From among accounts not addressedin step 1, all account holders alreadydocumented as U.S. persons for otherU.S. tax purposes (e.g., for purposesof chapters 3 and 61 of the Code) willbe treated as specified U.S. persons,and those account holders’ financialaccounts will be treated as U.S. ac-counts.

3. From among the accounts that are notaddressed in step 1 or step 2, the FFIshall treat an account as other thana U.S. account if the electronicallysearchable information maintained bythe FFI and associated with the ac-count (e.g., customer information keptfor purposes of maintaining the ac-count, corresponding with the accountholder, or complying with regulatoryrequirements) does not include anyof the following indicia of potentialU.S. status: (i) identification of anyaccount holder as a U.S. resident orU.S. citizen; (ii) a U.S. address associ-ated with an account holder of the ac-count (whether a residence address ora correspondence address); (iii) a U.S.place of birth for an account holder ofthe account; (iv) an “in care of” ad-dress, a “hold mail” address, or a P.O.address that is the sole address on filewith respect to the account holder; (v)a power of attorney or signatory au-thority granted to a person with a U.S.address; or (vi) standing instructionsto transfer funds to an account main-tained in the U.S., or directions re-ceived from a U.S. address.

4. For all accounts identified as contain-ing indicia of potential U.S. statusin step 3, the FFI will be required toobtain certain documentation to es-tablish whether the account is a U.S.account. In particular, if an accountholder is identified as a U.S. resident

September 13, 2010 335 2010–37 I.R.B.

or citizen in item 3(i), the FFI shallobtain Forms W–9 from the individ-ual account holder identified as a U.S.resident or citizen. If the account in-formation includes any of the U.S.indicia identified in item 3(ii) or (iii),the FFI shall obtain Form W–9 estab-lishing U.S. status, or Form W–8BENand documentary evidence establish-ing non-U.S. status of the individualaccount holder. For purposes of thepreceding sentence, for an accountholder to establish non-U.S. status,the account holder will be required topresent a non-U.S. passport or othersimilar evidence of non-U.S. citi-zenship. If the account is identifiedas containing only indicia of poten-tial U.S. status described in items3(iv)-(vi), the FFI shall obtain FormW–9 establishing U.S. status, or FormW–8BEN or documentary evidenceestablishing non-U.S. status, from theindividual account holder. A partici-pating FFI will be entitled to rely onthe documentation received from ac-count holders unless it knows or hasreason to know that the informationcontained in such documentation isunreliable or incorrect.

5. The FFI will be required to completesteps one through 3 and request anydocumentation required by step 4from each relevant individual accountholder within one year of the effectivedate of the FFI’s FFI Agreement. Ac-count holders that have not providedappropriate documentation as of thedate that is one year after the date ofthe request will be classified as recal-citrant account holders from such dateuntil the date on which appropriatedocumentation is received from theaccount holder by the participatingFFI.

For purposes of applying the aboveprocedures, a participating FFI wouldbe permitted to rely on documentationmaintained in an accountholder’s files andwould be required to obtain additionaldocumentation from an accountholderonly where the above-described documen-tation was not previously collected.

Within two years after the date onwhich the FFI’s FFI Agreement enters intoeffect, all preexisting individual accountsthat were treated under the procedures

described above as other than U.S. ac-counts and that had an average monthlybalance (or, if the balance or value isdetermined less frequently than monthlyfor purposes of reporting to the accountholder, the average of the balance or valueas determined for purposes of reportingto the account holder during the year)exceeding $1,000,000 during the year pre-ceding the first year in which the FFI’sFFI Agreement enters into effect will besubject to the procedures described inSection III.B.2.b., below, to determinewhether such accounts should continueto be treated as other than U.S. accounts,unless the participating FFI has collected,reviewed, and maintained documentationsufficient to establish the U.S. or non-U.S.status of such accounts, and such U.S. ornon-U.S. status is reflected in electroni-cally searchable information maintainedby the FFI and associated with the account.

Within five years after the date onwhich the FFI’s FFI Agreement enters intoeffect, all preexisting individual accountstreated as other than U.S. accounts un-der the procedures described above willbe subject to the procedures described inSection III.B.2.b., below, to determinewhether such accounts should continueto be treated as other than U.S. accounts,unless the participating FFI has collected,reviewed, and maintained documentaryevidence sufficient to establish the U.S.or non-U.S. status of such accounts, andsuch U.S. or non-U.S. status is reflectedin electronically searchable informationmaintained by the FFI and associated withthe account. Future guidance shall alsoprescribe circumstances under which theprocedures described in section III.B.2.a.will be reapplied for accounts that aretreated as other than U.S. accounts in step1 of section III.B.2.a. and that have an av-erage monthly balance exceeding $50,000in a year subsequent to the first year inwhich the FFI’s FFI Agreement is appliedwith respect to existing accounts.

A participating FFI will be deemedto have maintained documentation (otherthan a Form W–8BEN or Form W–9, acopy of which must be retained) if theparticipating FFI retains a record of thedocumentary evidence collected and re-viewed, noting the type of document, anyidentification number contained in thedocument, the place of issuance, and the

date of issuance and expiration date, ifany.

b. New Individual Accounts

New individual accounts are accountsopened by individuals after the date thata participating FFI’s FFI Agreement be-comes effective. For new individualaccounts, the participating FFI will berequired to determine whether such ac-counts are to be treated as U.S. accountsaccording to the steps described below.For this purpose, new individual accountswill include new account relationshipsestablished by individuals holding preex-isting individual financial accounts withthe FFI. Thus, for example, a custodialaccount opened after the effective date ofthe participating FFI’s FFI Agreement byan individual that maintains a preexistingdepository account at the FFI will be sub-ject to the procedures described below.

1. The FFI may treat a depository ac-count as other than a U.S. account ifthe aggregate of the opening accountbalance or value of the new individualfinancial account, and the average ofthe month-end balances or values dur-ing the preceding calendar year (or, ifthe balance or value is determined lessfrequently than monthly for purposesof reporting to the account holder, theaverage of the balance or value as de-termined for purposes of reporting tothe account holder during the year) ofall other depository accounts held bythe account holder at such FFI in thepreceding calendar year was less than$50,000 (or the equivalent in foreigncurrency), unless the FFI elects not toapply this step.

2. From among the accounts that arenot addressed in step 1, the FFI willcategorize all account holders alreadydocumented as U.S. persons for otherU.S. tax purposes as specified U.S.persons for purposes of chapter 4, andtreat those account holders’ financialaccounts as U.S. accounts for pur-poses of chapter 4.

3. From among the accounts that are notaddressed in step 1 or 2, the FFI willobtain and examine from individualsthat are beneficial owners of new in-dividual accounts documentary evi-dence establishing U.S. or non-U.S.status of individual account holders.

