On April 12, 2022, the Treasury Inspector General (TIGTA) published an April 7, 2022, Report Number 2022-30-019, titled ‘Additional Actions Are Needed to Address Non-Filing and Non-Reporting Compliance Under the Foreign Account Tax Compliance Act (FATCA).’ TIGTA conducted this audit to evaluate efforts by the Internal Revenue Service (IRS) to use information collected under FATCA to improve taxpayer compliance.
In the report, TIGTA discusses IRS resource limitations and certain FATCA penalties that the IRS may have missed. One example is that there are over 330,000 U.S. taxpayers from 2016 to 2019 who failed to file Form 8938, each with foreign accounts over $50,000. This failure to file should have generated approximately $3.3 billion in penalties.
To close the gap on these potential penalties, TIGTA made six recommendations to help the IRS address non-filing and non-reporting compliance under FATCA, which include that the Commissioner and Large Business and International (LB&I) Division should:
Consider additional compliance actions for underreporters identified in matching, including assessing penalties to taxpayers based on the variance amounts or conducting examinations on taxpayers who consistently underreport.
Establish procedures that would identify nonfilers of Form 8938 and encourage compliance of nonfilers through examinations or penalty assessments.
Consider expanding the scope of Campaign 975 to address noncompliance by the Foreign Financial Institutions (FFIs) from Intergovernmental Agreement (IGA) countries and follow through with compliance action on the identified IGAs. (Campaign 975 relates to FATCA Filing Accuracy (related to the FFIs), which has been able to fully review only Tax Year 2016 cases. For Tax Year 2016, the IRS concluded that the majority of the FFIs identified for potential noncompliance were in fact compliant. Only 12 “soft letters” were sent out between November 2019 and October 2020).
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.
Establish goals, milestones, and timelines for FATCA campaigns in order to determine whether the campaigns are effective in meeting the goals and affecting compliance.
Partner with the SB/SE Division Directors for the Examination and Collective Functions to establish an information sharing program that would allow Small Business/Self-Employed (SB/SE) Division to conduct examinations and perform collection actions using Form 8938 data.
Will we see an increase in IRS FATCA Noncompliance examinations and penalties?
Check out the full TIGTA Report here: