Foreign Asset Reporting: Actions Needed to Enhance Compliance Efforts, Eliminate Overlapping Requirements, and Mitigate Burdens on U.S. Persons Abroad

Concerns over efforts by U.S. taxpayers to use offshore accounts to hide income or evade taxes contributed to the passage of FATCA in 2010, which sought to create greater transparency and accountability over offshore assets held by U.S. taxpayers.

House Report 114-624 included a provision for GAO to evaluate FATCA implementation and determine the effects of FATCA on U.S. citizens living abroad. GAO—among other things—(1) assessed IRS's efforts to use FATCA-related information to improve taxpayer compliance; (2) examined the extent to which Treasury administers overlapping reporting requirements on financial assets held overseas; and (3) examined the effects of FATCA implementation unique to U.S. persons living abroad.

GAO reviewed applicable documentation; analyzed tax data; and interviewed officials from IRS, other federal agencies and organizations, selected tax practitioners, and more than 20 U.S. persons living overseas.

Data quality and management issues have limited the effectiveness of the Internal Revenue Service's (IRS) efforts to improve taxpayer compliance using foreign financial asset data collected under the Foreign Account Tax Compliance Act (FATCA). Specifically, IRS has had difficulties matching the information reported by foreign financial institutions (FFI) with U.S. taxpayers' tax filings due to missing or inaccurate Taxpayer Identification Numbers provided by FFIs. Further, IRS lacks access to consistent and complete data on foreign financial assets and other data reported in tax filings by U.S. persons, in part, because some IRS databases do not store foreign asset data reported from paper filings. IRS has also stopped pursuing a comprehensive plan to leverage FATCA data to improve taxpayer compliance because, according to IRS officials, IRS moved away from updating broad strategy documents to focus on individual compliance campaigns. Ensuring access to consistent and complete data collected from U.S. persons—and employing a plan to leverage such data—would help IRS better leverage such campaigns and increase taxpayer compliance.

Due to overlapping statutory reporting requirements, IRS and the Financial Crimes Enforcement Network (FinCEN)—both within the Department of the Treasury (Treasury)—collect duplicative foreign financial account and other asset information from U.S. persons. Consequently, in tax years 2015 and 2016, close to 75 percent of U.S. persons who reported information on foreign accounts and other assets on their tax returns also filed a separate form with FinCEN. The overlapping requirements increase the compliance burden on U.S. persons and add complexity that can create confusion, potentially resulting in inaccurate or unnecessary reporting. Modifying the statutes governing the requirements to allow for the sharing of FATCA information for the prevention and detection of financial crimes would eliminate the need for duplicative reporting. This is similar to other statutory allowances for IRS to disclose return information for other purposes, such as for determining Social Security income tax withholding.

According to documents GAO reviewed, and focus groups and interviews GAO conducted, FFIs closed some U.S. persons' existing accounts or denied them opportunities to open new accounts after FATCA was enacted due to increased costs, and risks they pose under FATCA reporting requirements. According to Department of State (State) data, annual approvals of renunciations of U.S. citizenship increased from 1,601 to 4,449—or nearly 178 percent—from 2011 through 2016, attributable in part to the difficulties cited above.

Treasury previously established joint strategies with State to address challenges U.S. persons faced in accessing foreign financial services. However, it lacks a collaborative mechanism to coordinate efforts with other agencies to address ongoing challenges in accessing such services or obtaining Social Security Numbers. Implementation of a formal means to collaboratively address burdens faced by Americans abroad from FATCA can help federal agencies develop more effective solutions to mitigate such burdens by monitoring and sharing information on such issues, and jointly developing and implementing steps to address them.

GAO is making one matter for congressional consideration to address overlap in foreign asset reporting requirements. GAO is making seven recommendations to IRS and other agencies to enhance IRS's ability to leverage FATCA data to enforce compliance, address unnecessary reporting, and better collaborate to mitigate burdens on U.S. persons living abroad. State and Social Security Administration agreed with GAO's recommendations. Treasury and IRS neither agreed nor disagreed with GAO's recommendations.

By law, U.S. individuals—regardless of whether they live in the United  States or abroad—are required to report and pay applicable taxes on  worldwide income to the Internal Revenue Service (IRS), including  income from offshore accounts and other assets. While taxpayers can  hold offshore accounts for a number of legitimate reasons, some  taxpayers have also used such accounts to hide income and evade taxes.  IRS does not have an estimate of the revenue loss due to offshore  noncompliance. However, international tax policy experts believe that the  losses are in the billions of dollars annually. These losses contribute to  the tax gap—the difference between tax amounts that taxpayers should  pay and what they actually pay voluntarily and on time—that has been a  problem for decades. In 2016, IRS estimated that the average annual  gross tax gap for tax years 2008 to 2010 was $458 billion, of which $319  billion was from individual taxpayers.

The passage of the Foreign Account Tax Compliance Act (FATCA)  sought to reduce tax evasion by creating greater transparency and  accountability with respect to offshore accounts and other assets held by  U.S. taxpayers. However, since FATCA’s enactment in 2010, we and  others have identified compliance burdens and other challenges FATCA  has created for U.S. persons living abroad, foreign financial institutions,  and other stakeholders. For example, in our past work, we highlighted  that some of the information reporting requirements for taxpayers subject  to FATCA result in duplicative reporting to the Department of the Treasury  (Treasury). This increases complexity and creates confusion for  taxpayers.

House Report 114-624 included a provision for us to evaluate IRS’s  implementation of FATCA and determine the effects of FATCA on U.S.  citizens living abroad. To address House Report 114-624, this report (1)  assesses IRS’s efforts to use information collected under FATCA to  improve taxpayer compliance; (2) examines available foreign financial  asset reports submitted by U.S. persons, including submissions that were  below required filing thresholds; (3) examines the extent to which  Treasury administers overlapping reporting requirements on foreign  financial assets; (4) describes similarities and differences between  FATCA and Common Reporting Standard (CRS) reporting requirements;  and (5) examines the effects of FATCA implementation that are unique to  U.S. persons living abroad.

For our first objective, we identified criteria from our prior work identifying  key practices for risk management. We applied these criteria to assess steps IRS has taken to manage risks in not receiving complete and valid  Taxpayer Identification Numbers (TIN) from foreign financial institutions  (FFI). We also applied criteria from our prior work on use of documented  frameworks to IRS documentation on FATCA compliance activities to  determine the extent to which IRS implemented a comprehensive plan to  maximize the use of collected data to enforce compliance with FATCA.

For our second objective, we identified total maximum account values  reported by individual filers of the Financial Crimes Enforcement Network  (FinCEN) Form 114s (commonly known as the Report of Foreign Bank  and Financial Accounts, or FBAR) in calendar year 2015 and 2016, using  lower and upper bounds of foreign financial accounts reported for each  year. See appendix III for more details on our methodology to evaluate  these data. We summarized the numbers of IRS Forms 8938, Statement  of Specified Foreign Financial Assets (Form 8938) filed in tax year  2016—the most recent year for which data were available—accounting  for data limitations described in appendix I. We also identified Forms  8938 filed in tax year 2016 with available residency and asset information  that reported specified foreign financial assets with aggregate values at or  below end-of-year tax thresholds, which vary depending on the location of  residence and filing status of such filers.

For our third objective, we reviewed IRS and FinCEN documentation, and  applied criteria from Fragmentation, Overlap, and Duplication: An  Evaluation and Management Guide to identify the extent to which IRS  and FinCEN were engaged in overlapping activities, and collecting  duplicative foreign financial asset information held by U.S. persons. We  assessed the extent to which individual filers who submitted a Form 8938  in 2015 and 2016 also submitted an FBAR for the same year.

For the three objectives described above, we assessed the reliability of  data submitted on Forms 8938 filed by individuals for tax years 2015 and  2016, and FBARs for calendar years 2015 and 2016.

For our fourth objective, we reviewed documentation and interviewed  officials from Treasury, IRS, and the Organisation for Economic Co- operation and Development (OECD) to compare and contrast FATCA and  CRS reporting requirements.

For our fifth objective, we collected documentation and conducted focus  groups and semi-structured interviews with Treasury, IRS, Department of  State (State), and Social Security Administration (SSA) officials, and more  than 20 U.S. persons subject to FATCA requirements, tax practitioners  and various organizations in the United States and five other countries  (Canada, Japan, Singapore, Switzerland, and the United Kingdom). We  selected these countries based on geography, relatively high numbers of  U.S. expatriates and Form 8938 filers, and tax information sharing  agreements and other tax treaties with the United States. The findings  from the focus groups and interviews are not generalizable to other U.S.  persons, tax practitioners, or organizations.

We collected documentation from and interviewed Treasury, IRS, State,  and SSA officials on steps to monitor and mitigate the effects of FATCA  on U.S. persons living abroad. We also identified criteria from our prior  work on key practices to enhance and sustain interagency collaboration  and mechanisms to facilitate coordination. We applied the criteria to  agencies’ collaborative efforts addressing issues U.S. persons living  abroad faced from FATCA’s implementation, and identified the extent to  which agencies established effective collaborative mechanisms to  identify, assess, and implement cross-agency solutions to such issues.

We conducted this performance audit from August 2017 to April 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. See appendix I for more  detailed information on our objectives, scope, and methodology.

The United States has many international agreements that require treaty  partners to provide certain information to IRS, which can help prevent the  use of foreign bank accounts to facilitate tax evasion. FATCA goes much  further, requiring FFIs to report more detailed information to IRS about  their U.S. customers annually. These provisions are important  developments in efforts to combat tax evasion by U.S. persons holding  investments in offshore accounts. FATCA generally requires certain  taxpayers to report foreign financial accounts and other specified foreign  financial assets whose aggregate value exceeds specified thresholds to  IRS on Form 8938. These taxpayers must report these assets and  income generated from such assets to IRS with their tax return on Form  8938. These thresholds vary by filing status—such as single or married  filing jointly—and by domestic or foreign residency.

