Worldwide Tax Daily Quotes Mark Matthews on Gap Between FBAR Filing and Number of U.S. Citizens Living Abroad

Worldwide Tax Daily quoted Mark E. Matthews on the gap between the number of  U.S. citizens living abroad and the number of FBAR filing. For the complete article, please visit Worldwide Tax Daily's website (subscription required).  

Excerpt taken from the article "News Analysis: Minding the Gap in FBAR Filings" by Amanda Athanasiou.

"We know there are a lot of U.S. citizens abroad who are still out of compliance," Mark E. Matthews of Caplin & Drysdale Chtd. said. But the persistence of the gap has become increasingly perplexing given the IRS messaging regarding the end of the OVDP and information exchange under FATCA. FATCA's implementation is expected by many to narrow the gap, particularly given that the identity of many countries providing financial information is obscured.

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Current Shortfall

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"If FATCA is really working the way the IRS thinks it's going to work, why wouldn't there be people streaming in right now?" Matthews asked.\

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"I believe the IRS approaches their offshore programs from an exaggerated belief of how many people are aware of them," Matthews agreed. And the problem isn't confined to those living abroad. There are a lot of first-generation citizens resident in the U.S. who don't understand the significance of foreign bank accounts because they grew up in territorial tax systems, Matthews said.

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Even among those who seek help, reporting accurately can be difficult. "First of all, what's 'foreign' when you're living in Brazil?" Matthews asked, referring to foreign residents' tendency to erroneously check "no" on question 7a of Form 1040's Schedule B, which asks about signature authority over a financial account located in a foreign country.

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Matthews said that even today, six years into the offshore voluntary program, he gets calls from people in India, Brazil, and Singapore whose first hint about their U.S. tax responsibilities has just come from a local bank.

But while some U.S. citizens living abroad are being notified of their obligations from banks in countries with intergovernmental agreements, many are not, according to practitioners. "I think a lot of these U.S. citizens living abroad are dual citizens, who have opened their accounts under other citizenships with the result that the banks don't know to come to them with FATCA forms," Matthews said.

The Beginning of the End of the OVDP?

The IRS is starting to ramp up warnings about the end of the OVDP, Matthews said, citing Horton's comments at the Florida International Tax Conference and recent comments from other IRS officials. (Prior coverage 2016 WTD 7-1: News Stories.) "I think they think FATCA is going to solve the problem of unreported bank accounts" and that they won't need the OVDP in the future, Matthews said, adding that he thought this was an overly optimistic assessment of FATCA.

"It's way too early to declare FATCA a success," he said. Even if FATCA is a success in leading Western cultures with sophisticated financial systems that are also signing on to the common reporting standard, it's going to be a very long time before certain jurisdictions have the sophistication and tools to make FATCA work, he said.