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):

Hale Sheppard Article on Form 8938 (4/30/15)

Hale Sheppard, here, has published an article titled "Form 8938 and Foreign Financial Assets:  A Comprehensive Analysis of the Reporting Rules after IRS Issues Final Regulations," here.  It is published in the March/April issue of the International Tax Journal.  The article (i) analyzes the new/final regulations for Form 8938, describing both the changes accepted and rejected by the IRS, (ii) divides and organizes the complicated rules into manageable portions, addresses the confusing overlap between Form 8938 and the FBAR, and (iv) incorporates guidance from multiple sources, aiming to be a “one-stop shop” for all things Form 8938.  Here is an excerpt from the beginning:

General Rule and Overview

The general rule in Code Sec. 6038D(a) looks innocuous, but it is loaded with defined terms, conditions and nuances. This tax provision contains the following mandate:

Any individual who, during any taxable year, holds any interest in a specified foreign  financial asset shall attach to such person’s return of tax imposed by subtitle A for such taxable year the information described in subsection (c) with respect to each such asset if the aggregate value of all such assets exceeds $50,000 (or such higher dollar amount as the Secretary may prescribe). 

That statutory language is daunting, even for seasoned tax professionals. When faced with such density and complexity, it helps to separate the language into manageable pieces. Below is a breakdown of rules under Code Sec. 6038D, which might serve as a checklist for those conducting their own Form 8938 evaluation.

• any specified individual (“SI”)
• who holds an interest
• during any portion of a tax year
• in a specified foreign financial asset (“SFFA”)
• must attach to his timely Form 1040 or Form 1040NR
• a complete and accurate Form 8938
• if the aggregate value of all SFFAs
• exceeds the applicable filing threshold

Hale then provides some details for navigating the statute and the checklist.

IRS Reminder for U.S. Taxpayers Living Outside U.S. and for Special Reporting for All Taxpayers with Certain Foreign Assets (5/13/15)

The IRS has issued a reminder to U.S. taxpayers living abroad or, if living in the U.S.,  have foreign reporting assets.  See IRS Reminds Those with Foreign Assets of U.S. Tax Obligations (IR 2015-70 April 10, 2015), here.

The opening is:

The Internal Revenue Service  today reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2014, that they may have a U.S. tax liability and a filing requirement in 2015.

Topics Covered:

• Most People Abroad Need to File
• Special Reporting for Foreign Accounts and Assets
• RS Simplifies Reporting for Canadian Retirement Accounts
• Report in U.S. Dollars
• Expatriate Reporting
• Choose Free File or E-File
• More Information Available

IRS News Release Reminding / Warning U.S. Taxpayers with Foreign Assets (4/11/14)

The IRS has used its bully news pulpit to remind U.S. persons subject to return reporting of their obligations arising from foreign assets.  IR-2014-52, April 11, 2014, here.

In part most relevant to the discussions on this blog, the release says:

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B to their tax return. Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets. 

Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located. 

Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details. 

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2013 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form replaces TD F 90-22.1, the FBAR form used in the past. It is due to the Treasury Department by June 30, 2014, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

IRS Reminders for Foreign Income Reporting (5/24/13)

The IRS has posted a web page reminding U.S. taxpayers with foreign assets of their U.S. tax and related obligations.  See IR-2013-54 (5/23/13), titled IRS Reminds Those with Foreign Assets of U.S. Tax Obligations, here.

Among the reminders (with links for further information) are:

1. The filing dates for nonresident U.S. citizens and resident aliens.
2. Filing obligations of nonresident aliens with U.S. source income.
3. U.S. worldwide tax system requiring the reporting of income whereever it is earned or sourced, along with the Schedule B question about ownership or signatory authority over foreign financial accounts.
4. The obligation to file Form 8938 with Form 1040 to report specified foreign financial assets.
5. The obligation to file FBARs.
6. The opportunity for efiling, including Free File for taxpayers earning less than $57,000.

Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance (3/12/13)

A person commenting on an earlier blog asked the following question (modified slightly for clarity):

Does the statute of limitations for the FBAR penalty (both civil and criminal) toll if the taxpayer is outside the U.S.? 

I answered at least the criminal part of the question in a comment reply.  I thought the question was worthy of a blog entry to expand the reply and alert readers who may not work their way to the comment and reply.

Suspension of the FBAR Criminal Penalty Statute of Limitations

Before I answer the question, I should first state why the question may be important.  A U.S. person with a concern of criminal prosecution for FBAR violations may absent himself from the U.S. until the statute has run on the FBAR violations and thereby hope to avoid prosecution.  That person, of course, would want to become compliant prospectively upon adopting the strategy, if it worked, so that, with enough time (5 years for FBAR prosecution), the risk of FBAR prosecution would go away.

With that background, I think the direct answer is that the FBAR criminal statute of limitations would be tolled (or suspended). 18 USC 3290, here, provides simply and cryptically "No statute of limitations shall extend to any person fleeing from justice." Title 18 is the general criminal code.  The immediate question, of course, is whether  § 3290 applies to crimes outside Title 18, such as the FBAR crime codified in Title 31.   I have not researched the issue in great detail.  But I did find a case where for an immigration crime (18 USC 1326, felony re-entry), the  Second Circuit applied  § 3290.  United States v. Rivera-Ventura, 72 F.3d 277, 284 (2d Cir. 1995).  Section 3290 requires that the person be "fleeing from justice" (whether inside or outside the U.S.).  I suppose the question then is what this means.  As I say in my Federal Tax Crimes book, the “majority rule” for §  3290 is that “intent to avoid arrest or prosecution must be proved” for § 3290's fugitive definition to apply; the minority rule is that mere absence from the jurisdiction, regardless of intent, is sufficient (I suppose just the objective fact of being absent from prosecution of justice is sufficient).

Form 8938 Resource (7/13/12)

I wanted to make readers aware of this resource article:

Hale Sheppard, The New Duty to Report Foreign Financial Assets on Form 8938: Demystifying the Complex Rules and Severe Consequences of Noncompliance, International Tax Journal 13 (May - June 2012), here.

I have paged through it but have not studied it.  Still, it looks excellent, consistent with Hale's reputation.  When (if) I have time to study it, I may offer some comments.  However, I hope readers who have the interest will also read the article and make comments as well.

GAO Briefing on Duplication in Form 8938 and FBAR (4/10/12)

US Government Accountability Office, Reporting Foreign Accounts to IRS: Extent of Duplication Not Currently Know but Requirements Can Be Clarified (February 2012), here.

The objectives of the briefing were to (1) determine to what extent, if any, the reporting requirements on the FATCA Form 8938 and FBAR are duplicative; (2) assess the potential effects that any duplicative reporting requirements have on filers; and (3) identify and assess opportunities, if any, to cost-effectively reduce or eliminate the burden that any duplicative reporting creates while maintaining the usefulness of the information for tax-administration and law-enforcement purposes. 

* * * * 

In summary, some of the information requested on the Form 8938 and FBAR is duplicative, but the number of filers affected is not currently known. Since the Form 8938 and FBAR were developed to meet two different governmental needs — tax administration and law enforcement — some filers have to report the same or similar information twice, but through different mechanisms and at different times. This increases the compliance burden and adds complexity that can create confusion, potentially resulting in inaccurate or unnecessary reporting. Currently, the instructions and guidance for both forms lack any explanation of why and where duplication exists. Actions to reduce duplicate reporting requirements while maintaining the usefulness of the data for tax administration and law enforcement purposes would benefit filers. However, since the Form 8938 is a new requirement beginning after 2011, data are not yet available to determine the number of filers subject to these duplicative reporting requirements. Without these data, it is not known whether the benefits of reduced duplication would exceed the costs. When filing data become available, Treasury’s Office of Tax Policy, IRS, and FinCEN would have the information needed to assess whether cost-effective steps could be taken, including allowing filers who would normally have to submit both forms to substitute the information reported on one to meet the requirements of the other. Hence, we are recommending that the Secretary of the Treasury direct the Office of Tax olicy, IRS, and FinCEN to (1) revise both the Form 8938 and FBAR instructions and related guidance to explain the extent to which duplication exists (for example, instances where account-related information requested on the two forms is the same or different) and the circumstances in which filers are, or are not, expected to comply with both reporting requirements; and (2) as data become available, determine whether the benefits of implementing a less-duplicative reporting process exceed the costs and if so, implement that process.

