Chapter 4 Regulations Relating to Verification and Certification Requirements for Certain Entities and Reporting by Foreign Financial Institutions, 1629-1645 [2016-31599]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 82, Number 4 (Friday, January 6, 2017)]
[Proposed Rules]
[Pages 1629-1645]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31599]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-103477-14]
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: Notice of proposed rulemaking; notice of proposed rulemaking by 
cross-reference to temporary regulation.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations under chapter 4 of 
Subtitle A (sections 1471 through 1474) of the Internal Revenue Code of 
1986 (Code) describing the verification requirements (including 
certifications of compliance) and events of default for entities that 
agree to perform the chapter 4 due diligence, withholding, and 
reporting requirements on behalf of certain foreign financial 
institutions (FFIs) or the chapter 4 due diligence and reporting 
obligations on behalf of certain non-financial foreign entities. These 
proposed regulations also describe the certification requirements and 
procedures for IRS's review of certain trustees of trustee-documented 
trusts and the procedures for IRS's review of periodic certifications 
provided by registered deemed-compliant FFIs. In addition, these 
proposed regulations describe the procedures for future modifications 
to the requirements for certifications of compliance for participating 
FFIs. These proposed regulations also describe the requirements for 
certifications of compliance for participating FFIs that are members of 
consolidated compliance groups. In addition, in the Rules and 
Regulations section of this issue of the Federal Register, the 
Department of the Treasury (Treasury Department) and IRS are issuing 
temporary regulations that provide additional guidance under chapter 4 
(temporary chapter 4 regulations). The text of the temporary chapter 4

[[Page 1630]]

regulations also serves as the text of the regulations contained in 
this document that are proposed by cross-reference to the temporary 
chapter 4 regulations. The preamble to the temporary chapter 4 
regulations explains the temporary chapter 4 regulations and these 
proposed regulations that cross-reference to the temporary chapter 4 
regulations.

DATES:  Written or electronic comments and requests for a public 
hearing must be received by April 6, 2017.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-103477-14), Internal 
Revenue Service, Room 5203, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
103477-14), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224; or sent electronically via the 
Federal eRulemaking Portal at https://www.regulations.gov (IRS-REG-
103477-14).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Kamela Nelan, (202) 317-6942; concerning submissions of comments and/or 
requests for a public hearing, Regina Johnson, (202) 317-6901 (not toll 
free numbers).

SUPPLEMENTARY INFORMATION: 

Background

I. In General

A. Chapter 4

    Sections 1471 through 1474 under chapter 4 of Subtitle A (chapter 
4) were added to the Code on March 18, 2010, as part of the Hiring 
Incentives to Restore Employment Act of 2010, Public Law 111-147. 
Chapter 4 (commonly known as the Foreign Account Tax Compliance Act, or 
FATCA) generally requires withholding agents to withhold tax on certain 
payments to foreign financial institutions (FFIs) that do not agree to 
report certain information to the IRS regarding their U.S. accounts 
under section 1471(b)(1). Chapter 4 also generally requires withholding 
agents to withhold tax on certain payments to certain non-financial 
foreign entities (NFFEs) that do not provide to the withholding agent 
information on their substantial United States owners (substantial U.S. 
owners) or a certification that they have no such owners. On January 
28, 2013, final regulations (TD 9610) under chapter 4 were published in 
the Federal Register (78 FR 5874), and on September 10, 2013, 
corrections to the final regulations were published in the Federal 
Register (78 FR 55202). TD 9610 and the September 2013 corrections are 
referred to collectively in this preamble as the 2013 final 
regulations. On March 6, 2014, temporary regulations (TD 9657) under 
chapter 4 were published in the Federal Register (79 FR 12812) and 
corrections to the temporary regulations were published in the Federal 
Register on July 1, 2014, and November 18, 2014 (79 FR 37175 and 78 FR 
68619, respectively). In this preamble, TD 9657 and the corrections 
thereto are referred to collectively as the 2014 temporary regulations, 
and together with the 2013 final regulations, as the chapter 4 
regulations. A notice of proposed rulemaking cross-referencing the 2014 
temporary regulations was published in the Federal Register on March 6, 
2014 (79 FR 12868).
    To address situations where foreign law would prevent an FFI from 
reporting directly to the IRS the information required by chapter 4, 
the Treasury Department, in collaboration with certain foreign 
governments, developed two alternative model intergovernmental 
agreements, known as the Model 1 IGA and the Model 2 IGA. Under the 
Model 1 IGA, an FFI that is treated as a reporting Model 1 FFI is 
treated as complying with and not subject to withholding under section 
1471 provided that the FFI complies with the requirements specified in 
the Model 1 IGA and reports information about its U.S. accounts to the 
Model 1 IGA jurisdiction, which is followed by the automatic exchange 
of that information on a government-to-government basis with the United 
States. Under the Model 2 IGA, an FFI that is treated as a reporting 
Model 2 FFI follows the terms of the FFI agreement and reports 
information about U.S. accounts directly to the IRS. See Revenue 
Procedure 2014-38, 2014-29 I.R.B. 131, as may be amended, for the FFI 
agreement. An FFI identified as a nonreporting financial institution 
pursuant to a Model 1 or Model 2 IGA is not required to report 
information on U.S. accounts unless specifically required as a 
condition of its applicable chapter 4 status.

II. Background on Sponsored Entities

A. In General

    The chapter 4 regulations permit certain FFIs and NFFEs to be 
sponsored by other entities for purposes of satisfying their chapter 4 
requirements. Under the 2013 final regulations, an FFI treated as 
complying with the requirements of section 1471(b)(1) (a deemed-
compliant FFI) includes a sponsored FFI. In addition, the 2014 
temporary regulations provide that a NFFE excepted from providing 
information regarding its substantial U.S. owners to a withholding 
agent (an excepted NFFE) includes a NFFE that is a direct reporting 
NFFE or a sponsored direct reporting NFFE. In the preamble to the 2014 
temporary regulations, the Treasury Department and IRS announced that 
regulations describing the verification requirements of a sponsoring 
entity of a sponsored FFI or sponsored direct reporting NFFE (sponsored 
entities) would be proposed and issued separately from the 2014 
temporary regulations.

