Below is a summary of the main issues discussed during our April 28 meeting, and our recommendations for resolving them.

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1 Donna J. Fisher Senior Vice President Tax, Accounting & Financial Management (202) September 11, 2015 Theodore D. Setzer International Business Compliance - Foreign Payments Program Internal Revenue Service 110 West 44th Street New York, NY Dear Ted, Thank you for meeting with the ABA s Information Reporting Advisory Group (IRAG) on April 28, We appreciate your taking the time to have a dialogue with us on some very important issues. As we promised during the meeting, we are providing a summary of the concerns and recommendations discussed for your and your colleagues consideration. We strongly believe that the issues summarized below need to be resolved as soon as possible. Some of them have been raised by the financial services industry as serious concerns for many years (in one case, back to 1996), and our concerns about these issues continue to escalate. As legislators increasingly use information reporting and withholding rules as revenue raisers, we think it is important that the IRS make the issues listed in this letter a priority in order to promote more efficient tax administration and minimize the burden on withholding agents and their customers. We also believe more collaboration is needed in order to provide a workable structure from both a privacy and an accuracy perspective, and we look forward to working with you and your colleagues to resolve the outstanding questions described below, as financial institutions take their compliance responsibilities very seriously. Below is a summary of the main issues discussed during our April 28 meeting, and our recommendations for resolving them. FATCA (Chapter 4) and NRA (Chapter 3) Form 1042-S Reporting and Withholding Compliance IRS Examinations It is our understanding that FATCA audits of U.S. withholding agents will likely begin in 2016, with the review of 2014 Forms 1042 and 1042-S filed during the transition period described in Notice While we appreciate that penalties for imperfect compliance may be waived for this audit period where there is evidence of good faith efforts to comply, the withholding agent community remains concerned that withholding tax liability may be assessed by the IRS for minor errors. Our experience with Chapter 3 audits has been that small errors on a Form W-8 would often result in the IRS audit team treating the entire form as invalid and the account as undocumented,

2 resulting in significant extrapolated withholding tax liabilities for insignificant errors that did not affect foreign customers substantive certifications. Withholding agents did not view these as significant enough to render the entire form invalid, and did not anticipate that this would be the IRS s view until after the IRS made its position known during the initial Chapter 3 audits (which followed the implementation of the new Chapter 3 regulations and revised Forms W-8 in 2001) and related Voluntary Compliance Program. Some of the errors identified during initial examinations, such as abbreviated country names, were ultimately deemed inconsequential by the IRS in published guidance. Similarly, we are concerned that due to the complexity of FATCA and the resulting significant changes to the Forms W-8 (including the issuance of the new Form W-8BEN-E), IRS examiners will again take positions that Forms W-8 are invalid due to insignificant errors that were not identified as issues by the IRS or communicated to withholding agents in a timely manner. Recommendation: Audit guidelines for IRS agents, such as the Internal Revenue Manual, should make it clear that, for all audit years, insignificant errors on a Form W-8 should not render the entire form invalid and result in withholding liability for customers or withholding agents. We would be happy to work with you and your team to provide examples of insignificant errors (we have provided one example below under RDCFFI or PFFI versus Reporting Model 1 or 2 FFI status ). Form 1042-S Code Changes Implementing system modifications for re-numbered Form 1042-S codes requires significant efforts by financial institutions; therefore, such changes should be kept to a minimum from year to year. The practice of re-numbering existing codes whenever new codes are added is especially problematic, as such changes require both extensive re-programming of systems and reconciliations between old and new codes and increases the risk of error. Recommendation: Maintain the current numbering of codes used on Form 1042-S and only add new codes as needed (e.g., for new income types or statuses). Form 1042-S Codes and Form W-8 Mapping Several Form 1042-S codes used for reporting the payee s FATCA status do not correspond to the check boxes for Chapter 4 FATCA Status on the revised Forms W-8. See attachment ( Form 1042-S Chapter 4 Codes Not Mapping to W-8 Data Fields ) for a list of our issues and questions. Recommendation: Ensure that the Chapter 4 FATCA status codes in the Form 1042-S instructions are clearly defined and correspond to the Form W-8 checkboxes or other information readily ascertainable from customers documentary evidence, account-opening or AML/KYC documentation, or other supporting documentation. Additionally, to reduce the risk of Form 1042-S reporting errors, the list of codes should only be changed as any new codes are added. 2

