Last week, the Acting Director of IRS of Field Operations for the LB&I Foreign Payments Practice (“FPP”) announced that the IRS will launch a compliance campaign this summer focused on foreign financial institutions (“FFIs”) that are not satisfying their reporting obligations under the Foreign Account Tax Compliance Act (“FATCA”).  Speaking at a tax controversy forum at NYU, Kimberly Schoenbacher indicated that the IRS will be sending notices to FFIs that failed to file Forms 8966 (FATCA Report) reporting assets held in accounts by U.S. persons.

FFIs are generally required to file Forms 8966 if they are not in a jurisdiction that has entered into an intergovernmental agreement (“IGA”) with the Treasury Department (Russia and many Central American and African nations) or in a Model 2 IGA jurisdiction (Austria, Armenia, Bermuda, Chile, Hong Kong, Iraq, Japan, Macao, Moldova, Nicaragua, Paraguay, San Marino, Switzerland, and Taiwan).  FFIs in Model 1 IGA jurisdictions provide similar information to tax authorities in the local jurisdiction, which are obligated to share the information with the IRS.  Forms 8966 for 2018 were required to be filed with the IRS by April 1, 2019.  (A list of countries with IGAs in force, signed, or agreed to in substance is available on the Treasury Department website.)

FFIs that fail to file the required form may result in the FFI losing its status as a participating FFI or Reporting Model 2 FFI.  If an FFI loses its status and is treated as a nonparticipating FFI, it is subject to 30% withholding on payments of U.S. source FDAP income made to it.

Kim Schoenbacher’s warning last week was the second such warning regarding compliance failures in as many weeks.  Her comments regarding a FPP correction program for Forms 1042 and 1042-S are discussed in our blog post of June 13.  The announcement of this new compliance campaign serves as a warning to not only FFIs that have not filed the required Forms 8966, but also to U.S. persons who have failed to file FBARs or Forms 8938 (Statement of Specified Foreign Financial Assets) that time may be running out.

Tags: FBAR, FFIs, Form 8938, Form 8966, IGAs, Section 6038D
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Photo of S. Michael Chittenden S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden…

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Mr. Chittenden advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Mr. Chittenden counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Mr. Chittenden is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.

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Photo of Michael M. Lloyd Michael M. Lloyd

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits…

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits, cross-border compensation, domestic information reporting (e.g., Forms W-2, 1099, 1095 series returns), penalty abatement, and general tax planning and controversy matters. Mr. Lloyd advises large U.S. and foreign multinationals regarding compliance with information reporting and withholding issues, as well as a range of other federal and state tax issues.

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