WASHINGTON—The Treasury Department said Friday it would delay enforcement of one key part of a 2010 law that is aimed at curbing offshore tax evasion, in a regulatory victory for banks.

The law, the Foreign Account Tax Compliance Act, or FATCA, requires foreign banks to start handing over information about U.S.-owned accounts to the Internal Revenue Service.

It also would force banks and other financial institutions around the world to withhold a share of many types of payments to other banks that aren't complying with the law. In effect, the withholding amounts to a kind of U.S. tax penalty on noncompliant financial institutions.

The latest move by Treasury will push back the start of withholding for many types of transactions—such as stock trades—from 2017 until 2019. That will give banks more time to come into compliance with FATCA, and governments and the financial industry more time to work out some of the difficult details involved in withholding on more-complex financial transactions.

The withholding provision is "the really big stick" in FATCA, said Michael Plowgian, a former Treasury official who is now at KPMG LLP. "The problem with it is that it's really complicated…So Treasury and IRS have essentially punted" and created more time to solve some of the sticky technical issues, he added.

The Securities Industry and Financial Markets Association, a Wall Street trade group, applauded the move. Given some of the complexities involved, "the 2017 deadline didn't seem to make sense," added Payson Peabody, tax counsel for SIFMA. "They are giving themselves more time and giving everyone else a bit more time to comment" on some of the hard questions.

Despite the delay in some withholding, experts say FATCA implementation continues to move ahead.

Write to John D. McKinnon at john.mckinnon@wsj.com

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(END) Dow Jones Newswires

September 18, 2015 17:35 ET (21:35 GMT)

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