B. Background on Sponsored FFIs and Trustee-Documented Trusts

    The chapter 4 regulations provide two general categories of deemed-
compliant FFIs: Registered deemed-compliant FFIs and certified deemed-
compliant FFIs. A registered deemed-compliant FFI includes an FFI that 
satisfies the requirements of Sec.  1.1471-5(f)(1)(i)(F)(1) or (2) to 
qualify as either a sponsored investment entity or a sponsored 
controlled foreign corporation. A certified deemed-compliant FFI 
includes an FFI that satisfies the requirements of Sec.  1.1471-
5(f)(2)(iii) to qualify as a sponsored, closely-held investment 
vehicle. The chapter 4 regulations provide that a sponsored FFI under 
any of the foregoing sections must have an agreement with a sponsoring 
entity under which the sponsoring entity performs, on behalf of the 
sponsored FFI, all of the due diligence, withholding, reporting, and 
other requirements that the FFI would have been required to perform if 
it were a participating FFI. A sponsoring entity of a sponsored FFI 
must register with the IRS as a sponsoring entity on Form 8957, FATCA 
Registration, via the FATCA registration Web site available at https://www.irs.gov/fatca, and must also register any sponsored investment 
entity or sponsored controlled foreign corporation within the time 
specified in Sec.  1.1471-5(f)(1)(i)(F)(3)(iii). The 2014 temporary 
regulations reserve on the rules for verification of compliance and the 
events of default for a sponsoring entity of a sponsored FFI.
    The Model 1 and Model 2 IGAs treat certain financial institutions 
as nonreporting financial institutions. Under Annex II of the Model 1 
IGA, a nonreporting financial institution that is a sponsored 
investment entity, sponsored controlled foreign corporation, or 
sponsored, closely held investment vehicle is treated as a deemed-
compliant FFI for purposes of section 1471. A sponsoring entity of a

[[Page 1631]]

sponsored entity subject to a Model 1 IGA agrees to perform, on behalf 
of the sponsored entity, all of the due diligence, withholding, 
reporting, and other requirements that the sponsored entity would have 
been required to perform if it were a reporting Model 1 financial 
institution. As a result, a sponsoring entity of a sponsored entity 
subject to a Model 1 IGA reports to the applicable Model 1 IGA 
jurisdiction with respect to the financial accounts maintained by the 
sponsored entity.
    Under the Model 1 and Model 2 IGAs, a nonreporting financial 
institution includes a financial institution that ``otherwise qualifies 
as a deemed-compliant FFI . . . under relevant U.S. Treasury 
Regulations.'' Thus, a financial institution covered by a Model 1 or 
Model 2 IGA may choose to qualify as a sponsored investment entity, 
controlled foreign corporation, or closely held investment vehicle 
pursuant to Sec.  1.1471-5(f) instead of Annex II of the Model 1 or 
Model 2 IGA. In such a case, the financial institution must satisfy all 
of the requirements applicable to such an entity in the regulations, 
including the requirement for the sponsoring entity to report 
information directly to the IRS, even in the case of a financial 
institution covered by a Model 1 IGA.
    Under Annex II of the Model 2 IGA, a financial institution that is 
a sponsored investment entity or sponsored controlled foreign 
corporation is treated as a registered deemed-compliant FFI, and a 
financial institution that is a sponsored, closely held investment 
vehicle is treated as a certified deemed-compliant FFI. A sponsoring 
entity of a sponsored entity subject to a Model 2 IGA agrees to 
perform, on behalf of the sponsored entity, all of the due diligence, 
withholding, reporting, and other requirements that the sponsored 
entity would have been required to perform if it were a reporting Model 
2 FFI. As a result, the sponsoring entity of a sponsored entity subject 
to a Model 2 IGA registers with the IRS and reports to the IRS with 
respect to financial accounts of the sponsored entity. Annex II of the 
Model 2 IGA also provides that a registered deemed-compliant FFI must 
register with the IRS on the FATCA registration Web site and have its 
responsible officer certify every three years to the IRS that all of 
the requirements for the deemed-compliant category claimed by the 
financial institution have been satisfied since July 1, 2014.
    The Model 1 and Model 2 IGAs treat certain FFIs that are trusts as 
nonreporting financial institutions. Under Annex II of the Model 1 IGA, 
a financial institution that is a trustee-documented trust is treated 
as a deemed-compliant FFI. Under Annex II of the Model 2 IGA, a 
financial institution that is a trustee-documented trust is treated as 
a certified deemed-compliant FFI. Under both the Model 1 IGA and the 
Model 2 IGA, a trust qualifies as a trustee-documented trust provided 
that the trustee of the trust is a U.S. financial institution, 
reporting Model 1 FFI, or participating FFI that reports all of the 
information required to be reported pursuant to the IGA with respect to 
U.S. accounts or U.S. reportable accounts (as applicable) of the trust. 
A trustee of a trustee-documented trust subject to a Model 1 or Model 2 
IGA should register with the IRS. A trustee of a trustee-documented 
trust subject to a Model 2 IGA reports to the IRS with respect to the 
trust, whereas a trustee of a trustee-documented trust subject to a 
Model 1 IGA reports to the applicable Model 1 IGA jurisdiction.

