[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Rules and Regulations]
[Pages 10976-10989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05527]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9852]
RIN 1545-BL96


Chapter 4 Regulations Relating to Verification and Certification 
Requirements for Certain Entities and Reporting by Foreign Financial 
Institutions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document finalizes (with limited revisions) certain 
proposed regulations. The final regulations provide compliance 
requirements and verification procedures for sponsoring entities of 
foreign financial institutions (FFIs) and certain non-financial foreign 
entities (NFFEs), trustees of certain trustee-documented trusts, 
registered deemed-compliant FFIs, and financial institutions that 
implement consolidated compliance programs (compliance FIs). These 
final regulations affect certain financial institutions and NFFEs.

DATES: 
    Effective date: These regulations are effective on March 25, 2019.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.1471-1(c), 1.1471-4(j), 1.1471-5(m), and 1.1472-1(h).

FOR FURTHER INFORMATION CONTACT: Charles Rioux, at (202) 317-6942 (not 
a toll free number).

SUPPLEMENTARY INFORMATION: 

Background

    This Treasury decision contains amendments to 26 CFR part 1. On 
January 6, 2017, a notice of proposed rulemaking (REG-103477-14) 
proposing regulations under chapter 4 of Subtitle A (sections 1471 
through 1474) of the Internal Revenue Code of 1986 (Code) relating to 
verification requirements for certain entities was published in the 
Federal Register (82 FR 1629). The notice of proposed rulemaking also 
included proposed regulations, unrelated to these verification 
requirements, by cross-reference to temporary regulations that were 
published in the same issue of the Federal Register (82 FR 2124; TD 
9809). On September 15, 2017, a correction to the notice of proposed 
rulemaking was published in the Federal Register (82 FR 43314). No 
public hearing was requested or held. Written comments were received, 
and are available at www.regulations.gov or upon request. After 
consideration of the comments received, the proposed regulations 
relating to verification requirements for certain entities under 
chapter 4 are adopted (with limited modifications) by this Treasury 
decision. This Treasury decision does not finalize the proposed 
regulations in the notice of proposed rulemaking that cross-reference 
the temporary regulations. Those proposed regulations (REG-132857-17) 
will be adopted as final regulations at a later date. Hereinafter, the 
term ``proposed regulations'' when used in this preamble means the 
proposed regulations (REG-103477-14) relating to verification 
requirements for certain entities under chapter 4.
    The existing chapter 4 regulations permit certain FFIs and NFFEs to 
be sponsored by other entities (sponsoring entities) for purposes of 
satisfying their chapter 4 requirements. Generally, a sponsoring entity 
is an entity that agrees to perform chapter 4 due diligence, 
withholding, and reporting requirements on behalf of certain FFIs 
(sponsored FFIs) or chapter 4 due diligence and reporting obligations 
on behalf of certain direct reporting NFFEs (sponsored direct reporting 
NFFEs). An FFI that is a sponsored FFI is a deemed-compliant FFI, and a 
NFFE that is a sponsored direct reporting NFFE is an excepted NFFE. The 
proposed regulations provide verification requirements (including 
certifications of compliance) and events of default for sponsoring 
entities. The proposed regulations also provide certification 
requirements and procedures for the IRS's review of trustees of certain 
trustee-documented trusts and procedures for the IRS's review of 
periodic certifications provided by registered deemed-compliant FFIs. 
In addition, the proposed regulations describe the procedures for 
future modifications to the requirements for certifications of 
compliance for participating FFIs. The proposed regulations also 
clarify the requirements in the chapter 4 regulations for periodic 
certifications of compliance for consolidated compliance programs of 
participating FFIs and provide requirements for preexisting account 
certifications for these programs.

Summary of Comments and Explanation of Revisions

    After consideration of all the comments, the proposed regulations 
are adopted as amended by this Treasury decision. The comments and 
revisions are discussed below.

Definition of Responsible Officer

    The proposed regulations require a sponsoring entity of a sponsored 
FFI to appoint a responsible officer to oversee the compliance of the 
sponsoring entity with respect to each sponsored FFI. Proposed Sec.  
1.1471-1(b)(116) defines the term responsible officer with respect to a 
sponsoring entity as an officer of the sponsoring entity with 
sufficient authority to fulfill the duties of a responsible officer 
described in Sec.  1.1471-5(j) or Sec.  1.1472-1(f) (as applicable). A 
comment requested that the definition of responsible officer be 
expanded to include an officer of an FFI in the sponsoring entity's 
expanded affiliated group that has responsibility for ensuring the 
compliance of the sponsoring entity. The comment noted that in some 
cases an investment manager that is a sponsoring entity is a member of 
an affiliated group in which one member of the group is designated to 
oversee the compliance of all members with their chapter 4 
requirements.
    The proposed regulations require the responsible officer of a 
sponsoring entity to be an individual who is an officer of the 
sponsoring entity because the certifications required under these 
regulations should be made by the individual in the best position to 
know and represent whether the sponsoring entity is complying with its 
obligations.

[[Page 10977]]

The Department of the Treasury (Treasury Department) and the IRS 
understand that in practice, the person in the best position to know 
and represent if the sponsoring entity is complying with its 
obligations under these regulations may be an individual other than an 
officer of the sponsoring entity given industry practices established 
by managers and administrators of investment funds and similar vehicles 
for both chapter 4 and operational purposes. Therefore, these final 
regulations define responsible officer with respect to a sponsoring 
entity to include an officer of an entity that establishes and 
maintains policies and procedures for, and has general oversight over, 
the sponsoring entity, provided such individual has sufficient 
authority to fulfill the duties of a responsible officer described in 
Sec.  1.1471-5(j) or Sec.  1.1472-1(f) (as applicable).
    A comment noted that many investment entities do not appoint 
officers but may appoint directors for corporate governance purposes 
who would be able to fulfill the requirements of responsible officers. 
The comment further noted that in many cases in which investment 
entities are partnerships, the general partner or managing member has 
authority to act on behalf of the partnership, and the general partner 
or managing member may be an entity rather than an individual. The 
comment requested that the definition of a responsible officer of an 
investment entity be expanded to include these persons. In response to 
these comments, these final regulations revise the definition of a 
responsible officer of a financial institution or sponsoring entity 
that is an investment entity to include, in addition to an officer of 
such entity, an individual who is a director, managing member, or 
general partner of such entity, or, if the general partner or managing 
member of the investment entity is itself an entity, an individual who 
is an officer, director, managing member, or general partner of such 
other entity.
    The comment also requested that the term responsible officer be 
expanded to include, with respect to a participating FFI, an officer of 
a U.S. financial institution (USFI) in the participating FFI's expanded 
affiliated group (in addition to an officer of a participating FFI or 
reporting Model 1 FFI in the participating FFI's expanded affiliated 
group). This comment is not adopted because Sec.  1.1471-4(f) already 
permits a USFI to act as a compliance FI for purposes of establishing a 
consolidated compliance program and making a consolidated certification 
on behalf of one or more participating FFIs in an expanded affiliated 
group.

Coordination of Certification Requirements for Compliance FIs and 
Sponsoring Entities of Sponsored FFIs or Sponsored Direct Reporting 
NFFEs

    A comment requested clarification that a certification of a 
compliance FI or sponsoring entity on behalf of an electing FFI, 
sponsored FFI, or sponsored direct reporting NFFE would satisfy the 
certification requirements of the electing FFI, sponsored FFI, or 
sponsored direct reporting NFFE. These final regulations clarify that 
to the extent a compliance FI or sponsoring entity satisfies the 
certification requirements in Sec.  1.1471-4(f)(2)(ii), Sec.  1.1471-
5(j)(2) and (3), or Sec.  1.1472-1(f)(2) on behalf of an electing FFI, 
sponsored FFI, or sponsored direct reporting NFFE, then the electing 
FFI, sponsored FFI, or sponsored direct reporting NFFE will not have a 
separate certification requirement under Sec.  1.1471-4(f)(3), Sec.  
1.1471-5(f)(1)(ii)(B), or Sec.  1.1472-1(c)(3)(vi). For example, if a 
participating FFI agrees to be a sponsored FFI, the FFI is not required 
to submit any certification with respect to its participating FFI 
status after it is registered as a sponsored FFI by its sponsoring 
entity provided its sponsoring entity certifies on behalf of the FFI to 
the extent required under Sec.  1.1471-5(j)(3).
    The comment also requested that the certification period of a 
participating FFI that is a member of the expanded affiliated group 
that includes a compliance FI but is not an electing FFI under such 
compliance FI be aligned with the certification period of the 
compliance FI. The comment stated that coordinating the certification 
due dates of all FFIs in the expanded affiliated group would provide 
administrative benefits to the group. However, the comment did not 
explain why all FFIs could not join the consolidated compliance 
program. The Treasury Department and the IRS have decided not to revise 
the regulations in response to this request because a participating FFI 
already has the option of joining the consolidated compliance program 
under the compliance FI in order to align its certification period with 
that of the compliance FI.

Requirement for a Written Sponsorship Agreement

    The proposed regulations require a responsible officer of a 
sponsoring entity to certify that the sponsoring entity is compliant 
with the requirements of a sponsoring entity and maintains effective 
internal controls with respect to all sponsored FFIs for which it acts 
(or provide a qualified certification). One of the statements to which 
the responsible officer must certify is that the sponsoring entity has 
a written sponsorship agreement in effect with each sponsored FFI 
authorizing the sponsoring entity to fulfill the requirements of Sec.  
1.1471-5(f)(1)(i)(F) or (f)(2)(iii) or an applicable Model 2 IGA.
    A comment requested the elimination of the requirement that the 
sponsoring entity have a written sponsorship agreement in effect with 
each sponsored FFI. The comment stated that this requirement would 
increase administrative burden for sponsored FFIs. Another comment 
requested clarification of whether the sponsorship agreement must be a 
separate agreement between a sponsoring entity and a sponsored FFI that 
specifically refers to the requirements of a sponsoring entity with 
respect to a sponsored FFI under Sec.  1.1471-5(f)(1)(i)(F) or 
(f)(2)(iii) or an applicable Model 2 IGA. The comment stated that many 
sponsoring entities already have managerial agreements in place with 
sponsored FFIs that would allow the sponsoring entity to fulfill these 
requirements even without explicitly referring to them.
    These final regulations retain the requirement that a sponsoring 
entity have a written sponsorship agreement in place with each 
sponsored FFI. A written sponsorship agreement memorializes the 
agreement between the parties, which helps to ensure compliance. 
However, in response to the comments and to reduce burden, the Treasury 
Department and the IRS have decided that it is not necessary for the 
sponsorship agreement to be a standalone agreement, and that a 
sponsorship agreement between a sponsoring entity and a sponsored FFI 
can refer generally to the obligations of the parties under FATCA. 
Accordingly, these final regulations provide that the written 
sponsorship agreement may be part of another agreement between the 
sponsoring entity and the sponsored FFI provided it refers to the 
requirements of a sponsored FFI under FATCA. For example, a provision 
in a fund manager agreement that states that the sponsoring entity 
agrees to satisfy the sponsored FFI's FATCA obligations would be 
sufficient. Additionally, the proposed regulations do not specify when 
a sponsorship agreement must be in place for purposes of a sponsoring 
entity's certification requirements. To allow sufficient time for a 
sponsoring entity to enter into sponsorship agreements (or revise 
existing agreements), these final regulations

[[Page 10978]]

provide that a sponsoring entity of a sponsored FFI must have the 
written sponsorship agreement in place with such sponsored FFI by the 
later of March 31, 2019, or the date when the sponsoring entity begins 
acting as a sponsoring entity for such sponsored FFI. See Sec.  1.1471-
5(j)(6). These final regulations include similar rules for a sponsoring 
entity of a sponsored direct reporting NFFE regarding the date by which 
the written sponsorship agreement must be in place and that it need not 
be a standalone agreement. See Sec.  1.1472-1(f)(4).

