GAO Report on Foreign Asset Reporting and Related Issues (4/4/19)

GAO Released this report:  Foreign Asset Reporting, Actions Needed to Enhance Compliance Efforts, Eliminate Overlapping Requirements, and Mitigate Burdens on U.S. Persons Abroad (GAO-19-180 April 2019), here.

Excerpts from opening summary:

What GAO Found 

Data quality and management issues have limited the effectiveness of the Internal Revenue Service’s (IRS) efforts to improve taxpayer compliance using foreign financial asset data collected under the Foreign Account Tax Compliance Act (FATCA). Specifically, IRS has had difficulties matching the information reported by foreign financial institutions (FFI) with U.S. taxpayers’ tax filings due to missing or inaccurate Taxpayer Identification Numbers provided by FFIs.  Further, IRS lacks access to consistent and complete data on foreign financial assets and other data reported in tax filings by U.S. persons, in part, because some IRS databases do not store foreign asset data reported from paper filings.  IRS has also stopped pursuing a comprehensive plan to leverage FATCA data to improve taxpayer compliance because, according to IRS officials, IRS moved away from updating broad strategy documents to focus on individual compliance  campaigns. Ensuring access to consistent and complete data collected from U.S. persons—and employing a plan to leverage such data—would help IRS better  leverage such campaigns and increase taxpayer compliance. 

Due to overlapping statutory reporting requirements, IRS and the Financial Crimes Enforcement Network (FinCEN)—both within the Department of the Treasury (Treasury)—collect duplicative foreign financial account and other asset information from U.S. persons. Consequently, in tax years 2015  and 2016, close to 75 percent of U.S. persons who reported information on foreign accounts and other assets on their tax returns also filed a separate form with FinCEN. The overlapping requirements increase the compliance burden on U.S. persons and add complexity that can create confusion, potentially resulting in inaccurate or unnecessary reporting. Modifying the statutes governing the requirements to allow for the sharing of FATCA information for the prevention and detection of financial crimes would eliminate the need for duplicative reporting. This is similar to other statutory allowances for IRS to disclose return information for other purposes, such as for determining Social Security income tax withholding. 

According to documents GAO reviewed, and focus groups and interviews GAO conducted, FFIs closed some U.S. persons’ existing accounts or denied them opportunities to open new accounts after FATCA was enacted due to increased costs, and risks they pose under FATCA reporting requirements. According to Department of State (State) data, annual approvals of renunciations of U.S. citizenship increased from 1,601 to 4,449—or nearly 178 percent—from 2011 through 2016, attributable in part to the difficulties cited above.  

Treasury previously established joint strategies with State to address challenges U.S. persons faced in accessing foreign financial services. However, it lacks a collaborative mechanism to coordinate efforts with other agencies to address ongoing challenges in accessing such services or obtaining Social Security Numbers. Implementation of a formal means to collaboratively address burdens faced by Americans abroad from FATCA can help federal agencies develop more effective solutions to mitigate such burdens by monitoring and sharing information on such issues, and jointly developing and implementing steps to address them. 

The following is from the Background (some footnotes omitted):

Form 8938 and Real Estate (And Other Foreign Assets) (3/21/12)

An issue that has been discussed via comments to various blogs is whether foreign real estate must be reported on Form 8938.  The Form 8938 is here, and the Form 8938 instructions are here.  The IRS has answered this question in a recently posted "Basic Questions and Answers on Form 8938 (posted 2-29-12)," here.

Question 3 addresses the issue as follows:

3. Does foreign real estate need to be reported on Form 8938? 

Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938.  For example, a personal residence or a rental property does not have to be reported. 

If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you.  The value of the real estate held by the entity is taken into account in determining the value of the interest in the entity to be reported on Form 8938, but the real estate itself is not separately reported on Form 8938.  

The IRS web site addresses other issues related to the Form 8938, so I refer readers to it.

I think that is the right answer.  However, I just today read a report of a webcast sponsored by the AICPA on March 20 on Code Section 6038D and Form 8938 .  Marie Spairie, Officials Discuss Goals of Proposed Foreign Asset Reporting Regulations, 2012 TNT 55-2 (3/21/12).  In that report, is the following comment:

Adventures with the New Form 8938 / Section 6038D (3/7/12)

This blog post will offer a place for readers to share their experiences and observations for the Form 8938, Statement of Specified Foreign Financial Assets.

Resources on the Form are:

1. IRS links to the Form and Instructions, here.
2. Section 6038D, here, which is the law requiring the Form.
3. The IRS web site for the Form, titled Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets”, here.
4. Temporary Regulations, T.D. 9567, "Reporting of Specified Foreign Financial Assets," dated 2/21/12, here. 
5. IRS web site on FATCA, here.
6. IRS web site titled "Basic Questions and Answers on Form 8938 (posted 2-29-12)," here. 

IRS Pronouncements on Section 6038D 2011 Filings for Foreign Assets (12/16/11)

The IRS published yesterday temporary and proposed regulations regarding the Section 6038D filing requirement.  As previously noted, the Form 8938 is used, and will commence for tax years after March 18, 2010.   The IRS web page for the Form 8938 is here. The IRS explains in a web page titled Explanation of Section 6038D Temporary and Proposed Regulations, here.  The actual proposed and temporary regs are here and here, respectively, The following is from the version of the IRS Explanation web page dated 12/15/11, with some of the items simply cut and pasted from that web page:.

1. The foreign asset reporting requirement applies to individuals required to file 1040 or 1040-NR and to domestic entities, although only the individual form, Form 8938, is available now.

New Draft Section 6038D Income Tax Form -- FBAR Like Form for the Form 1040 (6/15/11)

Readers will recall that recently enacted Section 6038D of the Code. See my prior blog titled Foreign Financial Information - New Provisions (5/3/10). The IRS has a new draft Form 8938 (as of 6/21/11) to implement the requirement. Note the following:

1. As to foreign financial accounts, the draft Form 8938 would require more information than required by the FBAR (at least current and past iterations of the FBAR). Specifically, it asks if the account was opened or closed during the year. Part I, 1c(1) & (2). It also asks information about the conversion to U.S. dollars in stating the maximum amount. Part I, 1f.
2. The draft Form 8938 goes farther than the FBAR in requiring information about "Other Foreign Assets" -- assets other than financial accounts -- and asks for similar information about these assets. Part II.
3. The draft Form 8938 asks for a "Summary of Tax Items Attributable to Specified Foreign Financial Assets." Part III. I suppose this is a gentle reminder to taxpayers to report those items elsewhere on the return and a roadmap for where they are reported.
4. The draft Form 8938 asks taxpayers to identify foreign financial assets excepted by other forms (such as Form 3521, 5471). Part IV.