Sponsoring Entities under IRS FATCA scrutiny

On 10/11/22, the IRS issued Notice Number 2022-05:  FATCA Registrations: Sponsoring Entities with no Registered Sponsored Entities.  The IRS has identified Sponsoring Entities that do not appear to have Sponsored Entities registered in the FATCA Registration System. A Sponsored Entity is a Sponsored FFI or a Sponsored Direct Reporting NFFE.

Sponsoring Entity

A Sponsoring Entity is an entity that will perform the due diligence, withholding, and reporting obligations of one or more Sponsored FFIs, or the due diligence and reporting obligations of one or more Sponsored Direct Reporting NFFEs. After a Sponsoring Entity’s registration is approved, it must register its Sponsored FFIs and/or Sponsored Direct Reporting NFFEs, as applicable.

IRS is checking the Sponsoring Entities

The IRS has identified Sponsoring Entities that have not registered any Sponsored FFIs or Sponsored Direct Reporting NFFEs and, therefore, are not performing the obligations of a Sponsoring Entity.

Obligation of a FATCA Sponsoring Entity

The following is a key list of compliance responsibilities for a participating FFI that has agreed to sponsor another FFI in FATCA:

• The Sponsor registers a second time on the FATCA Portal as a “Sponsoring FFI” (classification) to receive a second GIIN (Global Intermediary Identification Number) and must then register every entity it plans to sponsor and obtain a separate GIIN for each one.
• The Sponsor is responsible for obtaining the contractual documentation between the entity being sponsored and itself.
• The Sponsor is fully responsible for performing the FATCA due diligence of all accounts and legal owners to identify all FATCA reportable persons.
• The entity being sponsored must provide the sponsoring entity with all FATCA documentation for its owners and controlling parties.

IRS will contact the Sponsoring Entities

The IRS will be contacting impacted Sponsoring Entities by posting a message on their FATCA registration system message board. The IRS will be requesting that the Sponsoring Entities cancel their FATCA agreement if they do not meet the requirements for being a Sponsoring Entity of Sponsored FFIs and/or Sponsored Direct Reporting NFFEs, including the requirement to have registered Sponsored FFIs and/or Sponsored Direct Reporting NFFEs.

If the entity has Sponsored FFIs or Sponsored Direct Reporting NFFEs, they can proceed with registering the Sponsored Entities in the FATCA registration system.

Sponsoring Entities have 60 days to act after receiving the IRS notification on their FATCA portal

If no action is taken within 60 days of notification, the entity will be removed from the published FFI List and may be subject to 30% withholding.

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