Extension of Time for Certifications for the Certification Period 
Ending on December 31, 2017, for Sponsoring Entities of Sponsored FFIs 
or Sponsored Direct Reporting NFFEs and Trustees of Trustee-Documented 
Trusts

    The proposed regulations provide that a sponsoring entity of a 
sponsored FFI or sponsored direct reporting NFFE and a trustee of a 
trustee-documented trust must make the certifications of compliance 
described in Sec.  1.1471-5(j)(3), Sec.  1.1471-5(l)(2), or Sec.  
1.1472-1(f)(2), as applicable, on or before July 1 of the calendar year 
following the end of the certification period. The proposed regulations 
also provide that a sponsoring entity of a sponsored FFI must submit 
the preexisting account certification described in Sec.  1.1471-4(c)(7) 
by the due date of the sponsoring entity's certification of compliance 
for the certification period. The earliest certification period for a 
sponsoring entity or trustee of a trustee-documented trust ends on 
December 31, 2017, under the proposed regulations, making the earliest 
certification due date July 1, 2018. One comment requested that the 
certifications required of sponsoring entities be deferred to apply 
only for certification periods ending after 2018 in order to have 
sufficient time to prepare the certifications. The Treasury Department 
and the IRS understand that sponsoring entities need time to prepare 
for the certifications in light of the timing of the publication of 
these regulations. However, the Treasury Department and the IRS do not 
agree that sponsoring entities should not make certifications for the 
certification period ending December 31, 2017, because sponsoring 
entities have already had sufficient notice of their substantive 
requirements and because of the compliance value of certifications 
covering this period. These final regulations address the comment by 
providing additional time for sponsoring entities to make 
certifications that would otherwise be due on July 1, 2018. Under these 
final regulations, certifications by sponsoring entities and trustees 
of trustee-documented trusts for the certification period ending on 
December 31, 2017, must be submitted on or before March 31, 2019.

Registration by a Sponsored FFI or Sponsored Direct Reporting NFFE 
After Termination of the Sponsoring Entity by the IRS

    The proposed regulations provide that if a sponsoring entity of a 
sponsored FFI is terminated by the IRS, the sponsored FFI of the 
terminated sponsoring entity may not register as a sponsored FFI of a 
sponsoring entity that has a relationship described in section 267(b) 
with the terminated sponsoring entity unless the sponsored FFI obtains 
written approval from the IRS. The proposed regulations provide a 
similar rule regarding a terminated sponsoring entity of a sponsored 
direct reporting NFFE, but do not permit the sponsored direct reporting 
NFFE to obtain written approval from the IRS to register as a sponsored 
direct reporting NFFE of a section 267(b)-related sponsoring entity.
    Section 267(b) describes certain relationships among individuals, 
corporations, trusts, tax-exempt organizations, and S corporations. The 
rules described in this paragraph are intended to prevent a sponsored 
FFI or sponsored direct reporting NFFE from registering under an entity 
that is related to the terminated sponsoring entity, such as an entity 
under common control with the terminated sponsoring entity. However, 
the proposed regulations inadvertently omitted certain relationships 
between sponsoring entities that are partnerships. These final 
regulations correct this omission by providing that the rules described 
in this paragraph generally prohibit registration by a sponsored FFI or 
sponsored direct reporting NFFE under a sponsoring entity that has a 
relationship described in section 267(b) or 707(b) to the terminated 
sponsoring entity. Thus, for example, a sponsored FFI of a terminated 
sponsoring entity that is a partnership may not register under another 
sponsoring entity that is a partnership if the same person owns, 
directly or indirectly, more than 50 percent of capital interests or 
profits interests of both sponsoring entities. Additionally, these 
final regulations conform the rule for sponsored direct reporting NFFEs 
with the rule for sponsored FFIs by allowing a sponsored direct 
reporting NFFE to register under a sponsoring entity, notwithstanding 
that there is the impermissible relationship described in this 
paragraph, if the sponsored direct reporting NFFE obtains written 
approval from the IRS.

Sponsored Entities Located in a Model 1 IGA Jurisdiction

    The preamble to the proposed regulations provides that a financial 
institution covered by a Model 1 IGA that chooses to qualify as a 
sponsored FFI under Sec.  1.1471-5(f) instead of Annex II of the Model 
1 IGA must satisfy all of the requirements of the regulations 
applicable to such an entity. 82 FR 1629 at 1631. Comments requested 
that a financial institution located in a jurisdiction with a Model 1 
IGA that does not include a sponsored entity as a type of nonreporting 
financial institution in Annex II be allowed to comply with local 
guidance on sponsored entities or the Model 1 IGA Annex II rather than 
the regulations. The Treasury Department and the IRS are open to 
discussing the issue with the competent authorities of affected 
jurisdictions.

Nonsubstantive Changes

    These final regulations include several minor nonsubstantive 
changes to the proposed regulations. Section 1.1471-4(f)(2)(ii)(B)(1) 
was reorganized for clarity. Minor clarifying edits were made in 
Sec. Sec.  1.1471-4(f)(3)(i), 1.1471-5(f)(1)(i)(F)(4), (f)(1)(iv) 
introductory text, (f)(1)(iv)(A) and (B), (f)(2)(iii)(E), (j)(3)(ii) 
and (iii), (j)(4)(ii), (j)(5) and (6), (k)(4)(i), (ii), (iii), and (v), 
and (l)(2)(ii) and (iii), and 1.1472-1(f)(2)(ii) and (iii), (f)(3)(ii), 
(f)(4)(vii), and (g)(4)(i), (ii), and (iii).

Special Analyses

    The Administrator of the Office of Information and Regulatory 
Affairs (OIRA), Office of Management and Budget, has waived review of 
this rule in accordance with section 6(a)(3)(A) of Executive Order 
12866. This rule is an E.O. 13771 regulatory action.
    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2246. The collection of information 
in these final regulations is in Sec. Sec.  1.1471-4, 1.1471-5 and 
1.1472-1. The collection of information is on a certification filed 
with the IRS regarding the filer's compliance with its chapter 4 
requirements. This information is required to enable the IRS to verify 
that a taxpayer is complying with its requirements under chapter 4. 
Certifications are required from compliance FIs, sponsoring entities, 
and

[[Page 10979]]

trustees of trustee-documented trusts. Information on the estimated 
number of compliance FIs, sponsoring entities, and trustees of trustee-
documented trusts required to submit a certification under these final 
regulations is shown in table 1.

                                 Table 1
------------------------------------------------------------------------
                                                             Number of
                                                            respondents
                                                            (estimated)
------------------------------------------------------------------------
Compliance FIs..........................................    5,000-10,000
Sponsoring entities and trustees of trustee-documented     10,000-15,000
 trusts.................................................
------------------------------------------------------------------------

    Information on the number of compliance FIs, sponsoring entities, 
and trustees of trustee-documented trusts shown in table 1 is from the 
IRS's FATCA registration data. Comments are requested on the estimated 
number of respondents.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    Books and records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.
    It is hereby certified that the collection of information 
requirement in these final regulations will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6). Although the Treasury Department and IRS acknowledge that a 
small entity could be a compliance FI that is affected by these 
regulations, the Treasury Department and IRS have concluded this 
possibility is too small and the potential effect is too minimal to 
have a significant impact. Additionally, acting as a compliance FI is 
not required under the chapter 4 regulations. Furthermore, these 
regulations do not increase the regulatory burden on small entities 
because they clarify existing chapter 4 regulations regarding a 
compliance FI's certification obligations. Therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Code, the notice of proposed rulemaking preceding these regulations 
was submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Charles Rioux, Office 
of Associate Chief Counsel (International). However, other personnel 
from the IRS and the Treasury Department participated in the 
development of these regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *.


0
Par. 2. Section 1.1471-0 is amended by:
0
1. Adding entries for Sec.  1.1471-4(f)(2)(ii)(B)(1), 
(f)(2)(ii)(B)(1)(i) and (ii), (f)(2)(ii)(B)(2), and (j)(1) and (2).
0
2. Adding entries for Sec.  1.1471-5(f)(1)(iv), (f)(1)(iv)(A) and (B), 
(j)(1), (2), and (3), (j)(3)(i), (j)(3)(i)(A) and (B), (j)(3)(ii) 
through (vi), (j)(3)(vi)(A) and (B), (j)(3)(vii), (j)(4), (j)(4)(i) 
through (iii), (j)(5) and (6), (k)(1) through (4), (k)(4)(i) through 
(v).
0
3. Revising the entry for Sec.  1.1471-5(l).
0
4. Adding entries for Sec.  1.1471-5(l)(1) and (2), (l)(2)(i), 
(l)(2)(i)(A) and (B), (l)(2)(ii) through (iv), (l)(3), (l)(3)(i) and 
(ii), and (m).
0
5. Adding entries for Sec.  1.1472-1(f)(1) and (2), (f)(2)(i), 
(f)(2)(i)(A) and (B), (f)(2)(ii) through (iv), (f)(3), (f)(3)(i) and 
(ii), (f)(4), (g)(1) through (g)(4), and (g)(4)(i) through (iv).
    The additions and revisions read as follows:


Sec.  1.1471-0  Outline of regulation provisions for sections 1471 
through 1474.

* * * * *

Sec.  1.1471-4 FFI agreement.

* * * * *
    (f) * * *
    (2) * * *
    (ii) * * *
    (B) * * *
    (1) Periodic certification.
    (i) In general.
    (ii) Late-joining electing FFIs.
    (2) Preexisting account certification.
* * * * *
    (j) * * *
    (1) In general.
    (2) Special applicability date.

Sec.  1.1471-5 Definitions applicable to section 1471.

