What Are FFIs and What Role Do They Have in Reporting Your Accounts to the IRS?

If you hold financial assets offshore, they are not hidden. Banks and other financial institutions may have an obligation to report the holdings of U.S. citizens to the IRS. If you face IRS enforcement action due to a failure to report foreign financial assets, speak with our offshore disclosure attorney at Pontius Tax Law, PLLC for help resolving the issue and preventing more serious involvement from the IRS.

What Is an FFI?

The term “FFI” stands for foreign financial institution. These include banks, mutual funds, investment companies, and insurance companies that offer cash value policies or annuities.

Some institutions are specifically excluded from the definition of an FFI. These include government entities like sovereign wealth funds and public pension funds, certain non-profit international organizations, some retirement funds, and non-financial foreign entities.

FFIs Report on U.S. Taxpayers to the IRS

The IRS has a procedure for institutions that qualify as FFIs to register with the IRS. If an FFI fails to register, any payments to it from U.S. sources are subject to a 30% tax. This provides a strong incentive for FFIs to register. Registration requires FFIs to report on U.S. taxpayers with accounts at the institution to the IRS, and the information must include:

Account-holder name and address
Taxpayer identification number
Account number
Balance
Income earned

This information allows the IRS to track a taxpayer’s foreign assets and assess their compliance with the Foreign Account Tax Compliance Act (FACTA).

Taxpayers Must Report Foreign Funds

If you have funds in foreign bank accounts, investment companies, or other foreign financial institutions, you must report them to the IRS. If the balance exceeds $10,000 at any time during the tax year you must file a Report of Foreign Bank and Financial Account (FBAR).

The failure to file an FBAR can lead to substantial penalties, and because the IRS can receive notice of the account from the FFI, enforcement action is possible. There are several options to resolve tax issues concerning offshore disclosure that can help you get back into tax compliance if you have failed to disclose your offshore assets.

Call Us to Learn More About FFIs and How To Report Your Account Holdings to the IRS

FFIs are subject to substantial tax consequences if they do not report on their U.S. account holders. If an FFI reports a foreign account that you did not report, or if you failed to file an FBAR as required, you could face IRS enforcement action. Do not try to handle the matter without professional help. Contact the tax attorney and Enrolled Agents at Pontius Law, PLLC, to discuss the best possible ways to resolve the matter.