On March 15, 2019, the IRS released a new practice unit entitled “Introduction to Traditional Automatic Exchange of Information.” The practice unit provides a summary of the procedures for the IRS Automatic Exchange of Information or AEOI Program, which administers the regular and automatic exchange of taxpayer information required by tax treaties and Tax Information Exchange Agreements or TIEAs between the United States and foreign governments. Such “traditional” exchanges can be contrasted with the exchange of information under newer programs like FATCA or the OECD’s BEPS project.
As explained on the IRS website, practice units provide a general discussion regarding concepts, processes, or transactions and serve as a means to collaborate and share information and knowledge for employees of the IRS. Practice units are not official guidance, are not official pronouncements of law or directives, and cannot be cited or relied upon as legal authority. They merely provide useful context and practical information for taxpayers, and taxpayers should independently confirm information provided in practice units with applicable legal authorities before relying on information found in the practice units.
As the AEOI practice unit explains, traditional information exchange typically involves providing bulk taxpayer information to foreign party governments. Such information generally consists of FDAP income data and certain information on residence changes or real property transactions. This information is gathered via Forms 1042-S and is provided in information returns to payees and foreign governments. When traditional FDAP data is exchanged, it generally specifies (1) the recipient of the income, (2) the payer of the income, (3) the residence and source country taxpayer identification numbers, and (4) income details (tax year, type of payment, amount of payment, currency, etc.). Such information is subject to the confidentiality provisions of the agreement authorizing income exchange.
In the United States, information subject to confidentiality provisions may nevertheless be provided to a “person or authority concerned,” such as Treasury officials involved in a tax matter, the taxpayer and/or her representatives, witnesses and record-keepers, Justice Department attorneys involved in tax cases, and court or administrative bodies involved in a tax matter. Such disclosure is authorized under section 6103. IRS agents may contact the AEOI Program to obtain such information in connection with a tax proceeding.