IRS Comparison of Form 8938 and FBAR (4/1/12)

The IRS has posted a web page titled "Comparison of Form 8938 and FBAR Requirements", here.

Addendum 4/4/12:  In the comments below, readers will find discussions of whether Indian Demat accounts are reportable on Form 8938 and/or FBAR and whether they should be included in the penalty base in OVDP and OVDI.  As of this posting on 4/4/12, I am not sure of the answers to these questions but will post in the blog itself if I get reasonably certain answers.  Otherwise, readers should refer to the comments.  For discussions as to the general characteristics of these Demat accounts, see the following:

• Securities and Exchange Board of India Frequently Asked Questions, here in html and here in pdf.
• Wikipedia, here.

Update 4/5/12:  On 4/4/12, I polled a practitioner group that I belong to in order to determine if anyone knew how these accounts should be treated.  No one responded.  Since someone in the rather large group responded, I have to assume that most did not really know what I was talking about and that, if there were experience in the group, no one acknowledged it.  I am a bit surprised at that.  Hopefully some reader will be able to offer further insight.

Update on 4/11/12:  See Sebastien Chain and Tamara Woods, Form 8938 – Foreign Reporting Trap for the Unwary (Tax Blawg 4/11/12), here.

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.

IRS Guidance on U.S. Persons with Foreign Assets and, Coincidentally, Quiet Disclosures on FBAR Delinquencies (12/9/11)

Yesterday, I posted on the News and Rumors page a new IRS web page (or newly revised web page) that provides a fair, succinct summary of obligations for foreign assets, including foreign financial accounts.  The web page is titled U.S. Citizens or Dual Citizens Residing Outside the U.S. (dated 12/7/11), here.  I think, at least on a go-forward basis, this page should be reviewed by all U.S. citizens and non-citizen U.S. persons with offshore assets.

In brief, the page covers (i) the income tax return filing obligations (including the new foreign asset Form 8938 for income tax returns beginning in 2012)  and (ii) the FBAR filing obligations.  The page also summarizes relief from penalties that might apply for income tax underreporting and underpayment and for failure to file FBARs.  It is a good summary.  It is particularly good at providing a fair sense of when the taxpayer may have reasonable cause for income tax and FBAR deficiencies.  This is not definitive advice as to when the reasonable cause exception may apply in a specific case, but for the relatively uninitiated, it is a good starting point.

The FBAR discussion is, in my judgment, incomplete.  It says that a U.S. citizen "may be required to report your interest in certain foreign financial accounts" on the FBAR.  U.S. citizens (and indeed non-U.S. citizens required to file an FBAR) should remember that it is not just a beneficial or title ownership interest that must be disclosed but also signatory and other authority over the account beneficially owned by another person.

Although the page is specifically addressed to U.S. citizens (dual or otherwise) living outside the U.S., the matters covered also apply to U.S. citizens living in the U.S. and non-citizen U.S. persons (e.g., U.S. resident aliens) who own foreign assets (including foreign financial accounts) or, as to the FBAR, have signatory or other authority over foreign financial accounts.

Now, to a point that might particularly interest readers of this blog,  The Fact Sheet does offer some fairly cryptic guidance as to what to do about the past.

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.