2010–37 I.R.B. 336 September 13, 2010

For new individual accounts that areidentified as held by U.S. persons inthis step, the FFI will obtain FormsW–9 from the individual holders ofthe accounts.

4. With respect to accounts that are notaddressed in step 1 or step 2, and thatare not documented as U.S. accountsin step 3, FFIs will examine all otherinformation collected in connectionwith the new individual financial ac-count (e.g., for purposes of maintain-ing the account, corresponding withthe account holder, or complying withregulatory requirements) to identifyindicia of potential U.S. status. Suchindicia include: (i) documentationsuggesting that account holders areU.S. residents or U.S. citizens; (ii) aU.S. address associated with an ac-count holder of the account (whethera residence address or a correspon-dence address); (iii) a U.S. place ofbirth for an account holder of theaccount; or (iv) any other indicia ofpotential U.S. status, including an “incare of” address, a “hold mail” ad-dress, a P.O. address that is the soleaddress on file with respect to theaccount holder, (v) a power of attor-ney or signatory authority grantedto a person with a U.S. address, or(vi) standing instructions to transferfunds to an account maintained in theUnited States or directions receivedfrom a U.S. address. Accounts withindicia of potential U.S. status will betreated as potential U.S. accounts forpurposes of step 5 below. All otheraccounts not addressed in step 1 orstep 2, or identified as held by a U.S.person in step 3, shall be treated asother than a U.S. account.

5. For all accounts identified as contain-ing indicia of potential U.S. statusin step 4, the FFI will be requiredto obtain certain documentation, ifsuch documentation has not alreadybeen collected, reviewed and main-tained by the participating FFI, ortreat the account holder as a recalci-trant account holder. In particular, ifan account holder is identified as aU.S. resident or citizen in item 4(i),the FFI shall obtain Forms W–9 fromall individual account holders identi-fied as U.S. residents or citizens. Ifthe account is identified as containing

indicia of potential U.S. status de-scribed in item 4(ii) or (iii), the FFIshall obtain Form W–9 establishingU.S. status, or Form W–8BEN anddocumentary evidence establishingnon-U.S. status of the individual ac-count holders. For purposes of thepreceding sentence, for an accountholder to establish non-U.S. status,the account holder will be requiredto present a non-U.S. passport orother similar evidence of non-U.S.citizenship. If the account is iden-tified as containing only indicia ofpotential U.S. status described in item4(iv)-(vi), the FFI shall obtain FormW–9 establishing U.S. status, or FormW–8BEN or documentary evidenceestablishing non-U.S. status, from theindividual account holder. For thispurpose, a Form W–8BEN will not berequired, but could be relied on by theFFI. Account holders that do not pro-vide appropriate documentation willbe classified as recalcitrant accountholders until the date on which ap-propriate documentation is receivedfrom the account holder by the partic-ipating FFI. A participating FFI willbe entitled to rely on the documen-tation received from account holdersunless it knows or has reason to knowthat the information contained in suchdocumentation is unreliable or incor-rect.

6. An FFI will be required to repeat steps4 and 5 each time the FFI knows or hasreason to know that circumstances af-fecting the correctness of the classifi-cation of an account as a U.S. accounthave changed.

Future guidance shall also prescribe theperiod during which the steps described inthis section III.B.2.b. must be performed,the default treatment of account holdersduring that period, and the circumstancesunder which the procedures described insection III.B.2.b will be reapplied for ac-counts that are treated as other than U.S.accounts in step 1 of section III.B.2.b. andthat have an average monthly balance (or,if the balance or value is determined lessfrequently than monthly for purposes of re-porting to the account holder, the averageof the balance or value as determined forpurposes of reporting to the account holderduring the year) exceeding $50,000 in a

year ending after the date on which the ac-count was opened.

3. Financial Accounts Held by Entities —Identification by Participating FFIs

a. Preexisting Entity Accounts

With respect to financial accounts heldby persons other than individuals as ofthe date that an FFI’s FFI Agreement be-comes effective, the participating FFI willbe required to determine whether such ac-counts are to be treated as U.S. accounts,accounts of participating FFIs, accounts ofdeemed-compliant FFIs, accounts of non-participating FFIs, accounts of entities de-scribed in section 1471(f), accounts of re-calcitrant account holders, accounts of ex-cepted NFFEs, accounts of other NFFEs,or other accounts, according to the stepsdescribed below.

1. The participating FFI will treat allaccount holders already identified asU.S. persons for other U.S. tax pur-poses as U.S. persons for purposesof section 1471. Participating FFIswill permit such entities to providedocumentation establishing that theyare not specified U.S. persons forpurposes of chapter 4. Any U.S.person that does not provide suchdocumentation within one year afterthe participating FFI’s FFI Agreemententers into effect will be classified asa specified U.S. person for purposesof chapter 4 until such documenta-tion is received. Treasury and theIRS also request comments regardingthe development of presumptions onwhich a participating FFI could relyto determine whether a U.S. person isa specified U.S. person.

2. Of the remaining entity account hold-ers, the FFI will identify any entitiesfor which information maintained bythe participating FFI in its electroni-cally searchable files indicates that theentity account holder is a U.S. entity(e.g., a place of incorporation in theUnited States). Such entities will bepresumed to be U.S. entities. Partic-ipating FFIs will permit such entitiesto present documentation establishingthat they are not U.S. persons, or, ifthey are U.S. persons, they are notspecified U.S. persons for purposes ofchapter 4. The FFI will be required

September 13, 2010 337 2010–37 I.R.B.

to request such documentation withinone year of the effective date of theFFI’s FFI Agreement. Any such en-tity that has not presented such docu-mentation prior to the date that is oneyear after the date of the FFI’s requestwill be classified as a specified U.S.person for purposes of chapter 4 untilsuch documentation is received. Anaccount holder treated as a specifiedU.S. person under this step 2 shall betreated as a recalcitrant account holderuntil the FFI receives the informationit is required to report with respect tosuch account holder.

