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F.A.T.C.A. – Where Do We Stand Today?

F.A.T.C.A. – Where Do We Stand Today?

When F.A.T.C.A. was adopted in 2010, the hoopla from the U.S. Senate promoted the idea that the I.R.S. would become invincible in rooting out recalcitrant Americans not wanting to pay tax and the financial institutions willing to assist them. In principle, information in U.S. tax returns could be compared with F.A.T.C.A. reporting by foreign financial institutions to identify which taxpayers remained offside and which banks had insufficient reporting systems. A recent report by the Treasury Inspector General for Tax Administration (“T.I.G.T.A.”) concluded that after spending nearly $380 million, the I.R.S. is still not prepared to enforce F.A.T.C.A. compliance. In their article, Rusudan Shervashidze and Nina Krauthamer summarize the principal shortfalls and possible solutions identified by T.I.G.T.A. and which suggested action plans the I.R.S. will contemplate.

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International Practice Unit: Monetary Penalties for Failure to File Form 5471

The I.R.S. has initiated increased enforcement efforts to ensure compliance with information reporting obligations. Such efforts include increased assessment of penalties. Galia Antebi explains.

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Taxpayers Take Note: I.R.S. Publishes Audit Guides for International Examiners

U.S.-based companies facing an I.R.S. examination of international operations may secretly wish to obtain an advance look at how I.R.S. examiners plan to carry out the examination. After all, what better way to prepare for a test than to get the questions in advance? Surprise – the Large Business & International (LB&I) Division of the I.R.S. has published its training guides for examiners.

LB&I is responsible for examining tax returns reporting international transactions, and it is in the process of revising the method by which returns are chosen for examination and the the process by which those examinations are conducted. Several aspects of the guidance will be addressed through out this edition of Insights. Stanley C. Ruchelman explains.

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Insights Vol. 1 No. 10: F.A.T.C.A. 24/7

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While Mexico, the largest Central American nation, signed an I.G.A. in April of 2014, other Central American nations are also deciding to join the F.A.T.C.A. bandwagon. Panama, which has the greatest number of U.S. residents in Central America along with Costa Rica, are leading an effort to have Central America move towards compliance by the September 2015 deadline. In May 2014, Panama reached an agreement in substance to adopt an I.G.A., and has been treated as if an I.G.A. has been in effect since then. Costa Rica had already signed a Model 1 I.G.A. in December 2013.

Though Guatemala has not yet signed an I.G.A., many local financial institutions have registered for direct exchange with the I.R.S. under the Treasury Regulations. It was reported that nearly 100 foreign financial institutions (“F.F.I.’s”), including 18 banks, ten stock brokerages, and 28 insurance firms have registered with the I.R.S. to start sharing information by March 31, 2015, as required under the Regulations with respect to F.F.I.’s in non-I.G.A. jurisdictions. Edgar Morales, operation subdirector at banking trade group Asociación Bancaria de Guatemala, said that unlike Panama or Costa Rica, where aggregating these lists of U.S. resident account holders “will be much harder,” the process in Guatemala hasn’t been so complex because “there aren’t that many people who qualify under F.A.T.C.A. here.” Guatemala has a robust banking secrecy law that forbids banks from sharing customer data with other government institutions, and therefore banks that register with the I.R.S. have to obtain privacy waivers from customers to be able to reveal their information under F.A.T.C.A.

T.I.G.T.A. Advises the I.R.S. on Improving International Tax Compliance

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In 2006, the I.R.S. created the International Collection program (“International Collection”), whereby collections officers are primarily responsible for collection of all delinquent taxes and tax returns of taxpayers located outside the U.S., but subject to the United States tax and reporting requirements. Since its inception, International Collection has undergone certain changes with the intention of developing a well-structured, long-term strategy to curb international tax noncompliance.


Significant emphasis now is placed on international tax compliance. The I.R.S. is concentrating on collecting delinquent payments, and through the three voluntary programs alone, it collected $6.5 billion from 45,000 participating taxpayers.

There are four types of international taxpayers that are of interest to the I.R.S.

  • U.S. individual taxpayers and resident aliens working, living, or doing business abroad;
  • U.S. corporations doing business abroad;
  • Nonresident aliens working or doing business in the United States; and
  • Foreign corporations doing business in the United States