* * * * *
    (f) * * *
    (1) * * *
    (iv) IRS review of compliance by registered deemed-compliant 
FFIs.
    (A) General inquiries.
    (B) Inquiries regarding substantial non-compliance.
* * * * *
    (j) * * *
    (1) In general.
    (2) Compliance program.
    (3) Certification of compliance.
    (i) Certification requirement.
    (A) In general.
    (B) Extension of time for the certification period ending on 
December 31, 2017.
    (ii) Late-joining sponsored FFIs.
    (iii) Certification period.
    (iv) Additional certifications or information.
    (v) Certifications regarding sponsoring entity and sponsored FFI 
requirements.
    (vi) Certifications regarding internal controls.
    (A) Certification of effective internal controls.
    (B) Qualified certification.
    (vii) Material failures defined.
    (4) IRS review of compliance.
    (i) General inquiries.
    (ii) Inquiries regarding substantial non-compliance.
    (iii) Compliance procedures for a sponsored FFI subject to a 
Model 2 IGA.
    (5) Preexisting account certification.
    (6) Sponsorship agreement.
    (k) * * *
    (1) Defined.
    (2) Notice of event of default.
    (3) Remediation of event of default.
    (4) Termination.
    (i) In general.
    (ii) Termination of sponsoring entity.
    (iii) Termination of sponsored FFI.
    (iv) Reconsideration of notice of default or notice of 
termination.
    (v) Sponsoring entity of sponsored FFIs subject to a Model 2 
IGA.
    (l) Trustee-documented trust verification.
    (1) Compliance program.
    (2) Certification of compliance.
    (i) Certification requirement.
    (A) In general.
    (B) Extension of time for the certification period ending on 
December 31, 2017.
    (ii) Late-joining trustee-documented trusts.
    (iii) Certification period.
    (iv) Certifications.
    (3) IRS review of compliance by trustees of trustee-documented 
trusts.
    (i) General inquiries.
    (ii) Inquiries regarding substantial non-compliance.
    (m) Applicability date.
* * * * *

Sec.  1.1472-1 Withholding on NFFEs.

* * * * *
    (f) * * *
    (1) In general.
    (2) Certification of compliance.
    (i) Certification requirement.
    (A) In general.
    (B) Extension of time for the certification period ending on 
December 31, 2017.

[[Page 10980]]

    (ii) Late-joining sponsored direct reporting NFFEs.
    (iii) Certification period.
    (iv) Certifications.
    (3) IRS review of compliance.
    (i) General inquiries.
    (ii) Inquiries regarding substantial non-compliance.
    (4) Sponsorship agreement.
    (g) * * *
    (1) Defined.
    (2) Notice of event of default.
    (3) Remediation of event of default.
    (4) Termination.
    (i) In general.
    (ii) Termination of sponsoring entity.
    (iii) Termination of sponsored direct reporting NFFE.
    (iv) Reconsideration of notice of default or notice of 
termination.
* * * * *

0
Par. 3. Section 1.1471-1 is amended by revising paragraphs (b)(116) and 
(121) and (c) to read as follows:


Sec.  1.1471-1   Scope of chapter 4 and definitions.

* * * * *
    (b) * * *
    (116) Responsible officer. The term responsible officer means, with 
respect to a participating FFI, an officer of any participating FFI or 
reporting Model 1 FFI in the participating FFI's expanded affiliated 
group with sufficient authority to fulfill the duties of a responsible 
officer described in Sec.  1.1471-4, which include the requirement to 
periodically certify to the IRS regarding the FFI's compliance with its 
FFI agreement. The term responsible officer means, in the case of a 
registered deemed-compliant FFI, an officer of any deemed-compliant FFI 
or participating FFI in the deemed-compliant FFI's expanded affiliated 
group with sufficient authority to ensure that the FFI meets the 
applicable requirements of Sec.  1.1471-5(f). The term responsible 
officer means, with respect to a sponsoring entity, an officer of the 
sponsoring entity or an officer of an entity that establishes and 
maintains policies and procedures for, and has general oversight over, 
the sponsoring entity, provided such officer has sufficient authority 
to fulfill the duties of a responsible officer described in Sec.  
1.1471-5(j) or Sec.  1.1472-1(f) (as applicable). If a participating 
FFI elects to be part of a consolidated compliance program, the term 
responsible officer means an officer of the compliance FI (as described 
in Sec.  1.1471-4(f)) with sufficient authority to fulfill the duties 
of a responsible officer described in Sec.  1.1471-4(f)(2) and (3) on 
behalf of each FFI in the compliance group. In the case of an FI or 
sponsoring entity that is an investment entity, for purposes of this 
paragraph (b)(116), the responsible officer may be, in lieu of an 
officer of the investment entity, an individual who is a director, 
managing member, or general partner of the investment entity or, if the 
general partner or managing member of the investment entity is itself 
an entity, an individual who is an officer, director, managing member, 
or general partner of such other entity.
* * * * *
    (121) Sponsored FFI. The term sponsored FFI means any entity 
described in Sec.  1.1471-5(f)(1)(i)(F) (describing sponsored 
investment entities and sponsored controlled foreign corporations) or 
Sec.  1.1471-5(f)(2)(iii) (describing sponsored, closely held 
investment vehicles). The term sponsored FFI also means a sponsored 
investment entity, a sponsored controlled foreign corporation, or a 
sponsored, closely held investment vehicle treated as deemed-compliant 
under an applicable Model 2 IGA.
* * * * *
    (c) Applicability date. This section generally applies beginning on 
January 6, 2017, except for paragraphs (b)(116) and (121) of this 
section, which apply beginning on March 25, 2019. However, taxpayers 
may apply these provisions as of January 28, 2013. (For the rules that 
otherwise apply beginning on January 6, 2017, and before March 25, 
2019, see this section as in effect and contained in 26 CFR part 1 
revised April 1, 2018. For rules that otherwise apply beginning on 
January 28, 2013, and before January 6, 2017, see this section as in 
effect and contained in 26 CFR part 1 revised April 1, 2016.)

0
Par. 4. Section 1.1471-4 is amended by:
0
1. Revising paragraphs (f)(2)(ii)(A).
0
2. Adding paragraphs (f)(2)(ii)(B)(1) and (2).
0
3. Revising paragraphs (f)(3)(i), (g)(2), and (j)(1).
    The revisions and additions read as follows:


Sec.  1.1471-4  FFI agreement.

* * * * *
    (f) * * *
    (2) * * *
    (ii) * * * (A) In general. A participating FFI that is a member of 
an expanded affiliated group that includes one or more FFIs may elect 
to be part of a consolidated compliance program (and perform a 
consolidated periodic review) under the authority of a participating 
FFI, reporting Model 1 FFI, or U.S. financial institution (compliance 
FI) that is a member of the electing FFI's expanded affiliated group, 
regardless of whether all such members so elect. In addition, when an 
FFI elects to be part of a consolidated compliance program, each branch 
that it maintains (including a limited branch or a branch described in 
Sec.  1.1471-5(f)(1)), other than a branch located in a Model 1 IGA 
jurisdiction, must be subject to periodic review as part of such 
program and included on the periodic certification (described in 
paragraph (f)(2)(ii)(B)(1) of this section). To the extent that a 
compliance FI satisfies the certification requirements of paragraph 
(f)(2)(ii)(B) of this section on behalf of an electing FFI, such 
electing FFI does not have a certification requirement under paragraph 
(f)(3) of this section. See Sec.  1.1471-5(j) for the requirement of a 
sponsoring entity to establish and implement a compliance program for 
its sponsored FFIs.
    (B) * * *
    (1) Periodic certification--(i) In general. On or before July 1 of 
the calendar year following the end of the certification period, the 
responsible officer of the compliance FI must make the certification 
described in either paragraph (f)(3)(ii) or (iii) of this section with 
respect to all electing FFIs for which it acts during the certification 
period on the form and in the manner prescribed by the IRS. The 
certification must be made on behalf of all electing FFIs in the 
compliance group during the certification period, except as otherwise 
provided in paragraph (f)(2)(ii)(B)(1)(ii) of this section. The first 
certification period for a compliance group begins on the later of the 
date the compliance FI is issued a GIIN or June 30, 2014, and ends at 
the close of the third full calendar year following such date. Each 
subsequent certification period is the three-calendar-year period 
following the previous certification period.
    (ii) Late-joining electing FFIs. In general, with respect to a 
certification period, a compliance FI is not required to make a 
certification for an electing FFI that first elects to be part of the 
consolidated compliance program of the compliance FI during the six-
month period before the end of the certification period, provided that 
the compliance FI makes certifications for such electing FFI for 
subsequent certification periods, and the first such certification 
covers both the subsequent certification period and the portion of the 
prior certification period of the compliance group during which such 
FFI was an electing FFI in the consolidated compliance program of the 
compliance FI. However, the preceding sentence does not apply to an 
electing FFI that, immediately before the electing FFI elects to be 
part of the consolidated compliance program, was a participating FFI or 
registered deemed-compliant FFI. The compliance FI may certify for an 
electing FFI described in the preceding sentence for

[[Page 10981]]