FATCA also promotes third-party reporting of foreign financial assets by  requiring a withholding agent to withhold 30 percent on certain payments  to an FFI unless the FFI or the jurisdiction in which the FFI is located has  entered into an agreement with the United States to report certain  account information of their U.S. customers. Under such an agreement,  participating FFIs report detailed information to IRS annually about  accounts held by their U.S. customers using an IRS Form 8966, FATCA  Report (Form 8966). According to IRS, FATCA improves visibility into  taxable income from foreign sources, and enhances the agency’s ability  to identify and pursue taxpayer noncompliance. For example, FATCA  allows IRS to compare information reported by FFIs on Forms 8966 to  information reported by U.S. persons on Forms 8938. According to IRS,  this comparison can be used to ensure taxpayers and FFIs are properly  reporting foreign financial assets and income from international  investments. This type of comparison is a common IRS enforcement  technique. For example, IRS can directly compare information it receives  from financial institutions’ IRS Form 1099-INT, Interest Income, against a  tax return to determine if the taxpayer reported income generated from  interest earned.

To facilitate FATCA implementation for FFIs operating in jurisdictions with  laws that would prohibit FFIs from complying with the terms of the FFI  agreement, Treasury developed two alternative intergovernmental  agreements (IGA)—Model 1 and Model 2—to facilitate the effective and  efficient implementation of FATCA by removing partner jurisdictions’ legal  impediments to comply with FATCA reporting requirements, and reducing  burdens on FFIs located in partner jurisdictions. FFIs from countries with  Model 1 IGAs report information on U.S. persons’ accounts to their  respective host country tax authorities (HCTAs). The HCTAs, in turn,  compile the information from FFIs and transmit it to IRS. In contrast, FFIs  from countries with Model 2 IGAs, or countries treated as not having an  IGA in effect, directly report information on U.S. persons’ accounts to IRS.

Separate from the FATCA requirements, regulations implementing the  Bank Secrecy Act of 1970 (BSA) also impose a separate self-reporting  requirement for foreign accounts. Specifically, certain taxpayers and  residents are required to file an FBAR with FinCEN annually if they have  financial interest or signature or other authority over one or more foreign  financial accounts with a total of more than $10,000, regardless of  whether they reside within or outside the United States. Federal, state,  and local law enforcement agencies can use information from these  reports to combat financial crimes, including terrorist financing and tax  evasion. Appendix IV provides a comparison of Form 8938 and FBAR  reporting requirements.

Figure 1 depicts the flow of foreign financial account information from  U.S. persons and FFIs to IRS and FinCEN through the FATCA and FBAR  reporting processes.

FATCA Data Limitations and Lack of a Comprehensive Strategy Have Hampered IRS Efforts to Increase Compliance

Incomplete and Inaccurate Reporting of Taxpayer Identification Numbers by FFIs Has Limited IRS’s Efforts to Match Account Information for Compliance Purposes

As part of the FATCA reporting requirements, IRS collects information on  financial accounts through forms and reports submitted by both taxpayers  and FFIs. As part of this effort, IRS requires taxpayers to identify their  TINs on Forms 8938 they submit. IRS also requires participating FFIs to  report the TINs of each account holder who is a specified U.S. person on  Forms 8966. IRS intends to use reported TINs to link Form 8938 data  filed by taxpayers to Form 8966 data filed by the FFIs to ensure that  taxpayers and FFIs are properly reporting foreign financial assets.

However, IRS often could not link account information collected from FFIs  to the account’s owner because of incorrect or missing TINs. In July  2018, the Treasury Inspector General for Tax Administration (TIGTA)  found that almost half of new Forms 8966 filed by FFIs did not include a  TIN or included an invalid TIN. A consulting firm working with FFIs to  implement FATCA reporting requirements told us that FFIs encountered  significant challenges obtaining accurate TINs from U.S. persons as part  of the self-certification process. For instance, FFIs encountered situations  where U.S. persons provided incomplete or inaccurate TINs—such as  Social Security Numbers (SSN) with less than nine digits—on forms used  to self-certify their status as U.S. persons. FFIs also encountered  situations where U.S. persons may not have obtained TINs or were  unwilling to provide them to FFIs.

Additionally, banking associations told us that it has taken time, effort,  and expense for FFIs to report TINs, as they had to upgrade computer  systems to collect and record TINs from U.S. customers. Finally, Treasury  told us that jurisdictions that have an IGA with the United States but no  legal requirement to collect TINs are not in compliance with the  requirements of the IGA.

Treasury and IRS determined that some FFIs reporting from countries  with Model 1 IGAs needed additional time to implement procedures to  obtain and report required U.S. TINs for preexisting accounts that are  U.S. reportable accounts. Consequently, IRS provided a transition period,  through the end of 2019, for compliance with the TIN requirements for  FFIs under Model 1 IGAs. Specifically, in September 2017, IRS issued a  notice modifying procedures for FFIs reporting from countries with Model  1 IGAs to become compliant with TIN reporting requirements for  preexisting accounts. For calendar years 2017-2019, IRS will not  determine that certain FFIs in countries with Model 1 IGAs are  significantly noncompliant with their obligations under the IGA solely as a  result of a failure to report U.S. TINs associated with the FFI’s U.S.  reportable accounts, providing they (1) obtain and report the date of birth  of each account holder and controlling person whose TIN is not reported,  (2) make annual requests for missing TINs from each account holder, and  (3) search electronically searchable data maintained by such FFIs for  missing required U.S. TINs before reporting information that relates to  calendar year 2017 to a partner jurisdiction. As a result, even without  any further extensions, calendar year 2020 is the earliest IRS will be enforcing requirements for FFIs from countries with Model 1 IGAs to  provide accurate and complete information on U.S. account holders’ TINs  to IRS.

Without valid TINs on Forms 8966 submitted by FFIs, according to IRS  officials, IRS faces significant hurdles in matching accounts reported by  FFIs to those reported by individual tax filers on their Forms 8938. As a  result, IRS must rely on information such as names, dates of birth, and  addresses that the filers and/or FFIs may not consistently report. Without  data that can be reliably matched between Forms 8938 and 8966, IRS’s  ability to identify taxpayers not reporting accurate or complete information  on specified foreign financial assets is hindered, interfering with its ability  to enforce compliance with FATCA reporting requirements, and ensure  taxpayers are paying taxes on income generated from such assets.

In July 2018, TIGTA reported that IRS lacked success in matching FFI  and individual taxpayer data because reports FFIs filed did not include or  included invalid TINs. This, in turn, affected IRS’s ability to identify and  enforce requirements for individual taxpayers. TIGTA recommended,  among other things, that IRS initiate compliance efforts to address and  correct missing or invalid TINs on Form 8966 filings from FFIs from  countries with Model 2 IGAs or without any IGAs with the United States.  IRS management said it disagreed with this recommendation because a  system to ensure validation of every TIN upon submission of a Form 8966  would be cost prohibitive. However, IRS management said that IRS would  address invalid TINs as they are uncovered on other compliance efforts,  such as initiating development of a data product to automate risk  assessments across the FATCA filing population. IRS also said it  continues efforts to systematically match Form 8966 and Form 8938 data  to identify nonfilers and underreporting related to U.S. holders of foreign  accounts. However, IRS management told us they are waiting until they  have a full set of data, including TINs, before doing analysis to develop a  compliance strategy. According to TIGTA, IRS management believed that  having the FFI’s Global Intermediary Identification Number (GIIN) on  Form 8938, which is filed by the taxpayer, would help with matching  records. However, Form 8938 instructions identify that the field is optional  for taxpayers to complete. TIGTA recommended that to reduce taxpayer  burden in obtaining GIINs from FFIs, IRS add guidance to Form 8938  instructions to inform taxpayers on how to use the FFI List Search and  Download Tool on the IRS’s website to obtain an FFI’s GIIN. IRS  agreed with this recommendation. However, even if an individual taxpayer  provided GIINs, IRS may continue to have difficulty matching accounts  with U.S. taxpayers if the TIN and name of the account holder reported on  the Form 8966 do not match the TIN and name of the taxpayer on the  Form 8938.

IRS officials said they are aware of these difficulties and have attempted  to match Forms 8938 and 8966 based on other criteria such as dates of  birth. In its response to our draft report, IRS said that all financial  institutions and foreign tax authorities that file required account  information receive a notification listing administrative and other minor  errors contained in their reporting. According to IRS, its Large Business  and International division follows up with foreign tax authorities regarding  these errors to ensure the tax authorities are working with financial  institutions to correct these errors in compliance with the countries’ IGAs.  IRS added it has initiated a campaign addressing FFIs that do not meet  their compliance responsibilities with respect to account opening  requirements. Additionally, IRS drafted a risk acceptance form and tool  addressing risks in implementing FATCA compliance and business  process capabilities. This risk assessment focused on the limitations IRS  faces due to budget constraints, but did not address the specific risks it  faces from not receiving complete and valid TINs on U.S. account  holders. We previously reported that risk management could help  stakeholders make decisions about assessing risk, allocating resources,  and taking actions under conditions of uncertainty. Key management  practices for risk management we identified from our prior work include  identifying, analyzing, and prioritizing risks; developing a mitigation plan  to address identified risks; implementing the plan; and monitoring,  reporting, and controlling risks. Without developing a risk mitigation plan  to address risks IRS faces from not receiving complete and valid TINs  moving forward, IRS may lose opportunities to adjust its compliance  programs to better identify U.S. persons who are not fully reporting  specified foreign financial assets as required under FATCA.

IRS Databases Lack Consistent and Complete FATCA and Taxpayer Data Useful for Compliance Enforcement and Research

Several IRS databases store data collected from individuals’ electronic  and paper filings of Form 8938 and/or elements of parent individual tax  returns to which the Form 8938 is attached—the filer’s country of  residence and filing status—used to determine specified reporting  thresholds for Form 8938 filers. Additionally, data from these databases  and other sources are transferred downstream to IRS’s Compliance Data  Warehouse (CDW)—a database used for research and analytical  purposes.

We extracted data from copies of Individual Return Transaction File  (IRTF) and Modernized Tax Return Database (MTRDB) data copied into  CDW to obtain information reported on Forms 8938 and relevant  information from parent tax returns, such as filing status and filers’  country of residence. We found that IRTF and MTRDB had inconsistent  and incomplete data. For example, neither database had consistent and  complete information on foreign financial account and other asset  information submitted by Form 8938 filers. While IRS officials told us that  IRTF is the authoritative source for filers of Form 8938, it does not store  account and other asset information submitted on Forms 8938.

Additionally, IRS officials said MTRDB is not designed to store  information submitted on paper filings of Forms 8938 and parent tax  returns. Officials from IRS’s Research, Applied Analytics and Statistics  (RAAS) division also noted that CDW did not have reliable information  from Form 8938 paper filings. Because of the lack of foreign financial  asset information from such filings, we could not report complete  information on assets reported by Form 8938 filers.

