FATCA and CRS Reporting: What Your Bank Shares (and With Whom)

If you’ve ever been asked for a Social Security number or a list of countries where you pay tax just to open a bank account, FATCA and CRS are the reason. FATCA helps the U.S. identify foreign accounts linked to U.S. taxpayers, while CRS allows participating countries to exchange account information based on tax residence.

The U.S. does not participate in CRS, but Americans abroad can still be affected by both systems: FATCA because of their U.S. tax status, and CRS because they live or hold accounts elsewhere.

At Bright!Tax, we often hear from expats who assume FATCA and CRS are forms they must file themselves. Usually, they aren’t—the reporting is handled by financial institutions. Your separate responsibility is to ensure your U.S. tax return, including Form 8938 when required, accurately reflects your foreign financial assets.

FATCA: What it means for U.S. taxpayers

Passed in 2010, FATCA (the Foreign Account Tax Compliance Act) was designed to make it harder for U.S. taxpayers to hide money abroad.

It operates on two separate tracks:

• Foreign financial institutions (FFIs) identify and report qualifying accounts held by U.S. persons or certain foreign entities with substantial U.S. owners.
• Certain U.S. taxpayers must file Form 8938 when their specified foreign financial assets exceed the threshold for their filing status and residence.
• Banks may ask for self-certification forms, proof of citizenship or tax residence, and a U.S. tax identification number such as a Social Security number.
• In Model 1 jurisdictions, banks generally report to their local tax authority, which then sends the information to the IRS; institutions in Model 2 jurisdictions generally report directly to the IRS.

Missing Form 8938 can result in an initial $10,000 penalty, with further penalties possible if you continue not to file after receiving an IRS notice. That is separate from FATCA’s 30% withholding rules, which principally apply to certain payments involving noncompliant foreign financial institutions and entities.

CRS: A global reporting framework

While FATCA is U.S.-specific, the Common Reporting Standard takes financial reporting global.

Created by the Organization for Economic Co-operation and Development (OECD), CRS allows participating jurisdictions to exchange financial account information automatically each year.

CRS is based on tax residency, not citizenship. If you hold an account outside a jurisdiction where you are tax resident, the financial institution may report it to its local tax authority, which can then exchange the information with your jurisdiction of tax residence.

Here’s how CRS works:

• Financial institutions ask account holders to declare every jurisdiction where they are tax resident.
• Banks and investment entities use due diligence procedures to identify reportable account holders and, for certain entity accounts, their controlling persons.
• Reportable information is sent to the institution’s local tax authority and exchanged with other participating jurisdictions where an active reporting relationship exists.
• CRS does not create a separate return for individuals, although local tax laws may impose their own disclosure requirements.

The United States has not adopted CRS. However, an American living in the UK could still have an account in France reported to HMRC under CRS because the UK—not the U.S.—is their jurisdiction of tax residence.

FATCA vs. CRS: Key differences

FATCA and CRS both require financial institutions to identify and report certain account holders, but they do not work in quite the same way.

	FATCA	CRS
Main purpose	Identifies accounts connected to U.S. taxpayers	Exchanges account information between participating jurisdictions
Based primarily on	U.S. tax status	Tax residence
Who reports	Foreign financial institutions and certain other entities	Reporting financial institutions
Where information goes	The IRS, either directly or through a local tax authority	The institution’s local tax authority, then the relevant participating jurisdiction
Individual filing requirement	Some taxpayers must file Form 8938	CRS does not create an individual return
Geographic reach	U.S.-specific rules applied internationally	Adopted by more than 100 jurisdictions

FATCA does not apply only to U.S. citizens. It can also cover green card holders, resident aliens and certain entities with substantial U.S. owners.

CRS, meanwhile, can apply regardless of nationality. What matters is whether an account holder or relevant controlling person is tax resident in a reportable jurisdiction.

How banks collect FATCA and CRS information

Opening a foreign bank account often comes with more tax questions than you might expect. Along with proof of identity and address, you may be asked where you are tax resident, whether you are a U.S. person and which tax identification numbers you hold.

Banks commonly use:

• Self-certification forms completed when you open an account
• Existing customer and identity-verification records
• FATCA indicators such as a U.S. birthplace, address or telephone number
• CRS information about your jurisdictions of tax residence
• Additional documentation when the information you provide conflicts with the bank’s records

A U.S. indicator does not always mean your account must be reported. The bank may first ask for documents confirming whether you are—or are not—a U.S. person.

Once an account is classified as reportable, the bank can send the required information without waiting for you to file a tax return.

What gets reported under FATCA and CRS

FATCA and CRS cover more than ordinary checking and savings accounts. Depending on the rules and account involved, reportable accounts can include custodial accounts, investment accounts and certain cash-value insurance or annuity contracts.

Information reported can include:

• Your name, address, tax residence and tax identification number
• Your date and place of birth
• The financial institution and account number
• The account balance or value at the end of the reporting period
• Interest, dividends and other income credited to the account
• Gross proceeds from the sale or redemption of financial assets
• Information about reportable controlling persons when an account is held through certain passive entities

The exact information depends on the reporting system, account type and jurisdiction. Not every retirement account, trust, company or investment is automatically reportable.

Holding an account through a foreign entity does not necessarily prevent disclosure. If the entity is classified as passive, the financial institution may need to identify and report its controlling persons.

Are there any exemptions?

Not every institution or account falls within FATCA or CRS reporting.

Under FATCA, Annex II of each Intergovernmental Agreement can identify jurisdiction-specific institutions and accounts that are exempt or treated as compliant. These may include certain government bodies, retirement funds, local financial institutions and tax-favoured accounts.

Under CRS, exclusions can apply to:

• Government entities and central banks
• Certain broad-participation retirement funds
• Some nonprofit organizations
• Other financial institutions or accounts considered low risk for tax evasion

Certain active or publicly traded foreign entities also receive different treatment from passive entities, particularly when banks determine whether controlling persons must be reported.

An exemption from bank reporting does not automatically remove your own U.S. filing obligations. An account excluded under FATCA or CRS may still need to be considered for Form 8938, FBAR or another international information return.

Get clear on what you need to report

FATCA and CRS determine what financial institutions share with tax authorities. Form 8938, FBAR and your U.S. tax return determine what you must report yourself—and the rules do not always cover the same accounts or assets.

Bright!Tax can review your foreign accounts and investments, determine which U.S. forms apply and help ensure your return matches the information tax authorities may already have.

Get help with your foreign account reporting.

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