On June 7, 2019, the IRS announced the launch of Audit Campaign 975, which focuses on identifying US and foreign financial institutions that have failed to submit Foreign Account Tax Compliance Act (FATCA) Report Form 8966 filings, despite being required to do so.
The IRS has indicated it will be sending letters to identified non-filers of Form 8966 within the coming weeks. It has also indicated that FATCA audits will likely commence in 2020, which means filers have limited time to become compliant.
In general, a US or Model 2 Foreign Financial Institution must annually file a Form 8966 when holding an account or accounts for persons who meet the following criteria:
- Substantial US owners of passive nonfinancial foreign entities (NFFEs)
- Specified US persons who own certain debt or equity interests in owner-documented foreign financial institutions (ODFFIs)
- Accounts held by specified US persons that aren’t otherwise reportable on Forms 1099
If a filer receives an IRS notice with respect to the above, the IRS has stated that penalty abatements won’t be available. If a filer doesn’t respond to the IRS notice, it’s likely the case will be audited.
Impact on Filers
It’s important for filers to stay on top of their FATCA documentation and filing requirements. Form 8966 and FATCA filings are often overlooked if account holders aren’t properly classified through the tax-documentation process.
Additionally, Form 8966 and the FATCA regime are relatively new compared to other information-return reporting methods, so internal policies and procedures regarding these filings may still be in their infancy.
To remain compliant with the changes, filers should first determine if they’re required to file a Form 8966. They should then review their account-holder population to determine if they have account holders in the above categories and are filing the appropriate Form 8966.
The IRS has stated it will be open to voluntary disclosures prior to financial institutions receiving notices. But, as noted above, penalty abatement won’t be an option once a notice is received.
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