Further, IRS does not provide instructions to CDW users on how to  extract appropriate data from CDW—such as data copied from IRTF and  MTRDB—leading to confusion on which databases to use for extracting  Form 8938 and relevant parent tax return data. For example, five distinct  tables within CDW are required to identify the TIN, parent form, filing  status, country of residence, and amount of foreign assets accurately.  Without clear explanations of how data in each of these tables relate to  each other and to the underlying filings, errors could be introduced into  CDW users’ analyses of foreign asset information.

Standards for Internal Control in the Federal Government notes that  management should use quality information to achieve the entity’s  objectives. One attribute of this principle includes processing data into  quality information that is appropriate, current, complete, accurate,  accessible, and provided on a timely basis. Additionally, the Internal  Revenue Manual states that IRS needs to measure taxpayer compliance  so that customer-focused programs and services can be enhanced or  developed so that compliance information and tools can be improved.

According to IRS officials, IRS researchers have been taking additional  steps to obtain and review Form 8938 and parent tax return data stored in  the Integrated Production Model (IPM) database. They said IPM is the  only database that contains complete data from individuals’ electronic and  paper filings of Forms 8938 and relevant elements of parent tax returns.  IRS officials said that RAAS has been working with IRS’s information  technology (IT) division to obtain read-only access to IPM, and import  Forms 8938 and 8966 data from IPM into CDW for analysis. However, as  of February 2019, this effort has been delayed due to budget constraints.  In its response to our draft report, IRS said that obtaining read-only  access would require a new technical process and plans to continue  working with IT on the feasibility and timeframe for enabling this access.  Enabling access to consistent and complete Form 8938 and parent tax  return data for compliance staff and researchers from RAAS and other  IRS business units would help IRS strengthen its efforts to enforce  compliance with FATCA reporting requirements and conduct research to  bolster enforcement efforts. However, such efforts may be hampered until  IRS can ensure readily available access to such data.

IRS Stopped Pursuing a Comprehensive Plan to Leverage FATCA Data to Improve Taxpayer Compliance

We previously recommended that IRS develop a broad strategy, including  a timeline and performance measures, for how IRS intends to use FATCA  information to improve tax compliance. IRS agreed with this  recommendation and developed a strategy for FATCA in July 2013. IRS  updated the strategy in 2016 by creating the FATCA Compliance  Roadmap as a comprehensive plan to articulate IRS’s priorities to  facilitate compliance with FATCA reporting requirements. The roadmap  also provided an overview of compliance activities used solely for  enforcing FATCA reporting requirements or enhancing existing  compliance efforts. However, in July 2018, TIGTA reported that IRS had  not updated the FATCA Compliance Roadmap since 2016, and had taken  limited or no action on a majority of the planned activities outlined in it.

We also found that IRS had not yet evaluated the effects of FATCA,  including the effects on voluntary tax compliance. IRS documentation  states that only 7 of 31 capabilities outlined in the FATCA Compliance  Roadmap were delivered due to funding constraints. As of October 2018,  IRS has stopped using the FATCA Compliance Roadmap and has not  developed a revised comprehensive plan to manage efforts to leverage  FATCA data to improve taxpayer compliance. According to IRS officials,  IRS moved away from updating broad strategy documents, such as the  FATCA Compliance Roadmap, to focus on individual compliance  campaigns. These include a campaign to match individual tax filers to the  reports from FFIs, and another campaign to identify FFIs with FATCA  reporting requirements who are not meeting all of their obligations.

According to what IRS told us, with the passage of time and as FATCA is  becoming more integrated into agency operations, it has moved from  updating the broad strategy documents focused on FATCA to working on  compliance campaigns that incorporate FATCA into overall tax  administration. Additionally, IRS and outside researchers plan to study  the role of enforcement in driving overall patterns in reporting offshore  assets and income generated from such assets. Though IRS maintains  that FATCA is more integrated into its operations, TIGTA’s 2018 report  concluded that IRS was still unprepared to enforce compliance with  FATCA in part because it took limited or no action on the majority of  planned activities outlined in the FATCA Compliance Roadmap.

Documenting a framework for using FATCA reporting requirements to  improve taxpayer compliance and measure their effect is consistent with  three steps we found leading public sector organizations take to increase  the accountability of their initiatives: (1) define clear missions and desired  outcomes; (2) measure performance to gauge progress; and (3) use  performance information as a basis for decision-making. We also  previously reported that it is important for IRS to use a documented  framework that defines a clear strategy, timeline, and plans for  assessment. Having such a framework in place can help IRS better  allocate resources and avoid unnecessary costs resulting from not having  the necessary or appropriate data available to execute its objectives. In  light of the challenges IRS faces to collect, manage, and use FATCA data  to improve compliance in a resource-constrained environment, employing  a comprehensive plan would help IRS maximize the use of collected data  and better leverage individual campaigns to increase taxpayer  compliance. Without such a plan, IRS’s ability to collect and leverage data  collected under FATCA for compliance enforcement and other purposes  is constrained.

Analysis of FBAR and FATCA Data Provide Insights, Including the Possibility that Tens of Thousands of Forms 8938 May Have Been Filed Unnecessarily

More than 900,000 Individual FBAR Filers Reported about $1.5 Trillion or More in Foreign Accounts in Both Calendar Years 2015 and 2016

We could not report on total values of foreign financial assets on Forms  8938 in tax years 2015 and 2016. However, we could provide a range of  total maximum account values reported on FBARs during the same  period. Specifically, we determined that more than 900,000 individuals  filed FBARs in calendar years 2015 and 2016, and declared total  maximum values of accounts ranging from about $1.5 trillion to more than  $2 trillion each year.

A little more than one in five—or about 21.7 percent—of the  approximately 404,800 Forms 8938 filed with IRS in tax year 2016 were  done so from U.S. persons living abroad, with the other 78.3 percent  living in the United States. Table 1 shows that a higher proportion of Form  8938 filings from U.S. persons living abroad for tax year 2016 were filed  on paper (43.3 percent) than Form 8938 filings from U.S. persons living in  the United States during the same period (14.7 percent). We extracted  these data from IRTF, which IRS officials said is the authoritative source  for filers of Form 8938. However, we could not report complete  information on foreign financial assets reported by Form 8938 filers  because such data are incomplete; as noted above, IRS databases we  used to extract Form 8938 data—IRTF and MTRDB—do not include  asset information reported on paper filings of Forms 8938.

Tens of Thousands of Forms 8938 May Have Been Filed Unnecessarily in Tax Year 2016

Of the approximately 404,800 Forms 8938 filed by individuals for tax year  2016—the most recent data available—we could access information on  residency of filers and reported foreign financial assets from about  277,600 Forms 8938 that did not indicate that foreign financial assets and  values were declared on other forms besides the Form 8938. Of the  subset of these Forms 8938, more than one quarter—or about 73,500— reported foreign financial assets in amounts that indicate the Form 8938  may have been filed unnecessarily, since they reported specified foreign  financial assets with aggregate values at or below reporting thresholds as  of the last day of the tax year. Based on available Form 8938 data from  tax year 2016, table 2 shows that about 61,900 filings from U.S. persons  living in the United States and about 11,600 filings from U.S. persons  living abroad during the same tax year reported specified foreign financial  assets with aggregate values at or below end of tax year thresholds.

These totals likely understate the total number of Forms 8938 that U.S.  persons may have filed unnecessarily in tax year 2016; due to data  limitations, these totals exclude Forms 8938 without asset information  stored in IRS’s databases, including most Forms 8938 filed on paper and  Forms 8938 where filers identified that they declared foreign financial  assets on other forms besides the Form 8938.

There is no clear explanation as to why some U.S. persons may have  filed Forms 8938 unnecessarily. However, we identified a number of  potential reasons from focus groups and other interviews with stakeholder  groups. In focus groups we conducted, participants expressed confusion  about IRS’s instructions for completing the Form 8938 and information  provided on IRS’s website. In the instructions for completing Form 8938,  IRS described the specific types of foreign financial assets that are to be  reported on Form 8938, and the asset value thresholds that must be met  for required reporting, depending on the location of residence and filing  status of the taxpayer. IRS also posted responses to frequently asked  questions on meeting FATCA reporting requirements on its website, and  established a separate page on its website comparing foreign financial  assets that must be reported on Form 8938 and/or FBAR.

Nonetheless, focus group participants reported confusion on whether and  how to report investment and retirement accounts and compulsory  savings plans managed by their country of residence. In a meeting we  convened with an organization representing tax attorneys, they told us  taxpayers are unsure about what account values to report on the Form  8938. Tax practitioners participating in another focus group added that  they filed Forms 8938 regardless of the aggregate value of the assets  because it was too cumbersome for them to identify whether the assets  exceeded reporting thresholds as of the end of the year or at any time  during the year.

IRS officials also cited a number of possible reasons why U.S. persons  may be filing Forms 8938 unnecessarily. For example, it may be easier  for U.S. persons to report all specified foreign financial assets they hold  on the Form 8938, rather than determine whether the value of such  assets met applicable thresholds. IRS officials also said that U.S. persons  might complete a Form 8938 for reasons besides meeting tax-filing  requirements, such as providing evidence of assets for a loan application.

IRS’s Taxpayer Bill of Rights states that taxpayers are entitled to clear  explanations of the laws and IRS procedures in all tax forms, instructions,  publications, notices, and correspondence. Furthermore, one of IRS’s  strategic goals is to empower taxpayers by making it easier for them to  understand and meet their filing, reporting, and payment obligations.  IRS officials said they hosted sessions for tax practitioners at IRS  Nationwide Tax Forums to address FATCA reporting requirements.  However, they said IRS has not taken direct steps to identify or  implement actions to further clarify instructions and related guidance on  IRS’s website for completing Form 8938, such as information on which  foreign financial assets to report, how to calculate asset values, and  determine whether such values exceed required reporting thresholds.  Additionally, IRS officials said they have not conducted additional  outreach to educate taxpayers on required reporting thresholds under  FATCA, or notify Form 8938 filers of instances where aggregate values of  specified foreign financial assets reported on Forms 8938 were below  reporting thresholds.

