What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010, as part of the Hiring Incentives to Restore Employment (HIRE) Act. Its core purpose is to combat tax evasion by U.S. persons holding financial assets outside the United States.
FATCA operates on two levels:
- Institutional reporting: Foreign financial institutions (FFIs), including banks, hedge funds, insurance companies, broker-dealers, and trust companies, must report information about accounts held by U.S. persons directly to the IRS, or face a 30% withholding tax on certain U.S.-source income.
- Individual reporting: U.S. taxpayers who hold foreign financial assets above certain value thresholds must report them annually to the IRS, generally using Form 8938 (Statement of Specified Foreign Financial Assets), attached to their income tax return.
The general reporting threshold for individuals is $50,000 in specified foreign financial assets, though this figure rises for certain categories of taxpayers. U.S. taxpayers living abroad, for instance, must file if their foreign assets exceed $200,000.
In addition to Form 8938, some U.S. persons may also be required to file FinCEN Form114 (Report of Foreign Bank and Financial Accounts), which is submitted separately to the Financial Crimes Enforcement Network rather than the IRS. These are distinct obligations, and holding a foreign account may trigger both.
Why Is FATCA Important?
Before FATCA, it was relatively easy for U.S. persons to hold assets offshore without the IRS being aware. Foreign banks had little incentive to proactively disclose information about their American clients, and some actively facilitated secrecy.
FATCA changed this dynamic fundamentally. By requiring foreign financial institutions to either report to the IRS or face significant financial penalties, the law created a global reporting infrastructure that makes it far more difficult to hide assets abroad. It gives the IRS direct visibility into offshore accounts and empowers it to collect taxes owed on income earned through non-U.S. investments.
The consequences of non-compliance are severe. Individual taxpayers who fail to file Form 8938 when required may face an initial penalty of $10,000, which can increase to £50,000 if the failure continues after IRS notification. For foreign institutions, failure to comply triggers the 30% withholding on U.S.-source payments, a sanction significant enough to make compliance a financial necessity.
Reporting FATCA Failures to the IRS
When individuals or institutions believe that a taxpayer or a foreign financial institution is in violation of FATCA, they may report that noncompliance to the IRS through the IRS Whistleblower Program.
The process begins with submitting IRS Form 211 (Application for Award for Original Information) to the IRS Whistleblower Office. To file a valid claim, you will need to provide:
- Name, address and taxpayer identification number (if you know) of the person or entity you’re reporting.
- Description of the alleged noncompliance.
- Documents you may have to support the allegation.
- Explanation of how and when you became aware of the alleged violation
- Complete description of your present or former relationship (if any) to the subject of the claim
- Your contact information.
Confidentiality: The ITS protects the identity of whistleblowers to the fullest extent permitted by law. If you do not wish to claim an award, you may also submit information anonymously, though anonymous submissions are not eligible for monetary awards.
Potential Awards Under the IRS Whistleblower Program
One of the most powerful incentives built into the IRS Whistleblower Program is the possibility of a financial award. If the information you provide leads to the collection of unpaid taxes, penalties, or interest, the IRS may pay you between 15% and 30% of the total proceeds collected.
Awards are classified as either mandatory or discretionary:
- Mandatory awards are available when the claim meets specific financial thresholds (see below). In these cases, if the IRS collects proceeds based on your information, an award is required by law.
- Discretionary awards apply to claims that do not meet the mandatory thresholds. The IRS retains the ability to grant an award, but it is not legally obliged to do so.
Note that the award percentage may be reduced if the whistleblower was a knowing participant in the noncompliance, or if the information was based primarily on public sources rather than original knowledge.
How to Qualify for an Award ?
Not every tip qualifies for a monetary award. To be eligible, a claim must meet both substantive and financial requirements.
Substantive Requirements
The information submitted must be specific, timely, and credible.
It must describe an actual tax underpayment or violation of internal revenue law, and it must ultimately contribute to the IRS collecting proceeds, whether those are unpaid taxes, penalties, interest, civil forfeitures, or criminal fines.
In the context of FATCA, qualifying information may relate to foreign financial institutions that have not complied with their reporting obligations, or to U.S. taxpayers who have failed to file Form 8938 despite holding significant foreign assets.
Financial Thresholds for a Mandatory Award
To qualify for a mandatory award, your claim must involve one of the following:
- For companies or entities: The total tax, penalties, interest, and other amounts in dispute must exceed $2 million.
- For individual taxpayers: The individual must have had gross income exceeding $200,000 in at least one of the tax years in question.
These thresholds are designed to focus the program’s resources on significant cases of noncompliance. Claims failing below these amounts may still be submitted and reviewed, but awards will be at the IRS’s discretion.