C. Background on Sponsored Direct Reporting NFFEs

    Section 1472(c)(1)(G) permits the Treasury Department and IRS to 
issue regulations exempting withholding agents from withholding or 
reporting under section 1472(a) with respect to payments beneficially 
owned by certain persons identified by the Treasury Department and IRS, 
which are referred to in the chapter 4 regulations as excepted NFFEs. 
As noted in Part II.A of this Background, the 2014 temporary 
regulations include direct reporting NFFEs as a class of excepted 
NFFEs.
    A direct reporting NFFE is a NFFE that elects to report information 
about its substantial U.S. owners directly to the IRS (rather than to 
the withholding agent) and that meets the requirements of Sec.  1.1472-
1(c)(3). A direct reporting NFFE may elect to be treated as a sponsored 
direct reporting NFFE if another entity, other than a nonparticipating 
FFI, agrees to act as its sponsoring entity for performing all of the 
due diligence, reporting, and other requirements that the NFFE would 
have been required to perform as a direct reporting NFFE. The 
sponsoring entity of a sponsored direct reporting NFFE must register 
with the IRS as a sponsoring entity and must also register the NFFE 
with the IRS as a sponsored direct reporting NFFE as required in the 
chapter 4 regulations. The sponsoring entity must also comply with the 
verification procedures and other compliance-related requirements 
provided in the regulations. The 2014 temporary regulations reserve on 
the verification procedures and the events of default for a sponsoring 
entity of a sponsored direct reporting NFFE.
    Under section VI(b) of Annex I of the Model 1 and Model 2 IGAs, an 
active NFFE includes a NFFE that is treated as an excepted NFFE under 
the chapter 4 regulations. An active NFFE (including a direct reporting 
NFFE) does not need to be reported as a U.S. account by a reporting 
Model 1 FFI or reporting Model 2 FFI with which the NFFE holds an 
account.

III. Background on Verification Requirements for Participating FFIs and 
Compliance FIs

    Under the chapter 4 regulations, a participating FFI is required to 
establish and implement a compliance program for satisfying its 
requirements under Sec.  1.1471-4. The responsible officer of the FFI 
must periodically certify to the IRS that the FFI maintains effective 
internal controls or, if the responsible officer cannot make this 
certification, he or she must make a qualified certification. If there 
is an event of default, the IRS will notify the FFI and request 
remediation. The FFI must respond to the notice of default and provide 
information to the IRS. If the FFI does not provide a response, the IRS 
may deliver a notice of termination that terminates the FFI's 
participating FFI status.
    The chapter 4 regulations permit a participating FFI that is a 
member of an expanded affiliated group to elect to be part of a 
consolidated compliance program under the authority of a participating 
FFI, reporting Model 1 FFI, or U.S. financial institution that is a 
member of the same expanded affiliated group (compliance FI). The 
compliance FI must establish and maintain the consolidated compliance 
program and perform a consolidated periodic review on behalf of each 
member FFI that elects to be part of the consolidated compliance 
program (electing FFI).

IV. Background on Certification Requirements for Registered Deemed-
Compliant FFIs

    An FFI may be a registered deemed-compliant FFI if it meets the 
requirements of a class of FFIs specified in Sec.  1.1471-5(f)(1). 
Certain classes of registered deemed-compliant FFIs have compliance 
obligations as a condition of their status under this section. For 
example, a registered deemed-compliant FFI that is a nonreporting 
member of a participating FFI group under Sec.  1.1471-5(f)(1)(i)(B) 
must monitor its accounts to ensure that it identifies any account that 
becomes a U.S. account or an account held by a recalcitrant account 
holder or

[[Page 1632]]

nonparticipating FFI and meets its requirement to transfer or close 
such accounts (or become a participating FFI). In order for the IRS to 
verify that a registered deemed-compliant FFI meets the requirements of 
its applicable deemed-compliant status and is satisfying any such 
compliance obligations, the chapter 4 regulations require a registered 
deemed-compliant FFI to have its responsible officer certify every 
three years to the IRS that the FFI meets the requirements for its 
applicable deemed-compliant status.