IRS officials said they have not made efforts to determine whether there  is a pattern of unnecessary Form 8938 filings that they could address.  Rather, they said they believed resources should be devoted to FATCA  implementation in general. However, as shown above, we have identified  many tens of thousands of instances where U.S. persons may have filed  Forms 8938 unnecessarily. Without assessing factors contributing to  unnecessary Form 8938 reporting—and identifying or implementing  actions to further clarify and educate taxpayers on FATCA reporting  requirements—IRS is missing opportunities to help taxpayers understand  their filing and reporting obligations and minimize their compliance  burdens while properly meeting their tax obligations. Additionally, IRS  may be missing opportunities to reduce costs in processing forms that  taxpayers did not need to file.

Different Laws Established Overlapping Foreign Financial Asset Reporting Requirements and Compounded Taxpayer Compliance Burden

Because of overlapping statutory reporting requirements, IRS and  FinCEN—both bureaus within Treasury—collect duplicative foreign  financial asset data using two different forms (Form 8938 and FBAR). Our  evaluation and management guide for fragmentation, overlap, and  duplication states that overlap occurs when multiple agencies or  programs have similar goals, engage in similar activities or strategies to  achieve them, or target similar beneficiaries. Table 3 shows that  individuals required to report foreign financial assets on Form 8938, in  many cases, also must meet FBAR reporting requirements. For example,  specified individuals with foreign financial accounts exceeding $50,000 in  aggregate value on the last day of the tax year must file both Form 8938  and FBAR if such values exceed the minimum Form 8938 thresholds;  these thresholds depend on the filing status and address of specified  individuals. Table 3 also shows that, in many cases, specified interests  in foreign financial assets as defined in Form 8938 instructions are the  same as the financial interest in such assets under FBAR. Further, as  noted in table 3, the overlapping requirements lead to IRS and FinCEN  collecting the same information on certain types of foreign financial  assets. For example, both Form 8938 and FBAR collect information on  foreign financial accounts for which a person has signature authority and  a financial interest in the account. Form 8938 and FBAR also both collect  duplicative information on several other types of foreign financial assets,  such as foreign mutual funds and accounts at a foreign financial  institution that include foreign stock or securities.

Overlapping reporting requirements result in most Form 8938 filers also  filing an FBAR during the same reporting year. Table 4 shows that close  to 75 percent of Form 8938 filers in tax years 2015 and 2016 percent also  filed an FBAR for the same year using the same TIN.

Overlapping requirements to file both Form 8938 and FBAR increases the  compliance burden on U.S. persons and adds complexity that can create  confusion, potentially resulting in inaccurate or unnecessary reporting.  Focus group participants in all five countries included in our study  affirmed that U.S. persons experienced confusion and frustration with  having to report duplicative foreign financial asset information on both  forms. Focus group participants and others we interviewed also noted  that U.S. persons incurred additional financial costs to complete and file  both Form 8938 and FBAR. For instance, one tax practitioner in Canada  said the charge was about $190 to report four-to-five accounts on an  FBAR in addition to charging about $540 for basic tax return packages.  An accounting firm based in Japan typically charged between $300 and  $800 to complete a Form 8938 and between $150 and $500 to complete  an FBAR, depending on the number of accounts reported on the forms.  Proposed revisions to regulations implementing BSA proposed by  FinCEN may also increase the number of duplicative foreign financial  accounts reported on Form 8938 and FBAR. Currently, U.S. persons  must report detailed information on all foreign financial accounts on Form  8938 if the value of such accounts and other specified foreign financial  assets reaches applicable reporting thresholds. In contrast, U.S.  persons are generally exempted from reporting detailed account  information on FBARs if they report having signature or other authority  over 25 or more foreign financial accounts. FinCEN’s proposed revisions  to BSA regulations would eliminate the exemption, requiring U.S. persons  to report detailed information on all foreign financial accounts in which he  or she has a financial interest if the value of such accounts exceed  FBAR’s $10,000 reporting threshold. FinCEN estimated that it will receive  account information for the first time on about 5.4 million foreign financial  accounts if it finalizes the proposed revisions. In turn, these revisions  may lead to increased filings of duplicative asset data on both Form 8938  and FBAR, as U.S. persons may have to report detailed information on all  foreign financial accounts using both forms.

U.S. persons also face exposure to two different penalty regimes for any  failures in accurately and completely reporting foreign financial asset  information to two bureaus within Treasury—IRS and FinCEN. Officials  from one organization representing U.S. persons living abroad said  penalties due to failure to report certain accounts on one or both forms  can be significant, even if little or no taxes are owed on those accounts.  The duplicative reporting of foreign financial asset data on two different  forms also creates additional costs to the government to process and  store the same or similar information twice, and enforce reporting  compliance with both requirements.

In 2012, we recommended that Treasury direct the Office of Tax Policy,  IRS, and FinCEN to determine whether the benefits of implementing a  less duplicative reporting process exceed the costs and, if so, implement  that process. Treasury did not implement our recommendation. While  we continue to believe that the agencies should have considered whether  less duplicative reporting could have been implemented, we do recognize  that FATCA and FBAR were enacted under two different statutes to serve  different purposes. As mentioned above, according to IRS, FATCA  improves visibility into taxable income from foreign sources and enhances  the agency’s ability to identify and pursue taxpayer noncompliance. In  contrast, the information reported on the FBAR is collected to identify  money laundering and other financial crimes; law enforcement agencies  can use BSA information—including information collected from FBARs— to aid regulatory and criminal investigations. Additionally, data collected  from Form 8938 and FBAR are used in different systems for use by  different bureaus within Treasury. Fully addressing issues stemming from  overlapping reporting requirements and the resulting collection of  duplicative information—while at the same time ensuring that such  information can be used for tax compliance and law enforcement  purposes—can only be done by modifying the statutes governing the  requirements.

Further, IRS and FinCEN have varying degrees of access to foreign  financial asset information collected from Form 8938 and FBAR to  enforce tax compliance and financial crime laws. FATCA was enacted, in  part, to improve visibility into taxable income from foreign sources.  However, information provided on Forms 8938 is taxpayer return  information protected by section 6103 of the Internal Revenue Code  (IRC), which generally prohibits IRS from disclosing information provided  on Forms 8938. IRS can share return information with other government  agencies and others when it is allowed by statute. For example, under  section 6103, IRS may disclose return information related to taxes  imposed under the IRC—such as self-employment income tax, Social  Security and Medicare tax and income tax withholding—to the Social  Security Administration (SSA) as needed to carry out its responsibilities  under the Social Security Act. However, according to FinCEN officials,  FinCEN, law enforcement, and regulators often cannot access  information submitted on Forms 8938. While section 6103 provides other  exceptions to disclosure prohibitions—such as allowing IRS to share  return information with law enforcement agencies for investigation and  prosecution of nontax criminal laws—such information is generally only  accessible pursuant to a court order.

As noted above, information reported on the FBAR can be used by law  enforcement agencies to aid regulatory and criminal investigations. This  includes IRS, which has been delegated responsibility from FinCEN to  enforce compliance with FBAR reporting requirements. IRS has used  FBAR information in addressing taxpayer noncompliance with reporting  and paying taxes on foreign assets and income. For example, taxpayers  accepted into one of IRS’s offshore voluntary disclosure programs must  have filed amended or late FBARs as part of their program applications.  Investigators from IRS’s Criminal Investigation division generally reviewed  applications to determine if the taxpayer has made a complete and  truthful disclosure. IRS examiners can also use information from case  files of program participants—such as information disclosed on FBARs— to identify new groups of taxpayers suspected of hiding income offshore.  IRS can then choose to continue offering offshore programs and  encourage these newly identified groups of taxpayers, as well as all  taxpayers with unreported offshore accounts, to disclose their accounts  voluntarily.

In addition to eliminating overlapping reporting requirements, harmonizing  statutes governing foreign financial asset reporting and use of information  collected on such assets to make such statutes fully consistent could  yield additional benefits to both IRS and the law enforcement community.  Specifically, and as shown in appendix IV, there are specified foreign  financial assets reported on Form 8938—such as foreign hedge funds  and foreign private equity funds—that are not required to be reported on  an FBAR. In contrast, there are other specified foreign financial assets  reported on an FBAR—such as indirect interests in foreign financial  assets through an entity—that are not required to be reported on Form  8938. Without congressional action to address overlap in foreign financial  asset reporting requirements, IRS and FinCEN will neither be able to  coordinate efforts to collect and use foreign financial asset information,  nor reduce unnecessary burdens faced by U.S. persons in reporting  duplicative foreign financial asset information.

FFIs Face Overlapping Foreign Account Reporting Systems, but Alignment Would Entail Significant Changes in Law

Two reporting systems for sharing foreign account information from  foreign financial institutions are in operation globally—FATCA and the  Common Reporting Standard (CRS). According to officials from banking  associations and a consulting firm, FFIs in the countries where we  examined FATCA implementation encountered challenges implementing  and now maintaining two overlapping reporting systems for collecting and  transmitting account information to other countries for a seemingly similar  purpose, and collecting sufficient information from customers to ensure  they meet the requirements of both systems. As noted above, we  previously identified overlap as occurring when multiple agencies or  programs have similar goals, engage in similar activities or strategies to  achieve them, or target similar beneficiaries.

According to an IRS official, collecting account information under FATCA  ushered in an era of greater transparency; as noted above, FATCA’s  passage sought to reduce tax evasion by creating greater transparency  and accountability with respect to offshore accounts and other assets  held by U.S. taxpayers. When FATCA was first introduced, there was no  international platform to share account information between countries.  The United States and other countries worked together to reach an  agreement on the electronic formatting that would be used to share the  information.

Other countries tax authorities’ became more interested in understanding  the financial assets held abroad by their residents through an exchange  of account information among themselves. In response, the Organisation  for Economic Co-operation and Development (OECD) established the  CRS reporting system for automatic exchange of information among  member countries. According to the OECD, CRS was developed with a  view to maximize efficiency and reduce cost for financial institutions.  Thus, CRS drew extensively on the intergovernmental approach used to  implement FATCA reporting requirements for FFIs. Countries  participating in CRS exchange account information with each other using  OECD’s Common Transmission System, which was modeled on  FATCA’s International Data Exchange System. Figure 2 depicts the flow  of account information between countries under FATCA and CRS.

