Banking and securities industry trade groups are urging government officials to extend deadlines for the Foreign Account Tax Compliance Act, a U.S. effort to crackdown on overseas tax cheats.

In a letter to the Treasury Department and Internal Revenue Service, the Securities Industry and Financial Markets Association, American Bankers Association, Clearing House Association and the Institute of International Bankers plead their case that the first scheduled FATCA implementation date of July 1, 2014 “is insufficient time to achieve the effective, full implementation of FATCA.” Cited concerns include the continuing wait for final guidance and slow pace of negotiated agreements with other nations.

“Like the Treasury and IRS, banks and securities firms are working diligently to implement FATCA,” their letter says. “However, without the final guidance firms cannot complete their implementation plans, finalize budgets, prepare needed written procedures, hire and train internal personnel, educate clients, and develop and test the systems changes required for compliance with FATCA's requirements. There also remain significant gaps in guidance and numerous unanswered implementation questions that must be addressed by the IRS.”

The groups urged officials to rethink the timeline they developed “to help ensure a smooth transition to the FATCA regime and minimize the prospects of over withholding, as well as the potential for significant disruption to financial markets.”

Enacted by Congress in 2010, FATCA was created to target non-compliance by U.S. taxpayers using foreign accounts as a means of tax evasion. It requires foreign financial institutions (FFIs) to report to the IRS information about accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Americans with $50,000 or more of assets held by a foreign institution are targeted. It requires U.S. financial institutions to withhold a portion of payments made to FFIs who do not agree to identify and report information on U.S. account holders.

To make compliance with the reporting requirements of FATCA feasible, particularly for FFIs in jurisdictions where existing laws prohibit this type of reporting, the Treasury Department is developing intergovernmental agreements (IGAs) that rely on governmental cooperation to facilitate the exchange of FATCA information. To date, Treasury has signed 10 IGAs, and is still negotiating with more than 80 other nations.

In their letter, the industry groups request an additional six-month extension for withholding scheduled to take place beginning on July 1, 2014, so that it instead begins with payments made after Dec. 31, 2014. Withholding documentation set to expire on June 30, 2014 should instead expire on Dec. 31, 2014, they say.  

Since information reporting and withholding systems are based on the calendar year, the groups urged Jan. 1 effective dates. The mid-year effective date for withholding and due diligence procedures, as well as the mid-year expiration date for Forms W-8, “presents an additional and unexpected challenge for FATCA implementation teams,” they wrote.

FATCA reporting for 2014 (via Form 8966) should apply only to accounts designated by a participating FFI as held by a U.S. citizen or resident on Dec. 31, 2014 and identifiable via electronic search, they groups say. Reporting for calendar year 2014 should be delayed one year so that reporting for calendar years 2014 and 2015 would be provided by March 31, 2016.

They also seek a six-month extension, to Jan. 1, 2015 to implement new account opening procedures. However, firms should have the authority to implement new account on-boarding procedures before that date.

Even if final guidance is released by Dec. 31, 2013, the groups will still not get the 18-24 month time frame many of their members said was necessary to be ready for implementation. It will, however, “provide at least a more manageable amount of time between the issuance of the Final Guidance and the first implementation dates, and help minimize certain disruptions or difficulties associated with the implementation of FATCA,” the letter says.