3. All entity account holders not classi-fied as U.S. persons in step 1 or step2 will be presumed to be foreign enti-ties.a. From among entity account hold-

ers that are presumed to be for-eign entities, the participating FFIwill determine whether the en-tity’s name (or other informationreadily available to the partici-pating FFI in its electronicallysearchable files regarding the en-tity account holder) clearly indi-cates that the entity is an FFI. Ifso, the participating FFI will ten-tatively classify the entity as anFFI.

b. If an entity account holder is ten-tatively classified as an FFI instep 3(a), the participating FFIwill request that the entity pro-vide the participating FFI withthe entity’s FFI EIN and certifica-tion of its participating FFI status,and upon receipt of the FFI EINand certification of participatingFFI status, treat the entity as aparticipating FFI for purposes ofapplying section 1471(a), subjectto confirmation with the IRS thatthe FFI EIN is valid.

c. If an entity account holder ten-tatively classified as an FFI inStep 3(a) does not provide a validFFI EIN and certification of par-ticipating FFI status within ninemonths after the participatingFFI’s FFI Agreement enters intoeffect, the participating FFI will,within one year after the partic-ipating FFI’s Agreement entersinto effect, request documenta-tion from the entity indicating

whether the entity is a participat-ing FFI, a deemed-compliant FFI,a non-participating FFI, an en-tity described in section 1471(f),or an NFFE. An entity accountholder that does not present suchdocumentation prior to the datethat is one year after the date ofthe FFI’s request will be treatedas a non-participating FFI fromsuch date until the date on whichappropriate documentation is re-ceived from the entity accountholder by the participating FFI.During the interim period (i.e.,prior to the time that the entityaccount holder is treated as anon-participating FFI), the entityaccount holder will be consideredan excepted NFFE, and its ac-count will be treated as other thana U.S. account, unless the entityis otherwise identified by the IRSon a published list. If the entityis so identified, the entity willbe treated as a non-participatingFFI. Treasury and the IRS alsocontemplate requiring participat-ing FFIs to report informationregarding the identity of any en-tity that provides documentationindicating that it is a participatingFFI, but that does not provide avalid FFI EIN.

4.a. With respect to any entity ac-

count holder not treated as a U.S.person after applying steps 1 and2 or as an FFI after applying step3, the participating FFI will ex-amine the entity’s account filefor evidence that the entity is en-gaged in an active trade or busi-ness (other than an FI business).Appropriate evidence in this re-gard may include statements ofbusiness activities, physical as-sets used in business activities,persons employed in businessactivities, and receivables andpayables related to business ac-tivities (such as may be shown onaudited financial statements orother business records providedby the account holder). For thispurpose, Treasury and the IRSare also considering permittingFFIs to rely in part on informa-

tion obtained from third-partycredit databases. An entity ac-count holder identified in thisstep as engaged in an active tradeor business will be treated as anexcepted NFFE and an accountof such an entity will be treatedas other than a U.S. account forpurposes of chapter 4.

b. The participating FFI will permitentity account holders not treatedin step 4(a) as engaged in an ac-tive trade or business to presentdocumentation showing or certi-fying that they are a participat-ing FFI (in which case the proce-dures of step 3(b) and (c) will ap-ply), a deemed-compliant FFI, anon-participating FFI, an NFFE,or that they are described in anexception under section 1471(f).The participating FFI will be per-mitted to rely on existing docu-mentary evidence in its accountfiles for this purpose, unless theparticipating FFI knows or hasreason to know that the documen-tation is unreliable or incorrect.If the participating FFI does nothave existing documentary evi-dence on which it can rely forthis purpose, the participating FFIwill request documentation as re-quired to show or certify the sta-tus of the entity account holderwithin one year after the partici-pating FFI’s FFI Agreement en-ters into effect. If the entity ac-count holder does not present thedocumentation required by thisstep, the entity account holderwill be treated as a non-partici-pating FFI from the date that isone year after the date of the FFI’srequest for documentation untilthe date appropriate documenta-tion is received from the entity ac-count holder by the participatingFFI.

c. If the documentation provided bythe account holder in step 4(b)above indicates that the accountholder is an NFFE, the partic-ipating FFI must either obtaindocumentary evidence (or rely onexisting documentary evidencein its account files) that the NFFEis an excepted NFFE, or the FFI

2010–37 I.R.B. 338 September 13, 2010

must (i) specifically identify eachindividual, and each other spec-ified U.S. person that has aninterest in such entity, either di-rectly or through ownership inone or more other entities, otherthan through ownership in anexcepted NFFE, a participatingFFI, a deemed-compliant FFI,or an entity described in section1471(f), and (ii) if a specifiedU.S. person is identified in (i),treat the account as a U.S. ac-count and obtain with respect toeach such person the documen-tation that the participating FFIwould be required to obtain fromsuch person if such person werea new account holder and reportany such specified U.S. person tothe IRS. If the participating FFIis unable to obtain the documen-tation required by this paragraphwith respect to a specified U.S.person identified in (i), the ac-count holder will be treated as arecalcitrant account holder fromthe date that is two years after thedate on which the participatingFFI’s FFI Agreement entered intoeffect until the date appropriatedocumentation is received fromthe account holder by the partici-pating FFI.

A participating FFI will be entitled torely on the documentation received fromentity account holders unless it knows orhas reason to know that the informationcontained in such documentation is unre-liable or incorrect. Treasury and the IRSrequest comments about the level of evi-dence that should be sufficient to establishunder step 4(a) that an entity is engaged inan active trade or business, as well as waysin which step 4(a) can be structured to en-sure that it is not subject to abuse.

b. New Entity Accounts

For new financial accounts held bypersons other than individuals and openedafter the date on which the participatingFFI’s FFI Agreement enters into effect,the participating FFI will be required todetermine whether such accounts are to betreated as U.S. accounts, accounts of par-ticipating FFIs, accounts of deemed-com-

pliant FFIs, accounts of entities describedin section 1471(f), accounts of non-par-ticipating FFIs, accounts of recalcitrantaccount holders, accounts of exceptedNFFEs, or accounts of other NFFEs byfollowing procedures similar to the proce-dures described above with regard to pre-existing accounts. However, with respectto new entity accounts, FFIs must deter-mine how to treat such accounts using allinformation collected by the FFI (e.g., forpurposes of opening and maintaining theaccount, corresponding with the accountholder, and complying with regulatory re-quirements, including anti-money launder-ing/know-your-customer (“AML/KYC”)requirements), regardless of whether suchinformation is available in electronicallysearchable files. Information collectedby the FFI for purposes of opening andmaintaining the account, correspondingwith the account holder, and complyingwith regulatory requirements, includingAML/KYC requirements would also betreated as known by the FFI for purposesof determining whether the FFI shouldtreat documentation provided by an entityas unreliable or incorrect.

4. Coordination With Section 1472

Pursuant to its FFI Agreement, a par-ticipating FFI must follow the proceduresdescribed in section III.B.3. to determinewhether the accounts of its entity accountholders are to be treated as U.S. accounts,accounts of participating FFIs, accounts ofdeemed-compliant FFIs, accounts of non-participating FFIs, accounts of entities de-scribed in section 1471(f), accounts of ex-cepted NFFEs, or accounts of NFFEs sub-ject to reporting with respect to their sub-stantial U.S. owners. A participating FFIthat makes a withholdable payment to anNFFE account holder will also be a with-holding agent for purposes of section 1472.To avoid duplicative documentation, a par-ticipating FFI must determine the treat-ment of its entity account holders underthe procedures of section III.B.3. of thisNotice, rather than the certification pro-cedures described in section 1472(b), forpurposes of applying section 1472 with re-spect to a withholdable payment to an en-tity account holder.