CRS reporting requirements are in many ways similar to FATCA,  including required reporting of the account holders’ name and address,  taxpayer identification number, account number, account balance, and  income and sales proceeds. However, the requirements differ in  significant ways. The biggest differences in requirements are driven by  the nature of the U.S. tax system. The United States, like many countries,  generally taxes citizens and resident aliens on their worldwide income  regardless of where that income is earned. However, the United States  differs from other countries because it generally subjects U.S. citizens  who reside abroad to U.S. taxation in the same manner as U.S. residents.  In contrast to U.S. policy, most other countries do not tax their citizens if  they reside in a country other than their country of citizenship. Further,  IGAs implementing FATCA require FFIs to report the foreign-held  accounts of U.S. citizens and residents—including resident aliens—while  CRS requires financial institutions in jurisdictions participating in CRS to  report on almost all accounts held by nonresidents of the reporting  country. Appendix V provides more detailed information on differences in  reporting requirements, due diligence requirements, and definitions under  FATCA and CRS.

These differences in tax systems drive variations in due diligence  procedures between FATCA and CRS. For example, FATCA aims to  identify whether an account holder at a foreign institution is a U.S. person  based on citizenship and tax residency information. In contrast, CRS  aims to identify the tax residency of all account holders of a financial  institution, and does not consider citizenship. Due to the multilateral  nature of CRS, if an account holder is determined on the basis of the due  diligence procedures to have residency in two or more countries,  information would be exchanged with all jurisdictions in which the account  holder is determined a resident for tax purposes. Under CRS rules,  information about foreign accounts held by a U.S. citizen with a tax  residence abroad would not be reported to IRS, but rather to the  jurisdiction in which they were a resident for tax purposes. Because the  United States taxes the worldwide income of U.S. citizens, CRS rules  would need to require identification of account holders’ citizenship in  member countries where they are residents if FATCA were to be aligned  with CRS. Table 5 shows a comparison of individuals reported to IRS  under FATCA and hypothetically under CRS.

Treasury and IRS, as part of its 2017-2018 Priority Guidance Plan, are  considering modifying certain elements of the existing FATCA  regulations. For instance, Treasury and IRS are considering coordinating  certain documentation requirements for participating FFIs with the  requirements under IGAs. In December 2018, Treasury and IRS also  proposed regulations intended, in part, to reduce the burdens of  FATCA. The proposed regulations included a clarification of the  definition of an investment entity that is similar to the guidance published  by OECD interpreting the definition of a “managed by” investment entity  under CRS.

If the United States wanted to adopt CRS, some of the key differences  between FATCA and CRS—as outlined above and in appendix V—could  be aligned through regulation while others would require legislation.  According to Treasury officials, to align FATCA and CRS, Congress  would need to revise statutes to: provide for the collection of information for accounts that residents of  partner jurisdictions maintain at U.S. financial institutions;  require certain U.S. financial institutions to report the account balance  (including, in the case of a cash value insurance contract or annuity  contract, the cash value or surrender value) for all financial accounts  maintained at a U.S. office and held by foreign residents; expand the current reporting required with respect to U.S. source  income paid to accounts held by foreign residents to include similar  non-U.S. source payments;  require financial institutions to report the gross proceeds from the sale  or redemption of property held in, or with respect to, a financial  account; and  require financial institutions to report information with respect to  financial accounts held by certain passive entities with substantial  foreign owners.

While better aligning FATCA and CRS to some extent is possible,  anything short of the United States fully adopting CRS would not fully  eliminate the burdens of overlapping requirements that FFIs must  currently meet under the two different systems. While having the United  States adopt the CRS reporting system in lieu of FATCA could benefit  FFIs that may otherwise have to operate two overlapping reporting  systems, it would result in no additional benefit to IRS in terms of  obtaining information on U.S. accounts. Additionally, it could generate  additional costs and reporting burdens to U.S. financial institutions that  would need to implement systems to meet CRS requirements. The extent  of these costs is unknown. Further, adoption of CRS would create the  circumstance where foreign accounts held by U.S. citizens with a tax  residence in partner jurisdiction—including U.S. citizens who have a U.S.  tax obligation—would not be reported to IRS.

Agencies Coordinated Efforts to Address Challenges U.S. Persons Living Abroad Encountered from FATCA Implementation, but Opportunities Exist to Enhance Collaboration

Some U.S. Persons Living Abroad Encountered Reduced Access to Financial Services Due in Part to Costs and Risks FFIs Faced from Implementing FATCA

Tax practitioners and others we interviewed said that U.S. persons living  abroad—whether or not they are required to complete a Form 8938—risk  being denied access to foreign financial services. U.S. persons and tax  practitioners located in four of the five countries where we conducted  focus groups and interviews reported that some U.S. persons and U.S.- owned businesses encountered difficulties opening bank accounts with  FFIs after FATCA was enacted, with some FFIs closing U.S. persons’  existing accounts or denying them opportunities to open new accounts.  One focus group participant, for example, said that the financial institution  closed down all accounts including business checking, savings, and  money market accounts after FATCA was implemented, requiring this  individual to find a local resident who could co-sign on a new account.

Costs FFIs would incur from implementing FATCA were cited as a  significant factor in increasing barriers faced by U.S. persons in accessing  foreign financial services. Officials from one organization representing tax  attorneys said that as a result of costs associated with FATCA  implementation, FFIs have found it less burdensome to close accounts of  U.S. persons or require the accounts to be moved to a Securities and  Exchange Commission registered affiliate than comply with FATCA. Tax  practitioners and an official from a bankers association added that  because FFIs may gain only small margins of profit from U.S. persons,  FFIs may believe it is too troublesome to do business with them.  Additionally, officials from a foreign government agency told us that  because FATCA is expensive for FFIs to continue implementing, banks in  their country might charge U.S. persons seeking access to financial  services additional fees to account for FATCA implementation costs. Tax  practitioners, consultants working with FFIs to implement FATCA  reporting requirements, and the National Taxpayer Advocate told us that  FFIs with smaller asset sizes such as smaller trust companies were more  prone to decline business with U.S persons. Officials from an advocacy  group representing U.S. persons living abroad told the National Taxpayer  Advocate that some smaller banks declined U.S. persons as customers  as a business decision, believing it would cost more for them to comply  with FATCA reporting requirements than maintain U.S. expatriates’  accounts.

Banking associations we interviewed said that decisions made by FFIs on  whether to accept U.S. persons as customers also depends on the overall  risks and benefits of taking on individual U.S. persons, shaped in part  from risks in not meeting FATCA reporting requirements. Representatives  of a banking association and an advocacy group told us that some FFIs  decided to avoid doing business with U.S. persons after they became  concerned about potential penalties for failure to comply—either willfully  or in error—with FATCA reporting requirements. One banking association  added that such errors could affect other aspects of FFIs’ relationships  with the U.S. government, such as nonprosecution agreements made  with the U.S. Department of Justice.

Officials from one consulting firm that helped FFIs meet FATCA reporting  requirements added that FFIs’ determination of risk depends on many  layers, such as the value of clients’ assets or the country in which clients  reside or possess citizenship. After FATCA’s implementation, according  to officials from the consulting firm, FFIs decided to turn away U.S.  persons in some cases because the benefits of doing business with U.S.  persons were less than the potential risks. For example, if a U.S. person  only maintained a payroll account, the FFI may determine it would not  make enough money to account for risks in incorrectly identifying the  status of the customer as a U.S. or non-U.S. person. However, focus  group participants from two countries said that FFIs may agree to accept  U.S persons as customers if they have higher account balances that  offset risks from FATCA reporting requirements. One focus group  participant, for instance, said banks in his country will do business with a  U.S. person if he or she has more than $500,000 in assets. Additionally,  U.S. persons and tax practitioners we interviewed said that other factors  such as language barriers and U.S. regulations designed to prevent  money laundering may also inhibit U.S. persons’ access to brokerage  accounts while overseas.

Form 8938 Reporting Requirements for Individuals with Signature Authority on and Financial Interest in Accounts May Have Contributed to Employment and Promotion Denials Overseas

Focus group participants and others we interviewed said that Form 8938  reporting requirements contributed to denials of employment and  promotion opportunities for U.S. persons living abroad. Treasury officials  noted that requirements imposed by FATCA do not directly hinder U.S.  persons from gaining employment or promotion opportunities overseas.  However, focus group participants, a consulting firm, and a foreign  government agency noted that foreign-owned companies and nonprofit  organizations such as churches did not want to hire or promote U.S.  persons because they wanted to avoid exposing information to the U.S.  government on their organizations’ accounts and client trust accounts  where the U.S. person would have signature authority. As noted above, a  U.S. person is generally required to report on the Form 8938 foreign  financial accounts for which the person has signature authority if he or  she has a financial interest in the account.

Focus group participants and others noted that such requirements have  adversely affected the ability of U.S. persons to serve on a corporate  board or in a nonprofit organization, or maintain business relationships.  Treasury and Department of Commerce officials stationed in one country  included in our review added that FATCA implementation has played a  role in dissuading foreign-owned corporations in some Asian countries  from considering U.S. persons for corporate leadership positions such as  directorships. This is in part because FATCA has triggered additional  paperwork burden and operating costs for onboarding U.S. employees  since they have had to help them meet Form 8938 reporting  requirements. Two advocacy groups representing U.S. persons living  abroad added that it is also harder for U.S.-based companies to justify  relocating U.S. persons overseas and paying for such relocations since  they also have had to help their U.S. employees meet Form 8938  reporting requirements in addition to meeting other tax filing  requirements.

U.S. Persons Living Abroad Encounter Challenges Obtaining Social Security Numbers Necessary to Meet U.S. Tax Obligations and Obtain Financial Services

U.S. embassy documents indicate there was increased demand for Social  Security Numbers (SSN) since FATCA’s passage in 2010, driven in part  by U.S. citizens applying for an SSN to gain access to foreign financial  services or resolve outstanding U.S. tax obligations before completing  renunciation. However, officials from two organizations representing  Americans living abroad cited significant challenges faced by some U.S.  persons living abroad in obtaining SSNs required to meet their U.S. tax  obligations or obtain financial services. U.S. persons living abroad might  not possess an SSN because their parents did not obtain one for them as  a minor. Often, this may have been due to the parents leaving the United  States when the child was young. State officials also said that U.S.  citizens applying for U.S. passports while overseas frequently forget their  SSNs or do not know if their parents ever applied for an SSN on their  behalf. Officials from organizations representing U.S. persons living  abroad added that without an SSN, these persons are unable to claim  refunds or other tax benefits when filing their tax returns, or participate in  IRS programs to voluntarily disclose previously unreported tax liabilities  and assets. Additionally, some might be unable to gain or maintain  access to financial accounts or other assets in their countries of residence  without an SSN. According to these officials and tax practitioners we  interviewed, U.S. persons living abroad face greater challenges in  obtaining SSNs than those living in the United States. For instance, they  faced difficulties obtaining documentation from the United States that the  Social Security Administration (SSA) requires with SSN applications;  traveling to Social Security offices and U.S. embassies or consulates to  certify documents or submit applications in person; and receiving valid  SSNs from SSA in a timely manner to file tax returns or participate in  offshore disclosure programs.