3 RDCFFI or PFFI versus Reporting Model 1 or 2 FFI status The Chapter 4 status boxes in Line 5 of Part I of the Forms W-8BEN-E and W-8IMY are not consistent with the IRS Foreign Financial Institution ( FFI ) registration portal. In addition, we specifically request that the IRS provide clarification for the following example: Pub (p. 18) instructs FFIs that are Reporting FIs in Model 1 or Model 2 Inter- Governmental Agreement ( IGA ) countries to register as Registered Deemed Compliant FFIs (RDCFFIs) or Participating FFIs, respectively. However, the IRS Form W-8BEN-E/W- 8IMY instructions for Line 5, FATCA Status, ( FFIs Covered by an IGA and Related Entities, p.7) direct a Reporting IGA FFI in a Model 1 or Model 2 country to check either Reporting Model 1 FFI or Reporting Model 2 FFI, respectively. Further, the Form W-8 instructions direct an FFI that is a RDCFFI under an applicable IGA to check Nonreporting IGA FFI rather than RDCFFI. This results in errors by FFIs in completing the Form W- 8BEN-E/W-8IMY Line 5 FATCA Status, due to the fact that FFIs located in IGA countries are required to register as an RDCFFI or a PFFI with the IRS, but aren t allowed to complete the Form W-8 with that status and must instead indicate a FATCA status of Reporting Model 1 or Model 2 FFI or Nonreporting IGA FFI. Recommendation: Clarification of the instructions is needed from the IRS, so that the requirements for completing the Form W-8BEN-E or Form W-8IMY FATCA status are clear. Further, withholding agents that have accepted Forms W-8 completed by FFIs located in IGA countries with a FATCA status of RDCFFI or PFFI consistent with the FFI s registration status prior to issuance of written clarification should not be penalized, and such forms should remain valid through their normal life (indefinitely or 3+ years, depending on the W-8 form type). Withholding agent acceptance of Forms W-8 in this manner could be treated as an insignificant error. Countries Removed From IGA In-Substance List In a situation where a country is removed from the IGA in substance list (because of a failure to demonstrate firm resolve to sign the IGA), additional time is needed beyond the the first day of the month following the month of removal allotted under Announcement for FFIs to update their status on the FATCA registration website. Additional time is also needed to enable withholding agents to collect and validate updated Forms W-8 for these FFIs. Recommendation: The government s changes to IGA lists should not trigger immediate or retroactive withholding agent responsibilities. There should be a reasonable period of time allowed possibly six months for FFIs within de-listed countries to sign FFI agreements and become PFFIs, and for withholding agents to obtain any required updated documentation. 3