the portion of the certification period of the compliance group before 
the date that the electing FFI elects to be part of the consolidated 
compliance program if the compliance FI obtains from the FFI (or the 
FFI's former compliance FI, if applicable) a written certification that 
the FFI has complied with its applicable chapter 4 requirements during 
such portion of the certification period, provided that: The compliance 
FI does not know that such certification is unreliable or incorrect; 
and the certification for the electing FFI for the subsequent 
certification period covers both the subsequent certification period 
and the portion of the prior certification period during which such FFI 
was an electing FFI in the consolidated compliance program of the 
compliance FI.
    (2) Preexisting account certification. The responsible officer of a 
compliance FI must make the certification described in paragraph (c)(7) 
of this section (preexisting account certification of a participating 
FFI) with respect to each electing FFI that elects to be part of the 
consolidated compliance program under the compliance FI during the 
certification period. However, a preexisting account certification is 
not required for an electing FFI if immediately before electing to be 
part of the consolidated compliance program under the compliance FI the 
FFI was a participating FFI or a registered deemed-compliant FFI that 
is a local FFI or restricted fund, and the FFI (or the FFI's former 
compliance FI, if applicable) provides a written certification to the 
compliance FI that the FFI has made the preexisting account 
certification required under paragraph (c)(7) of this section or Sec.  
1.1471-5(f)(1)(i)(A)(7) or (f)(1)(i)(D)(6) (as applicable), unless the 
compliance FI knows that such written certification is unreliable or 
incorrect. In addition, a preexisting account certification is not 
required for an electing FFI that elects to be part of the consolidated 
compliance program under the compliance FI during the two year period 
before the end of the certification period, provided that the 
compliance FI makes the preexisting account certification for such FFI 
for the subsequent certification period. The certification required 
under this paragraph (f)(2)(ii)(B)(2) for the certification period must 
be submitted by the due date of the FFI's certification of compliance 
required under paragraph (f)(2)(ii)(B)(1)(i) of this section for the 
certification period, on the form and in the manner prescribed by the 
IRS.
    (3) * * *
    (i) In general. In addition to the certifications required under 
paragraph (c)(7) of this section, on or before July 1 of the calendar 
year following the end of each certification period, the responsible 
officer must make the certification described in either paragraph 
(f)(3)(ii) or (iii) of this section on the form and in the manner 
prescribed by the IRS. The first certification period begins on the 
effective date of the FFI agreement and ends at the close of the third 
full calendar year following the effective date of the FFI agreement. 
Each subsequent certification period is the three-calendar-year period 
following the previous certification period, unless the FFI agreement 
provides for a different period. The responsible officer must either 
certify that the participating FFI maintains effective internal 
controls or, if the participating FFI has identified an event of 
default (defined in paragraph (g) of this section) or a material 
failure (defined in paragraph (f)(3)(iv) of this section) that it has 
not corrected as of the date of the certification, must make the 
qualified certification described in paragraph (f)(3)(iii) of this 
section. The certification of compliance described in paragraph 
(f)(3)(ii) or (iii) of this section may be modified through an 
amendment to the FFI agreement to include any additional certifications 
or information (such as quantitative or factual information related to 
the FFI's compliance with the FFI agreement), provided that any 
additional information or certifications are published at least 90 days 
before being incorporated into the FFI agreement to allow for public 
comment.
* * * * *
    (g) * * *
    (2) Notice of event of default. Following an event of default known 
by or disclosed to the IRS, the IRS will deliver to the participating 
FFI a notice of default specifying the event of default. The IRS will 
request that the participating FFI remediate the event of default 
within 45 days (unless additional time is requested and agreed to by 
the IRS). The participating FFI must respond to the notice of default 
and provide information responsive to an IRS request for information or 
state the reasons why the participating FFI does not agree that an 
event of default has occurred. Taking into account the terms of any 
applicable Model 2 IGA, if the participating FFI does not provide a 
response within the specified time period, the IRS may, at its sole 
discretion, deliver a notice of termination that terminates the FFI's 
participating FFI status. If the FFI's participating FFI status is 
terminated, in addition to the requirements in Sec.  1.1471-
3(c)(6)(ii)(E)(2), the FFI must, within 30 days of the termination, 
send notice of the termination to each withholding agent from which it 
receives payments and each financial institution with which it holds an 
account for which a withholding certificate or other documentation was 
provided. An FFI that has had its participating FFI status terminated 
may not reregister on the FATCA registration website as a participating 
FFI or registered deemed-compliant FFI unless it receives written 
approval from the IRS to register. A participating FFI may request, 
within 90 days of a notice of default or notice of termination, 
reconsideration of a notice of default or notice of termination by 
written request to the IRS.
* * * * *
    (j) * * * (1) In general. This section generally applies beginning 
on January 6, 2017, except for paragraphs (f)(2)(ii)(A), 
(f)(2)(ii)(B)(1) and (2), (f)(3)(i), and (g)(2) of this section, which 
apply March 26, 2019. However, taxpayers may apply these provisions as 
of January 28, 2013. (For the rules that otherwise apply beginning on 
January 6, 2017, and before March 26, 2019, see this section as in 
effect and contained in 26 CFR part 1 revised April 1, 2018. For rules 
that apply beginning on January 23, 2013 and before January 6, 2017, 
see this section as in effect and contained in 26 CFR part 1 revised 
April 1, 2016.)
* * * * *

0
Par. 5. Section 1.1471-5 is amended by:
0
1. Revising paragraph (f)(1)(i)(F)(3)(vi).
0
2. Removing paragraph (f)(1)(i)(F)(3)(vii).
0
3. Redesignating paragraph (f)(1)(i)(F)(3)(viii) as paragraph 
(f)(1)(i)(F)(3)(vii).
0
4. Revising paragraph (f)(1)(i)(F)(4).
0
5. Adding paragraph (f)(1)(iv).
0
6. Revising paragraph (f)(2)(iii)(D)(4).
0
7. Removing paragraph (f)(2)(iii)(D)(5).
0
8. Redesignating paragraph (f)(2)(iii)(D)(6) as paragraph 
(f)(2)(iii)(D)(5).
0
9. Revising paragraph (f)(2)(iii)(E).
0
10. Revising paragraphs (j) and (k).
0
11. Redesignating paragraph (l) as paragraph (m).
0
12. Adding new paragraph (l).
0
13. Revising newly redesignated paragraph (m).
    The revisions and additions read as follows:


Sec.  1.1471-5   Definitions applicable to section 1471.

* * * * *

[[Page 10982]]

    (f) * * *
    (1) * * *
    (i) * * *
    (F) * * *
    (3) * * *
    (vi) Complies with the verification procedures described in 
paragraph (j) of this section; and
* * * * *
    (4) The IRS may revoke a sponsoring entity's status with respect to 
one or more sponsored FFIs based on the provisions of paragraphs 
(k)(2), (3), and (4) of this section (describing notice of event of 
default, remediation, and termination procedures) if there is an event 
of default as defined in paragraph (k)(1) of this section.
* * * * *
    (iv) IRS review of compliance by registered deemed-compliant FFIs--
(A) General inquiries. With respect to a registered deemed-compliant 
FFI described in paragraph (f)(1)(i)(A), (C), or (D) of this section, 
the IRS, based upon the information reporting forms described in Sec.  
1.1471-4(d)(3)(v), (d)(5)(vii), or (d)(6)(iv) filed with the IRS for 
each calendar year (if applicable), may request additional information 
with respect to the information reported (or required to be reported) 
on the forms, the account statements described in Sec.  1.1471-
4(d)(4)(v), or confirmation that the FFI has no reporting requirements 
for the calendar year. The IRS may request additional information from 
the FFI to determine the FFI's compliance with Sec.  1.1471-4 (if 
applicable) and to assist the IRS with its review of account holder 
compliance with tax reporting requirements. For IRS review of 
compliance with respect to a registered deemed-compliant FFI described 
in paragraph (f)(1)(i)(F) of this section (describing sponsored 
investment entities and controlled foreign corporations), see paragraph 
(j)(4) of this section.
    (B) Inquiries regarding substantial non-compliance. With respect to 
a registered deemed-compliant FFI described in paragraph (f)(1)(i)(A) 
through (E) of this section, the IRS may determine in its discretion 
that the FFI may not have substantially complied with the requirements 
of the deemed-compliant status claimed by the FFI. This determination 
is based on the information reporting forms described in Sec.  1.1471-
4(d)(3)(v), (d)(5)(vii), or (d)(6)(iv) filed with the IRS for each 
calendar year (if applicable), the certifications made by the 
responsible officer described in paragraph (f)(1)(ii)(B) of this 
section (or the absence of such certifications), or any other 
information related to the FFI's compliance with the requirements of 
the deemed-compliant status claimed by the FFI. In such a case, the IRS 
may request from the responsible officer (or designee) information 
necessary to verify the FFI's compliance with the requirements for the 
deemed-compliant status claimed by the FFI. For example, in the case of 
a local FFI under paragraph (f)(1)(i)(A) of this section, the IRS may 
request a description or copy of the FFI's policies and procedures for 
identifying accounts held by specified U.S. persons not resident in the 
jurisdiction in which the FFI is incorporated or organized, identifying 
entities controlled or beneficially owned by such persons, and 
identifying nonparticipating FFIs. The IRS may also request the 
performance of specified review procedures by a person (including an 
external auditor or third-party consultant) that the IRS identifies as 
competent to perform such procedures given the facts and circumstances 
surrounding the FFI's potential failure to comply with the requirements 
of the deemed-compliant category claimed by the FFI. If the IRS 
determines that the FFI has not complied with the requirements of the 
deemed-compliant status claimed by the FFI, the IRS may terminate the 
FFI's deemed-compliant status. If the FFI's deemed-compliant status is 
terminated, the FFI must send notice of the termination to each 
withholding agent from which it receives payments and each financial 
institution with which it holds an account for which a withholding 
certificate or other documentation was provided within 30 days after 
the termination. An FFI that has had its deemed-compliant status 
terminated may not reregister on the FATCA registration website as a 
registered deemed-compliant FFI or register on the FATCA registration 
website as a participating FFI unless it receives written approval from 
the IRS. A registered deemed-compliant FFI may request, within 90 days 
of a notice of termination, reconsideration of the notice of 
termination by written request to the IRS.
    (2) * * *
    (iii) * * *
    (D) * * *
    (4) Complies with the verification procedures described in 
paragraph (j) of this section; and
* * * * *
    (E) The IRS may revoke a sponsoring entity's status as a sponsoring 
entity with respect to one or more sponsored FFIs based on the 
provisions of paragraphs (k)(2), (3), and (4) of this section 
(describing notice of event of default, remediation, and termination 
procedures) if there is an event of default as defined in paragraph 
(k)(1) of this section. A sponsoring entity is not liable for any 
failure to comply with the obligations contained in paragraph 
(f)(2)(iii)(D) of this section unless the sponsoring entity is a 
withholding agent that is separately liable for the failure to withhold 
on or report with respect to a payment made by the sponsoring entity on 
behalf of the sponsored FFI. A sponsored FFI will remain liable for any 
failure of its sponsoring entity to comply with the obligations 
contained in paragraph (f)(2)(iii)(D) of this section that the 
sponsoring entity has agreed to undertake on behalf of the FFI, even if 
the sponsoring entity is also a withholding agent and is itself 
separately liable for the failure to withhold on or report with respect 
to a payment made by the sponsoring entity on behalf of the sponsored 
FFI. The same tax, interest, or penalties, however, shall not be 
collected more than once.
* * * * *
    (j) Sponsoring entity verification--(1) In general. This paragraph 
(j) describes the requirements for a sponsoring entity of a sponsored 
FFI to establish and implement a compliance program for satisfying its 
requirements as a sponsoring entity and to provide a certification of 
compliance with its requirements. This paragraph (j) also describes the 
procedures for the IRS to review the sponsoring entity's compliance 
with respect to each sponsored FFI for purposes of satisfying the 
requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of this section 
or an applicable Model 2 IGA. For purposes of a sponsoring entity's 
certification of compliance under this paragraph (j), a sponsoring 
entity must have in place a written sponsorship agreement described in 
paragraph (j)(6) of this section with each sponsored FFI. See paragraph 
(j)(3)(v)(B) of this section for the certification regarding a 
sponsoring entity's sponsorship agreement with each sponsored FFI.
    (2) Compliance program. The sponsoring entity must appoint a 
responsible officer to oversee the compliance of the sponsoring entity 
with respect to each sponsored FFI for purposes of satisfying the 
requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of this section 
or an applicable Model 2 IGA. The responsible officer must (either 
personally or through designated persons) establish a compliance 
program that includes policies, procedures, and processes sufficient 
for the sponsoring entity to satisfy the

