Robert McLeod wrote an article for The CPA Journal titled “TIGTA’s FATCA Findings Put Non-filers on Notice” discussing taxpayer reporting obligations regarding Form 8938, Statement of Specified Foreign Financial Assets, which was enacted as part of the Foreign Account Tax Compliance Act (FATCA).
The article explains that a recent Treasury Inspector General for Tax Administration (TIGTA) report showed that the IRS has not been using the data collected from Form 8938 filings to open investigations or take enforcement actions such as examinations or penalties, even when the IRS itself identifies non-filers with large unreported foreign account balances.
As Robert explains, FATCA is designed as a dual-reporting regime in which taxpayers in the U.S. and some foreign financial institutions must report certain foreign assets to the IRS. He notes, “in theory, the dual-reporting regime should allow the IRS to compare what taxpayers report about their foreign accounts with what foreign institutions report about those same taxpayers.”
The TIGTA report identified at least 405 taxpayers who appeared to have failed to file Form 8938 even though they were likely required to do so. TIGTA further found that the “aggregate foreign account balances of this 405-person cohort approached $6.2 trillion.” While TIGTA found that some of those non-filers were referred for examination, the majority of the 405 faced no penalties or substantive enforcement action.
Robert cautions that the IRS may respond to TIGTA’s findings by increasing enforcement efforts around discrepancies in Form 8938 filings.
As Robert notes, “More active FATCA enforcement fits a stated mission to narrow the tax gap by better leveraging technology and data to find high-value cases rather than broad auditing activity. The IRS already possesses the data needed to identify a relatively small group of sophisticated taxpayers with substantial foreign-account balances, and the limitations period has not begun to run where Form 8938 was never filed. Professionals advising taxpayers with foreign holdings should prepare their clients for the prospect of more vigorous FATCA enforcement and, if necessary, consider strategies to mitigate prior noncompliance.”
The article goes on to state that, “Whatever the near-term enforcement environment, the assessment period does not work in a taxpayer’s favor, as the limitations clock for those that fail to file Form 8938 has not begun to run. Anyone who reviews foreign reporting positions now, and engages legal counsel before any IRS contact, retains meaningful access to the streamlined procedures, the Voluntary Disclosure Practice, and the delinquent submission procedures.”
The full article can be found here.
About Robert
Robert joined Kostelanetz in 2023, having spent the prior summer as an associate at the firm. He earned his J.D. that same year from the University of Virginia School of Law, where he served as a supervised prosecutor through UVA’s prosecution clinic at the Albemarle County Commonwealth’s Attorney’s Office. His practice focuses on white collar investigations and tax controversies.
