How FATCA will find FBAR violators/hold outs

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What is FATCA
Required Reporting under FATCA
How will FATCA Reporting Be Used
FBAR/other reporting violations


The Foreign Account Tax Compliance Act (FATCA) is a U.S. law designed to prevent tax evasion by U.S. citizens, green card holders, and others. Specifically, the law creates an avenue for the Internal Revenue Service to seek out and identify those with foreign assets and offshore bank accounts.

An FFI is a Foreign Financial Institution, which is any non-U.S. entity that:

  • Accepts deposits in the ordinary course of a banking or similar business,
  • As a substantial portion of its business, holds financial assets for the account of others, or
  • Is engaged (or holding itself out as a being engaged) primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities.
  • There is no de minimis threshold.
On January 1, 2014, the law will require that Foreign Financial Institutions or Intermediaries either comply with FATCA or automatically withhold 30% of any payments, such as, dividends, property sales, interest paid, etc.


A. Account Balances

B. Gross Receipts and Withdrawals

Further, please note that the FFI must also Keep Records and Turn Them Over to the IRS upon request:

Under FATCA, the FFI is required to retain copies of statements sent to holders of accounts in the ordinary course of its business. Such statements must be retained for a period of five years and must be provided to the IRS upon request. There is no requirement for any formal investigation or a subpoena in order to obtain the information.


These reporting requirements will allow the IRS to cross reference the information the FFI (banks and others) are now required to report with individual income tax returns - just like the W2 and 1099s. In 2009, Forbes reported that over the past two decades the number of 1099s and other information returns sent to the Internal Revenue Service had doubled. Now, with FATCA reporting, we expect it to double again.

However, the IRS and its technology are ready for the increase in information and the IRS computers will match against individual returns and identify taxpayers with discrepancies in the information and will be better able to identify and seek out those with unreported foreign income, bank accounts, or who have failed to report some or all of the informational required informational returns: FBAR, Form 8939, Form 3520, etc. See our website for additional informational return reporting requirements.

The ease in identifying individuals will allow the IRS to assess tax and penalties with ease either by way of an audit or other investigation or by merely making an assessment via a CP2000 notice.


Failure to File:

Unreported Income Investigations


The goal of FATCA is to increase transparency and tax reporting for individuals with foreign assets and income making it easier for the US Government to enforce its tax compliance. It also works the other way and benefits foreign countries. For instance, One July 11, 2013, Bloomberg reported that “Japan recently received a “substantial amount of data… which includes the names and addresses of Japanese companies, trusts, and individuals with offshore bank accounts… The tax authorities acquired more than two million documents related to thousands of individuals and discovered complex offshore tax evasion structures used by wealthy individuals and companies.” This type of data is not limited to Japan. We expect all of EU countries to receive similar data as well as, South Korea, China, Singapore, and of course the notorious tax haven countries such as, the Cayman Islands, the Caribbean, Panama, etc.

For more information about FATCA see here.

For more information about how to legally minimize taxes see here and here.

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