Recalcitrant Account Holder

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FATCA

Recalcitrant Account Holders [§1.1471-5(g)]

1-5(g)(1) Scope [§1.1471-5(g)(1)]

This paragraph (g) provides rules for determining when an account holder of a participating FFI or registered deemed-compliant FFI is a recalcitrant account holder. Paragraph (g)(2) of this section defines the term recalcitrant account holder. Paragraphs (g)(3) and (4) of this section provide timing rules for when an account holder will begin to be treated as a recalcitrant account holder by a participating FFI and when an account holder will cease to be treated as a recalcitrant account holder by such institution. For rules for determining the holder of an account, see paragraph (a)(3) of this section. For the withholding requirements of an FFI with respect to its recalcitrant account holders, see paragraph (f) of this section and §1.1471-4(b). For the reporting requirements of an FFI with respect to its recalcitrant account holders, see §1.1471-4(d)(6), and, for the reporting required with respect to payments made to such account holders, see §1.1474-1(d)(4)(iii). The rules provided in this paragraph (g) to classify certain account holders as recalcitrant account holders shall not, however, apply to a U.S. branch of a participating FFI. Instead, a U.S. branch of a participating FFI or registered deemed-compliant FFI that is treated as a U.S. person shall apply the presumption rules of §1.1471-3(f) (for foreign entity account holders) and chapter 3 or 61 (for individual payees) to determine the status of a payee if it cannot reliably associate a reportable payment made to the payee with valid documentation.

1-5(g)(2) Recalcitrant account holder [§1.1471-5(g)(2)]

The term recalcitrant account holder means any holder of an account maintained by an FFI if such account holder is not an FFI (or presumed to be an FFI under §1.1471-3(f)), the account does not meet the requirements of the exception to U.S. account status described in paragraph (a)(4) of this section (for depository accounts with a balance of $50,000 or less) and does not qualify for any of the exceptions from the documentation requirements described in §1.1471-4(c)(3)(iii), (c)(4)(iii), (c)(5)(iii), (c)(5)(iv)(E) (or the participating FFI elects to forego such exceptions) and-

(2)(i) The account holder fails to comply with requests by the FFI for the documentation or information that is required under §1.1471-4(c) for determining the status of such account as a U.S. account or other than a U.S. account; [§1.1471-5(g)(2)(i)]

(2)(ii) The account holder fails to provide a valid Form W-9 upon request from the FFI or fails to provide a correct name and TIN combination upon request from the FFI when the FFI has received notice from the IRS indicating that the name and TIN combination reported by the FFI for the account holder is incorrect; [§1.1471-5(g)(2)(ii)]

(2)(iii) If foreign law would (but for a waiver) prevent reporting by the FFI (or branch or division thereof) of the information described in §1.1471-4(d)(3) or (5) with respect to such account, the account holder (or substantial U.S. owner of an account holder that is a U.S. owned foreign entity) fails to provide a valid and effective waiver to permit such reporting; or [§1.1471-5(g)(2)(iii)]

(2)(iv) The account holder provides the documentation described in §1.1471-3(d)(12) to establish its status as a passive NFFE (other than a WP or WT) but fails to provide the information regarding its owners required under §1.1471-3(d)(12)(iii). [§1.1471-5(g)(2)(iv)]

1-5(g)(3) Start of recalcitrant account holder status [§1.1471-5(g)(3)]

(3)(i) Preexisting accounts identified under the procedures described in §1.1471-4(c) for identifying U.S. accounts [§1.1471-5(g)(3)(i)]

(i)(A) In general [§1.1471-5(g)(3)(i)(A)]

An account holder of a preexisting account described in paragraph (g)(2) of this section maintained by a participating FFI will be treated as a recalcitrant account holder beginning on the dates provided in paragraphs (g)(3)(B) through (D) of this section. An account holder of a preexisting account described in paragraph (g)(2) of this section that is maintained by a registered deemed-compliant FFI will be treated as a recalcitrant account holder beginning on the dates provided in paragraph (f) of this section (setting forth the time by which the FFI must identify its accounts in accordance with the requirements of §1.1471-4(c) in order to meet the requirements of its applicable registered deemed-compliant status).

(i)(B) Accounts other than high-value accounts [§1.1471-5(g)(3)(i)(B)]

Account holders of preexisting accounts maintained by a participating FFI that are not high-value accounts (as described in §1.1471-4(c)(5)(iv)(D)) and that are described in paragraph (g)(2) of this section will be treated as recalcitrant account holders beginning on the date that is two years after the effective date of the FFI agreement.   (i)(C) High-value accounts [§1.1471-5(g)(3)(i)(C)]

Account holders of preexisting accounts maintained by a participating FFI that are high-value accounts (as described in §1.1471-4(c)(5)(iv)(D)) and that are described in paragraph (g)(2) of this section will be treated as recalcitrant account holders beginning on the date that is one year after the effective date of the FFI agreement.