[[Page 10983]]

requirements described in the preceding sentence. The responsible 
officer (or designee) must periodically review the sufficiency of the 
sponsoring entity's compliance program, the sponsoring entity's 
compliance with respect to each sponsored FFI for purposes of 
satisfying the requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of 
this section or an applicable Model 2 IGA, and the compliance of each 
sponsored FFI with the due diligence, withholding, and reporting 
requirements of Sec.  1.1471-4 or an applicable Model 2 IGA during the 
certification period described in paragraph (j)(3)(iii) of this 
section. The results of the periodic review must be considered by the 
responsible officer in making the periodic certifications described in 
paragraph (j)(3) of this section.
    (3) Certification of compliance--(i) Certification requirement--(A) 
In general. In addition to the certification required under paragraph 
(j)(5) of this section (preexisting account certification), and except 
as otherwise provided in paragraph (j)(3)(i)(B) or (j)(3)(ii) of this 
section, on or before July 1 of the calendar year following the 
certification period, the responsible officer of the sponsoring entity 
must make the certification described in paragraph (j)(3)(v) of this 
section and either the certification described in paragraph 
(j)(3)(vi)(A) of this section or the certification described in 
paragraph (j)(3)(vi)(B) of this section with respect to all sponsored 
FFIs for which the sponsoring entity acts during the certification 
period on the form and in the manner prescribed by the IRS. To the 
extent that a sponsoring entity satisfies the certification 
requirements of paragraph (j)(3) of this section on behalf of a 
sponsored FFI, the sponsored FFI does not have a certification 
requirement under paragraph (f)(1)(ii)(B) of this section.
    (B) Extension of time for the certification period ending on 
December 31, 2017. The certifications required for a certification 
period ending on December 31, 2017, must be submitted on or before 
March 31, 2019.
    (ii) Late-joining sponsored FFIs. In general, with respect to a 
certification period, a sponsoring entity is not required to make a 
certification for a sponsored FFI that first agrees to be sponsored by 
the sponsoring entity during the six-month period before the end of the 
sponsoring entity's certification period, provided that the sponsoring 
entity makes certifications for such sponsored FFI for subsequent 
certification periods and the first such certification covers both the 
subsequent certification period and the portion of the prior 
certification period of the sponsoring entity during which such FFI was 
sponsored by the sponsoring entity. However, the preceding sentence 
does not apply to a sponsored FFI that, immediately before the FFI 
agrees to be sponsored by the sponsoring entity, was a participating 
FFI, registered deemed-compliant FFI, or sponsored, closely held 
investment vehicle of another sponsoring entity. The sponsoring entity 
may certify for a sponsored FFI described in the preceding sentence for 
the portion of the certification period of the sponsoring entity before 
the date that the FFI first agrees to be sponsored by the sponsoring 
entity if the sponsoring entity obtains from the FFI (or the FFI's 
sponsoring entity, if applicable) a written certification that the FFI 
has complied with its applicable chapter 4 requirements during such 
portion of the certification period, provided that: the sponsoring 
entity does not know that such certification is unreliable or 
incorrect; and the certification for the sponsored FFI for the 
subsequent certification period covers both the subsequent 
certification period and the portion of the prior certification period 
during which such FFI was sponsored by the sponsoring entity.
    (iii) Certification period. The first certification period of a 
sponsoring entity begins on the later of the date the sponsoring entity 
is issued a GIIN to act as a sponsoring entity or June 30, 2014, and 
ends at the close of the third full calendar year following such date. 
Each subsequent certification period is the three-calendar-year period 
following the previous certification period.
    (iv) Additional certifications or information. The certification of 
compliance described in paragraph (j)(3) of this section may be 
modified to include additional certifications or information (such as 
quantitative or factual information related to the sponsoring entity's 
compliance with respect to each sponsored FFI for purposes of 
satisfying the requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of 
this section or an applicable Model 2 IGA), provided that such 
additional information or certifications are published at least 90 days 
before being made effective in order to allow for public comment.
    (v) Certifications regarding sponsoring entity and sponsored FFI 
requirements. The responsible officer of the sponsoring entity must 
certify to the following statements--
    (A) The sponsoring entity meets all of the requirements of a 
sponsoring entity as described in paragraph (f)(1)(i)(F)(3) or 
(f)(2)(iii)(D) of this section or an applicable Model 2 IGA, including 
the chapter 4 status required of such entity;
    (B) The sponsoring entity has a written sponsorship agreement in 
effect with each sponsored FFI authorizing the sponsoring entity to 
fulfill the requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of 
this section or an applicable Model 2 IGA with respect to each 
sponsored FFI; and
    (C) Each sponsored FFI treated as a sponsored investment entity, a 
sponsored controlled foreign corporation, or a sponsored, closely held 
investment vehicle by the sponsoring entity meets the requirements of 
its respective status.
    (vi) Certifications regarding internal controls--(A) Certification 
of effective internal controls. The responsible officer of the 
sponsoring entity must certify to the following statements--
    (1) The responsible officer of the sponsoring entity has 
established a compliance program that is in effect as of the date of 
the certification and that has been subject to the review as described 
in paragraph (j)(2) of this section;
    (2) With respect to material failures (defined in paragraph 
(j)(3)(vii) of this section)--
    (i) There are no material failures for the certification period; or
    (ii) If there were any material failures, appropriate actions were 
taken to remediate such failures and to prevent such failures from 
reoccurring; and
    (3) With respect to any failure to withhold, deposit, or report to 
the extent required under Sec.  1.1471-4 or an applicable Model 2 IGA 
with respect to any sponsored FFI for any year during the certification 
period, the sponsored FFI has corrected such failure by paying (or 
directing the sponsoring entity to pay) any taxes due (including 
interest and penalties) and filing (or directing the sponsoring entity 
to file) the appropriate return (or amended return).
    (B) Qualified certification. If the responsible officer of the 
sponsoring entity has identified an event of default (defined in 
paragraph (k)(1) of this section) or a material failure (defined in 
paragraph (j)(3)(vii) of this section) that the sponsoring entity has 
not corrected as of the date of the certification, the responsible 
officer must certify to the following statements--
    (1) The responsible officer of the sponsoring entity has 
established a compliance program that is in effect as of the date of 
the certification and that has been subjected to the review as 
described in paragraph (j)(2) of this section;
    (2) With respect to the event of default or material failure--

[[Page 10984]]

    (i) The responsible officer (or designee) has identified an event 
of default; or
    (ii) The responsible officer has determined that there are one or 
more material failures as defined in paragraph (j)(3)(vii) of this 
section and that appropriate actions will be taken to prevent such 
failures from reoccurring;
    (3) With respect to any failure to withhold, deposit, or report to 
the extent required under Sec.  1.1471-4 or an applicable Model 2 IGA 
with respect to any sponsored FFI for any year during the certification 
period, the sponsored FFI will correct such failure by paying (or 
directing the sponsoring entity to pay) any taxes due (including 
interest and penalties) and filing (or directing the sponsoring entity 
to file) the appropriate return (or amended return); and
    (4) The responsible officer (or designee) will respond to any 
notice of default under paragraph (k)(2) of this section or will 
provide to the IRS a description of each material failure and a written 
plan to correct each such failure when requested under paragraph (j)(4) 
of this section.
    (vii) Material failures defined. A material failure is a failure of 
the sponsoring entity with respect to each sponsored FFI to satisfy the 
requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of this section 
or an applicable Model 2 IGA if the failure was the result of a 
deliberate action on the part of one or more employees of the 
sponsoring entity or was an error attributable to a failure of the 
sponsoring entity to implement internal controls sufficient for the 
sponsoring entity to meet its requirements. A material failure will not 
constitute an event of default unless such material failure occurs in 
more than limited circumstances when a sponsoring entity has not 
substantially complied with the requirements described in the preceding 
sentence. Material failures include the following--
    (A) With respect to any sponsored FFI, the deliberate or systematic 
failure of the sponsoring entity to report accounts that such sponsored 
FFI was required to treat as U.S. accounts, withhold on passthru 
payments to the extent required, deposit taxes withheld to the extent 
required, accurately report recalcitrant account holders (or non-
consenting U.S. accounts under an applicable Model 2 IGA), or 
accurately report with respect to nonparticipating FFIs as required 
under Sec.  1.1471-4(d)(2)(ii)(F) or an applicable Model 2 IGA;
    (B) A criminal or civil penalty or sanction imposed on the 
sponsoring entity or any sponsored FFI (or any branch or office of the 
sponsoring entity or any sponsored FFI) by a regulator or other 
governmental authority or agency with oversight over the sponsoring 
entity's or sponsored FFI's compliance with the AML due diligence 
procedures to which it (or any branch or office thereof) is subject and 
that is imposed based on a failure to properly identify account holders 
under the requirements of those procedures;
    (C) A potential future tax liability of any sponsored FFI related 
to its compliance (or lack thereof) with the due diligence, 
withholding, and reporting requirements of Sec.  1.1471-4 or an 
applicable Model 2 IGA for which such sponsored FFI has established, 
for financial statement purposes, a tax reserve or provision;
    (D) A potential contractual liability under the agreement described 
in paragraph (j)(3)(v)(B) of this section of the sponsoring entity to 
any sponsored FFI related to such sponsoring entity's compliance (or 
lack thereof) with paragraph (f)(1)(i)(F) or (f)(2)(iii) of this 
section or an applicable Model 2 IGA for which the sponsoring entity 
has established, for financial statement purposes, a reserve or 
provision; and
    (E) Failure to register with the IRS as a sponsoring entity or to 
register each sponsored FFI required to be registered under paragraph 
(f)(1)(i)(F)(3)(iii) of this section or an applicable Model 2 IGA.
    (4) IRS review of compliance--(i) General inquiries. The IRS, based 
upon the information reporting forms described in Sec.  1.1471-
4(d)(3)(v), (d)(5)(vii), or (d)(6)(iv) filed with the IRS (or the 
absence of such reporting) by the sponsoring entity for each calendar 
year with respect to any sponsoring FFI, may request additional 
information with respect to the information reported (or required to be 
reported) on the forms, the account statements described in Sec.  
1.1471-4(d)(4)(v) with respect to one or more sponsored FFIs, or 
confirmation that the FFI has no reporting requirements. The IRS may 
also request any additional information from the sponsoring entity 
(including a copy of each sponsorship agreement the sponsoring entity 
has entered into with each sponsored FFI) necessary to determine the 
compliance with the due diligence, withholding, and reporting 
requirements of Sec.  1.1471-4 or an applicable Model 2 IGA with 
respect to each sponsored FFI and to assist the IRS with its review of 
account holder compliance with tax reporting requirements.
    (ii) Inquiries regarding substantial non-compliance. The IRS may 
determine in its discretion that a sponsoring entity may not have 
substantially complied with the requirements of paragraph (f)(1)(i)(F) 
or (f)(2)(iii) of this section or an applicable Model 2 IGA with 
respect to any sponsored FFI. This determination is based on the 
information reporting forms described in Sec.  1.1471-4(d)(3)(v), 
(d)(5)(vii), or (d)(6)(iv) filed with the IRS by the sponsoring entity 
for each calendar year with respect to any sponsored FFI (or the 
absence of reporting), the certifications made by the responsible 
officer described in paragraphs (j)(3) and (5) of this section (or the 
absence of such certifications), or any other information related to 
the sponsoring entity's compliance with respect to any sponsored FFI 
for purposes of satisfying the requirements of paragraph (f)(1)(i)(F) 
or (f)(2)(iii) of this section or an applicable Model 2 IGA. In such a 
case, the IRS may request from the responsible officer (or designee) 
information necessary to verify the sponsoring entity's compliance with 
such requirements. The IRS may request, for example, a description or 
copy of the sponsoring entity's policies and procedures for fulfilling 
the requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of this 
section or an applicable Model 2 IGA, a description or copy of the 
sponsoring entity's procedures for conducting its periodic review, or a 
copy of any written reports documenting the findings of such review. 
The IRS may also request the performance of specified review procedures 
by a person (including an external auditor or third-party consultant) 
that the IRS identifies as competent to perform such procedures given 
the facts and circumstances surrounding the sponsoring entity's 
potential failure to comply with respect to each sponsored FFI with the 
requirements of paragraph (f)(1)(i)(F) or (f)(2)(iii) of this section 
or an applicable Model 2 IGA.
    (iii) Compliance procedures for a sponsored FFI subject to a Model 
2 IGA. In the case of a sponsored FFI subject to the requirements of an 
applicable Model 2 IGA, the procedures described in paragraph (j)(4) of 
this section apply, except as otherwise provided in the applicable 
Model 2 IGA.
    (5) Preexisting account certification. The responsible officer of a 
sponsoring entity must make the certification described in Sec.  
1.1471-4(c)(7) (preexisting account certification of a participating 
FFI) with respect to each sponsored FFI that enters into the 
sponsorship agreement with the sponsoring entity during the 
certification period (as defined in paragraph (j)(3)(iii) of this 
section).

