IRS Form 8938 (a FATCA created form) is the Statement of Specified Foreign Financial Assets in which Taxpayers are required to report their specified foreign financial assets when their value meets the obligatory reporting threshold. It has been a required form for qualifying Taxpayers since 2011. It must be attached to a Taxpayer’s Annual Tax Return when the reporting threshold is crossed.
Under the Foreign Account Tax Compliance Act (FATCA), a Foreign Financial Institution (FFI) must have a Global Intermediary Identification Number (GIIN) in order to be FATCA registered and approved as a withholding agent. A Foreign Financial Institution without a GIIN is deemed unregistered in FATCA and will face a 30% withholding tax on certain U.S. source payments of Fixed Determinable Annual Payments (FDAP) made to it.
Existence of a GIIN permits quick confirmation that an FFI is FATCA compliant and exempt from withholding by US Withholding Agents. As of July, 2017, 290, 553 FFIs have been issued a GIIN. FFIs without a GIIN run the risk of withholding as well as isolation from an international and cross-border banking system that relies on transactions that go thought the US banking system.
For the first time, in tax year 2016, Form 8938 included a field for the “optional” reporting of a Foreign Financial Institution’s GIIN. A question arises as to IRS’s purpose in requesting this “optional” information. Perhaps the “optional” component of providing a GIIN is temporary and will be a permanent requirement at some point in the future? If providing the GIIN on Form 8938 becomes a permanent requirement, IRS receives readily available information for initiating cross-checks. And, the more information that IRS can cross- reference and cross-check, the more revenue it can raise from non-reporters and inaccurate reporters.
Specified Individuals and specified corporations have Form 8938 and FBAR filing requirements. Financial Institutions have to complete the FATCA Report (Form 8966). IF IRS is able to cross-check Form 8938, the FBAR and the FATCA Report, they will be able to assess more tax, penalties and sanctions for Individuals, certain Corporations and FFIs.
Don’t be a victim of your own making. Taxpayers with unreported foreign financial accounts have already been exposed or are about to be exposed to IRS. Consult your tax specialist now.