SSA officials also identified several challenges U.S. persons experience  when applying for an SSN from abroad. For instance, SSA officials said  that efforts to authenticate documents submitted with SSN applications  can cause delays for U.S. persons living abroad in obtaining an SSN.  Additionally, SSN applicants living abroad face significantly longer wait  times than applicants living in the United States once their applications  are processed. According to SSA officials, after an application is  processed, it can take 3 to 6 months–-depending on the country’s mail  service–-for an individual to receive a Social Security Card. This is  significantly longer than the 2-week period it takes SSN applicants to  receive a card after mailing in their applications from within the United  States.

FATCA Implementation Contributed to Increased Renunciations of U.S. Citizenship, but the Extent of the Effect is Unclear

According to Department of State (State) data, the annual number of  approvals of requests for renunciations of U.S. citizenships increased  nearly 178 percent during a 6-year period, from 1,601 in 2011—the year  after FATCA was enacted—to 4,449 in 2016, the most recent year to  which full data on renunciations were available. According to U.S.  embassy documents and information provided by focus group participants  and interviewees across all the countries we examined, FATCA was the  reason or a contributing factor in some of these decisions and the  resulting increase in total renunciations. Specific effects of FATCA  implementation contributing to decisions to renounce U.S. citizenship  included reduced access to foreign financial services and employment or  promotion opportunities in a foreign-owned company—as identified above  from our document reviews, focus groups, and interviews—and burdens  in meeting FATCA reporting requirements. However, the extent to which  FATCA implementation contributed to increased renunciations is unclear.  State officials said that data are unavailable to determine the extent to  which these renunciation decisions were the direct result of FATCA  because State has no legal obligation to collect information on the  motivation behind renunciation of citizenship.

Treasury, State, and SSA Initially Collaborated to Remedy FATCA-Related Issues for U.S. Persons Abroad, but Problems Persist without Cross- Agency Efforts to Address Them

In response to concerns about the availability of foreign financial services,  Treasury implemented regulations that allow certain low-risk local FFIs to  be deemed compliant with FATCA, but only if the FFIs do not implement  policies or practices that discriminate against opening or maintaining  accounts for specified U.S. persons. Treasury and State also previously  established joint strategies to address these challenges. For instance,  Treasury and State developed guidance on FATCA that was posted on  embassy websites to educate U.S. persons and others. Additionally,  Treasury and State officials conducted outreach events and workshops  through U.S. embassies and American chambers of commerce worldwide  to provide information on FATCA and other tax filing requirements,  According to State officials, the U.S. embassies in at least two  countries—Switzerland and France—also worked with foreign officials  and/or FFIs to increase access to financial services for U.S. citizens  residing in those countries. For instance, Treasury and State officials  reached agreements with FFIs in Switzerland to provide a wider range of  financial services to U.S. persons. Similarly, in 2017, SSA and State  implemented an interagency agreement to streamline processes for  providing SSNs to U.S. persons living abroad after FATCA’s  implementation in 2010. SSA officials said they are also in discussions  with State on improving SSA’s website to include more transparent,  specific information for SSN overseas applicants about SSA  documentation requirements.

Tax practitioners, advocacy groups, and Treasury officials we interviewed  said FFIs have become more willing to accept U.S. persons as customers  compared to when FATCA was enacted in 2010. However, U.S. persons  living abroad continue to face issues gaining access to foreign financial  services. For example, in a September 2018 letter sent by the Chair of  the Finance Committee of the Netherlands House of Representatives to a  member of Congress, U.S. citizens born outside the United States and  who have never lived, studied, or worked in the United States are  effectively being denied access to financial services in the Netherlands.  Focus group participants added that some banks will reject U.S. clients or  charge heavy fees for them to open an account.

Agencies have ongoing efforts to address FATCA-related issues, as listed  below, but some are ad hoc, fragmented, or otherwise not part of a  broader effort between Treasury and other agencies such as State or  SSA to use ongoing collaborative mechanisms to monitor and share  information on such issues, and jointly develop and implement steps to  address them:

Treasury officials said they are participating in discussions with FFIs  to address residual issues with access to foreign financial services.  However, they said they have not involved other agencies in these  discussions.

IRS officials, in response to concerns from the French government,  said they are developing a program to help streamline foreign asset- related tax compliance requirements for a small group of U.S. born  citizens that have been French residents most of their lives without an  SSN, and—according to State officials—did not wish to take the  necessary steps to renounce their citizenship. However, no effort has  been made to address these issues more broadly.

State encouraged U.S. citizens to alert the nearest U.S. embassy of  any practices they encounter with regard to the provision of financial  services. State documents noted that some Americans have been  turned away by banks or required to meet a higher deposit threshold  in part because of FATCA reporting requirements. State  documentation also noted that there have been cases of U.S. citizens  with existing bank accounts who have been asked to close them.  However, State documentation we reviewed does not highlight  collaborative efforts currently underway with Treasury or other  agencies to address banking access issues U.S. persons living  abroad are presently encountering worldwide.

As described above, SSA and State streamlined processes and  policies for U.S. persons abroad seeking to obtain SSNs. However,  SSA officials said they have not been involved in any ongoing efforts  involving Treasury to identify systemic issues and related solutions  involving SSNs for the purposes of tax compliance and citizenship  renunciations. Treasury officials said they spoke with SSA officials  about problems U.S. persons living abroad face in obtaining SSNs,  but SSA believed that cycle times for processing SSN applications  submitted by U.S. persons living abroad were not significantly greater  than for applications submitted by U.S. persons living in the United  States, although mailing times could vary significantly and take up to 3  to 6 months.

We have previously identified key practices to enhance and sustain  interagency collaboration, including defining and articulating a common outcome, establishing mutually reinforcing or joint strategies, and developing mechanisms to monitor, evaluate, and report on results.

One goal in IRS’s strategic plan is to collaborate with external partners  proactively to improve tax administration, while objectives in SSA’s  strategic plan include improving service delivery and expanding service  delivery options. Additionally, according to State’s Bureau of Consular  Affairs website, one of State’s key priorities is to protect the interests of  U.S. citizens overseas, such as through ensuring responsive and efficient  provision of consular services overseas. As noted above, there are a host  of ongoing issues and challenges for U.S. persons living abroad from  implementation of FATCA, such as loss of access to foreign financial  services, denial of employment and promotion opportunities overseas,  and difficulty obtaining SSNs from abroad. However, Treasury currently  lacks a collaborative mechanism to coordinate efforts with other agencies  to address these issues, and Treasury officials said they do not plan to  establish them. Without effective collaborative mechanisms to monitor  and share information and implement cross-agency solutions, future  efforts to address such issues will continue to be fragmented and less  effective than they otherwise could be.

In enacting FATCA, Congress sought to reduce tax evasion by creating  greater transparency and accountability over offshore assets held by U.S.  taxpayers. Because of FATCA, IRS receives information on foreign  financial assets from hundreds of thousands of filers annually. IRS could  use this information to help ensure taxpayers holding offshore assets  report and pay taxes owed on income generated from such assets.  However, to take full advantage of the information, IRS must address key  challenges. Specifically, Taxpayer Identification Numbers (TIN) reported  by FFIs are often inaccurate or incomplete, which makes it difficult for IRS  to match information reported by FFIs to individual taxpayers. As such,  IRS must develop a plan to mitigate the risks that these data issues pose  to agency efforts to identify and combat taxpayer noncompliance.

Lack of consistent, complete, and readily available Form 8938 and related  parent individual tax return data also affects IRS’s compliance activities,  making it more difficult for IRS business units to extract and analyze  FATCA data to improve tax compliance efforts and reduce tax revenue  loss from income generated from offshore assets. At the same time, IRS  has stopped following its FATCA Compliance Roadmap it developed in  2016 because, according to IRS officials, IRS moved away from updating  broad strategy documents to focus on individual compliance campaigns.  However, in light of the challenges IRS continues to face in fully  integrating FATCA information into its compliance programs, it will not  maximize use of such information and effectively leverage individual  compliance campaigns unless it employs a comprehensive plan that  enables IRS to better leverage such campaigns to improve taxpayer  compliance.

Our analysis of available data indicates that many of the Forms 8938 filed  in tax year 2016 may have been filed unnecessarily. Factors that are  contributing to this unnecessary reporting are unclear. While IRS has  provided instructions and guidance on its website for completing Form  8938, focus group participants and tax practitioners reported confusion on  whether and how to report investments in foreign accounts. Taking steps  to identify and address factors contributing to unnecessary Form 8938  reporting would help reduce taxpayer burden and reduce processing  costs for IRS.

Reporting requirements for foreign financial assets under FATCA overlap  with reporting requirements under FBAR. These overlapping  requirements—implemented under two different statutes—have resulted  in most taxpayers filing Forms 8938 also filing FBARs with FinCEN.  Duplicative filings on foreign financial assets cause confusion, frustration,  and compliance burdens for taxpayers. Duplicative filings also increased  costs to the government to process and store the same or similar  information. Modifying the statutes governing the requirements can fully  address the issues outlined above, and can allow for the use of FATCA  information for prevention and detection of financial crimes. This is similar  to other statutory allowances for IRS to disclose return information for  other purposes, such as for determining Social Security income tax  withholding.

Lastly, FATCA has created challenges for some U.S. persons living  abroad that go beyond increasing their tax compliance burdens. Some  U.S. persons living abroad are still facing issues accessing financial  services and employment and obtaining SSNs. Treasury, State, and SSA  have taken some steps to address these issues both separately and in  coordination with each other. However, Treasury, as the agency  ultimately responsible for effective administration of FATCA, currently  lacks a collaborative mechanism with State and SSA to address ongoing  issues. Establishing a formal means to collaboratively address burdens  faced by Americans abroad from FATCA can help agencies develop  effective solutions to mitigate such burdens.