Explanation of Provisions

I. Sponsoring Entities of Sponsored FFIs

    These proposed regulations provide verification requirements for a 
sponsoring entity of a sponsored FFI that are generally similar to the 
verification requirements for a compliance FI. See Part IV of this 
Explanation of Provisions for the verification requirements for 
consolidated compliance programs. Under these proposed regulations, a 
sponsoring entity must maintain a compliance program to oversee its 
compliance with respect to each sponsored FFI for purposes of 
satisfying the deemed-compliant status requirements of Sec.  1.1471-
5(f)(1)(i)(F) or (f)(2)(iii) or an applicable Model 2 IGA. The deemed-
compliant status requirements include: (i) The assumption by the 
sponsoring entity of due diligence, withholding, and reporting 
obligations on behalf of each sponsored FFI, and (ii) compliance with 
the additional requirements for status as a sponsoring entity, such as 
registering with the IRS.
    These proposed regulations consolidate all of the verification 
requirements for a sponsoring entity. The 2014 temporary regulations, 
in Sec.  1.1471-5T(f)(1)(i)(F)(3)(vi), (f)(1)(i)(F)(3)(vii), 
(f)(2)(iii)(D)(4), and (f)(2)(iii)(D)(5), require a sponsoring entity 
to perform the verification procedures described in Sec.  1.1471-4(f) 
on behalf of a sponsored FFI and also perform the verification 
procedures described in Sec.  1.1471-5(j) and (k) on behalf of itself. 
The 2014 temporary regulations, in Sec.  1.1471-5T(j) and (k), reserved 
such verification procedures. These proposed regulations include all of 
the sponsoring entity's verification requirements in proposed Sec.  
1.1471-5(j).
    These proposed regulations also require that a sponsoring entity 
appoint a responsible officer (as defined in Sec.  1.1471-1(b)(116) of 
these proposed regulations) to oversee the compliance of the sponsoring 
entity with respect to each sponsored FFI for purposes of satisfying 
the requirements of Sec.  1.1471-5(f)(1)(i)(F) or (f)(2)(iii) or of an 
applicable Model 2 IGA. The responsible officer must certify to the IRS 
by July 1 of the calendar year following the end of each certification 
period that the sponsoring entity is compliant with the requirements to 
be a sponsoring entity and maintains effective internal controls with 
respect to all sponsored FFIs for which it acts (or provides a 
qualified certification) on the form and in the manner prescribed by 
the IRS. A sponsored FFI is not required to appoint its own responsible 
officer. Although the preamble to the 2014 temporary regulations states 
that under proposed regulations a sponsoring entity would be required 
to make two separate compliance certifications (one on behalf of its 
sponsored FFI(s) and another on the sponsoring entity's own behalf), 
the Treasury Department and IRS have determined that a single 
certification is sufficient for this purpose.
    Under these proposed regulations, in general, a sponsoring entity 
must make a certification regarding its compliance with respect to all 
sponsored FFIs for which it acts during the certification period. 
However, with respect to a certification period, a sponsoring entity is 
generally not required to certify for a sponsored FFI that first agrees 
to be sponsored by the sponsoring entity during the six month period 
prior to the end of the 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 during which such FFI was sponsored by the 
sponsoring entity. However, the preceding sentence does not apply with 
respect 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. The sponsoring entity may certify for a sponsored FFI 
described in the preceding sentence for the portion of the 
certification period prior to 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: (1) The sponsoring entity does not know that such certification 
is unreliable or incorrect; and (2) 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. The first 
certification period begins on the later of the date the sponsoring 
entity is issued a GIIN to act as a sponsoring entity or June 30, 2014.
    The requirements for the certification of compliance may be 
modified to include additional certifications or information (such as 
quantitative or factual information related to the sponsoring entity's 
compliance), provided that such additional information or 
certifications are published at least 90 days before being made 
effective in order to allow for public comment. The Treasury Department 
and IRS intend to coordinate any such modification to the requirements 
for the certification of compliance for sponsoring entities with any 
modification to the requirements for the certification of compliance 
for participating FFIs. See Part IV of this Explanation of Provisions 
for certifications required by participating FFIs.
    These proposed regulations provide that 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. However, with respect to a certification period, 
the preexisting account certification is not required for a sponsored 
FFI if, immediately before it first agrees to be sponsored by the 
sponsoring entity, the FFI was a participating FFI, a sponsored FFI, or 
a registered deemed-compliant FFI that is a local FFI or a restricted 
fund, and 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 of 
it, provided that the sponsoring entity does not know that such 
certification is unreliable or incorrect. Furthermore, since a 
participating FFI could have up to two years to complete the required 
due diligence on its preexisting accounts under Sec.  1.1471-
4(c)(3)(ii) and (c)(5)(i), the preexisting account certification is not 
required for a sponsored FFI that first agrees to be sponsored by the 
sponsoring entity during the two year period prior to the end of such 
certification period, provided that the

[[Page 1633]]

