FATCA Update: Recent Developments and Next Steps

May 27, 2014

This memorandum is designed to update you on certain recent developments regarding the Foreign Account Tax Compliance Act (“FATCA”) and discuss the next steps that private investment funds should be taking to comply with FATCA.

Recent Developments

Notice 2014-33

On May 2, the Internal Revenue Service (the “IRS”) released Notice 2014-33. Most importantly for private investment funds, Notice 2014-33 extended the deadline for treating an investment by an entity as a “pre-existing investment” from July 1, 2014 to January 1, 2015. This means that for FATCA due diligence purposes, an entity which has invested in a private investment fund prior to January 1, 2015 will be treated as a “pre-existing account” and therefore will be subject to different due diligence procedures and deadlines. The deadline for individual accounts to be treated as pre-existing accounts remains July 1, 2014.

In addition, Notice 2014-33 provided that calendar years 2014 and 2015 will be treated as a “transition period” for purposes of FATCA enforcement by the IRS. As a practical matter, the ramifications of this portion of Notice 2014-33 are unclear. It is clear, however, that foreign financial institutions (“FFIs”) and withholding agents will be required to make “reasonable” and “good faith” efforts to comply with FATCA during this transition period. It is strongly recommended that private investment fund managers continue their efforts towards complying with FATCA during this transition period.


The IRS has continued to post FAQs regarding FATCA registration on its website. In general, these FAQs have confirmed the views previously expressed in our prior updates.

One notable recent FAQ provided that, as expected, an FFI that is formed in a Model 1 IGA jurisdiction (such as the Cayman Islands) is required to register with the IRS as an FFI under FATCA even if the FFI is treated as a “disregarded entity” for U.S. federal income tax purposes.

Cayman Guidance Notes Released

On May 12, the Cayman Islands Tax Information Authority (the “CITIA”) released draft Guidance Notes interpreting the Cayman Intergovernmental Agreement (the “Cayman IGA”). The draft Guidance Notes reflect the initial views of the CITIA as to the application of the Cayman IGA to Cayman Islands financial institutions. We expect that various stakeholders will be providing comments over the coming weeks to the CITIA.

Next Steps

Attached as Exhibit 1 is a checklist showing the general requirements for FATCA compliance, as well as their timing. The remainder of this memorandum discusses these compliance requirements in more detail.


If you have not yet registered any funds or other entities that are FFIs, you should do so on the IRS FATCA registration website: https://sa.www4.irs.gov/fatca-rup/. In addition, each newly formed non-U.S. entity should be analyzed to determine its FATCA status and whether it is required to register as an FFI under FATCA.

Due Diligence on Pre-Existing Investors

Non-U.S. funds should begin the due diligence process on existing investors. In general, funds which are formed in a Model 1 jurisdiction (such as the Cayman Islands or the British Virgin Islands) have until July 1, 2015 to complete due diligence regarding pre-existing individual investors and until July 1, 2016 to complete due diligence regarding pre-existing entity investors. Although there should be sufficient time to complete this process, funds are advised to begin this process sooner rather than later.

Updates to Fund Documents

Non-U.S. funds will want to begin updating their various documents to reflect the changes required for FATCA compliance. Most importantly, non-U.S. funds should update their subscription documents or at least begin requesting an applicable IRS Form W-8 or W-9 from new investors beginning on July 1, 2014 for individual investors and January 1, 2015 for entity investors.

In addition, non-U.S. funds will want to review their governing documents (e.g., Articles of Association or Limited Partnership Agreement) to determine whether or not their governing documents need to be updated to permit special allocation of FATCA withholding taxes to non-compliant investors or mandatory redemption of such investors. It should be noted that withholding by non-U.S. funds on amounts payable to their investors will not commence until January 1, 2017 at the earliest. This should provide sufficient lead time to appropriately amend the relevant documents.

Finally, non-U.S. funds may want to update their offering documents to add disclosure regarding FATCA, although in practice we find that most funds are doing this as part of their regular update process.

U.S. funds should be aware that they are withholding agents under FATCA. Therefore, U.S. funds should request an applicable IRS Form W-8 or W-9 from their investors in order to determine whether they have any FATCA withholding responsibilities with respect to such investors.


Additional information regarding the application of FATCA to private investment funds can be found on our website at http://www.sewkis.com.

We will continue to keep you updated of any new developments regarding FATCA. If you have any questions regarding the application of FATCA to your organization, please contact Jon Brose (212-574-1615, brose@sewkis.com), Jim Cofer (212-574-1688, cofer@sewkis.com), Ron Cima (212-574-1471, cima@sewkis.com), or Dan Murphy (212-574-1210, murphyd@sewkis.com).


FATCA Compliance Timeline
Item Due Date
Register with IRS as FFI Now for existing entities
As formed for new entities
Due Diligence on Pre-Existing Individual Investors July 1, 2015
Due Diligence on Pre-Existing Entity Investors July 1, 2016
Update Subscription Documents for Non-U.S. Funds January 1, 2015 for entities
July 1, 2014 for individuals
Update Governing Documents for Non-U.S. Funds January 1, 2017
Update Offering Memorandum for Non-U.S. Funds Next regular update