On February 8, 2012, the Internal Revenue Service (“IRS”) issued proposed regulations which will implement the provisions of the Foreign Account Tax Compliance Act (“FATCA”).

FATCA was enacted in 2010 as part of the Hiring Incentives to Restore Employment Act. FATCA requires a “foreign financial institution” (“FFI”) to enter into an agreement with the IRS to report information about “financial accounts” held by U.S. taxpayers or by certain foreign entities in which U.S. taxpayers hold an ownership interest. For this purpose, an FFI includes an investment fund formed under the laws of a foreign country, and a “financial account” includes an equity interest in such an investment fund. If an FFI does not enter into such an agreement, the FFI will be subject to a 30% U.S. withholding tax on any “withholdable payment,” including U.S. source dividends and interest and proceeds from the sale of U.S. securities. The FATCA withholding provisions are effective for payments made to an FFI after December 31, 2013.

In order to avoid the FATCA withholding tax, a participating FFI must enter into an agreement with the IRS to identify accounts held by U.S. taxpayers, report certain information to the IRS regarding such accounts, and withhold tax on certain payments to non-participating FFIs and account holders who are unwilling to provide the required information. Registration will take place through an online system that is expected to become available by January 1, 2013.

The proposed regulations issued on February 8 provide a process for U.S. account identification, information reporting, and withholding requirements for FFIs. We will be providing a more detailed memorandum discussing the impact of these regulations on our investment fund clients and outlining the steps that should be taken to comply with the regulations.