The Treasury Inspector General for Tax Administration (TIGTA) has determined that, despite spending nearly $380 million, the IRS still isn’t prepared to enforce the Foreign Account Tax Compliance Act (FATCA).
TIGTA determined that the IRS has taken limited or no action on most of the planned activities outlined in the FATCA Compliance Roadmap. The purpose of the roadmap, which was last updated in January 2016, is to document compliance planning involving FATCA data and to provide a baseline for future compliance planning and implementation activities across the IRS.
Missing or invalid ID numbers
TIGTA found that many of the reports filed by foreign financial institutions (FFIs) didn’t include (or included invalid) taxpayer identification numbers (TINs). As a result, the IRS’s efforts to match FFIs and individual taxpayer data were unsuccessful. This, in turn, affected the IRS’s ability to identify and enforce FATCA requirements for individual taxpayers.
Also, TIGTA concluded that the IRS only recently initiated action to enforce withholding agent compliance with the FATCA after TIGTA provided feedback. TIGTA observed that a significant percentage of the Forms 1042-S, “Foreign Person’s U.S. Source Income Subject to Withholding,” that the IRS received, which pertained to FATCA, didn’t have valid TINs. For the 2015 tax year, there were 62,398 Forms 1042-S with invalid TINs reporting more than $717 million, of which just over $47 million was withheld.
TIGTA also found that most Form 1099 series information returns pertaining to the FATCA did have valid TINs and could be used by the IRS in its FATCA compliance strategies.
Following the conclusion of its audit, TIGTA recommended that the IRS:
- Establish follow-up procedures and initiate action to address error notices related to file submissions rejected by the International Compliance Management Model (ICMM). The ICMM is the IRS system that ingests, validates, stores, and manages FATCA information, including FATCA reports received both electronically and on paper. Form 8966, “FATCA Report,” is used by certain FFIs and others to report information with respect to U.S. accounts under FATCA.
- Initiate compliance efforts to address taxpayers who didn’t file a Form 8938 but who were reported on a Form 8966 filed by an FFI. Under FATCA, individual taxpayers with specified foreign financial assets that meet a certain dollar threshold should report this information to the IRS by filing Form 8938, “Statement of Specified Foreign Financial Assets,” with their income tax returns.
- Add guidance to the Form 8938 instructions to inform taxpayers how to use the FFI List Search and Download Tool on the IRS’s website. The FFI tool enables the public to create and download a partial list of FFIs or to download the entire list in several formats. No login or password is required to use this tool.
- Initiate compliance efforts to address and correct missing or invalid TINs on Form 8966 filings by non-IGA (“Intergovernmental Agreement”) FFIs and Model 2 IGA FFIs.
- Expand compliance efforts to address and correct the invalid TINs on all Form 1042-S filings by non-IGA FFIs and Model 2 IGA FFIs.
- Initiate compliance efforts to compare Form 1099 filings with valid TINs to corresponding Form 8938 filings.
The IRS agreed with four of the recommendations. Corrective actions included:
- Establishing follow-up procedures and initiating action on error notices with the FFIs,
- Continuing efforts to systemically match Form 8966 and Form 8938 data to identify nonfilers and underreporting related to U.S. holders of foreign accounts and to the FFIs,
- Informing taxpayers how to obtain global intermediary numbers (the IRS has established the FATCA Online Registration System, a Web-based system that allows users to register and, in most cases, obtain a global intermediary identification number online), and
- Strengthening overall compliance efforts directed toward improving the accuracy of reporting by Form 1042-S filers.
Separately, in a series of Frequently Asked Questions (FAQs), the IRS has provided information related to procedural issues for making the certifications that are required by responsible officers of FFIs. The FAQs provide that the certifications for the certification period ending December 31, 2017, are generally due December 15, 2018. The FAQs can be found here: https://bit.ly/2iTaAZD
Contact a B&V representative if you have any questions, or for further information, at 713-667-9147.