TIGTA Proposed FATCA Recommendations for Offshore Enforcement

TIGTA Proposes FATCA Enforcement Recommendations

FATCA refers to the Foreign Account Tax Compliance Act. The United States is entered into IGA (Intergovernmental Agreements aka IGAs or FATCA Agreements) with over 110 different countries –– with hundreds of thousands of Foreign Financial Institutions agreeing to report US account holder information to the IRS and other government agencies. You would think with that many foreign institutions agreeing to comply with exchanges of foreign account information, that FATCA would be a great success for the US government — but not so much. Based on a recent TIGTA (Treasury Inspector General for Tax Administration) report, there are significant actions that need to be addressed involving non-filing and non-reporting compliance for FATCA.  According to TIGTA, the US government has to do better with FATCA enforcement compliance procedures.  Let’s take a look at what TIGTA stated are some areas of improvement.

As provided by TIGTA:

Intended FATCA Goal

• • • “The Foreign Account Tax Compliance Act (FATCA) was intended to reduce tax evasion by creating greater transparency and accountability with respect to offshore accounts and other assets held by U.S. taxpayers.5 Congress passed FATCA as an offset provision in March 2010 as part of the Hiring Incentives to Restore Employment Act of 2010.6 The purpose of FATCA is to improve visibility into taxable income from foreign sources and help the IRS identify noncompliance by U.S. taxpayers using undisclosed foreign accounts and foreign assets.

    • When the law passed in March 2010, the Congressional Joint Committee on Taxation estimated that revenue from FATCA would be $8.7 billion from Fiscal Years (FY) 2010 to 2020, so FATCA should have already generated this $8.7 billion in tax revenues by the end of FY 2020.7 As we subsequently point out, the IRS has not come close to building the compliance plan that was originally contemplated.”

Lack of IRS Funding & Budget

• • • Due to resource limitations, the IRS has significantly departed from its original comprehensive FATCA Compliance Roadmap in favor of a more limited compliance effort. As part of its effort, the Large Business and International (LB&I) Division established two campaigns to identify noncompliance with the individual and FFI provisions of FATCA. The chart below reflects nearly $574 million of FATCA-related implementation and maintenance costs compared against the LB&I Division’s campaign compliance results from the IRS’s systemic approach to address FATCA noncompliance, as well as FATCA-related assessments from field examinations. 

TIGTA Recommendation

• • • TIGTA made six recommendations to help the IRS address non-filing and non-reporting compliance under FATCA. The IRS agreed to consider expanding the scope of Campaign 975 to address noncompliance by the FFIs from Intergovernmental Agreement countries, and to establish goals, milestones, and timelines for FATCA campaigns. IRS officials indicated that they have already implemented most of the other recommendations; however, they did not agree to issue a notice to countries with Model 1 Intergovernmental Agreements.

TIGTA FATCA Recommendations 

Here is a summary of the recommendations from TIGTA:

FATCA Recommendation 1

• • • Consider additional compliance actions for underreporters identified in its matching, including assessing penalties to taxpayers based on the variance amounts or conducting examinations on taxpayers who consistently underreport. Management’s Response: IRS management indicated that the recommendation has been implemented.

FATCA Recommendation 2

• • • Establish procedures that would identify non-filers of Forms 8938 and encourage compliance of non-filers through examination or penalty assessments. Management’s Response: IRS management stated that this recommendation has been implemented. It has a filter that identifies potential non-filers of Forms 8938, and civil and criminal examinations are underway with respect to the non-filer population.

    • Penalties are considered in examinations where appropriate. This work will remain ongoing. 

FATCA Recommendation 3

• • • Consider expanding the scope of Campaign 975 to address noncompliance by the FFIs from IGA countries and follow through with compliance action on the identified IGAs. Management’s Response: IRS management agreed with this recommendation and stated that Campaign 975 had reviewed approximately 4,000 FFls from IGA countries and identified potential noncompliance by 34 FFls. Compliance activities with respect to this population are underway

FATCA Recommendation 4

• • • Issue a notice to foreign countries with Model 1 IGAs that all the FFIs must collect and provide the TINs of U.S. individuals owning a foreign bank account. Management’s Response: IRS management disagreed with this recommendation and stated that the countries with Model 1 IGAs are already aware that the FFIs must collect and provide the TINs of U.S. individuals owning a foreign bank account (e.g., Article 2, Model 1A Reciprocal IGA; Notice 2017-46). Office of Audit Comment: We do not believe that assuming the FFIs are aware of an IRS notice from 2017 will correct the issue. The lack of a TIN continues to present challenges in enforcing FATCA compliance and makes it harder for the IRS to ensure compliance by the FFIs by using the Form 8938 and ensure compliance by taxpayers by using Forms 8966. We reported that for TYs 2016 to 2019, only 44 percent of the Forms 8966 the IRS received contained a valid TIN, while the remaining 56 percent contained an invalid TIN or had no TIN. We recommend emphasis of this requirement.

FATCA Recommendation 5

• • • Establish goals, milestones, and timelines for FATCA campaigns in order to determine whether the campaigns are effective in meeting their goals and affecting tax compliance. Management’s Response: IRS management agreed with this recommendation. While stating that their existing campaign metrics track the progress and success of these campaigns, IRS management agreed to refine their metrics with respect to goals, milestones, and timelines.

FATCA Recommendation 6

• • • Partner with the SB/SE Division Directors for the Examination and Collection functions to establish an information-sharing program that would allow the SB/SE Division to conduct examinations and perform collection actions using Form 8938 data.

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