sponsoring entity makes the preexisting account certification for such 
FFI for the subsequent certification period. The preexisting account 
certification for the certification period must be submitted by the due 
date of the sponsoring entity's certification of compliance for the 
certification period and on the form and in the manner prescribed by 
the IRS. With respect to a sponsored FFI for which the sponsoring 
entity is required to make 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 of the sponsoring entity or the 
date the FFI or the sponsoring entity first represents to a withholding 
agent or financial institution that the FFI is a sponsored FFI of the 
sponsoring entity.
    These proposed regulations permit the IRS to make general inquiries 
to a sponsoring entity regarding its compliance with its applicable 
requirements, similar to the general inquiries the IRS may make to a 
participating FFI with respect to its compliance (as provided in final 
regulations under chapter 4 published together with the temporary 
chapter 4 regulations). These proposed regulations provide that the IRS 
may request any additional information from the sponsoring entity 
(including a copy of the sponsorship agreement that the sponsoring 
entity has entered into with each sponsored FFI) necessary to determine 
its 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. These 
proposed regulations also provide that if the IRS determines that the 
sponsoring entity may not have substantially complied with the 
requirements of a sponsoring entity with respect to any sponsored FFI 
for which it acts, the IRS may make inquiries to the sponsoring entity 
regarding its compliance with the requirements of a sponsoring entity 
and may request the performance of specified review procedures. 
Inquiries regarding the compliance of a sponsoring entity with respect 
to a sponsored FFI subject to the requirements of an applicable Model 2 
IGA will be made using the procedures described in these proposed 
regulations, except as otherwise provided in an applicable Model 2 IGA.
    These proposed regulations describe the events of default for a 
sponsoring entity and the termination procedures following an event of 
default. The Treasury Department and IRS recognize that some events of 
default may relate only to a particular sponsored FFI (or several such 
FFIs) for which the sponsoring entity acts and thus should not affect 
the statuses of other sponsored FFIs for which the sponsoring entity 
acts or the status of the sponsoring entity. In other cases, an event 
of default may relate to a sponsoring entity's failure to comply with 
its own requirements, such as when it fails to establish and maintain a 
compliance program or perform a periodic review. Accordingly, these 
proposed regulations provide IRS the discretion to determine whether, 
based on facts and circumstances, an event of default should result in 
the termination of the sponsoring entity's status as a sponsoring 
entity, the deemed-compliant statuses of one or more sponsored FFIs, or 
both the status of the sponsoring entity and the statuses of one or 
more sponsored FFIs. If a sponsoring entity's status is terminated, the 
sponsoring entity may not reregister as a sponsoring entity for any 
sponsored FFI or any sponsored entity subject to a Model 1 IGA without 
prior written approval from the IRS. A sponsored FFI whose sponsoring 
entity's status is terminated may register on the FATCA registration 
Web site as a participating FFI or registered deemed-compliant FFI or 
may be registered on the FATCA registration Web site as a sponsored FFI 
of a new sponsoring entity (other than an entity that has a 
relationship to the terminated sponsoring entity described in section 
267(b)), as applicable. However, if the sponsored FFI's status is 
terminated (independent of a termination of the sponsoring entity), the 
sponsored FFI must obtain prior written approval from the IRS in order 
to register as a participating FFI or registered deemed-compliant FFI 
or be registered as a sponsored FFI of a new sponsoring entity.
    The definition of sponsored FFI in the 2013 final regulations is 
limited to an entity that is a sponsored investment entity, sponsored 
controlled foreign corporation, or sponsored, closely held investment 
vehicle under Sec.  1.1471-5(f)(1)(i)(F) or Sec.  1.1471-5(f)(2)(iii). 
These proposed regulations expand the definition of sponsored FFI to 
also include a sponsored investment entity, sponsored controlled 
foreign corporation, or sponsored, closely held investment vehicle 
treated as a deemed-compliant FFI under an applicable Model 2 IGA. 
These proposed regulations do not impose verification requirements or 
specify events of default for a sponsoring entity of a sponsored entity 
subject to an applicable Model 1 IGA. The obligations of such a 
sponsoring entity are governed by the laws and requirements of the 
applicable Model 1 IGA jurisdiction. However, the IRS may treat a 
sponsored entity covered by a Model 1 IGA as a nonparticipating FFI 
pursuant to Article 5(2)(b) of an applicable Model 1 IGA if the IRS 
determines that there is significant non-compliance with the 
obligations of the IGA by the sponsored entity that has not been 
resolved within 18 months. In addition, pursuant to the termination 
procedures described in the previous paragraph, the IRS may revoke the 
status of a sponsoring entity based on an event of default relating to 
one or more sponsored FFIs. Consistent with Annex II of the Model 1 
IGA, such revocation would prevent the sponsoring entity from 
sponsoring an FFI subject to a Model 1 IGA. The IRS may also notify 
such Model 1 IGA jurisdiction of the revocation. A sponsored entity 
subject to a Model 1 IGA whose sponsor's status is terminated would 
need to become a reporting Model 1 FFI, obtain a new sponsor, or meet 
the requirements of another deemed-compliant status.
    As described in Part II.B of the Background of this preamble, the 
Model 2 IGA allows certain sponsored FFIs to be treated as deemed-
compliant FFIs and provides that the IRS may revoke a sponsoring 
entity's status if there is a material failure by the sponsoring entity 
to comply with the obligations described in Annex II of the IGA. 
Accordingly, the verification requirements and events of default in 
these proposed regulations apply to a sponsoring entity of a sponsored 
FFI subject to an applicable Model 2 IGA. In addition, the procedures 
for IRS inquiries specified in these proposed regulations apply to a 
sponsoring entity of a sponsored FFI subject to an applicable Model 2 
IGA except to the extent otherwise provided in the applicable Model 2 
IGA. Although Annex II of the Model 2 IGA permits the IRS to revoke a 
sponsoring entity's status upon a material failure (as described 
above), because the Treasury Department and IRS believe that a 
consistent standard for when to terminate a sponsoring entity's status 
should apply, these proposed regulations provide that the IRS will not 
revoke the status of a sponsoring entity of a sponsored FFI subject to 
a Model 2 IGA unless there is an event of default

[[Page 1634]]

and the procedures for termination described in these proposed 
regulations have been applied.

II. Trustees of Trustee-Documented Trusts

    These proposed regulations provide that a trustee of a trustee-
documented trust subject to a Model 2 IGA shall appoint a responsible 
officer who will maintain a compliance program and oversee the 
trustee's compliance with respect to each trustee-documented trust for 
purposes of satisfying the requirements of an applicable Model 2 IGA. 
The responsible officer must perform a periodic review of the 
sufficiency of the trustee's compliance program for each certification 
period. The responsible officer must also certify to the IRS that the 
trustee has established a compliance program, performed a periodic 
review, and reported to the IRS all of the information required to be 
reported with respect to each trustee-documented trust for each 
certification period. Certain late-joining trustee-documented trusts 
may be excluded from a certification under rules similar to those 
provided in these proposed regulations for sponsored FFIs. The IRS will 
not unilaterally revoke the status of, or issue a notice of default to, 
a trustee of such a trust. Instead, subject to the requirements of an 
applicable Model 2 IGA, these proposed regulations permit the IRS to 
make inquiries to the trustee regarding its compliance with its 
applicable requirements and notify the Model 2 IGA jurisdiction if the 
trustee has not complied with its requirements with respect to one or 
more trustee-documented trusts established in that jurisdiction. The 
IRS may also notify an applicable Model 1 IGA jurisdiction of the 
trustee's non-compliance with respect to its requirements as a trustee 
of a trustee-documented trust subject to a Model 2 IGA if the trustee 
also acts on behalf of trustee-documented trusts in the Model 1 IGA 
jurisdiction or if the trustee is located in the Model 1 IGA 
jurisdiction.