4 Electronic Forms W-8 Collected from Third Parties and Intermediaries, and E-Signature of Forms W-8 and W-9 Withholding agents are uncertain as to whether they can accept certain Forms W-8 provided electronically. Examples include: Forms W-8 that clients provide by referring withholding agents to third parties (e.g., Markit or Clarient) that collect them from foreign persons and maintain them in a database (i.e., warehouse) of forms. [Note: The new IRS FATCA General Compliance FAQ#11 posted on August 14, 2015 was very helpful in addressing this uncertainty, and we appreciate the IRS s quick response and guidance on this issue.] Forms W-8 or W-9 from underlying beneficial owners provided to withholding agents by an intermediary (or flow-through entity) along with a Form W-8IMY, that were received electronically by the intermediary (or flow-through entity) and do not have a physical signature but were signed electronically by the beneficial owners using the intermediary s (or flow-through entity s) electronic signature system. Forms W-8 and Forms W-9 signed through electronic signature programs such as Docusign. Recommendation: Written guidance that clarifies the rules for accepting forms signed, stored or transmitted electronically is requested to ensure that withholding agents are applying these rules correctly and consistently. The ABA would be glad to work with the IRS on these issues. Negative Interest So-called negative interest payments are becoming more prevalent due to the current economic environment of low interest rates. The payments arise in a variety of transactions, yet the current U.S. tax rules do not provide any guidance on the characterization or source of these payments. Questions that have been raised include the following: What is the characterization and source of negative interest for tax information reporting purposes by the bank that is holding customers deposit accounts on which the negative interest is computed and charged? How should negative interest be treated for tax information reporting purposes by a bank when applied to a customer s deposit account (e.g., should the negative interest be netted against positive interest paid by the bank to the customer and, if so, should the amounts be netted over the entire calendar year or over some shorter period, such as monthly, or should the negative interest be treated as a separate fee paid by the customer to the bank that has a character other than interest?) If negative interest is accrued and written off, how should the write-off be treated for tax information reporting purposes? 4

5 Recommendation: The IRS should clarify the treatment of so-called negative interest payments. There are several potential options, including treating them as interest, fees, or some other type of payment not subject to withholding (e.g., premium). Alternatively, the IRS could implement a residence-of-the-recipient based sourcing rule. At a minimum, the IRS should clarify the withholding and reporting implications so there is correct and consistent, industrywide treatment. FIRE (Electronic Filing) There are customer privacy and fraudulent return filing risks associated with the electronic filing process. We believe the IRS should institute additional controls to help mitigate these risks. We discussed this during our meeting with you, and because any specific examples by their very nature would contain sensitive information that might compromise the integrity of the IRS s or banks systems, we prefer to discuss such examples with you or others at the IRS rather than describe them in detail here. Recommendation: The IRS should institute additional safeguards to prevent customer privacy breaches and fraudulent returns in connection with electronic filings. For example, a user security administration process, similar to the existing security administration process for the IRS TIN Matching service, could be adopted. Business Addresses The current IRS practice of using only one business address the last known business address of a financial institution (FI) for all types of correspondence may result in significant risk to customers, the IRS and withholding agents. For example, several financial institutions have reported that their B-Notice files were sent to incorrect addresses inside or outside their organizations. In some cases B-Notice files were sent to customers of the FI; in other cases they were sent to a third party that had no association with the FI. This creates the risk that the FI will not be able to process B-Notices and mail B-Notice solicitations to taxpayers in a timely fashion, and taxpayers may not have sufficient time to respond to a B-Notice solicitation and avoid withholding. Improperly addressed B-Notice files also create a significant privacy risk. Taxpayer information delivered via paper is immediately exposed, and even encrypted electronic information could potentially be hacked. Although an address for file delivery can be provided via an encrypted form, the IRS has not yet adopted that process. Recommendation: Just as taxpayers themselves cannot rely on a single business address for correspondence/filing with the IRS, the IRS should not rely solely on either a single business address or the last known business address of an FI for all communications. The IRS procedures 5