C. USFIs

To comply with its obligations as awithholding agent under sections 1471and 1472, a USFI will be required to de-termine whether to treat entities to whichit makes withholdable payments as U.S.persons, participating FFIs, deemed-com-pliant FFIs, non-participating FFIs, enti-ties described in section 1471(f), exceptedNFFEs, or other NFFEs. Where the enti-ties to which a USFI makes withholdablepayments are account holders of the USFI,these determinations parallel the determi-nations that a participating FFI is requiredto make with respect to its entity accountholders. To ensure that those paralleldeterminations are made in a consistentmanner by FFIs and USFIs, Treasuryand the IRS will require USFIs to deter-mine whether their foreign entity accountholders are NFFEs subject to reportingor withholding under section 1472 orFFIs subject to withholding under section1471(a) by applying procedures similar tothe procedures described in Section III.B.3of this Notice. A USFI that performs suchprocedures will not be required to sepa-rately request certification under section1472(b) from its NFFE account holders.Such procedures will apply only with re-spect to holders of financial accounts asdefined in section 1471(d)(2) to which theUSFI makes withholdable payments.

1. Identification of Foreign Entities thatHold Preexisting Financial Accounts

With respect to withholdable paymentsmade by a USFI to financial accountsopened before January 1, 2013 and held bypersons other than individuals, Treasuryand the IRS intend to require the USFI toperform the steps described below.

1. The USFI will treat all entity accountholders identified as U.S. persons forpurposes of chapters 3 or 61 of theCode as U.S. persons for purposes ofchapter 4. The remaining entity ac-count holders will be treated as for-eign entities for purposes of chapter 4.

2.a. For each entity account holder

treated as a foreign entity af-ter step 1, the USFI will deter-mine whether the foreign entity’sname (or other information read-ily available to the USFI in its

September 13, 2010 339 2010–37 I.R.B.

electronically searchable files re-garding the entity account holder)clearly indicates that the foreignentity is an FFI. If so, the USFIwill tentatively classify the entityas an FFI.

b. If a foreign entity account holderis tentatively classified as an FFIin step 2(a), the USFI will requestthat the foreign entity provide theUSFI with the foreign entity’scertification of its participatingFFI status and FFI EIN, and uponreceipt of the FFI EIN and certi-fication of participating FFI sta-tus, treat the foreign entity as aparticipating FFI for purposes ofapplying section 1471(a), subjectto confirmation with the IRS thatthe FFI EIN is valid.

c. If a foreign entity account holdertentatively classified as an FFIin Step 2(a) does not providea valid FFI EIN by December31, 2013, the USFI will requestdocumentation from the foreignentity indicating whether the for-eign entity is a participating FFI,a deemed-compliant FFI, an en-tity described in section 1471(f),a non-participating FFI, or anNFFE. Any foreign entity that hasnot provided such documentationby December 31, 2014, will beclassified as a non-participatingFFI from such date until the dateon which appropriate documen-tation is received from the entityaccount holder by the USFI. Dur-ing the interim period (i.e., priorto the time that the entity accountholder is treated as a non-partic-ipating FFI), the entity accountholder will be considered an ex-cepted NFFE unless the entity isotherwise identified by the IRSon a published list. If the entityis so identified, the entity willbe treated as a non-participatingFFI. Treasury and the IRS alsocontemplate requiring USFIs toreport information regarding theidentity of any entity that pro-vides documentation indicatingthat it is a participating FFI, butthat does not provide a valid FFIEIN.

3.

a. With respect to any entity accountholder not treated as a U.S. per-son after applying step 1 or as anFFI after applying step 2, the FFIwill examine the entity’s accountfile for evidence that the entity isengaged in an active trade or busi-ness (other than an FI business).Appropriate evidence in this re-gard may include statements ofbusiness activities, physical as-sets used in business activities,persons employed in businessactivities, and receivables andpayables related to business ac-tivities (such as may be shown onaudited financial statements orother business records). For thispurpose, Treasury and the IRSare also considering permittingUSFIs to rely in part on infor-mation obtained from third-partycredit databases. A foreign entityaccount holder identified in thisstep as engaged in an active tradeor business will be treated as anexcepted NFFE for purposes ofchapter 4.

b. USFIs will permit foreign entityaccount holders not treated instep 3(a) as engaged in an activetrade or business to present docu-mentation certifying that they area participating FFI (in which casethe procedures of step 2(b) and(c) will apply), a deemed-com-pliant FFI, a non-participatingFFI, an entity described in section1471(f), or an NFFE. A USFIwill be permitted to rely on ex-isting documentary evidence inits account files for this purpose,unless the USFI knows or hasreason to know that the documen-tation is unreliable or incorrect.Any entity account holder thatdoes not present such documen-tation by December 31, 2014 willbe treated as a non-participatingFFI for purposes of chapter 4from after such date until the dateon which appropriate documen-tation is received from the entityaccount holder by the USFI.

c. If the documentation provided bythe account holder in step 3(b)above indicates that the accountholder is an NFFE, the USFI

must either obtain documentaryevidence (or rely on existing doc-umentary evidence in its accountfiles) that the NFFE is an ex-cepted NFFE or (i) specificallyidentify each individual and eachother specified U.S. person thathas an interest in such entity,either directly or through owner-ship in one or more other entities,other than through ownership inan excepted NFFE, a participat-ing FFI, a deemed-compliant FFI,or an entity described in section1471(f), and (ii) if a specifiedU.S. person is identified in (i),obtain with respect to each suchperson the documentation that theUSFI would be required to obtainfrom such person if such personwere a new account holder, andreport any such specified U.S.person to the IRS in such man-ner as will be provided in futureguidance. If the USFI is unableto identify such persons or obtainthe documentation required bythis paragraph with respect to aspecified U.S. person identifiedin (i) by December 31, 2014, theUSFI will apply withholding un-der section 1472(a) from aftersuch date until the date on whichappropriate documentation is re-ceived from the account holderby the USFI.

A participating FFI will be entitled torely on the documentation received fromentity account holders unless it knows orhas reason to know that the informationcontained in such documentation is unre-liable or incorrect.