III. Sponsoring Entities of Sponsored Direct Reporting NFFEs

    These proposed regulations include verification requirements and 
the events of default for a sponsoring entity of a sponsored direct 
reporting NFFE. These proposed regulations also specify the 
requirements for a sponsorship agreement between a sponsoring entity 
and each sponsored direct reporting NFFE for which it acts.
    Under these proposed regulations, a sponsoring entity must appoint 
a responsible officer to oversee the compliance of the sponsoring 
entity with respect to each sponsored direct reporting NFFE. The 
responsible officer of the sponsoring entity must make a periodic 
certification to the IRS on the form and in the manner prescribed by 
the IRS. The certification requirements of a sponsoring entity of a 
sponsored direct reporting NFFE are more limited than the certification 
requirements of a sponsoring entity of a sponsored FFI because the 
obligations of a sponsoring entity of a sponsored direct reporting NFFE 
are more limited than those of a sponsoring entity of a sponsored FFI. 
A sponsoring entity of a sponsored direct reporting NFFE must certify 
that it meets the requirements of a sponsoring entity, that it has a 
written sponsorship agreement that meets the requirements in these 
proposed regulations in effect with each sponsored direct reporting 
NFFE, that there have been no events of default (or that such events 
have been remediated), and that the sponsoring entity has corrected any 
failures to report on Form 8966, ``FATCA Report,'' with respect to any 
sponsored direct reporting NFFE.
    In general, a sponsoring entity must make the periodic 
certification with respect to all sponsored direct reporting NFFEs for 
which it acts during the certification period. However, with respect to 
a certification period, a sponsoring entity is not required to certify 
for a sponsored direct reporting NFFE that first agrees to be sponsored 
by the sponsoring entity during the six month period prior to the end 
of the 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 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 prior to 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: (1) The sponsoring entity does not 
know that such certification is unreliable or incorrect; and (2) 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. The 
first certification period will begin on the later of the date the 
sponsoring entity is issued a GIIN to act as a sponsoring entity or 
June 30, 2014.
    Under these proposed regulations, the IRS may make inquiries to a 
sponsoring entity to determine the sponsoring entity's compliance with 
its requirements. The IRS may also request any additional information 
from the sponsoring entity (including a copy of the sponsorship 
agreement that the sponsoring entity has entered into with each 
sponsored direct reporting NFFE). If the IRS determines that the 
sponsoring entity may not have substantially complied with the 
requirements of a sponsoring entity with respect to any sponsored 
direct reporting NFFE for which it acts, the IRS may request additional 
information to verify the sponsoring entity's compliance with such 
requirements and may request the performance of specified review 
procedures.
    These proposed regulations also specify the events of default and 
termination procedures applicable to a sponsoring entity of a sponsored 
direct reporting NFFE. Consistent with the verification requirements 
for direct reporting NFFEs in the chapter 4 regulations, a notice of 
default is triggered by an event of default. An event of default may 
result in the termination of the sponsoring entity's status as a 
sponsoring entity, the statuses of one or more sponsored direct 
reporting NFFEs as such, or both the status of a sponsoring entity and 
the statuses of one or more sponsored direct reporting NFFEs. A 
sponsored direct reporting NFFE whose sponsoring entity's status is 
terminated may register on the FATCA registration Web site as a direct 
reporting NFFE or sponsored direct reporting NFFE, unless the sponsored 
direct reporting NFFE's status is also terminated, in which case the 
sponsored direct reporting NFFE must obtain prior written approval from 
the IRS in order to register.

IV. Modifications to the Verification Requirements for Participating 
FFIs and Compliance FIs

    These proposed regulations provide that the requirements for a 
participating

[[Page 1635]]

FFI's certification of compliance (described in Sec.  1.1471-4(f)(3)) 
may be modified through an amendment to the FFI agreement to include 
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 
required are published at least 90 days before being added to the FFI 
agreement to allow for public comment. See also section 12.02 of the 
FFI agreement (covering modifications to the FFI agreement imposing 
additional requirements on participating FFIs). Additionally, any such 
amendment to the FFI agreement will be published only after these 
proposed regulations are published as final regulations.
    These proposed regulations modify the procedures and timeframes for 
notices of default and terminations applicable to participating FFIs in 
the chapter 4 regulations to conform to the procedures and timeframes 
for sponsoring entities in these proposed regulations. These proposed 
regulations include a minimum period of 45 days for a participating FFI 
to respond to a notice of default. Within 30 days of a termination of 
an FFI's participating FFI status, the FFI must send a notice of 
termination to each withholding agent from which the FFI receives 
payments and each financial institution with which it holds an account 
to which a withholding certificate or other documentation was provided. 
Requests for reconsideration of a notice of default or a notice of 
termination must be made within 90 days of the notice of default or 
notice of termination (as applicable). An FFI that has had its 
participating FFI status terminated may not reregister on the FATCA 
registration Web site as a participating FFI or a registered deemed-
compliant FFI unless it receives written approval from the IRS.
    The chapter 4 regulations provide that when an FFI elects to be 
part of a consolidated compliance program (electing FFI), each branch 
that it maintains (including a limited branch or a branch described in 
Sec.  1.1471-5(f)(1)) must be subject to periodic review as part of 
such program. These proposed regulations clarify that a branch of an 
electing FFI located in a Model 1 IGA jurisdiction is excluded from the 
periodic review. In addition, these proposed regulations clarify that 
the responsible officer of the compliance FI must make the periodic 
certification described in Sec.  1.1471-4(f)(3) (or a qualified 
certification) on the form and in the manner prescribed by the IRS. In 
general, the certification must be made on behalf of all electing FFIs 
in the compliance group during the certification period. However, 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 prior to 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 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 the portion of the 
certification period prior to 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: (1) The compliance FI does not know that such 
certification is unreliable or incorrect; and (2) 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. 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.
    These proposed regulations provide that the responsible officer of 
a compliance FI must make the certification described in Sec.  1.1471-
4(c)(7) (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 (as defined in Sec.  1.1471-4(f)(3)(i)). Notwithstanding the 
preceding sentence, 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 of 
it, unless the compliance FI knows that such certification is 
unreliable or incorrect. In addition, a preexisting account 
certification is not required for a certification period for an 
electing FFI that elects to be part of the consolidated compliance 
program under the compliance FI during the two year period prior to the 
end of such certification period, provided that the compliance FI makes 
the preexisting account certification for such FFI by the due date of 
the certification of compliance for the subsequent certification 
period. The preexisting account certification, if required for a 
certification period, must be submitted by the due date of the FFI's 
periodic certification of compliance for the certification period, on 
the form and in the manner prescribed by the IRS.

