On May 2, 2014, the IRS issued an advance copy of Notice 2014-33 (the “Notice”). The Notice relates to the Foreign Account Tax Compliance Act (“FATCA”), which targets U.S. taxpayers’ offshore financial interests through increased reporting requirements imposed on foreign entities and U.S. withholding agents.

The Notice provides that calendar years 2014 and 2015 will be considered a transition period for certain FATCA purposes, in an effort to facilitate an orderly transition for withholding agent and foreign financial institutions (FFI) compliance with FATCA’s requirements. In essence, the Notice provides a good faith standard under which those FFIs, non-financial foreign entities (NFFEs) and withholding agents using good faith efforts to comply should not be penalized for technical failures during this transitional period. On the other hand, those not acting in good faith will not be given any relief under the Notice. The Notice also provides transitional relief in other areas of FATCA.

Below is a summary of some of the Notice’s most significant provisions:

Transitional Period. As noted above, the Notice provides that calendar years 2014 and 2015 will be regarded as a transition period for purposes of IRS enforcement and administration of the due diligence, reporting and withholding provisions under chapter 4, as well as the provisions under chapters 3 and 61, and section 3406, to the extent those rules were modified by the temporary coordination regulations. Those exercising good faith generally will not be penalized for failing to comply with specific FATCA reporting or withholding requirements. Good faith is not defined, nor are specific examples given.

Expanded Definition of “Preexisting Obligation.” In response to comments from industry, the Notice permits accounts opened before January 1, 2015 to be considered preexisting accounts for FATCA purposes, and thus avoid being subject to heightened due diligence standards that were set to take effect on July 1, 2014. More specifically, the proposed amendments will allow withholding agents and FFIs to treat any obligation held by an entity that is issued, opened or executed before January 1, 2015 as a preexisting obligation.

Modified Standards of Knowledge Rules. In response to comments, the Notice eases certain due diligence requirements relating to accounts for which status of account holders has been properly documented for Chapter 3 and Chapter 61 purposes prior to July 1, 2014.

Limited FFIs and Limited Branches. The Notice relaxes certain standards relating to Limited FFIs and Limited Branches