2. Identification of New Foreign EntityAccounts

For financial accounts that are openedat a USFI on or after January 1, 2013 andare held by persons other than individuals(new USFI accounts held by foreign enti-ties), a USFI will be required to determinewhether such accounts are to be treated asU.S. accounts, accounts of participatingFFIs, accounts of non-participating FFIs,accounts of deemed-compliant FFIs, enti-ties described in section 1471(f), accountsof excepted NFFEs, or accounts of other

2010–37 I.R.B. 340 September 13, 2010

NFFEs by following procedures similarto the procedures described in SectionIII.C.1 above with regard to preexistingUSFI accounts held by foreign entities.However, with respect to new USFI ac-counts held by foreign entities, USFIsmust identify foreign entities using all in-formation collected by the USFI (e.g., forpurposes of opening and maintaining theaccount, corresponding with the accountholder, and complying with regulatoryrequirements, including AML/KYC re-quirements), regardless of whether suchinformation is available in electronicallysearchable files. Information collectedby the USFI for purposes of opening andmaintaining the account, correspondingwith the account holder, and complyingwith regulatory requirements, includingAML/KYC requirements, would also betreated as known by the USFI for purposesof determining whether the USFI shouldtreat documentation provided by an en-tity as unreliable or incorrect. Treasuryand the IRS request comments regardingappropriate procedures for identifying par-ticipating FFIs, deemed-compliant FFIs,non-participating FFIs, entities describedin section 1471(f), excepted NFFEs, andother NFFEs from among new accountholders of USFIs.

Section IV. Reporting on U.S. Accounts

This section describes the preliminaryviews of Treasury and the IRS regardingthe manner and type of information report-ing that FFIs must provide to the IRS an-nually with respect to their U.S. accountsunder an FFI Agreement.

A. In General

Section 1471 provides that a participat-ing FFI must report the following informa-tion pursuant to an FFI Agreement with re-spect to each U.S. account:

• the name, address and taxpayer identi-fication number (TIN) of each accountholder which is a specified U.S. per-son;

• in the case of any account holder whichis a U.S.-owned foreign entity, thename, address, and TIN of each sub-stantial United States owner of suchentity;

• the account number;

• the account balance or value (deter-mined at such time and in such manneras the Secretary may provide); and

• except to the extent provided by theSecretary, the gross receipts and grosswithdrawals or payments from the ac-count (determined for such period andin such manner as the Secretary mayprovide).

The IRS is developing a new formfor reporting the information required bysection 1471(c). This form will be filedelectronically. See Section V of this noticefor information on anticipated require-ments with regard to electronic filing.The account number to be reported withrespect to an account may be an actualaccount number, or, if no account numberis used by the FFI, a serial number or othernumber the FFI assigns to the financialaccount that is unique and will distinguishthe specific account. Treasury and the IRSalso intend to issue guidance coordinatingthe reporting provisions of chapter 4 withother U.S. tax reporting obligations.

B. Account Balance or Value

Section 1471(c)(1)(C) requires a partic-ipating FFI to report the account balanceor value of each U.S. account. Treasuryand the IRS intend to issue guidance thatwill provide that all such amounts mustbe reported in U.S. dollars. Future guid-ance will provide the appropriate methodfor currency translation. With regard to theaccount balance of deposit and custodialaccounts, Treasury and the IRS are con-sidering requiring reporting of the high-est of the month-end balances during theyear (or, if the balance is determined lessfrequently than monthly (e.g., quarterly)for purposes of reporting to the accountholder, the highest of the balances as de-termined for purposes of reporting to theaccount holder during the year). In ad-dition, the FFI will be required to pro-vide additional account-related informa-tion (e.g., copies of account statements in-cluding monthly or quarterly balances anddaily receipts and withdrawals) to the IRSupon request.

In the case of a U.S. account that isan interest in an entity described in sec-tion 1471(d)(5)(C), the value of the ac-count may be required to be determined fora number of reasons throughout the year,

including for purposes of (i) financial re-porting, (ii) determining the compensationof any investment manager of or invest-ment advisor to the FFI, or (iii) reportingto the account holder or determining anydistributions or payments to the accountholder. Treasury and IRS are consider-ing requiring such a participating FFI toreport the highest value of such accountduring the year, as determined for the pur-pose that requires the most frequent deter-mination of value by the participating FFI.For example, assume that a participatingFFI is required to be valued for two rea-sons: annually for purposes of reporting toits interest holders, and quarterly for pur-poses of calculating the compensation ofthe investment advisor to the FFI. In sucha case, the value reported under section1471(c)(1)(C) would be the highest of thequarterly values determined for purposesof calculating the compensation of the in-vestment advisor.

Comments are requested regarding theabove approaches, and regarding other po-tential approaches that may provide ade-quate information in a manner that will beadministrable by participating FFIs with-out being subject to manipulation by U.S.account holders. Comments on possiblecurrency translation conventions are re-quested. Comments on specific situationsin which foreign laws may prevent the re-porting of the information described aboveare also requested, along with descriptionsof the steps that would be required of a par-ticipating FFI (and account holders of U.S.accounts maintained by the FFI) in order toovercome or waive any such restriction.

C. Gross Receipts and Withdrawals

Section 1471(c)(1)(D) requires the re-porting of gross receipts and gross with-drawals and payments, except to the extentprovided otherwise by the Secretary. Trea-sury and the IRS request comments as tohow to minimize burdens on participatingFFIs with respect to such reporting.

D. Section 1471(c)(2) Election

Section 1471(c)(2) allows a partic-ipating FFI to elect to have section1471(c)(1)(C) or (D) not apply, and insteadto report under sections 6041, 6042, 6045,and 6049 as if such FFI were a U.S. personand each holder of a U.S. account thatis a specified U.S. person or U.S.-owned

September 13, 2010 341 2010–37 I.R.B.

foreign entity were an individual and cit-izen of the United States. An FFI thatmakes this election must still comply withsection 1471(c)(1)(A) and (B), and thuswill also have to report the name, address,and TIN of each account holder which isa specified U.S. person and, in the case ofany account holder which is a U.S.-ownedforeign entity, the name, address, and TINof each substantial United States owner ofsuch entity, as well as the relevant accountnumbers; however, such an electing FFIwill not have to report the account balanceor value or the gross receipts and grosswithdrawals of payments required undersection 1471(c)(1)(C) and (D).

The time and manner for making theelection and the conditions for meeting thereporting requirements of the election willbe addressed in future guidance. Treasuryand the IRS request comments regardingwhether and in what circumstances a par-ticipating FFI should be permitted to makethe election with respect to a subset of itsaccounts without making the election forall of its accounts (for example, whethera participating FFI should be permitted tomake the election with respect to accountsheld by individuals without requiring thatthe FFI make the election with respect toaccounts held by entities).