[[Page 10985]]

However, the preexisting account certification is not required for a 
sponsored FFI that, immediately before the FFI first agrees to be 
sponsored by the sponsoring entity, was a participating FFI, a 
sponsored FFI of another sponsoring entity, or a registered deemed-
compliant FFI that is a local FFI or a restricted fund, if the FFI (or 
the FFI's former sponsoring entity, if applicable) provides a written 
certification to the sponsoring entity that the FFI has made the 
preexisting account certification required under Sec.  1.1471-4(c)(7) 
or paragraph (f)(1)(i)(A)(7) or (f)(1)(i)(D)(6) of this section (as 
applicable), unless the sponsoring entity knows that such written 
certification is unreliable or incorrect. In addition, the preexisting 
account certification is not required for a sponsored FFI that enters 
into the sponsorship agreement with the sponsoring entity during the 
two year period before the end of the sponsoring entity's certification 
period, provided that the sponsoring entity makes the preexisting 
account certification for such FFI for the subsequent certification 
period. The certification described in this paragraph (j)(5) for the 
certification period must be submitted by the due date of the 
sponsoring entity's certification of compliance required under 
paragraph (j)(3)(i) of this section for the certification period (or 
the extended due date described in paragraph (j)(3)(i)(B) of this 
section for the certification period ending on December 31, 2017), on 
the form and in the manner prescribed by the IRS. With respect to a 
sponsored FFI for which the sponsoring entity makes a preexisting 
account certification, a preexisting obligation means any account, 
instrument, or contract (including any debt or equity interest) 
maintained, executed, or issued by the sponsored FFI that is 
outstanding on the earlier of the date the FFI is issued a GIIN as a 
sponsored FFI or the date the FFI first agrees to be sponsored by the 
sponsoring entity.
    (6) Sponsorship agreement. A sponsoring entity must have a written 
sponsorship agreement (which may be part of another agreement between 
the sponsoring entity and the sponsored FFI) that refers to the 
requirements of a sponsored FFI under FATCA and that must be in place 
with each sponsored FFI for which the sponsoring entity acts by the 
later of March 31, 2019, or the date that the sponsoring entity begins 
acting as a sponsoring entity for the applicable sponsored FFI.
    (k) Sponsoring entity event of default--(1) Defined. An event of 
default with regard to a sponsoring entity occurs if the sponsoring 
entity fails to perform material obligations required with respect to 
the due diligence, withholding, and reporting requirements of Sec.  
1.1471-4 or an applicable Model 2 IGA with respect to any sponsored 
FFI, to establish or maintain a compliance program as described in 
paragraph (j)(2) of this section, or to perform a periodic review 
described in paragraph (j)(2) of this section. An event of default also 
includes the occurrence of any of the following--
    (i) With respect to any sponsored FFI, failure to obtain, in any 
case in which foreign law would (but for a waiver) prevent the 
reporting of U.S. accounts required under Sec.  1.1471-4(d), valid and 
effective waivers from holders of U.S. accounts or failure to otherwise 
close or transfer such U.S. accounts as required under Sec.  1.1471-
4(i);
    (ii) With respect to any sponsored FFI, failure to significantly 
reduce, over a period of time, the number of account holders or payees 
that such sponsored FFI is required to treat as recalcitrant account 
holders or nonparticipating FFIs, as a result of the sponsoring entity 
failing to comply with the due diligence procedures set forth in Sec.  
1.1471-4(c);
    (iii) With respect to any sponsored FFI, failure to fulfill the 
requirements of Sec.  1.1471-4(i) in any case in which foreign law 
prevents or otherwise limits withholding under Sec.  1.1471-4(b);
    (iv) Failure to take timely corrective actions to remedy a material 
failure described in paragraph (j)(3)(vii) of this section after making 
a qualified certification described in paragraph (j)(3)(vi)(B) of this 
section;
    (v) Failure to make the preexisting account certification required 
under paragraph (j)(5) of this section or the periodic certification 
required under paragraph (j)(3) of this section with respect to any 
sponsored FFI within the specified time period;
    (vi) Making incorrect claims for refund on behalf of any sponsored 
FFI;
    (vii) Failure to cooperate with an IRS request for additional 
information under paragraph (j)(4) of this section;
    (viii) Making any fraudulent statement or misrepresentation of 
material fact to the IRS or representing to a withholding agent or the 
IRS its status as a sponsoring entity for an entity other than an 
entity for which it acts as a sponsoring entity;
    (ix) The sponsoring entity is no longer authorized to perform the 
requirements of a sponsoring entity with respect to one or more 
sponsored FFIs; or
    (x) Failure to have the written sponsorship agreement described in 
paragraph (j)(3)(v)(B) of this section in effect with each sponsored 
FFI.
    (2) Notice of event of default. Following an event of default known 
by or disclosed by the sponsoring entity to the IRS, the IRS will 
deliver to the sponsoring entity a notice of default specifying the 
event of default and, if applicable, identifying each sponsored FFI to 
which the notice relates. The IRS will request that the sponsoring 
entity remediate the event of default within 45 days (unless additional 
time is requested and agreed to by the IRS). The sponsoring entity must 
respond to the notice of default and provide information responsive to 
an IRS request for information or state the reasons why the sponsoring 
entity does not agree that an event of default has occurred.
    (3) Remediation of event of default. A sponsoring entity will be 
permitted to remediate an event of default to the extent that it agrees 
with the IRS on a remediation plan. Such a plan may, for example, allow 
a sponsoring entity to remediate an event of default described in 
paragraph (k)(1) of this section with respect to a sponsored FFI by 
providing specific information regarding the U.S. accounts maintained 
by such sponsored FFI when the sponsoring entity has been unable to 
report all of the information with respect to such accounts as required 
under Sec.  1.1471-4(d) and has been unable to close or transfer such 
accounts. The IRS may, as part of a remediation plan, require 
additional information from the sponsoring entity or the performance of 
the specified review procedures described in paragraph (j)(4)(ii) of 
this section.
    (4) Termination--(i) In general. If the sponsoring entity does not 
provide a response to a notice of default within the period specified 
in paragraph (k)(2) of this section or does not remediate the event of 
default as described in paragraph (k)(3) of this section, the IRS may 
deliver a notice of termination that terminates the sponsoring entity's 
status, the status of one or more sponsored FFIs as deemed-compliant 
FFIs, or the status of both the sponsoring entity and one or more 
sponsored FFIs.
    (ii) Termination of sponsoring entity. If the IRS terminates the 
status of the sponsoring entity, the sponsoring entity must send notice 
of the termination within 30 days after the date of termination to each 
sponsored FFI for which it acts, as well as to each withholding agent 
from which each sponsored FFI receives payments and each financial 
institution with which each sponsored FFI holds an account for which a 
withholding certificate or other

[[Page 10986]]

