updated 2:28 PM CEST, May 24, 2023

IRS to non-U.S. banks: 'You don't need to close accounts of Americans whose TINs you don't have after all'

Under pressure from European banks in particular, the U.S. Internal Revenue Service has issued clarification with respect to a FATCA requirement that "foreign financial institutions" be obliged to provide the so-called Taxpayer Identification Numbers of their American clients from January, 2020 onward, which tax experts say means that banks now won't have to close the accounts of their TIN-lacking "accidental American" clients at the end of this year.

The new guidance is contained in a new question added 10 days ago to the IRS's FATCA FAQs page, according to John Richardson, a Toronto-based lawyer who is active in American expat matters.

It confirms comments issued in September by Dutch finance minister Menno Snel, who, as reported, said he based his statements on information he'd received "in recent weeks" from his "American counterparts about their enforcement of FATCA".

The IRS has not yet issued a statement formally announcing the new guidance with respect to FATCA and the TIN requirement, but tax experts spotted it and have been sharing the news of it on social media, Richardson and other tax experts said today. 

The new question reads as follows: "We are a Model 1 FFI [Model 1 Intergovernmental Agreement foreign financial institution] and the TIN [Taxpayer Identification Number] relief provided under Notice 2017-46 regarding treatment of pre-existing accounts will expire with the reporting of the 2019 data. Do we need to report all required TINs when we provide 2020 and future tax year data?"

The answer, which is lengthy, notes that although a U.S. TIN will be required for "U.S.-reportable" accounts beginning with the 2020 tax year, "a reporting Model 1 FFI is not required to immediately close or withhold on accounts that do not contain a TIN beginning January 1, 2020."

It continues: "An error notice will generate in scenarios where the TIN is missing or when the TIN is completed with nine As or 0s or in a systemically identifiable pattern...that indicates it is invalid.

"The error notice will provide 120 days to correct the issue.

"Consistent with the Intergovernmental Agreement (IGA) and Competent Authority Arrangement (CAA), if applicable, if the TIN is not provided within that 120-day period, the U.S. will evaluate the data received, and determine, through a consideration of the facts and circumstances if there is significant non-compliance."

The explanation then goes on to note that the financial institution in question "would have at least 18 months from the date of the notification of noncompliance to correct the TIN error before the IRS took any other further action, such as removing the FI’s Global Intermediary Identification Number from the IRS FFI List."

Campaigners against the way the U.S. taxes its expatriate citizens stressed that the new IRS guidance did not represent a change, which they maintain is still urgently needed. "There is a 120-day delay and then an 18-month grace period, as outlined in the #FATCA Model 1 IGA," Keith Redmond, of the Paris-based American Overseas Global Advocate organization, said.

"Nothing has changed.

"What is the IRS going to do? That is the question that must be answered."  

'There all along'

In a statement today, Richardson noted that he had been saying for some time that the fact that banks didn't need to close Americans' bank accounts at year's end if they lacked TINs – for most people, these are their Social Security numbers – because the terms of the Model 1 Intergovernmental Agreement had always made clear that there was an 18-month minimum time frame after the date that an account-holder was formally found to be non-compliant as a result of lacking a TIN.  

"It was there all along, for anyone to see, in the terms of the Model 1 IGA," Richardson added. 

"Banks that are closing the accounts of Americans because they lack a U.S. Social Security Number are doing so because they want to – and to be fair, you can understand why, given the complexity of the FATCA regulations and potential penalties involved, they might not want to have American clients. But they are not closing these accounts because they are required to.

"The clear terms of the  Model 1 IGA, confirmed by the IRS, mean that the earliest the banks could be in noncompliance would be 18 months from a notice of  noncompliance."

In order to implement FATCA, the U.S. created two basic intergovernmental agreement models, Model 1 and Model 2, and over the course of a couple of years prior to the law coming into force, negotiated each of them with more than 100 countries around the world. According to the Treasury's latest list, some 99 countries have signed up to the Model 1 IGA and 14 to the Model 2 IGA.