E. Elimination of Duplicative Reporting

In certain circumstances, the same in-strument or interest may give rise to a fi-nancial account with respect to more thanone FFI. For example, assume a partici-pating FFI (Fund) issues shares that aretreated as a financial account under section1471(d)(2)(C), and such shares are held byanother participating FFI (Custodian) onbehalf of a specified U.S. person. In thatcase, the shares owned by the specifiedU.S. person would (absent an applicableexception) constitute a financial accountmaintained by Fund and the specified U.S.person’s custodial account maintained byCustodian would also be a financial ac-count. Treasury and the IRS are aware thatthere is concern about whether both Fundand Custodian would be required to reportthe shares of Fund owned by the specifiedU.S. person.

Treasury and the IRS believe that,where possible, it is preferable for re-porting to be performed by the FFI thatis in a direct payment relationship with

the account holder. This view is consis-tent with section 1471(d)(1)(C)(i), whichprovides that a U.S. account does not in-clude a financial account held by anotherfinancial institution that meets the require-ments of section 1471(b). Treasury andthe IRS intend to issue regulations provid-ing that in the case of a participating FFIthat maintains an account of another par-ticipating FFI, only the participating FFIthat has the more direct relationship withthe investor or customer will be requiredto report the information required undersection 1471(c). Thus, in the example inthe preceding paragraph, Custodian willbe required to report with respect to thecustodial account held by the specifiedU.S. person, and the shares of Fund heldby Custodian will not be a U.S. accountsubject to reporting by Fund. Moreover, ina case in which all of a participating FFI’sdirect account holders are also participat-ing FFIs, the first-mentioned participatingFFI would have no reporting obligationsunder section 1471(c).

F. Reporting with Regard to RecalcitrantAccounts

Treasury and the IRS intend to requirea participating FFI to report the numberand aggregate value of financial accountsheld by recalcitrant account holders andthe number and aggregate value of finan-cial accounts held by related or unrelatednon-participating FFIs. In addition, Trea-sury and the IRS intend to require a par-ticipating FFI to report the number and ag-gregate value of financial accounts held byrecalcitrant account holders that have U.S.indicia (as described in Section III.B.2.b.step 4 above or in future guidance).

Section V. Request for Specific Comments

A. Verification Requirements Applicableto Participating FFIs

Under section 1471(b)(1)(B), as partof an FFI Agreement, a participating FFIagrees to comply with such verificationprocedures as the Secretary may requirewith respect to the identification of U.S.accounts. Treasury and the IRS considereffective verification procedures to be cru-cial to ensuring compliance with chapter4. Treasury and the IRS recognize, how-ever, that the compliance gains associatedwith the implementation of verification

procedures must be balanced against thecosts that such procedures would imposeon FFIs.

Treasury and the IRS understand thatfor compliance purposes in connectionwith various countries’ AML/KYC andsimilar laws, regulators typically placesome degree of reliance on verificationprocedures and reviews performed by pub-lic accountants engaged by financial in-stitutions or by the internal audit functionof financial institutions. Treasury and theIRS also understand that, unlike the proce-dures commonly used by external auditorsto verify compliance with QI agreements,these verification procedures and reviewsare performed under engagements that arenot agreed-upon procedures.

Treasury and the IRS request commentsabout the procedures performed by pub-lic accountants or other external auditorswhen conducting an AML/KYC audit orsimilar engagement, including informationabout the objectives of such engagements,the types of procedures performed, and thetypes of reports issued as part of such en-gagements. In addition, Treasury and theIRS are exploring the possibility of rely-ing in some circumstances on written cer-tifications by high-level management em-ployees of the applicable financial institu-tion regarding the steps taken to complywith chapter 4. Treasury and IRS requestcomments on the information and repre-sentations that should be included in suchcertifications and the extent to which pub-lic accountants or other external auditorsrely on written certifications of compli-ance provided by officers or other respon-sible management employees of the appli-cable financial institution in the course ofAML/KYC audits or similar engagements.Treasury and the IRS request commentsconcerning the extent to which the formatof reports associated with such engage-ments could be appropriately modified tofurther compliance with chapter 4. Trea-sury and the IRS further request commentsas to the extent to which public accoun-tants would be able to perform, consistentwith their attestation or other accountingstandards, verification procedures and re-porting with respect to FFIs under engage-ments that are not agreed-upon procedures.

2010–37 I.R.B. 342 September 13, 2010

B. Treatment of Passthru Payments

As part of an FFI Agreement, an FFImust deduct and withhold a tax equal to 30percent of (1) any passthru payment thatis made by such institution to a recalci-trant account holder or a non-participatingFFI, and (2) in the case of a passthru pay-ment made by such institution to a partic-ipating FFI that has elected under section1471(b)(3) to be withheld upon with re-spect to such payment, so much of suchpayment as is allocable to accounts heldby recalcitrant account holders or non-par-ticipating FFIs. Section 1471(b)(1)(D).Section 1471(d)(7) defines “passthru pay-ment” to mean any withholdable paymentor any other payment to the extent attrib-utable to a withholdable payment.

One of the purposes of requiring with-holding on passthru payments is to permitan FFI that has entered into an FFI Agree-ment to continue to remain in compliancewith its agreement, even if some of its ac-count holders have failed to provide theFFI with the information necessary for theFFI to properly determine whether the ac-counts are U.S. accounts and perform therequired reporting, or, in the case of ac-count holders that are FFIs, have failed toenter into an FFI Agreement. The rule alsoencourages FFIs that do not invest directlyin the United States or that do not holdU.S assets that produce withholdable pay-ments, but which benefit from investmentsthat produce payments that are attributableto withholdable payments, to enter into anFFI Agreement.

Treasury and the IRS have receivedcomments concerning the potential diffi-culties that may arise for FFIs in tryingto determine whether a payment is “at-tributable to” a withholdable payment.Comments are requested as to methodsthat a participating FFI could use to de-termine whether payments it makes areattributable to withholdable payments,including any associated information re-porting that may be necessary, and whichtake into account the administrative bur-den imposed by any such approach.

C. Election to be Withheld Upon

Under section 1471(b)(3), subject toany requirements imposed by the Secre-tary, a participating FFI may elect to havea withholding agent withhold on with-

holdable payments or passthru paymentsmade to it, rather than act as a withholdingagent for passthru payments it makes toits account holders. If a participating FFImeets the requirements the Secretary mayprovide and so elects, it will be withheldupon to the extent withholdable paymentsor passthru payments made to it are alloca-ble to accounts that are held by recalcitrantaccount holders or non-participating FFIs.As part of the election, a participating FFImust agree to notify the withholding agentof its election to be withheld upon andprovide such other information as may benecessary for the withholding agent to de-termine the appropriate amount to deductand withhold from withholdable paymentsor passthru payments it makes to the elect-ing FFI. The electing FFI must also agreeto a waiver of any right under any treatyof the United States with respect to anyamount deducted and withheld pursuantto the election. To the extent provided bythe Secretary, the election to be withheldupon may be made with respect to certainclasses or types of accounts of the partici-pating FFI.

