A&M Tax Advisor Weekly
Statutorily mandated reporting between global financial institutions and their local governments regarding individual financial account information is at an all-time high and unlikely to diminish any time soon. The possibility that a foreign bank might flag a U.S. taxpayer’s lack of compliance increases each day as foreign financial institutions continue to enhance their compliance efforts in connection with both the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). Therefore, it is curious that the IRS has chosen this point in time to announce the end of its 2014 Offshore Voluntary Disclosure Program (OVDP).
The U.S. government has created two complementary tools to “connect the dots” on unreported offshore financial accounts: 1) the Foreign Bank Account Report (FBAR), which has been in place since 2004, puts a responsibility on U.S. persons to “self-report” certain financial accounts, and 2) FATCA reporting, which has been rolled out slowly since 2014, puts a responsibility on foreign financial institutions (and in certain cases U.S. financial institutions) to report information about U.S. financial account holders.
FBARs, now formally reported on Form FinCEN 114 (and previously TD F 90-22.1), are initially transmitted to the Financial Crimes Enforcement Network (FinCEN), which is a separate agency from the IRS. However, FinCEN and the IRS, both departments of the U.S. Treasury, share information and collaborate on various initiatives. Additionally, the IRS has enhanced self-reporting of foreign financial accounts with its own Form 8938, Statement of Foreign Financial Assets, which collects similar information from U.S. taxpayers and is required (where applicable) to be attached to U.S. income tax returns. Thus, the IRS has two different channels of obtaining information on self-reported foreign financial accounts.