FATCA and the IRS Whistleblower Program: An Overview

Signed into law on March 18, 2010, the Foreign Account Tax Compliance Act (FATCA) is a U.S. law that requires foreign financial institutions (FFIs) to report financial information about U.S. taxpayers to the IRS. This helps to identify U.S. citizens hiding assets overseas to avoid paying taxes. Additionally, FATCA requires certain U.S. taxpayers to report their foreign financial accounts and assets directly to the IRS.

FATCA isn’t just a domestic U.S. law. It’s an intergovernmental agreement (IGA) between the US and over 100 countries. This means many foreign financial institutions are obligated to comply with FATCA regulations. Under Model 1 IGA, they must report directly to the IRS, or under Model 2 IGA, foreign governments can collect the information and send it to the IRS.

While FATCA primarily targets foreign institutions, it also impacts US taxpayers. For example, any U.S. citizen with foreign financial assets of $50,000 must report this to the IRS. Some say that FATCA places a huge burden on financial systems by requiring heavy compliance. Not to mention the concern over privacy, with data being sent and shared internationally.

Since it’s inception, FATCA has been a valuable too in helping governments curb tax evasion – namely, U.S. citizens using offshore accounts. Whistleblowers who spot noncompliance may be eligible for monetary compensation under the IRS Whistleblower Program.

When a U.S. taxpayer fails to report foreign financial accounts or assets as required by FATCA, it can be a serious tax violation. Whistleblowers can play a crucial role in exposing these violations by reporting them to the IRS. Awards are given to whistleblowers who report tax violations, such as having hidden offshore bank accounts in a particular tax haven.

These awards range between 15 and 30 percent of the total proceeds that the IRS collects in successful enforcement. The tax underpayment in question must exceed more than $2 million (including taxes, penalties, and interest) for a whistleblower to become eligible.

In summary, the IRS Whistleblower Program incentivizes individuals to report tax fraud, including violations of FATCA. The program offers whistleblowers:

• Awards: Informants whose information leads to the collection of over $2 million in tax revenue can receive an award of 15-30% of the collected amount. The IRS may also offer non-monetary awards like protection from retaliation by employers.
• Anonymity and Confidentiality: The IRS strives to fully protect a whistleblower’s identity and have a good record of doing so. However, anonymous filings are not permitted. While the IRS prioritizes whistleblower confidentiality, it’s not always guaranteed.
• Investigative Process: The IRS will investigate the information provided and take appropriate action, which may include audits, penalties, and even criminal prosecution.

Receiving a whistleblower award can take a significant amount of time, often between two and ten years due to investigations, collection of funds, and potential case backlog. However, the potential award percentage can be substantial.

Read our FAQ to learn more about the IRS Whistleblower Program.

If you have information about a potential FATCA violation, it’s important to consult with a qualified whistleblower attorney. An attorney can advise you on your rights and the best course of action for reporting the information to the IRS Whistleblower Program.

Here are some red flags that may indicate a FATCA violation:

• A U.S. citizen encourages you to invest in offshore accounts with secrecy guarantees.
• An employer asks you to open a foreign bank account to receive payments.
• A company seems to be hiding a significant amount of assets in foreign accounts.
• A colleague discusses hiding assets overseas to avoid taxes.