Treasury and the IRS have receivedcomments regarding the administrativechallenges that may be raised by an elec-tion under section 1471(b)(3). Commentsare requested as to the appropriate scope ofsuch an election. In particular, commentsare requested as to the types of financialaccounts for which such an election shouldbe available. In addition, comments arerequested as to the type of informationreporting an electing FFI would need toprovide to a withholding agent so thatthe appropriate amount of tax could bededucted and withheld from any withhold-able payments or other passthru paymentsmade to the electing FFI.

D. Sanctions With Respect to RecalcitrantAccount Holders

As noted above, participating FFIs arerequired to withhold tax (or in the caseof an FFI that elects to be withheld upon,to provide a withholding agent with infor-mation necessary to determine appropriatewithholding) with respect to passthru pay-ments made to recalcitrant account hold-ers. Withholding with respect to recalci-trant account holders is intended to providerelief for participating FFIs that would nototherwise be able to collect the informa-

tion required to comply with their obli-gations under their FFI Agreements. Itshould not, however, become a permanentsubstitute for collecting and reporting in-formation with respect to U.S. accounts.Treasury and the IRS request comments onwhat measures should be taken to addresslong-term recalcitrant accounts, includingwhether, and in what circumstances, Trea-sury and the IRS should consider terminat-ing FFI Agreements due to the number ofrecalcitrant account holders remaining af-ter a reasonable period of time.

E. FFIs Subject to Restrictions ProhibitingU.S. Account Holders

Treasury and the IRS have receivedcomments stating that for purposes ofcomplying with certain legal requirements,some foreign collective investment vehi-cles have procedures and legal restrictionsthat prohibit the sale of their interests tocertain U.S. persons, and include or willinclude language to that effect in theirprospectuses and application documents.Similarly, in cases in which interests insuch vehicles are held by intermediariesor distributors that maintain direct accountrelationships with the beneficial ownersin such vehicles, applicable distributionor similar agreements contain covenantsand representations that prohibit the saleof such interests to U.S. persons.

Finally, it has been represented that incertain jurisdictions, AML/KYC laws sup-port compliance with these prohibitionsbecause they apply broadly to all brokersand distributors in the intermediation chainto require the identification of beneficialowners (including certain U.S. persons) in-vesting in such vehicles.

Treasury and the IRS are consideringwhether, under the standard set forth insection 1471(b)(2)(A), the types of legalrequirements and arrangements describedabove, potentially in connection with cer-tain additional requirements, may providea basis to treat such institutions as meetingthe requirements of section 1471(b). Trea-sury and the IRS thus request further com-ments on the following:

1. specific information about the appli-cable laws and regulations that mayresult in an investment vehicle’s deter-mination to prohibit sales of its inter-ests to U.S. persons;

September 13, 2010 343 2010–37 I.R.B.

2. the categories of investment vehiclesthat may be covered by such laws andregulations;

3. examples of the distribution or similaragreements that prohibit sales of inter-ests to U.S. persons;

4. information regarding the legallybinding nature of such prohibitionsand the penalties applicable to a vio-lation of such prohibitions;

5. the extent to which the AML/KYClaws used to enforce such a prohibi-tion would apply in identifying U.S.persons (as defined for U.S. tax pur-poses) that may invest in such vehi-cles, directly or through ownership inone or more other entities;

6. the extent to which purchases of inter-ests by non-participating FFIs wouldbe treated as unsuitable investmentsand the extent to which and mech-anisms by which non-participatingFFIs could be prohibited from pur-chasing such interests; and

7. approaches that would allow Treasuryand the IRS to verify or otherwise en-sure compliance with such prohibi-tions.

Treasury and the IRS are also consider-ing whether such requirements or similarfactors are an appropriate basis for apply-ing section 1471(b)(2)(A) to other types ofinvestment vehicles or FFIs.

F. Electronic Filing Requirements forFinancial Institutions

Section 522 of the Act amends section6011(e) to the Code to permit the Secretaryto require filing on magnetic media (elec-tronic filing) by financial institutions asdefined in section 1471(d)(5) with respectto tax for which such institutions are liableunder chapter 3 and chapter 4 of the Code,without regard to the general rule undersection 6011(e)(2) that limits the authorityof the Secretary to require electronic filingto persons required to file at least 250 re-turns during the calendar year.

Treasury and the IRS consider the re-ceipt of electronic filings by financial in-stitutions in lieu of paper filings to be crit-ical to chapter 3 and chapter 4 complianceefforts. As a result, Treasury and the IRSintend to issue regulations that would re-quire all or most financial institutions to

electronically file their returns with respectto tax for which such institutions are li-able under chapter 3 and chapter 4 of theCode. Treasury and the IRS anticipate thatthis requirement would impact many ex-isting filers. To provide sufficient timefor financial institutions to comment re-garding the implementation of this require-ment and to coordinate the effective datefor this requirement with the general effec-tive date of chapter 4, Treasury and the IRSintend to require electronic filings with re-gard to tax for which financial institutionsare liable under chapter 3 and chapter 4 ofthe Code beginning with returns filed fortaxable years ending after December 31,2012.

G. Application of Chapter 4 by U.S.Withholding Agents Other than USFIs

Treasury and the IRS contemplate per-mitting U.S. withholding agents other thanUSFIs to rely on a foreign entity’s certifi-cation as to its classification for chapter 4purposes, absent reason to know that suchcertification is unreliable or incorrect.These requirements would also apply withrespect to withholdable payments madeby FFIs and USFIs to NFFEs that are notholders of financial accounts maintainedby the financial institution. Treasury andIRS request comments on the form ofsuch certifications, their renewal provi-sions, and circumstances under which awithholding agent should not be requiredto solicit such certifications from certainclasses of persons or with respect to certainclasses of payments, such as arm’s-lengthpayments made for goods or services inthe ordinary course of the withholdingagent’s trade or business.

Treasury and the IRS also anticipateproviding an exception in guidance to thewithholding required under section 1472for payments made to an NFFE engagedin an active trade or business by withhold-ing agents other than financial institutions.Comments are requested regarding the ap-propriateness of such an exception, how awithholding agent may determine whetheran NFFE is engaged in an active tradeor business, and other exceptions to with-holding under section 1472 that may be ap-propriate.