American Citizens Abroad

In a statement posted on its website on Oct. 30, the Rockville, Maryland-based American Citizens Abroad said it was "pleased to see that the IRS and Treasury understand the hardship that U.S. citizens are under in trying to provide their foreign financial institutions with the U.S. Social Security numbers", but noted that it "continues to advocate for the adoption of Same Country Exclusion for FATCA reporting, and for a definitive solution to the tax compliancy issues for U.S. citizens overseas through adoption of Residency-based taxation (RBT)". 

The ACA added that Social Security Administration sources had told it that the process for first-time applications for Social Security numbers had been "significantly expedited", but that first time applications still "require an in-person visit with Social Security Administration", which expats normally achieve by visiting their nearest Federal Benefits Unit. Such FBUs are located at U.S. embassies and consulates around the world.

This requirement can, though, cause delays, the ACA noted, "in particular for those who need to travel" some distance to get to their nearest FBU.  

Social Security Administration officials also told the ACA that the "most problematic" Social Security number cases tend to involve "individuals born in the U.S. prior to 1990, who returned at early age to live in a foreign country", because before that date, U.S. states didn't routinely issue Social Security numbers along with U.S. birth certificates.

Major issue for EU banks 

As the American Expat Financial News Journal has been reporting for months, Europe's banks in particular have increasingly been sounding the alarm about the difficulties they have been having in providing bank accounts to tens of thousands of European citizens who happen to be considered to be Americans by the U.S. tax authorities, but who typically don't view themselves as Americans, and who therefore often lack a TIN.

Among those highlighting the problem has been the Paris-based Accidental Americans Association, headed by Fabien Lehagre. Lehagre has helped to bring the issue to the attention of France's lawmakers as well as French and European news organizations.

As reported, the head of the Brussels-based European Banking Federation, which represents some 3,500 banks across Europe, warned U.S. Treasury officials in February about the problem, and said Europe's banks were increasingly having to choose between “[continuing] to provide financial services, including basic banking services” to these European citizens who are also U.S. citizens, but who lack a TIN – “or stop doing so."

One of the issues for Europe's banks is that they are required by law to provide bank accounts to those EU citizens who ask for one.

Since the EBF's formal warning in February, what was widely seen as an approaching December 31 expiration of a "grace period" that enabled banks to not have to report the TINs of their American clients increasingly focused banks' attention on the matter.

In July, the head of the French Banking Federation formally warned France's finance minister that the country's banks could be forced to close as many as 40,000 bank accounts belonging to French citizens with perceived U.S. tax obligations who lack the requisite TINs.

For Americans living outside the U.S., the problems began after President Obama signed the Foreign Account Tax Compliance Act into law – buried and thus effectively hidden inside a piece of domestic jobs legislation known as the HIRE Act.

FATCA required "foreign financial institutions", including non-U.S. banks, to report annually to the U.S. authorities on the accounts held by all of their American clients, or else face significant financial penalties. Almost as soon as the law was signed, banks began to ask Americans resident abroad to take their bank accounts elsewhere, even though FATCA didn't actually come into force until 2014.

The problem has been particularly difficult for hundreds of thousands of so-called "accidental Americans" who were often born in the U.S. to non-American parents who subsequently moved back to their home countries or elsewhere soon after, and brought up these children as citizens of other countries. Such individuals typically don't see why they should have to obtain Tax Information Numbers and file U.S. tax returns, let alone pay taxes to the U.S., and also cannot understand why their local banks and governments don't stand up for them when the U.S. insists that they should.

In August it emerged that the Dutch Banking Association had posted an animated, bilingual video on the home page of its website in which it warn those of its American clients who lacked a Social Security number of the need to get one, if they didn't wish to lose their Dutch bank accounts – and how they could go about applying for one at the U.S. Embassy.

In May, as reported, two French Assembly members published a report which called on the French government to engage in further negotiations over FATCA, and if necessary abandon it altogether, if it proved unable to resolve the "extra-territorial tax" problems, such as the bank accounts issue.

Editor's note: This story was updated on Oct. 31 to include the fact of the American Citizens Abroad's comments on the matter.