We are making the following matter for congressional consideration:

Congress should consider amending the Internal Revenue Code,  Bank Secrecy Act of 1970, and other statutes, as needed, to address  overlap in foreign financial asset reporting requirements for the  purposes of tax compliance and detection, and prevention of financial  crimes, such as by aligning the types of assets to be reported and  asset reporting thresholds, and ensuring appropriate access to the  reported information.

We are making the following four recommendations to IRS:

The Commissioner of Internal Revenue should develop a plan to  mitigate risks with compliance activities due to the lack of accurate  and complete TINs of U.S. account holders collected from FFIs.  (Recommendation 1)

The Commissioner of Internal Revenue should ensure that  appropriate business units conducting compliance enforcement and  research have access to consistent and complete data collected from  individuals’ electronic and paper filings of Form 8938 and elements of  parent individual tax returns. As part of this effort, the Commissioner  should ensure that IRS provides clear guidance to the business units  for accessing such data in IRS’s Compliance Data Warehouse.  (Recommendation 2)

The Commissioner of Internal Revenue should employ a  comprehensive plan for managing efforts to leverage FATCA data in  agency compliance efforts. The plan should document and track  activities over time to ensure individuals and FFIs comply with FATCA reporting assess and mitigate data quality risks from FFIs;  improve the quality, management, and accessibility of FATCA  data for compliance, research, and other purposes; and establish, monitor, and evaluate compliance efforts involving  FATCA data intended to improve voluntary compliance and  address noncompliance with FATCA reporting requirements.  (Recommendation 3)

The Commissioner of Internal Revenue should assess factors  contributing to unnecessary Form 8938 reporting and take steps, as  appropriate, to address the issue. Depending on the results of the  assessment, potential options may include:  identifying and implementing steps to further clarify IRS Form  8938 instructions and related guidance on IRS’s website on  determining what foreign financial assets to report, and how to  calculate and report asset values subject to reporting thresholds;  and  conducting additional outreach to educate taxpayers on required  reporting thresholds, including notifying taxpayers that may have  unnecessarily filed an IRS Form 8938 to reduce such filings.  (Recommendation 4)

We are also making the following recommendation to Treasury:  The Secretary of the Treasury should lead efforts, in coordination with  the Secretary of State and Commissioner of Social Security, to  establish a formal means to collaboratively address ongoing issues— including issues accessing financial services and employment and  obtaining SSNs—that U.S. persons living abroad encounter from  implementation of FATCA reporting requirements. (Recommendation  5)

We are also making the following recommendation to State:

The Secretary of State, in coordination with the Secretary of the  Treasury and Commissioner of Social Security, should establish a  formal means to collaboratively address ongoing issues—including  issues accessing financial services and employment and obtaining  SSNs—that U.S. persons living abroad encounter from  implementation of FATCA reporting requirements. (Recommendation  6)

We are also making the following recommendation to SSA:

The Commissioner of Social Security, in coordination with the  Secretaries of State and Treasury, should establish a formal means to  collaboratively address ongoing issues—including issues accessing  financial services and employment and obtaining SSNs—that U.S.  persons living abroad encounter from implementation of FATCA  reporting requirements. (Recommendation 7)

We provided a draft of this report to the Secretaries of State and the  Treasury, Commissioner of Internal Revenue, and Acting Commissioner  of Social Security.

IRS provided written comments that are summarized below and reprinted  in appendix VI. IRS did not state whether it agreed or disagreed with our  four recommendations but otherwise provided responses.

Regarding our recommendation to develop a plan to mitigate risks with  compliance activities due to the lack of accurate and complete TINs of  U.S. account holders collected from FFIs (recommendation 1), IRS  reiterated that it provided a transition period, through the end of 2019, for  compliance with the TIN requirements for FFIs in countries with Model 1  IGAs with the United States. IRS also said that it continued to make  progress on improving FATCA filing compliance, citing efforts such as  initiating a campaign addressing FFIs that do not meet their compliance  responsibilities. While these efforts may help IRS obtain more accurate  and complete information from financial accounts, IRS did not specify  how it will mitigate the ongoing hurdles it faces in matching accounts  reported by FFIs without valid TINs to accounts reported by individual tax  filers and ensure compliance.

Regarding our recommendation that appropriate business units have  access to consistent and complete data collected from Forms 8938 and  tax returns filed by individuals (recommendation 2), IRS reiterated that  RAAS has been working to obtain read-only access to the IPM database  but that limited budgetary resources are delaying implementation.  Enabling access to consistent and complete Form 8938 and tax return  data would help IRS better target compliance initiatives and leverage  limited available enforcement resources. While IRS continues to work on  enabling access to IPM, it could still provide clear guidance to its  business units for accessing Form 8938 and tax return data in IRS’s  Compliance Data Warehouse, as we recommended.

Regarding our recommendation to employ a comprehensive plan for  managing efforts to leverage FATCA data in agency compliance efforts  (recommendation 3), IRS said the resources that would be required to  develop a comprehensive plan would be better spent on enforcement  activities. While implementing enforcement activities could increase  compliance with FATCA reporting requirements, it risks not maximizing  the value of such efforts without a comprehensive plan to manage and  address the myriad of challenges discussed in this report. Further, it is  our belief that IRS’s failure to execute the FATCA roadmap is not  justification for abandoning a strategic approach going forward.

Regarding our recommendation to assess factors contributing to  unnecessary Form 8938 reporting and take appropriate steps to address  the issue (recommendation 4), IRS said it will continue to observe filings  of Form 8938 and, to the extent that there are unnecessary filings, assess  options to inform account holders to reduce reporting and filing burdens  followed by appropriate steps to implement any selected options. Our  analysis of available data indicates that many Forms 8938 may have  been filed unnecessarily. Implementing our recommendation reduces the  risk that taxpayers file—and IRS processes—forms unnecessarily.

Treasury provided written comments but did not state whether it agreed  or disagreed with our recommendation that it lead efforts, in coordination  with State and SSA, to establish a formal means to collaboratively  address ongoing issues that U.S. persons living abroad encounter from  implementation of FATCA reporting requirements (recommendation 5).  Treasury said it will work collaboratively with State and SSA to answer  questions that Americans abroad have regarding their tax obligations and,  where appropriate, to direct U.S. citizens to resources that will help them  understand the procedures applied by SSA to apply for an SSN.

However, Treasury said it is not the appropriate agency to lead  coordination efforts involving foreign employment issues and issues  regarding access to foreign financial services and obtaining SSNs. As we  noted above, Treasury is ultimately responsible for effective  administration of FATCA. As such, it is in a better position than State or  SSA to adjust regulations and guidance implementing FATCA to address  burdens FFIs and foreign employers face from FATCA implementation  while ensuring tax compliance. Additionally, Treasury has an interest in  helping U.S. persons receive valid SSNs from SSA in a timely manner to  meet their tax obligations. Treasury’s written response is reprinted in  appendix VII.

State and SSA also provided written comments in which they concurred  with our recommendations to establish a formal means to address  collaboratively together with Treasury ongoing issues that U.S. persons  living abroad encounter with FATCA (recommendations 6 and 7). State  and SSA’s written comments are reprinted in appendices VIII and IX,  respectively.

Treasury, State, and SSA provided technical comments, which we  incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretaries of State and the Treasury, Commissioner of  Internal Revenue, Acting Commissioner of Social Security, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our offices  of Congressional Relations and Public Affairs are on the last page of this  report. GAO staff who contributed to this report are listed in appendix X.

Appendix I: Objectives, Scope, and Methodology

The objectives of this report are to (1) assess the Internal Revenue  Service’s (IRS) efforts to use information collected under the Foreign  Account Tax Compliance Act (FATCA) to improve taxpayer compliance;  (2) examine available foreign financial asset reports submitted by U.S.  persons, including submissions that were below required filing thresholds;  (3) examine the extent to which the Department of the Treasury  (Treasury) administers overlapping reporting requirements on foreign  financial assets; (4) describe similarities and differences between FATCA  and Common Reporting Standard (CRS) reporting requirements; and (5)  examine the effects of FATCA implementation that are unique to U.S.  persons living abroad.

For our first objective, we reviewed Treasury Inspector General for Tax  Administration reports and collected information from Treasury and IRS to  summarize efforts to collect complete and valid Taxpayer Identification  Numbers (TIN) from foreign financial institutions (FFI). We identified  criteria from our prior work identifying key practices for risk management.  The key practices are derived from the Software Engineering Institute’s  Capability Maturity Model® Integration for Development and Office of  Management and Budget guidance. We applied these criteria to assess  steps IRS has taken to manage risks in not receiving complete and valid  TIN information from FFIs. We also applied criteria from our prior work on  use of documented frameworks to IRS documentation on FATCA  compliance activities to determine the extent to which IRS implemented a  comprehensive plan to maximize use of collected data to enforce  compliance with FATCA.

For our second objective, we identified total maximum account values  reported by individual filers of Financial Crimes Enforcement Network  (FinCEN) Form 114s (commonly known as the Report of Foreign Bank  and Financial Accounts, or FBAR) in calendar years 2015 and 2016. See  appendix III for more details on our methodology to evaluate these data.  We also summarized the numbers of IRS Forms 8938, Statement of  Specified Foreign Financial Assets (Form 8938) filed in tax year 2016,  accounting for the data limitations described below. We also identified  Forms 8938 filed in tax year 2016—the most recent year for which data  were available—with available residency and asset information that  reported specified foreign financial assets with aggregate values at or  below end-of-year tax thresholds, which vary depending on the location of  residence and filing status of such filers.

For our third objective, we reviewed IRS and FinCEN documentation, and  applied criteria from Fragmentation, Overlap, and Duplication: An  Evaluation and Management Guide to identify the extent to which IRS  and FinCEN were engaged in overlapping activities, and collecting  duplicative information on foreign financial assets held by U.S. persons.  We assessed the extent to which individual filers who submitted a Form  8938 in 2015 and 2016 also submitted an FBAR for the same year by  determining the number and percentage of Forms 8938 with TINs that  also match the TIN listed on the corresponding FBAR for the same year.