H. Potential Modifications to Chapter 4Requirements Based on Availability ofInformation From Other Sources

In some cases, information required tobe collected and reported by FFIs underchapter 4 may already be reported to theIRS, or may otherwise be readily availableto the IRS through other means. Treasuryand the IRS intend to consider approachesthat will help minimize the burden onparticipating FFIs. For example, Treasuryand the IRS are considering whether toexempt a participating FFI from the obli-gation to perform withholding on passthrupayments to individual recalcitrant ac-count holders where reporting by theparticipating FFI to the IRS is sufficient topermit the IRS to obtain information aboutthe identities of those recalcitrant accountholders through an information exchangerequest to a foreign jurisdiction. Treasuryand the IRS solicit comments on possibleapproaches to reduce the burden imposedon participating FFIs by chapter 4.

REQUESTS FOR PUBLIC COMMENT

This notice requests public commentsregarding certain priority issues identifiedfor forthcoming guidance on the applica-tion of chapter 4 of the Code.

Written comments should be sent to:CC:PA:LPD:PR (NOT–121556–10), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may behand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to: CC:PA:LPD:PR (NOT–121556–10),Courier’s Desk, Internal Revenue Service,1111 Constitution Avenue, NW, Wash-ington, DC 20224 or sent electronicallyvia the Federal eRulemaking Portal atNotice.Comments@irscounsel.treas.gov(NOT–121556–10). Please insert “Notice2010–60” in the subject line of any elec-tronic communications.

All comments will be available forpublic inspection and copying. Due to thecompressed timeline for issuing guidancein advance of the effective date of chapter4, this notice solicits written commentsfrom affected persons by November 1,2010.

2010–37 I.R.B. 344 September 13, 2010

DRAFTING INFORMATION

The principal author of this notice isJohn Sweeney of the Office of Associate

Chief Counsel (International). For furtherinformation regarding this notice, contactKay Holman at (202) 622–3840 (not a toll-free call).

September 13, 2010 345 2010–37 I.R.B.

Part IV. Items of General InterestDeletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code

Announcement 2010–55

The Internal Revenue Service has re-voked its determination that the organi-zations listed below qualify as organiza-tions described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment under

section 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on September 7, andwould end on the date the court first deter-mines that the organization is not describedin section 170(c)(2) as more particularlyset forth in section 7428(c)(1). For indi-vidual contributors, the maximum deduc-tion protected is $1,000, with a husbandand wife treated as one contributor. Thisbenefit is not extended to any individual, inwhole or in part, for the acts or omissionsof the organization that were the basis forrevocation.

The Buyer’s Fund, Inc.Salt Lake City, UT

Unicorn Development CorporationSaint Joseph, MI

Ameri-Home Foundation, Inc.Lenexa, KS

Credit Counseling Bureau of San DiegoCountySan Diego, CA

Exegetical Institute, Inc.Kingsland, GA

Family Home Foundation, Inc.Orem, UT

Home Downpayment Gift Foundation,Inc.Washington, DC

Xelan Foundation, Inc.Tampa, FL

2010–37 I.R.B. 346 September 13, 2010

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

September 13, 2010 i 2010–37 I.R.B.

Numerical Finding List1

Bulletins 2010–27 through 2010–37

Announcements:

2010-43, 2010-27 I.R.B. 42

2010-44, 2010-28 I.R.B. 54

2010-45, 2010-29 I.R.B. 87

2010-46, 2010-29 I.R.B. 87

2010-47, 2010-30 I.R.B. 173

2010-48, 2010-32 I.R.B. 234

2010-49, 2010-34 I.R.B. 272

2010-50, 2010-33 I.R.B. 260

2010-51, 2010-33 I.R.B. 261

2010-52, 2010-36 I.R.B. 315

2010-53, 2010-36 I.R.B. 323

2010-55, 2010-37 I.R.B. 346

Notices:

2010-48, 2010-27 I.R.B. 9

2010-49, 2010-27 I.R.B. 10

2010-50, 2010-27 I.R.B. 12

2010-51, 2010-29 I.R.B. 83

2010-52, 2010-30 I.R.B. 88

2010-53, 2010-31 I.R.B. 182

2010-55, 2010-33 I.R.B. 253

2010-56, 2010-33 I.R.B. 254

2010-57, 2010-34 I.R.B. 267

2010-58, 2010-37 I.R.B. 326

2010-60, 2010-37 I.R.B. 329

Proposed Regulations:

REG-139343-08, 2010-33 I.R.B. 256

REG-151605-09, 2010-31 I.R.B. 184

REG-112841-10, 2010-27 I.R.B. 41

REG-118412-10, 2010-29 I.R.B. 85

REG-120391-10, 2010-35 I.R.B. 310

REG-120399-10, 2010-32 I.R.B. 239

Revenue Procedures:

2010-25, 2010-27 I.R.B. 16

2010-26, 2010-30 I.R.B. 91

2010-27, 2010-31 I.R.B. 183

2010-28, 2010-34 I.R.B. 270

2010-29, 2010-35 I.R.B. 309

2010-30, 2010-36 I.R.B. 316

2010-32, 2010-36 I.R.B. 320

Revenue Rulings:

2010-18, 2010-27 I.R.B. 1

2010-19, 2010-31 I.R.B. 174

2010-20, 2010-36 I.R.B. 312

Tax Conventions:

2010-48, 2010-32 I.R.B. 234

2010-52, 2010-36 I.R.B. 315

Treasury Decisions:

9486, 2010-27 I.R.B. 3

9487, 2010-28 I.R.B. 48

9488, 2010-28 I.R.B. 51

9489, 2010-29 I.R.B. 55

9490, 2010-31 I.R.B. 176

9491, 2010-32 I.R.B. 186

9492, 2010-33 I.R.B. 242

9493, 2010-35 I.R.B. 273

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin2010–26, dated June 28, 2010.

2010–37 I.R.B. ii September 13, 2010

Finding List of Current Actions onPreviously Published Items1

Bulletins 2010–27 through 2010–37

Notices:

2003-19

Revoked by

Notice 2010-53, 2010-31 I.R.B. 182

2009-47

Obsoleted by

Rev. Proc. 2010-28, 2010-34 I.R.B. 270

Revenue Procedures:

81-18

Obsoleted by

Rev. Proc. 2010-27, 2010-31 I.R.B. 183

2007-44

Modified by

Notice 2010-48, 2010-27 I.R.B. 9

2009-18

Obsoleted in part by

Rev. Proc. 2010-25, 2010-27 I.R.B. 16

2009-30

Superseded by

Rev. Proc. 2010-26, 2010-30 I.R.B. 91

Treasury Decisions:

9487

Corrected by

Ann. 2010-50, 2010-33 I.R.B. 260

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.

September 13, 2010 iii 2010–37 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-tendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weeklyBulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNETYou may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select

More Topics. Then select Internal Revenue Bulletins.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two tosix weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE INTERNALREVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, wewould be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.

Internal Revenue ServiceWashington, DC 20224Official BusinessPenalty for Private Use, $300