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Could You Be Non-Compliant Without Knowing It? FATCA/CRS Explained

Non-compliance with FATCA and CRS regulations can happen without you realizing it. Penalties are severe, and ignorance is not an excuse. If you have foreign financial accounts or financial ties abroad, you could be at risk.
This article explains FATCA and CRS, who needs to comply, and how non-compliance can impact you.

What Are FATCA and CRS?

FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard) are global regulations designed to combat tax evasion and improve financial transparency.

FATCA

  • A U.S. law requiring foreign financial institutions (FFIs) to report information about U.S. account holders to the IRS.
  • U.S. taxpayers must also disclose foreign financial assets exceeding specific thresholds.

CRS

  • A global initiative led by the OECD.
  • Requires financial institutions in participating countries to exchange information on account holders with their respective tax authorities.

The goal of both regulations is to ensure individuals and entities pay their fair share of taxes.

Who Needs to Comply?

You may be subject to FATCA or CRS if:

  • You are a U.S. citizen, green card holder, or resident with foreign financial accounts.
  • You are a business or entity with foreign financial ties, including investments or subsidiaries.
  • You are a financial institution operating in a country that complies with FATCA or CRS.

Even individuals who are dual citizens, non-residents, or expatriates may have reporting obligations under FATCA. CRS applies to individuals and entities in over 100 participating countries.

How Non-Compliance Happens Without You Knowing

1. Misunderstanding Reporting Thresholds

FATCA requires U.S. taxpayers to report foreign assets if they exceed $50,000 ($100,000 for joint filers) at year-end or $75,000 ($150,000 for joint filers) during the year. CRS has no universal threshold—this depends on individual country regulations.

2. Failure to File Required Forms

U.S. taxpayers may fail to file Form 8938 (Statement of Specified Foreign Financial Assets) or neglect to disclose accounts on their FBAR (Foreign Bank Account Report). For CRS, non-disclosure could occur due to lack of awareness about local reporting rules.

3. Inaccurate Account Holder Information

Financial institutions may report incorrect or incomplete information about you, leading to penalties or audits.

4. Overlapping Regulations

FATCA and CRS overlap in many cases. If you’re subject to both, failing to understand how they interact can lead to reporting errors.

5. Outdated Tax Advice

Relying on outdated advice or non-specialized tax services can result in overlooked obligations.

What Are the Risks of Non-Compliance?

Non-compliance carries severe consequences.

For Individuals

  • Penalties: FATCA imposes fines starting at $10,000 for failure to disclose foreign accounts. CRS penalties vary by jurisdiction but can reach thousands of dollars.
  • Audits: The IRS and other tax authorities are increasing audits for suspected non-compliance.
  • Legal Action: Intentional non-compliance can result in criminal charges, including fines and imprisonment.

For Financial Institutions

  • Withholding Tax: FFIs that fail to comply with FATCA face a 30% withholding tax on U.S.-sourced payments.
  • Reputational Damage: Non-compliant institutions risk losing trust from clients and partners.
  • Fines: CRS violations result in significant financial penalties in participating jurisdictions.

How to Avoid Becoming Non-Compliant

  1. Understand Your Obligations
    Determine if you’re subject to FATCA, CRS, or both. Review your accounts and assets to ensure compliance.
  2. Stay Informed About Reporting Thresholds
    Know the thresholds for FATCA (e.g., $50,000 for U.S. taxpayers) and the specific CRS requirements in your country.
  3. File the Correct Forms
    S. taxpayers must file Form 8938 and FBAR for FATCA. CRS reporting depends on your country’s tax authority requirements.
  4. Verify Information with Financial Institutions
    Ensure your financial institution has accurate and up-to-date account holder information.
  5. Seek Professional Advice
    Consult a tax professional or compliance specialist who understands FATCA and CRS regulations.
  6. Act Quickly If You Missed a Deadline
    File any missed reports immediately. Voluntary disclosure programs may reduce penalties.

Examples of Non-Compliance Cases

Case 1: A Dual Citizen

A U.S.-Canadian dual citizen failed to report a $75,000 account in Canada. The individual faced a $10,000 FATCA penalty and additional FBAR fines.

Case 2: An FFI in Asia

A financial institution in Hong Kong failed to identify U.S. account holders due to incomplete onboarding processes. It faced a 30% withholding tax on U.S.-sourced payments.

Case 3: CRS Reporting in Europe

A business operating in France did not realize its offshore accounts were reportable under CRS. Local authorities imposed a €20,000 fine.

Questions to Ask Yourself

  • Do you have foreign financial accounts or investments?
  • Have you filed all required FATCA or CRS-related forms?
  • Are you sure your financial institution is reporting your accounts correctly?
  • Have you consulted a professional who specializes in international tax compliance?

External Links for Additional Information