ARTICLE | April 25, 2022
Authored by RSM US LLP
On April 7, 2022, the Treasury Inspector General for Tax Administration (TIGTA), issued 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” (the report). As the title suggests, the report is an admonition of the IRS’ failed attempts to meet the ambitious compliance goals of the Foreign Account Tax Compliance Act (FATCA). By way of reminder, Congress passed FATCA in 2010 as a part of the Hiring Incentives to Restore Employment Act and initially projected that it would raise $8.7 billion in tax revenue from fiscal years 2010 through 2020. However, the report highlights metrics that are a far cry from what was expected as summarized below:
Costs of FATCA implementation (2010 – 2020):
Campaign compliance activity:
Assessments from Campaign compliance activity:
Assessments from other compliance activity:
Increased compliance due to information reporting:
Chart from TIGTA report Highlights, page 2
According to the report, to date, the cost of FATCA implementation has been $574 million, which significantly exceeds the $14 million in revenue generated from FATCA related assessments. Additionally, the amount of revenue actually generated by FATCA is much less than the $8.7 billion of revenue that Congress anticipated when it initially signed the act into law.
In reviewing FATCA enforcement efforts, the report focuses on two major campaigns that the IRS used to implement compliance among taxpayers: (1) Campaign 896, which focused on individual taxpayers who failed to file or underreported foreign assets on IRS Form 8938, Statement of Specified Foreign Financial Assets and (2) Campaign 975, which targets foreign financial institutions (FFIs) that fail to file IRS Form 8966, FATCA Report.
According to the report, under Campaign 896, the IRS only issued 830 “education letters” and five “soft letters” to individuals that failed to file or underreported foreign assets on Form 8938 for tax year 2018. However, based on current IRS data, approximately 330,000 U.S. taxpayers with specified foreign assets exceeding $50,000 failed to file Form 8938 between 2016 through 2019. As such, according to TIGTA, each failed reporting obligation should have been assessed a minimum of a $10,000 penalty under section 6038D(d). Therefore, the TIGTA report concludes that there is a tax revenue gap of approximately $3.3 billion that the IRS could currently assess against non-compliant taxpayers. The report emphasizes that this is just from information that the IRS currently has and is not acting on.
Similarly, the report points out that Campaign 975 targeting FFIs also has not generated tax revenues in penalty assessments. As a part of the campaign, the IRS has only sent out 12 “soft letters” of advice between November 2019 and October 2020. Not surprisingly, this campaign has failed to reduce FFI noncompliance. According to the report, 56% of Forms 8966 are missing or have invalid tax identification numbers (TINS) for the account holders and the IRS failed to resolve discrepancies 61% of the time.
In response to the TIGTA report, the IRS noted that it lacked funding to effectively implement FATCA compliance and enforcement initiatives. IRS Commissioner Charles Rettig stated, “We need funding for that; otherwise, you’re just building a bigger haystack to be out in the yard, and by themselves, those haystacks aren’t helpful.” Rettig also stressed the importance of getting funding in order to properly train employees related to FATCA compliance.
As a conclusion to the report, TIGTA made a list of six recommendations directed to the Large Business and International (LB&I) Division of the IRS. The IRS has agreed to implement or follow-up on most of the recommendations. The TIGTA report recommendations and IRS responses include the following:
- Allow for additional compliance actions for those identified as under reporting from matching queries under campaign 896, including penalty assessment and examinations. The IRS agrees and states that this has been implemented.
- Create a procedure to identify Form 8938 non-filers, including penalty assessment and examinations. The IRS agrees and states that this has been implemented.
- Consider scope expansion of FATCA Filing Accuracy campaign to target noncompliance and focus on compliance action. The IRS agrees and has identified 34 of 4,000 FFIs that are potentially noncompliant.
- Provide notice to countries with Model 1 IGAs that the FFIs must collect TINs of US individual foreign bank account holders. The IRS disagreed and stated, “Model 1 IGAs are already aware that the FFIs must collect and provide the TINs of U.S. individuals owning a foreign bank account (e.g., Article 2, Model 1A Reciprocal IGA; Notice 2017-46)”. TIGTA re-emphasized the importance of this recommendation in response to the IRS.
- Establish goals and timelines to determine effectiveness of FATCA campaigns. The IRS agreed to this recommendation
- Coordinate with other IRS divisions with affected taxpayers to share 8938 data. The IRS agreed to this recommendation and has already implemented it.
RSM tax professionals are watching this space closely and will provide updates as they become available.
 Quote from April 13 interview with Tax Analysts President and CEO Cara Griffith. See link
This article was written by Melanie Gulden and originally appeared on 2022-04-25.
2022 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Firley, Moran, Freer & Eassa is a proud member of RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how the Firley, Moran, Freer & Eassa can assist you, please call us at (315) 472-7045.