documentation was provided. A sponsoring entity that has had its status 
terminated cannot register on the FATCA registration website to act as 
a sponsoring entity for any sponsored FFI or for any entity that is a 
sponsored entity under a Model 1 IGA unless it receives written 
approval from the IRS to register. Unless the status of a sponsored FFI 
has been terminated, the sponsored FFI may register on the FATCA 
registration website as a participating FFI or registered deemed-
compliant FFI (as applicable). However, a sponsored FFI whose 
sponsoring entity has been terminated may not register or represent its 
status as a sponsored FFI of a sponsoring entity that has a 
relationship described in section 267(b) or 707(b) with the sponsoring 
entity that was terminated without receiving written approval from the 
IRS.
    (iii) Termination of sponsored FFI. If the IRS notifies the 
sponsoring entity that the status of a sponsored FFI is terminated (but 
not the sponsoring entity's status), the sponsoring entity must remove 
the sponsored FFI from the sponsoring entity's registration account on 
the FATCA registration website and send notice of the termination 
within 30 days after the date of termination to each withholding agent 
from which the sponsored FFI receives payments and each financial 
institution with which it holds an account for which a withholding 
certificate or other documentation was provided with respect to such 
sponsored FFI. A sponsored FFI that has had its status as a sponsored 
FFI terminated (independent from a termination of status of its 
sponsoring entity) may not register on the FATCA registration website 
as a participating FFI or registered deemed-compliant FFI unless it 
receives written approval from the IRS.
    (iv) Reconsideration of notice of default or notice of termination. 
A sponsoring entity or sponsored FFI may request, within 90 days of a 
notice of default or notice of termination, reconsideration of the 
notice of default or notice of termination by written request to the 
IRS.
    (v) Sponsoring entity of sponsored FFIs subject to a Model 2 IGA. 
Subject to the provisions of an applicable Model 2 IGA, the IRS may 
revoke the status of a sponsoring entity with respect to one or more 
sponsored FFIs subject to a Model 2 IGA based on the provisions of 
paragraphs (k)(2), (3), and (4) of this section (describing notice of 
event of default and termination procedures) if there is an event of 
default as defined in paragraph (k)(1) of this section.
    (l) Trustee-documented trust verification--(1) Compliance program. 
A trustee of a trust treated as a trustee-documented trust under an 
applicable Model 2 IGA must establish and implement a compliance 
program for purposes of satisfying the requirements of an applicable 
Model 2 IGA with respect to each such trust. The trustee must appoint a 
responsible officer who must (either personally or through designated 
persons) establish policies, procedures, and processes sufficient for 
the trustee to implement the compliance program. The responsible 
officer (or designee) must periodically review the sufficiency of the 
trustee's compliance program and the trustee's compliance with respect 
to each trust for purposes of satisfying the requirements of an 
applicable Model 2 IGA for each certification period described in 
paragraph (l)(2) of this section. The results of the periodic review 
must be considered by the responsible officer in making the 
certification described in paragraph (l)(2) of this section.
    (2) Certification of compliance--(i) Certification requirement--(A) 
In general. Except as otherwise provided in paragraph (I)(2)(i)(B) or 
(I)(2)(ii) of this section, on or before July 1 of the calendar year 
following the end of the certification period, the responsible officer 
of the trustee must make a certification for the certification period 
with respect to all trustee-documented trusts described in paragraph 
(l)(1) of this section on the form and in the manner prescribed by the 
IRS.
    (B) Extension of time for the certification period ending on 
December 31, 2017. The certifications required for a certification 
period ending on December 31, 2017, must be submitted on or before 
March 31, 2019.
    (ii) Late-joining trustee-documented trusts. In general, with 
respect to a certification period, the responsible officer of a trustee 
is not required to make a certification for a trustee-documented trust 
for which the trustee first agreed to act as the trustee under Annex II 
of an applicable IGA during the six-month period before the end of the 
trustee's certification period, provided that the responsible officer 
of the trustee makes certifications for such trustee-documented trust 
for subsequent certification periods and the first such certification 
covers both the subsequent certification period and the portion of the 
prior certification period of the trustee during which the trustee 
acted as the trustee of the trustee-documented trust. However, the 
preceding sentence does not apply to a trustee-documented trust that, 
immediately before the trustee first agrees to act as the trustee under 
Annex II of an applicable IGA, was a trustee-documented trust of 
another trustee. The trustee of a trustee-documented trust may certify 
for a trustee-documented trust described in the preceding sentence for 
the portion of the certification period of the trustee before the date 
that the trustee first agrees to act as the trustee under Annex II of 
an applicable IGA if the trustee obtains from the trustee-documented 
trust (or the trust's former trustee, if applicable) a written 
certification that the trust has complied with its applicable chapter 4 
requirements during such portion of the certification period, provided 
that: The trustee does not know that such certification is unreliable 
or incorrect; and the certification for the trustee-documented trust 
for the subsequent certification period covers both the subsequent 
certification period and the portion of the prior certification period 
during which the trustee acts as the trustee under Annex II of an 
applicable IGA.
    (iii) Certification period. The first certification period of the 
trustee begins on the later of the date the trustee is issued a GIIN to 
act as a trustee of a trustee-documented trust or June 30, 2014, and 
ends at the close of the third full calendar year following such date. 
Each subsequent certification period is the three-calendar-year period 
following the previous certification period.
    (iv) Certifications. The responsible officer of the trustee must 
certify to the following statements--
    (A) The responsible officer of the trustee has established a 
compliance program that is in effect as of the date of the 
certification and has performed a periodic review described in 
paragraph (l)(1) of this section for the certification period; and
    (B) The trustee has reported to the IRS on Form 8966, ``FATCA 
Report'' (or such other form as the IRS may prescribe), all of the 
information required to be reported pursuant to the applicable Model 2 
IGA with respect to all U.S. accounts of each trustee-documented trust 
for which the trustee acts during the certification period by the due 
date of Form 8966 (including extensions) for each year.
    (3) IRS review of compliance by trustees of trustee-documented 
trusts--(i) General inquiries. Based upon the information reporting 
forms filed with the IRS (or the absence of such reporting) by a 
trustee with respect to any trustee-documented trust subject to a Model 
2 IGA for each calendar year, and subject to the requirements of an 
applicable Model 2 IGA, the IRS may request from the trustee additional 
information with respect to the

[[Page 10987]]

information reported on the forms with respect to any trustee-
documented trust or a confirmation that the trustee has no reporting 
requirements with respect to any trustee-documented trust. The IRS may 
also request any additional information to determine the trustee's 
compliance for purposes of satisfying the trust's requirements as a 
trustee-documented trust under an applicable Model 2 IGA or to assist 
the IRS with its review of account holder compliance with tax reporting 
requirements.
    (ii) Inquiries regarding substantial non-compliance. The IRS may 
determine in its discretion that the trustee may not have substantially 
complied with the requirements applicable to a trustee of a trustee-
documented trust. This determination is based on the information 
reporting forms filed with the IRS by a trustee with respect to any 
trustee-documented trust subject to a Model 2 IGA for each calendar 
year (or the absence of such reporting), the certification described in 
paragraph (l)(2) of this section (or the absence of such 
certification), or any other information related to the trustee's 
compliance with respect to any trustee-documented trust for purposes of 
satisfying the trust's applicable Model 2 IGA requirements. In such a 
case, the IRS may request from the responsible officer information 
necessary to verify the trustee's compliance with such requirements. 
The IRS may also request the performance of specified review procedures 
by a person (including an external auditor or third-party consultant) 
that the IRS identifies as competent to perform such procedures given 
the circumstances surrounding the trustee's potential failure to comply 
with the requirements of an applicable Model 2 IGA with respect to one 
or more trustee-documented trusts. The IRS may notify the applicable 
Model 2 IGA jurisdiction that the trustee has not complied with its 
requirements as a trustee of one or more trustee-documented trusts.
    (m) Applicability date. This section generally applies beginning on 
January 6, 2017, except for paragraphs (f)(1)(i)(F)(3)(vi), 
(f)(1)(i)(F)(4), (f)(1)(iv), (f)(2)(iii)(D)(4), (f)(2)(iii)(E), (j), 
(k), and (l) of this section, which apply March 26, 2019. However, 
taxpayers may apply these provisions as of January 28, 2013. (For the 
rules that otherwise apply beginning on January 6, 2017, and before 
March 26, 2019, see this section as in effect and contained in 26 CFR 
part 1 revised April 1, 2018. For the rules that otherwise apply 
beginning on January 28, 2013, and before January 6, 2017, see this 
section as in effect and contained in 26 CFR part 1 revised April 1, 
2016.)

0
Par. 6. Section 1.1472-1 is amended by revising paragraphs (c)(5)(iii), 
(f), (g), and (h) to read as follows:


Sec.  1.1472-1  Withholding on NFFEs.

* * * * *
    (c) * * *
    (5) * * *
    (iii) Revocation of status as sponsoring entity. The IRS may revoke 
a sponsoring entity's status as a sponsoring entity with respect to all 
sponsored direct reporting NFFEs if there is an event of default as 
defined in paragraph (g) of this section with respect to any sponsored 
direct reporting NFFE.
* * * * *
    (f) Sponsoring entity verification--(1) In general. This paragraph 
(f) describes the requirements for a sponsoring entity to provide a 
certification of compliance with respect to each sponsored direct 
reporting NFFE for purposes of satisfying the requirements of paragraph 
(c)(5) of this section and defines the certification period for such 
certifications. This paragraph (f) also describes the procedures for 
the IRS to review the sponsoring entity's compliance with such 
requirements during the certification period. Finally, this paragraph 
(f) describes the requirement that a sponsoring entity have in place a 
written sponsorship agreement with each sponsored direct reporting NFFE 
for which it acts and specifies the terms of such agreement. See 
paragraph (g)(1)(i) of this section, describing an event of default for 
a sponsoring entity that does not have a sponsorship agreement with 
each sponsored direct reporting NFFE for which it acts as a sponsoring 
entity. References in this paragraph (f) or paragraph (g) of this 
section to a sponsored direct reporting NFFE mean a sponsored direct 
reporting NFFE for which the sponsoring entity acts as a sponsoring 
entity under paragraph (c)(5)(ii) of this section.
    (2) Certification of compliance--(i) Certification requirement--(A) 
In general. The sponsoring entity must appoint a responsible officer to 
oversee the sponsoring entity's compliance with respect to each 
sponsored direct reporting NFFE for purposes of satisfying the 
requirements of paragraph (c)(5) of this section. Except as otherwise 
provided in paragraph (f)(2)(i)(B) or (f)(2)(ii) of this section, on or 
before July 1 of the calendar year following the certification period, 
the responsible officer of the sponsoring entity must make a 
certification for the certification period with respect to all 
sponsored direct reporting NFFEs for which the sponsoring entity acts 
during the certification period on the form and in the manner 
prescribed by the IRS. To the extent that a sponsoring entity satisfies 
the certification requirements of paragraph (f)(2) of this section on 
behalf of a sponsored direct reporting NFFE, the NFFE does not have a 
certification requirement under paragraph (c)(3)(vi) of this section.
    (B) Extension of time for the certification period ending on 
December 31, 2017. The certifications required for a certification 
period ending on December 31, 2017, must be submitted on or before 
March 31, 2019.
    (ii) Late-joining sponsored direct reporting NFFEs. In general, 
with respect to a certification period, a sponsoring entity is not 
required to make a certification for a sponsored direct reporting NFFE 
that first agrees to be sponsored by the sponsoring entity during the 
six-month period before the end of the sponsoring entity's 
certification period, provided that the sponsoring entity makes 
certifications for such sponsored direct reporting NFFE for subsequent 
certification periods, and the first such certification covers both the 
subsequent certification period and the portion of the prior 
certification period of the sponsoring entity during which the 
sponsored direct reporting NFFE was sponsored by the sponsoring entity. 
However, the preceding sentence does not apply to a sponsored direct 
reporting NFFE that, immediately before the NFFE agrees to be sponsored 
by the sponsoring entity, was a direct reporting NFFE or sponsored 
direct reporting NFFE of another sponsoring entity. The sponsoring 
entity may certify for a sponsored direct reporting NFFE described in 
the preceding sentence for the portion of the certification period of 
the sponsoring entity before the date that the NFFE first agrees to be 
sponsored by the sponsoring entity if the sponsoring entity obtains 
from the NFFE (or the NFFE's sponsoring entity, if applicable) a 
written certification that the NFFE has complied with its applicable 
chapter 4 requirements during such portion of the certification period, 
provided that: The sponsoring entity does not know that such 
certification is unreliable or incorrect; and the certification for the 
sponsored direct reporting NFFE for the subsequent certification period 
covers both the subsequent certification period and the portion of the 
prior certification period during which such NFFE was sponsored by the 
sponsoring entity.