V. Certification and Verification Requirements for Registered Deemed-
Compliant FFIs

    The chapter 4 regulations do not explicitly provide that the IRS 
may apply verification procedures and make inquiries regarding the 
certifications provided by registered deemed-compliant FFIs. These 
proposed regulations provide that the IRS may make inquiries of, and 
request additional information from and the performance of specified 
review procedures by, a registered deemed-compliant FFI to verify the 
FFI's compliance with the requirements of its applicable deemed-
compliant status. These requirements are similar to the provisions for 
the IRS's verification of a participating FFI's compliance with the FFI 
agreement. If the IRS determines that a registered deemed-compliant 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. A registered deemed-compliant FFI that has had its status 
terminated may request reconsideration of the termination by submitting 
a written request to the IRS within 90 days of the notice of 
termination.

[[Page 1636]]

Proposed Effective/Applicability Dates

    These proposed regulations apply on the date of publication of a 
Treasury decision adopting these rules as final regulations in the 
Federal Register.

Special Analyses

    Certain IRS regulations, including these, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required.
    The IRS intends that the information collection requirements in 
these proposed regulations will be satisfied by submitting 
certifications to the IRS electronically. For purposes of the Paperwork 
Reduction Act, the reporting burden associated with the collection of 
information in these proposed regulations will be reflected in the OMB 
Form 83-1, Paperwork Reduction Act Submission, associated with the 
certification.
    It is hereby certified that the collection of information 
requirement in these proposed regulations will not have a significant 
economic impact on a substantial number of small entities because these 
proposed regulations affect foreign persons, not domestic entities. 
Therefore, a Regulatory Flexibility Analysis under the Regulatory 
Flexibility Act is not required. Pursuant to section 7805(f) of the 
Code, this notice of proposed rulemaking has been submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and IRS request comments on all aspects of the 
proposed rules, including comments on the clarity of the proposed rules 
and how they could be made easier with which to comply. All comments 
will be available for public inspection and copying. A public hearing 
will be scheduled if requested in writing by any person that timely 
submits written comments. If a public hearing is scheduled, notice of 
the date, time, and place for the public hearing will be published in 
the Federal Register.

Drafting Information

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

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be 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 1.1471-1 is amended by revising paragraphs (b)(99), 
(b)(116), and (b)(121) to read as follows:


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

* * * * *
    (b) * * *
    (99) [The text of proposed Sec.  1.1471-1(b)(99) is the same as the 
text of Sec.  1.1471-1T(b)(99) published elsewhere in this issue of the 
Federal Register].
* * * * *
    (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 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). 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.
* * * * *
    (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.
* * * * *
0
Par. 3. Section 1.1471-3 is amended by:
0
1. Revising paragraph (c)(1).
0
2. Adding paragraphs (c)(3)(iii)(B)(5) and (c)(6)(ii)(E)(4).
0
3. Revising paragraphs (c)(7)(ii) and (d)(6)(i)(F).
    The revisions and additions read as follows:


Sec.  1.1471-3   Identification of payee.

* * * * *
    (c) * * *
    (1) [The text of proposed Sec.  1.1471-3(c)(1) is the same as the 
text of Sec.  1.1471-3T(c)(1) published elsewhere in this issue of the 
Federal Register].
* * * * *
    (3) * * *
    (iii) * * *
    (B) * * *
    (5) [The text of proposed Sec.  1.1471-3(c)(3)(iii)(B)(5) is the 
same as the text of Sec.  1.1471-3T(c)(3)(iii)(B)(5) published 
elsewhere in this issue of the Federal Register].
* * * * *
    (6) * * *
    (ii) * * *
    (E) * * *
    (4) [The text of proposed Sec.  1.1471-3(c)(6)(ii)(E)(4) is the 
same as the text of Sec.  1.1471-3T(c)(6)(ii)(E)(4) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (7) * * *
    (ii) [The text of proposed Sec.  1.1471-3(c)(7)(ii) is the same as 
the text of Sec.  1.1471-3T(c)(7)(ii) published elsewhere in this issue 
of the Federal Register].
* * * * *
    (d) * * *
    (6) * * *
    (i) * * *
    (F) [The text of proposed Sec.  1.1471-3(d)(6)(i)(F) is the same as 
the text of Sec.  1.1471-3T(d)(6)(i)(F) published elsewhere in this 
issue of the Federal Register].
* * * * *
0
Par. 4. Section 1.1471-4 is amended by:

[[Page 1637]]

0
1. Revising paragraphs (c)(2)(ii)(B)(2)(iii), (d)(4)(iv)(C) and (D), 
(f)(2)(ii)(A), (f)(3)(i), and (g)(2).
0
2. Adding paragraphs (d)(2)(ii)(G) and (f)(2)(ii)(B)(1) and (2).
    The revisions and additions read as follows:


Sec.  1.1471-4  FFI agreement.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (B) * * *
    (2) * * *
    (iii) [The text of proposed Sec.  1.1471-4(c)(2)(ii)(B)(2)(iii) is 
the same as the text of Sec.  1.1471-4T(c)(2)(ii)(B)(2)(iii) published 
elsewhere in this issue of the Federal Register].
* * * * *
    (d) * * *
    (2) * * *
    (ii) * * *
    (G) [The text of proposed Sec.  1.1471-4(d)(2)(ii)(G) is the same 
as the text of Sec.  1.1471-4T(d)(2)(ii)(G) published elsewhere in this 
issue of the Federal Register].
* * * * *
    (4) * * *
    (iv) * * *
    (C) [The text of proposed Sec.  1.1471-4(d)(4)(iv)(C) is the same 
as the text of Sec.  1.1471-4T(d)(4)(iv)(C) published elsewhere in this 
issue of the Federal Register].
    (D) [The text of proposed Sec.  1.1471-4(d)(4)(iv)(D) is the same 
as the text of Sec.  1.1471-4T(d)(4)(iv)(D) published elsewhere in this 
issue of the Federal Register].
* * * * *
    (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). 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. 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 (f)(3)(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. 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 prior to 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 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 the portion of the 
certification period prior to 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: (1) The compliance FI does not know that such 
certification is unreliable or incorrect; and (2) 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. 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.
    (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, Sec.  
1.1471-5(f)(1)(i)(A)(7), or Sec.  1.1471-5(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 prior to 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) 
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

