FATCA and Catch up Filing – Is the end in sight?

Volume No. US-17-02

Since 2009, the U.S. Internal Revenue Service (“IRS”) has had a number of programs in place to allow U.S. persons with mechanisms to bring their delinquent or incomplete U.S. tax return and information return filings up to date.  The two primary mechanisms being the Offshore Voluntary Disclosure Program (“OVDP”) and the Streamlined Compliance Filing Procedures (Offshore and domestic).  In news release, IR-2016-137, dated October 21, 2016, the IRS stated that 55,800 taxpayers had come into the OVDP since 2009 and some 48,000 taxpayers had made use of the separate streamlined procedures.  In total, the programs have raised over US $10 billion in revenue.

One factor that has led taxpayers to bring their filings up to date has been the enactment of the Foreign Account Tax Compliance Act (FATCA) which was enacted on March 18, 2010.  Simply put, FATCA requires foreign (non-U.S.) financial institutions (FFIs) i.e., Canadian banks, to disclose their U.S. customer’s financial information to the IRS or face significant penalties.

There was concern as to how Canadian financial institutions would comply with FATC A in light of Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”), which sets out ground rules for how private-sector organizations collect, use or disclose personal information.  A private sector entity (i.e., a Canadian FI) disclosing a Canadian resident’s personal tax and financial information to the IRS was clearly not permitted under PIPEDA.

On June 27, 2014 the Canadian Department of Finance entered into a Model 1 Intergovernmental Agreement (IGA) in order to allow FATCA to be implemented in Canada. Under the IGA,  Canadian FI’s will report the required information to the Canada Revenue Agency (CRA) who, in turn, will then report the information to the IRS pursuant to the information exchange provisions of the Canada-United States Tax Convention (1980).  Canadian financial institutions are complying and the CRA has been sending information to the IRS since 2015.

Once the IRS develops a mechanism for accurately assessing this influx of information, there will no longer be any reason for the IRS to maintain the OVDI or Streamlined Compliance programs.  They could be cancelled.  Unlike Canada, the U.S. voluntary disclosure programs have a beginning and an end date.  Though the IRS has not (yet) announced the closing date of these programs they can do so at any time.  Delinquent taxpayers would then have to file under the general IRS penalty provisions for the late filing of tax and information returns (think up to US $10,000 or more, a pop for a late filed information return and possible late filing penalties, late payment penalties and interest, if taxes are owed).

Many delinquent taxpayers have kept their head in the sand hoping all the ruckus about filing would all go away.  Unfortunately it is more likely that the OVDP and Streamlined Compliance programs will go away.  FATCA is here to stay, so we encourage non-compliant U.S. persons to get “caught up” as soon as possible, while these programs are still in place. The alternative of not doing so and being caught due to FATCA could prove to be very costly indeed.


The above  information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of U.S. Treasury Department Circular 230. The contents of this document are intended for general information purposes only.