6 should be modified to allow the use of a distinct address for any information reporting communications sent to an FI. Form 1042-S account-by-account reporting for US-source Bank Deposit Interest Paid to NRAs We are concerned that the following What s New rule on page 1 of the 2015 Form 1042-S instructions may apply to US-source bank deposit interest subject to reporting that is paid on or after January 1, 2016 to nonresident alien (NRA) individuals whose tax residence is in a country listed in Rev. Proc (or applicable superseding Revenue Procedure): Account-by-account reporting for U.S. financial institutions. For amounts paid on or after January 1, 2016, a U.S. financial institution will be required to report payments of the same type of income (as determined by the Income code in box 1) made to multiple financial accounts held by the same beneficial owner on separate Forms 1042-S for each account. Withholding agents should be allowed to aggregate reportable bank deposit interest on a single combined Form 1042-S when reporting to NRA customers, the same way they are allowed for Form 1099-INT deposit interest reporting. Because bank deposit interest is not subject to Chapter 3 withholding, Forms 1042-S filed with NRA customers to report bank deposit interest will not reflect withholding, and will only reflect income that is not taxable in the U.S. Recommendation: The IRS should clarify the Form 1042-S instructions to explain that withholding agents can either aggregate and report bank deposit interest paid to multiple accounts on the same combined Form 1042-S, or report interest paid to each account on a separate Form 1042-S (similar to the current Form 1099-INT rules in IRS Regulation T(b)(1)) when reporting to NRA customers for 2016 and future years. Again, we thank you for meeting with us. We respectfully request that the IRS address these critical issues as soon as possible, and we will be happy to meet with you and your colleagues for further discussion. In the meantime, please feel free to contact John Kinsella (jkinsella@aba.com; ) or me (dfisher@aba.com; ). Sincerely, Donna J. Fisher Cc: Rosemary Sereti Industry Director, Financial Services - LB&I Financial Services Candace Cromling Director, National Public Liaison Caryl Grant IRPAC Program Manager, National Public Liaison 6

7 2015 Form 1042-S (posted 12/18/14): Chapter 4 Codes Not Mapping to W-8 Data Fields Chapter 4 status code S Current Chapter 4 Status Code Description Comments 1 U.S. Withholding Agent - FI 2 U.S. Withholding Agent - Other 3 Territory FI - not treated as U.S. Person Should code 3 be used for all territory FIs except those treated as US persons on IMY? 4 Territory FI - treated as U.S. Person Can work this out using the Territory FI option on a W- 8IMY. 5 Participating FFI - Other Inconsistent - Shown as Participating FFI on W-8s. 6 Participating FFI - Reporting Model Inconsistent - Shown as Reporting Model 2 FFI on W-8s. 2 FFI 7 Registered Deemed-Compliant FFI - Reporting Model 1 FFI Inconsistent - Shown as Reporting Model 1 FFI on W-8s. 8 Registered Deemed-Compliant FFI - Sponsored entity 9 Registered Deemed-Compliant FFI - Other 10 Certified Deemed-Compliant FFI - Other 11 Certified Deemed-Compliant FFI - FFI with Low Value Accounts 12 Certified Deemed-Compliant FFI - Non-Registering Local Bank 13 Certified Deemed-Compliant FFI - Sponsored entity 14 Certified Deemed-Compliant FFI - Investment Advisor or Investment Manager Inconsistent - Shown as Sponsored FFI that has not obtained a GIIN on W-8s. Inconsistent - Shown as Registered deemed-compliant FFI (other than a reporting Model 1 FFI or sponsored FFI that has not obtained a GIIN) on W-8BEN-E and W8IMY (slightly different language on W-8EXP). Inconsistent - Only other option on W-8s is Certified deemed-compliant limited life debt investment entity. Are there others? Inconsistent - Shown as Certified deemed-compliant FFI with only low-value accounts on W-8s. Agrees - except for absence of "FFI" reference. Inconsistent - Shown as Certified deemed-compliant sponsored, closely held investment vehicle on W-8s. Too similar to Registered Deemed Compliant - sponsored entity status. Agrees - except for absence of "FFI" reference. 15 Nonparticipating FFI Inconsistent - W-8BEN-Es includes limited FFIs or FFIs related to a Reporting IGA FFI other than a registered deemed-compliant FFI or Participating FFI (slightly different language on W-8IMY). 16 Owner-Documented FFI Agrees. 17 Limited Branch treated as Nonparticipating FFI 18 Limited FFI treated as Nonparticipating FFI Inconsistent - Would code 17 only be used if "Limited Branch" is checked on Part II of W-8BEN-E/IMY? Inconsistent - Just treated as nonparticipating on W-8s. No way to confirm whether an NPFFI is a Limited FFI.