[[Page 1638]]

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 Web site 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.
* * * * *
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 new 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 new 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).
    The revisions and additions read as follows:


Sec.  1.1471-5  Definitions applicable to section 1471.

* * * * *
    (f) * * *
    (1) * * *
    (i) * * *
    (F) * * *
    (3) * * *
    (vi) Complies with the verification procedures described in 
paragraph (j) of this section;
* * * * *
    (4) The IRS may revoke a sponsoring entity's status with respect to 
one or more sponsored FFIs if there is an event of default as defined 
in paragraph (k)(1) of this section and following the termination 
procedures described in paragraphs (k)(2), (k)(3), and (k)(4) 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 to confirm 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, 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, 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. 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

[[Page 1639]]

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 Web site as a registered deemed-compliant FFI or register 
on the FATCA registration Web site 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 if there is an event 
of default as defined in paragraph (k)(1) of this section and following 
the termination procedures described in paragraphs (k)(2), (k)(3), and 
(k)(4) 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. This paragraph (j) also requires a 
sponsoring entity to have in place a written sponsorship agreement as 
described in paragraph (j)(3)(v)(B) of this section with each sponsored 
FFI. References in this paragraph (j) or paragraph (k) of this section 
to a sponsored FFI mean a sponsored FFI to which the requirements of 
paragraph (f)(1)(i)(F) or (f)(2)(iii) of this section or an applicable 
Model 2 IGA apply.
    (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 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) In general. In addition to the 
certification required under paragraph (j)(5) of this section 
(preexisting account certification), 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.
    (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 prior to the end of 
the 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 
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 
prior to 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: (1) The 
sponsoring entity does not know that such certification is unreliable 
or incorrect; and (2) 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 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

[[Page 1640]]

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--
    (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

[[Page 1641]]

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. 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 (j)(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, the IRS 
may determine in its discretion that the sponsoring entity may not have 
substantially complied with such requirements. 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). 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 prior to the end of the 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) of this section for the 
certification period, 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.
    (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

[[Page 1642]]

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 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 to each sponsored FFI for which it acts, as well as 
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 with 
respect to each sponsored FFI within 30 days after the date of 
termination. A sponsoring entity that has had its status terminated 
cannot register on the FATCA registration Web site 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 Web site 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) to 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 Web site and send notice of the 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 within 30 days after the date of 
termination. 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 Web site 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 if there is an event of default 
as defined in paragraph (k)(1) of this section and following the 
notice, remediation, and termination procedures described in paragraphs 
(k)(2), (k)(3), and (k)(4) 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) In general. On or before July 
1 of the calendar year following the end of the certification period, 
the responsible officer 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.
    (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 for purposes 
of the trust's status as a trustee-documented trust during the six 
month period prior to the end of the 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 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 for purposes of the trust's status as a trustee-documented 
trust, 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 prior to the date that the trustee first agrees to 
act as the trustee for purposes of the trust's status as a trustee-
documented trust 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: (1) The trustee does not know that such certification is 
unreliable or incorrect; and (2) the certification for the trustee-
documented trust for the subsequent

[[Page 1643]]

certification period covers both the subsequent certification period 
and the portion of the prior certification period during which the 
trustee acts as the trustee for purposes of the trust's status as a 
trustee-documented trust.
    (iii) Certification period. The first certification period 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 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, 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, 
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. 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
* * * * *
0
 Par. 6. Section 1.1472-1 is amended by revising paragraphs 
(c)(5)(iii), (f), and (g) 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) 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. 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.
    (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 prior to the end of the 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 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 prior to 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

[[Page 1644]]

requirements during such portion of the certification period, provided 
that: (1) The sponsoring entity does not know that such certification 
is unreliable or incorrect; and (2) 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.
    (iii) Certification period. The first certification period 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. If, 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, the IRS determines in its discretion that the sponsoring 
entity may not have substantially complied with these requirements, 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 in effect between the sponsoring entity 
and each sponsored direct reporting NFFE in 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 prior to 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 1645]]

    (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 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 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 written 
statement prescribed in Sec.  1.1471-3(d)(11)(x)(B) (as applicable) was 
provided with respect to each sponsored direct reporting NFFE within 30 
days after the date of termination. A sponsoring entity that has had 
its status terminated cannot reregister on the FATCA registration Web 
site 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 
Web site 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. An entity is 
related to the terminated sponsoring entity if they have a relationship 
with each other that is described in section 267(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 Web site and send notice of the 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 within 30 days 
after the date of termination. 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 Web site 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.
* * * * *
0
 Par. 7. Section 1.1474-1 is amended by adding paragraph (d)(4)(vii) to 
read as follows:


Sec.  1.1474-1  Liability for withheld tax and withholding agent 
reporting.

    (d) * * *
    (4) * * *
    (vii) [The text of proposed Sec.  1.1474-1(d)(4)(vii) is the same 
as the text of Sec.  1.1474-1T(d)(4)(vii) published elsewhere in this 
issue of the Federal Register].
* * * * *

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-31599 Filed 12-30-16; 4:15 pm]
 BILLING CODE 4830-01-P