FATCA Reporting On Form 8966
Recently, the IRS released a draft form of the new Form 8966, FATCA Report. Under the FATCA regulations, the Form 8966 will be used by participating foreign financial institutions (FFIs) and to a limited extent U.S. withholding agents to comply with their FATCA reporting and withholding requirements to the U.S.
Participating FFIs that will be subject to the withholding or FATCA reporting are institutions such as banks, mutual funds, investment entities, and certain types of insurance companies. Exempt FFIs include most government entities, most non-profits, some small and local financial entities, and some retirement entities.
FATCA reporting is another step by the U.S. government to discover tax evaders who have hidden money in overseas accounts and have not paid taxes on the earnings in those accounts. The Foreign Account Tax Compliance Act (FATCA) was created to prevent offshore tax evasion by U.S. taxpayers. The Form 8966 is part of the IRS initiative for international data exchange whereby FATCA reporting will be utilized to identify tax evaders.
What You Need To Know About FATCA Reporting If You Have Foreign Financial Accounts
The draft Form 8966 contains all of the expected fields required to do reporting per the regulatory requirements.
In Part I of the Form 8966, the identification of the filer will be disclosed. This will include the name and other identifying information of the foreign financial institution.
In Part II, the foreign financial institution will be required to disclose the name of the account holder and certain other identifying information (address, Tax ID, etc.).
In addition, Part IV contains fields to disclose the account number, currency type, account balance along with income earned from the account, including interest, dividends and other income.
With FATCA Reporting Around The Corner – Time Is Running Out To Disclose Foreign Financial Accounts
Despite instructions not yet being released, the release of the draft Form 8966 provides U.S. taxpayers insight on the new FATCA reporting requirements and the urgency for compliance with all required U.S. tax reporting.
Fortunately, reporting does not begin until 2015 and that may buy some additional time for impacted taxpayers with undisclosed, incomplete or inaccurate FBAR disclosures to rectify.
But, as the release of the Form 8966 shows, time is running out.
Once the IRS has the FATCA reporting data in its hands, most options to get back into compliance without significant risks and penalties are likely eliminated, such as the OVDP (the offshore voluntary disclosure program – taxpayers are accepted into the program only if the IRS is not already aware of the undisclosed accounts).
Under the Foreign Account Tax Compliance Act (FATCA), enacted as part of the Hiring Incentives to Restore Employment Act (HIRE) of 2010, U.S. withholding agents are required to withhold tax on certain payments to FFIs that do not agree to FATCA reporting to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents.
Bottom line is that the U.S. government is making it very difficult if not impossible for FFIs and foreign governments to not come to an agreement on terms for FATCA reporting and information exchange with the U.S. In other words, “it’s an offer they can’t refuse”…
At Tax Samaritan, we anticipate that eventually all foreign financial institutions and countries will be signing FATCA agreements and that this information will be readily available to the IRS and the Treasury Department. After all, it will be to costly and too disruptive to the interests of the FFIs.
The Form 8966 reporting will be required to be submitted electronically. As a result, it is a reasonable assumption that the IRS will perform reconciliations between what has been reported on a U.S. taxpayer’s FBAR (FinCen Form 114) and what has been reported on the Form 8966, FATCA report by foreign financial institutions.
Thus, with FATCA reporting it will become more and more difficult and dangerous to hide overseas assets.
Thus, anything but a 100% complete and accurate disclosure could have potentially devastating effects and subject the account holder to astronomical penalties that can wipe out a large chunk of the account holding. It is a needless risk to take.
On its face, the FinCen Form 114 (FBAR) appears deceptively simple, and it is as long as long as it is prepared accurately and completely and follows all instructions for the form.
However, simple mistakes and errors are frequently made that put the taxpayer at great risk when the IRS will have access to the correct information from FATCA reporting such as:
- Incorrect currency conversion to U.S. dolllars
- Highest balance of each individual account not disclosed (often the year-end balance is reported which is incorrect)
- Missing foreign financial accounts (such as securities accounts)
- And more
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.