(i)(D) Preexisting accounts that become high-value accounts [§1.1471-5(g)(3)(i)(D)]

[Reserved]. For further guidance, see §1.1471-5T(g)(3)(i)(D).

With respect to a calendar year beginning after December 31, 2015, an account holder that is described in paragraph (g)(2) of this section and that holds a preexisting account that a participating FFI identifies as a high-value account pursuant to §1.1471-4(c)(5)(iv)(D) will be treated as a recalcitrant account holder beginning on the earlier of the date a withholdable payment is made to the account following end of the calendar year in which the account is identified as a high-value account or the date that is six months after the calendar year end.

(3)(ii) Accounts that are not preexisting accounts and accounts requiring name/TIN correction [§1.1471-5(g)(3)(ii)]

An account holder of an account other than a preexisting account and that is described in paragraph (g)(2) of this section will be treated as a recalcitrant account holder beginning on the date that is the earlier of 90 days after the date the account is opened by the participating FFI or the date that a withholdable payment that is subject to withholding under §1.1441-2(a) is made to the account. An account holder for which the participating FFI received a notice from the IRS indicating that the name and TIN combination provided for the account holder is incorrect will be treated as a recalcitrant account holder following the date of such notice within the time prescribed in §31.3406(d)-5(a) of this chapter.

(3)(iii) Accounts with changes in circumstances [§1.1471-5(g)(3)(iii)]

An account holder holding an account that is described in paragraph (g)(2) of this section following a change in circumstances (other than a change in account balance or value in a subsequent year that causes an individual account to be identified as a high-value account) will be treated as a recalcitrant account holder beginning on the date that is 90 days after the change in circumstances. For the definition of a change in circumstances with respect to an account, see §1.1471-4(c)(2)(iii).

1-5(g)(4) End of recalcitrant account holder status [§1.1471-5(g)(4)]

An account holder that is treated as a recalcitrant account holder under paragraphs (g)(2) and (3) of this section will cease to be so treated as of the date on which the account holder is no longer described in paragraph (g)(2) of this section.

Also see Rule Map

4 thoughts on “Recalcitrant Account Holder

  1. I’ve been trying to get information on 2 items without much success:

    1) Will a bank report ALL accounts, even if accounts are below individual reporting threshold requirement of $50k or entity reporting threshold of $250k?

    It seems a bank is NOT required to report accounts under the threshold.

    From the Hong Kong IGA: https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Hong%20Kong-11-13-2014.pdf

    Entity Accounts Not Required to Be Reviewed, Identified, or Reported.
    Unless the Reporting HKSAR Financial Institution elects otherwise, either with respect to all Preexisting Entity Accounts or, separately, with respect to any clearly identified group of such accounts, a Preexisting Entity Account with an account balance or value that does not exceed $250,000 as of June 30, 2014, is not required to be reviewed, identified, or reported as a U.S. Account until the account balance or value exceeds $1,000,000.

    The phrase of concern here is “Unless the Reporting HKSAR Financial Institution elects otherwise…”

    What is standard practice (if there is one) for banks? I’ve found it very hard to get information from the bank. I think no one knows.

    2) What kind of information must the FFI report to the IRS on recalcitrant account holders? Will the IRS prioritize big accounts and ignore small (under threshold) ones?

    The Hong Kong IGA states that the FFI must report “Non-consenting” (i.e. recalcitrant) accounts in aggregate. The IRS may make “group requests” (unclear what that means) for information on groups of individual non-consenting accounts, and that the date period covered by the request may not be before the effective date of the IGA. My read is it’s likely such “group requests” will include only high value non-consenting accounts, but that may be wishful thinking.

    • Hi, thanks for your question.

      Regarding the application, or non-application of the de-minimis thresholds. Many of the larger institutions are unable to apply the thresholds because their systems do not “talk to each other”. Hence, most will report both above and below the threshold.

      To your second point, closely related though they are, “Non-Consenting” and “Recalcitrant” are not precisely the same. The difference can be as subtle as timing, for example, one can be “Non-Consenting” without necessarily being “Recalcitrant” as long as one consents before July 2016 (provided that one is not an individual with a High Value Account).

      Further, “Non-Consenting” implies consent was sought and not given. Not all IGAs contain the concept of “Non-Consenting”, however, those IGAs that I have read that do contain this concept, for example, Chile and Switzerland, both have criterium for “Non-Consenting” that includes consent being sought but not granted.

      I had a brief look at the Hong Kong IGA and it does appear that Hong Kong too, requires that Consent has to be sought and consent not granted.

      Not only will this depend on the IGA in your own jurisdiction as well as the following local law and local guidance. It will also depend on how your Bank interprets these. Many banks interpret these very differently.

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