For the three objectives described above, we assessed the reliability of  data submitted on Forms 8938 filed by individuals for tax years 2015 and  2016, the most recent data available. These data were extracted from  IRS’s Individual Return Transaction File (IRTF) and Modernized Tax  Return Database (MTRDB) through IRS’s Compliance Data Warehouse  (CDW). We also assessed the reliability of data from FBARs for calendar  years 2015 and 2016 by (1) reviewing documentation about the data and  the systems that produced them; (2) conducting electronic tests, such as  identifying data with significant numbers of missing Form 8938 or FBAR  records, or values of foreign financial assets reported outside an  expected range; (3) tracing selections or random samples of data to  source documents; and (4) interviewing IRS and FinCEN officials  knowledgeable about the data. We also reviewed Form 8938 and relevant  parent tax return data stored in IRS databases to determine whether IRS  management is using quality information collected from Forms 8938 to  achieve its objectives, as defined in our Standards for Internal Control in  the Federal Government. We determined that data extracted from IRTF  on characteristics of Form 8938 filers and from FBAR filings was  sufficiently reliable for our purposes, subject to caveats identified in this  report. However, we determined we could not obtain complete data on  foreign financial assets reported on Forms 8938 filed on paper.

For our fourth objective, we reviewed model international agreements and  other documentation, and interviewed officials from Treasury, IRS, and  the Organisation for Economic Co-operation and Development to  compare and contrast FATCA and CRS reporting requirements. We also  used the collected information to identify what changes, if any, the United  States and other countries could implement to align FATCA and CRS  reporting requirements.

For our fifth objective, we collected documentation and conducted focus  groups and semi-structured interviews with 21 U.S. persons living abroad  that were subject to FATCA reporting requirements. We also conducted  focus groups and interviews with tax practitioners, banking and CPA  organizations, government agencies, advocacy groups representing  Americans living abroad, and other organizations from the United States  and five other countries (Canada, Japan, Singapore, Switzerland, and the  United Kingdom). We selected these countries based on geography,  relatively high numbers of U.S. expatriates and Form 8938 filers, tax  information sharing agreements, and other tax treaties with the United  States. The findings from the focus groups and interviews are not  generalizable to other U.S. persons, tax practitioners or organizations, but  were selected to represent the viewpoints of U.S. persons, FFIs, and host  country tax authorities required to transmit information on foreign  accounts and other specified foreign financial assets to IRS. We  conducted a thematic analysis of the focus groups and interviews, and  reviewed cables from U.S. embassies to identify the unique effects of  FATCA implementation on U.S. persons living abroad. We collected  documentation from and interviewed Treasury, IRS, Department of State,  and Social Security Administration officials on steps to monitor and  mitigate such effects. We also identified criteria from our prior work on  key practices to enhance and sustain interagency collaboration and  mechanisms to facilitate coordination. We applied the criteria to  agencies’ collaborative efforts addressing issues U.S. persons living  abroad faced from FATCA’s implementation, and identified the extent to  which agencies established effective collaborative mechanisms to  identify, assess, and implement cross-agency solutions to such issues.

We conducted this performance audit from August 2017 to April 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

Appendix II: IRS Data Management Systems Storing Data from IRS Forms 8938 and Related Elements of Individual Tax Returns

The following IRS databases store data collected from individuals’  electronic and paper filings of Forms 8938 and/or elements of individual  parent tax returns—the filer’s address and filing status—used to  determine specified reporting thresholds for Form 8938 filers:  Individual Master File (IMF), which serves as IRS’s system for  processing individual taxpayer account data. Using this system,  accounts are updated, taxes are assessed, and refunds are  generated as required during each tax-filing period.

Individual Returns Transaction File (IRTF), which stores edited,  transcribed, and error-corrected data from the Form 1040 series and  related forms for the current processing year and two prior years.

Modernized Tax Return Database (MTRDB), which serves as the  official repository of all electronic returns processed through IRS’s  Modernized e-File system. Tax return data is stored immediately after  returns are processed.

International Compliance Management Model (ICMM)-FATCA  International Returns (ICMM-FIR), which collects, parses, and  stores data from incoming form reports–such as Forms 8938 and  8966–into the FATCA Database (FDB), which serves as the  repository where ICMM-FIR stores data and from which downstream  applications can pull data.

Integrated Production Model (IPM), which is a downstream data  repository that houses IMF data, information returns, and other data.  According to IRS officials, data from IPM are consolidated and made  available to a variety of downstream, security certified, systems for  use in conducive analysis, case selection, and report preparation.

Additionally, data from these and other IRS databases are copied to IRS’s  Compliance Data Warehouse (CDW) periodically, which captures data  from multiple production systems and organizes the data in a way that is  conductive to analysis.

Table 6 highlights several problems with the consistency and  completeness of Form 8938 and relevant parent tax return data stored  across the listed databases.

Inconsistent and incomplete data on address and filing status of  Form 8938 filers: As noted above, elements of parent tax returns— specifically the filer’s country of residence and filing status—are used  to determine specified reporting thresholds for Form 8938 filers.  However, IRTF and MTRDB have inconsistent and incomplete data  on addresses linked to Form 8938 filers, and report inconsistent  numbers of Forms 8938 filed from a U.S. residence. For example, the  variable identified as containing data on foreign countries of residence  in IRTF shows approximately 8,100 foreign filers in tax years 2015  and 2016, whereas a similar variable in MTRDB shows approximately  89,000 foreign filers for those same years. Additionally, FDB does not  contain country codes from paper filings of Form 8938. ICCM-FIR  stores information from some elements from parent tax returns—such  as TINs and document locator numbers. According to IRS officials,  however, ICMM-FIR lacks data on country codes and filing status of  Form 8938 filers. IRS officials said that ICMM-FIR was not designed  or intended to store data on Form 8938 filers; rather, it was designed  to be a database for use in comparing Form 8938 and 8966 data. In  general, IRS officials indicated that they would like to adjust the way  ICMM-FIR stores data, but that would require modifying the way the  database was established.

Incomplete data on assets reported on Forms 8938: MTRDB  contains detailed information on specified foreign financial assets  submitted on electronic filings of Form 8938 and the country code  from which the Form 8938 was filed. IRS officials said it is not  designed to store information submitted on paper filings of Forms  8938 and parent tax returns. IRS officials said that while IMF  processes information transcribed from individual income tax returns,  there is no requirement to cross-reference information from the tax  return with information submitted with an accompanying Form 8938.  Additionally, while IRS officials told us that IRTF is the authoritative  source for filers of Form 8938, it does not store account and other  asset information submitted from Forms 8938. When asked whether  there is any move to store account and other asset information  collected from Forms 8938 into IRTF, IRS officials said that the  decision on what returns or portions of returns are transcribed are  subject to resource constraints and are prioritized from year to year.

Appendix III: Methodology and Detailed Information on 2015 and 2016 Individual FBAR Filings

Table 7 shows that more than 900,000 individuals filed Financial Crimes  Enforcement Network (FinCEN) Form 114s (commonly known as the  Report of Foreign Bank and Financial Accounts, or FBAR) in calendar  years 2015 and 2016, and declared total maximum values of accounts  ranging from about $1.5 trillion to more than $2 trillion each year. We are  providing a range of estimates because we found a large number of  filings made potentially in error. In some cases, for instance, FBAR filers  reported more than $100 trillion in foreign financial accounts. We assume  many of these filings are likely made in error, but have only limited means  to determine which filings have errors, and which filings have accurate  information. Because we cannot independently verify the accuracy of all  self-reported FBAR data, we decided to present a range of data with (1) a  lower bound discarding all FBAR filings reporting total values of reported  foreign financial accounts at or above $1 billion; and (2) an upper bound  discarding all filings reporting total values of such accounts at or above $5  billion. Table 2 excludes amended and duplicated FBAR filings. This  table also excludes FBAR filings that reported a financial interest in 25 or  more financial accounts, but reported total maximum account values of $0  from parts II and III of the FBAR. Although we identified problems with  the data, we determined they were reliable enough to provide an  estimated range of asset values to report the scale of foreign financial  accounts held by U.S. persons.

Table 8 shows a detailed breakdown of 2015 and 2016 FBAR filings by  residence and categories of total maximum account values reported on  the FBARs.

Appendix IV: Detailed Comparison of Individual Foreign Financial Asset Reporting Requirements

Appendix IV: Detailed Comparison of  Individual Foreign Financial Asset Reporting  Requirements 26 U.S.C. § 6038D; 26 C.F.R. §§ 1.6038D-1 to 1.6038D-8.  26 C.F.R. § 1.6038D-2. Filers in this category include those who identify as single, married filing  separately, “head of household,” or “qualifying widow(er).”  Includes maximum value of specified foreign financial assets (Form 8938) or maximum value of  financial accounts maintained by a financial institution physically located in a foreign country (FBAR).

Under FATCA, any income, gains, losses, deductions, credits, gross proceeds, or distributions from  holding or disposing of the account are or would be required to be reported, included, or otherwise  reflected on a person’s income tax return. Under FBAR reporting requirements, a person has  signature or other authority if he or she has the authority (alone or in conjunction with another) to  control the disposition of money, funds or other assets held in a financial account by direct  communication (whether in writing or otherwise) to the person with whom the financial account is  maintained.  The account itself is subject to reporting, but the contents of the account do not have to be  separately reported.

Appendix V: Key Differences between FATCA Intergovernmental Agreements and CRS

Appendix VI: Comments from the Internal Revenue Service

Appendix VII: Comments from the Department of the Treasury

Appendix VIII: Comments from the Department of State

Appendix IX: Comments from the Social Security Administration

Appendix X: GAO Contact and Acknowledgments

In addition to the contact named above, Brian James (Assistant Director),  Mark Ryan (Analyst-in-Charge), Ariana Graham, George Guttman, Krista  Loose, Daniel Mahoney, Cynthia Saunders, A.J. Stephens, and Elwood  White made key contributions to this report. Michael John Bechetti, Ted  Burik, and Jacqueline Chapin also provided assistance.

How does the government prevent tax dodgers from hiding income in offshore accounts?

A 2010 law requires Americans and foreign banks to report more information to IRS about Americans' foreign assets. Implementing the law, however, has raised some concerns.

For example, close to 75% of taxpayers reporting foreign assets to IRS also reported them separately to Treasury—indicating potential unnecessary duplication.

Also, some Americans living abroad can't get services from foreign banks that find the law too burdensome.

Our recommendations to Congress, Treasury, and other agencies address challenges related to foreign asset reporting.