8 19 Passive NFFE identifying Substantial U.S. Owners 20 Passive NFFE with no Substantial U.S. Owners 21 Publically Traded NFFE or Affiliate of Publicly Traded NFFE Will need to refer to part XXVI of W-8BEN-E but otherwise agrees. Will need to refer to part XXVI of W-8BEN-E but otherwise agrees. Inconsistent - Shown as "Publicly traded NFFE or NFFE affiliate of a publicly traded corporation" on W-8s. 22 Active NFFE Agrees. 23 Individual Would generally be anyone who has submitted a W-8BEN but could be someone who submitted a W-8IMY or W- 8ECI. This is not a FATCA classification and an individual could fall under other FATCA statuses noted as the format of the W-8IMY illustrates. 24 Section 501(c) Entities Inconsistent - Shown as "501(c) organization" on W-8s. 25 Excepted Territory NFFE Agrees. 26 Excepted NFFE - Other Inconsistent - Would need knowledge of the different types of excepted NFFE classification to be able to link the statuses between 1042-S and W-8 (confirm these are "Nonfinancial group entity," "Excepted nonfinancial startup company," "Excepted nonfinancial entity in liquidation or bankruptcy," and "Nonprofit organization"). 27 Exempt Beneficial Owner Inconsistent - Would need knowledge of the different types of exempt beneficial owner classifications to be able to link the statuses between 1042-S and W-8 (confirm there are "Foreign government, government of a U.S. possession, or foreign central bank of issue," "International organization," and "Exempt retirement plans" on W-8BEN-E (W-8EXP uses slightly different terms)). 28 Entity Wholly Owned By Exempt Beneficial Owners Agrees. 29 Unknown Recipient No corresponding W-8 check-box expected. 30 Recalcitrant Account Holder No corresponding W-8 check-box expected. 31 Nonreporting IGA FFI Inconsistent - W-8BEN-E includes "(Including an FFI treated as a registered deemed-compliant FFI under an applicable Model 2 IGA)." 32 Direct reporting NFFE Agrees. 33 U.S. reportable account When would this FATCA status code be used? A U.S. reportable account would be either a specified U.S. person that would be subject to potential 1099 reporting and not 1042-S reporting or would be a Passive NFFE with controlling U.S. persons that would apparently be reportable with the FATCA status code of Non-consenting U.S. account If non-consenting, should the account not be reported under a pooling code?

9 35 Sponsored direct reporting NFFE Agrees. 36 Excepted Inter-affiliate FFI Agrees. 37 Undocumented Preexisting Pre-existing account that has not been FATCA Classified Obligation 38 US branch - ECI presumption applied 39 Account Holder of Excluded Financial Account yet. U.S. Branch of foreign bank or insurance company with EIN - presumed ECI. Reporting amounts paid with respect to an account that is excluded from the definition of a financial account under Reg (b)(2) or under Annex II of the Model 1 or 2 IGAs. Does this code override other applicable Ch. 4 status codes for the account holder? 40 Passive NFFE reported by FFI Used to report that FFI withholding statement certifies that FFI has reported the account held by the Passive NFFE as a U.S. account. Does this code override the applicable Ch. 4 status code 19 for the account holder? 41 NFFE subject to 1472 withholding NFFE subject to withholding under 1472 unless the NFFE is treated as a recalcitrant account holder in which case code 30 is required. Under what circumstances will an NFFE be subject to withhholding under 1472 but not be treated as a recalcitrant account holder? 42 Recalcitrant Pool - No U.S. Indicia Should correspond to Withholding Statement. 43 Recalcitrant Pool - U.S. Indicia Should correspond to Withholding Statement. 44 Recalcitrant Pool - Dormant Should correspond to Withholding Statement. Account 45 Recalcitrant Pool - U.S. Persons Should correspond to Withholding Statement. 46 Recalcitrant Pool - Passive NFFEs Should correspond to Withholding Statement. 47 Nonparticipating FFI Pool Should correspond to Withholding Statement. 48 U.S. Payees Pool Should correspond to Withholding Statement. 49 QI - Recalcitrant Pool - General Should correspond to Withholding Statement.