[[Page 10988]]

    (iii) Certification period. The first certification period of a 
sponsoring entity begins on the later of the date the sponsoring entity 
is issued a GIIN to act as a sponsoring entity or June 30, 2014, and 
ends at the close of the third full calendar year after such date. Each 
subsequent certification period is the three-calendar-year period 
following the close of the previous certification period.
    (iv) Certifications. The certification will require the responsible 
officer of the sponsoring entity to certify to the following 
statements--
    (A) The sponsoring entity meets all of the requirements of a 
sponsoring entity described in paragraph (c)(5)(ii) of this section;
    (B) The sponsoring entity has the written sponsorship agreement 
described in paragraph (f)(4) of this section in effect with each 
sponsored direct reporting NFFE;
    (C) There were no events of default (as defined in paragraph (g) of 
this section) with respect to the sponsoring entity, or, to the extent 
there were any such events of default, appropriate measures were taken 
by the sponsoring entity to remediate and prevent such events from 
reoccurring; and
    (D) With respect to any failure to report to the extent required 
under paragraph (c)(3)(ii) of this section with respect to one or more 
sponsored direct reporting NFFEs, the sponsoring entity has corrected 
such failure by filing the appropriate information returns.
    (3) IRS review of compliance--(i) General inquiries. The IRS, based 
upon the information reporting forms described in paragraph (c)(3)(ii) 
of this section filed with the IRS (or the absence of such reporting) 
by the sponsoring entity for each calendar year with respect to any 
sponsored direct reporting NFFE, may request additional information 
with respect to the information reported (or required to be reported) 
on the forms about any substantial U.S. owner reported on the form or 
the records for each direct reporting NFFE described in paragraph 
(c)(3)(iv) of this section. The IRS may also request any additional 
information from the sponsoring entity (including a copy of each 
sponsorship agreement the sponsoring entity has entered into with each 
sponsored FFI) to determine its compliance with paragraph (f) of this 
section with respect to each sponsored direct reporting NFFE and to 
assist the IRS with its review of any substantial U.S. owners' 
compliance with tax reporting requirements.
    (ii) Inquiries regarding substantial non-compliance. The IRS may 
determine in its discretion that a sponsoring entity may not have 
substantially complied with the requirements of a sponsoring entity 
with respect to each sponsored direct reporting NFFE for purposes of 
satisfying the requirements of paragraph (c)(5) of this section. This 
determination is based on the information reporting forms referenced in 
paragraph (c)(3)(ii) of this section filed with the IRS by the 
sponsoring entity for each calendar year with respect to any sponsored 
direct reporting NFFE (or the absence of such reporting), the 
certification made by the responsible officer described in paragraph 
(f)(2) of this section (or the absence of such certification), or any 
other information related to the sponsoring entity's compliance with 
the requirements of a sponsoring entity with respect to each sponsored 
direct reporting NFFE for purposes of satisfying the requirements of 
paragraph (c)(5) of this section. In such a case, the IRS may request 
from the responsible officer information necessary to verify the 
sponsoring entity's compliance with such requirements. The IRS may also 
request the performance of specified review procedures by a person 
(including an external auditor or third-party consultant) that the IRS 
identifies as competent to perform such procedures given the 
circumstances surrounding the sponsoring entity's potential failure to 
comply with the requirements of a sponsoring entity.
    (4) Sponsorship agreement. The sponsoring entity must have a 
written sponsorship agreement (which may be part of another agreement 
between the sponsoring entity and the sponsored direct reporting NFFE) 
in place with each sponsored direct reporting NFFE for which it acts by 
the later of March 31, 2019, or the date that the sponsoring entity 
begins acting as a sponsoring entity for the applicable sponsored 
direct reporting NFFE, under which--
    (i) The sponsored direct reporting NFFE agrees to provide the 
sponsoring entity access to the sponsored direct reporting NFFE's books 
and records regarding each of its owners (including AML/KYC 
documentation regarding the sponsored direct reporting NFFE's owners 
provided by the sponsored direct reporting NFFE with respect to each 
financial account it holds) and such other information sufficient for 
the sponsoring entity to determine the direct and indirect substantial 
U.S. owners of the sponsored direct reporting NFFE, including the 
information about such owners required under paragraph (c)(3)(ii) of 
this section to be reported on Form 8966, ``FATCA Report'' (or such 
other form as the IRS may prescribe);
    (ii) The sponsored direct reporting NFFE obtains a valid and 
effective waiver of any legal prohibitions on reporting the information 
about its direct and indirect substantial U.S. owners required under 
paragraph (c)(3)(ii) of this section to be reported on Form 8966 (or 
such other form as the IRS may prescribe);
    (iii) The sponsored direct reporting NFFE authorizes the sponsoring 
entity to act on the sponsored direct reporting NFFE's behalf with 
respect to the sponsored direct reporting NFFE's obligations as a 
sponsored direct reporting NFFE (for example, authorizing the 
sponsoring entity to file Form 8966 on the sponsored direct reporting 
NFFE's behalf, responding to the IRS inquiries described in paragraph 
(f)(3) of this section, and providing the certification described in 
paragraph (f)(2) of this section);
    (iv) The sponsored direct reporting NFFE agrees to identify to the 
sponsoring entity on request each withholding agent and financial 
institution to which the sponsored direct reporting NFFE reports its 
status as a sponsored direct reporting NFFE and agrees to provide to 
the sponsoring entity a copy of the withholding certificate or written 
statement prescribed in Sec.  1.1471-3(d)(11)(x)(B) (as applicable) 
that the sponsored direct reporting NFFE provides to each such 
withholding agent or financial institution;
    (v) The sponsored direct reporting NFFE represents that it does not 
have any formal or informal practices or procedures to assist its 
substantial U.S. owners with the avoidance of the requirements of 
chapter 4;
    (vi) The sponsored direct reporting NFFE agrees to cooperate with 
the sponsoring entity in responding to any IRS inquiries under 
paragraph (f)(3) of this section with respect to the sponsored direct 
reporting NFFE; and
    (vii) The sponsoring entity retains the records described in 
paragraphs (c)(3)(iii) and (iv) of this section for the longer of six 
years or the retention period under the sponsoring entity's normal 
business procedures. A sponsoring entity may be required to extend the 
retention period if the IRS requests such an extension before the 
expiration of the period.
    (g) Sponsoring entity event of default--(1) Defined. An event of 
default by the sponsoring entity means the occurrence of any of the 
following--
    (i) Failure to have the written sponsorship agreement described in 
paragraph (f)(4) of this section in effect with each sponsored direct 
reporting NFFE;

[[Page 10989]]

    (ii) Failure to satisfy the requirements of paragraph (c)(3)(iii) 
of this section with respect to each sponsored direct reporting NFFE 
that the NFFE would have been required to satisfy as a direct reporting 
NFFE;
    (iii) Failure to report to the IRS on Form 8966, ``FATCA Report,'' 
(or such other form as the IRS may prescribe) all of the information 
required under paragraph (c)(3)(ii) of this section with respect to 
each sponsored direct reporting NFFE and each of its substantial U.S. 
owners (or report to the IRS on Form 8966 that the sponsored direct 
reporting NFFE had no substantial U.S. owners) by the due date of the 
form (including any extensions);
    (iv) Failure to make the certification required under paragraph 
(f)(2) of this section;
    (v) Failure to cooperate with an IRS request for additional 
information described in paragraph (f)(3) of this section, including 
requests for the records described in paragraph (c)(3)(iv) of this 
section and requests to extend the retention period for these records 
as described in (f)(4)(vii) of this section;
    (vi) Making any fraudulent statement or misrepresentation of 
material fact to the IRS or representing to a withholding agent or the 
IRS its status as a sponsoring entity under paragraph (c)(5) of this 
section for an entity other than an entity for which it acts as a 
sponsoring entity; or
    (vii) Failure to obtain from each sponsored direct reporting NFFE 
the information required to report on Form 8966.
    (2) Notice of event of default. Following an event of default known 
by or disclosed to the IRS, the IRS will deliver to the sponsoring 
entity a notice of default specifying the event of default and, if 
applicable, identifying each sponsored direct reporting NFFE to which 
the notice relates. The IRS will request that the sponsoring entity 
remediate the event of default within 45 days (unless additional time 
is requested and agreed to by the IRS). The sponsoring entity must 
respond to the notice of default and provide information responsive to 
an IRS request for information or state the reasons why the sponsoring 
entity does not agree that an event of default has occurred.
    (3) Remediation of event of default. A sponsoring entity will be 
permitted to remediate an event of default to the extent that it agrees 
with the IRS on a remediation plan. The IRS may, as part of a 
remediation plan, require additional information from the sponsoring 
entity, remedial actions, or the performance of the specified review 
procedures described in paragraph (f)(3)(ii) of this section.
    (4) Termination--(i) In general. If the sponsoring entity does not 
provide a response to a notice of default within the period specified 
in paragraph (g)(2) of this section, or if the sponsoring entity does 
not satisfy the conditions of the remediation plan within the time 
period specified by the IRS, the IRS may deliver a notice of 
termination that terminates the sponsoring entity's status, the status 
of one or more sponsored direct reporting NFFEs as a direct reporting 
NFFE, or the status of both the sponsoring entity and one or more 
sponsored direct reporting NFFEs.
    (ii) Termination of sponsoring entity. If the IRS notifies the 
sponsoring entity that its status is terminated, the sponsoring entity 
must send notice of the termination within 30 days after the date of 
termination to each withholding agent from which each sponsored direct 
reporting NFFE receives payments and each financial institution with 
which each sponsored direct reporting NFFE holds an account for which a 
withholding certificate or written statement prescribed in Sec.  
1.1471-3(d)(11)(x)(B) (as applicable) was provided. A sponsoring entity 
that has had its status terminated cannot reregister on the FATCA 
registration website to act as a sponsoring entity for any sponsored 
direct reporting NFFE unless it receives written approval from the IRS. 
Unless the status of the sponsored direct reporting NFFEs has been 
terminated, the sponsored direct reporting NFFEs may register on the 
FATCA registration website as direct reporting NFFEs or as sponsored 
direct reporting NFFEs of another sponsoring entity, other than a 
sponsoring entity that is related to the sponsoring entity that was 
terminated (absent written approval from the IRS allowing the 
registration). An entity is related to the terminated sponsoring entity 
if they have a relationship with each other that is described in 
section 267(b) or 707(b).
    (iii) Termination of sponsored direct reporting NFFE. If the IRS 
notifies the sponsoring entity that the status of a sponsored direct 
reporting NFFE is terminated (but not the sponsoring entity's status), 
the sponsoring entity must remove the sponsored direct reporting NFFE 
from the sponsoring entity's registration account on the FATCA 
registration website and send notice of the termination within 30 days 
after the date of termination to each withholding agent from which the 
sponsored direct reporting NFFE receives payments and each financial 
institution with which it holds an account for which a withholding 
certificate or written statement prescribed in Sec.  1.1471-
3(d)(11)(x)(B) (as applicable) was provided with respect to such 
sponsored direct reporting NFFE. A sponsored direct reporting NFFE that 
has had its status as a sponsored direct reporting NFFE terminated 
(independent from a termination of status of its sponsoring entity) may 
not register on the FATCA registration website as a direct reporting 
NFFE or as a sponsored direct reporting NFFE of another sponsoring 
entity unless it receives written approval from the IRS.
    (iv) Reconsideration of notice of default or notice of termination. 
A sponsoring entity or sponsored direct reporting NFFE may request, 
within 90 days of a notice of default or notice of termination, 
reconsideration of the notice of default or notice of termination by 
written request to the IRS.
    (h) Applicability date. This section generally applies beginning on 
January 6, 2017, except for paragraphs (c)(5)(iii), (f), and (g) of 
this section, which apply March 26, 2019. However, taxpayers may apply 
these provisions as of January 28, 2013. (For the rules that otherwise 
apply beginning on January 6, 2017, and before March 26, 2019, see this 
section as in effect and contained in 26 CFR part 1 revised April 1, 
2018. For rules that otherwise apply beginning on January 28, 2013, and 
before January 6, 2017, see this section as in effect and contained in 
26 CFR part 1 revised April 1, 2016.)

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
    Approved: February 27, 2019.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2019-05527 Filed 3-21-19; 4:15 pm]
 BILLING CODE 4830-01-P