FOREIGN ACCOUNT 

REPORTING 

REQUIREMENTS

IRS Needs to Further 

Develop Risk, 

Compliance, and Cost 

Plans

Report to the Committee on Finance, 

U.S. Senate

April 2012

GAO-12-484

United States Government Accountability Office

GAO
Page i GAO-12-484 Foreign Account Reporting Requirements

Letter 1 

Scope and Methodology 2

Background 3

Summary of Findings 6

Conclusions 7

Recommendations for Executive Action 8

Agency Comments 8

Appendix I Briefing Slides 10

Appendix II Comments from the Internal Revenue Service 16

Appendix III GAO Contact and Staff Acknowledgments 20

Figure

Figure 1: Timeline of FATCA Requirements 5

Abbreviations

FATCA Foreign Account Tax Compliance Act

FBAR Report of Foreign Bank and Financial Accounts

FFI foreign financial institution

IRS Internal Revenue Service

IT information technology

LB&I Large Business & International

Contents

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Page 1 GAO-12-484 Foreign Account Reporting Requirements

United States Government Accountability Office

Washington, DC 20548

April 16, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

Given the mobility of money and proliferation of foreign financial 

institutions (FFI), the potential for U.S. taxpayers to evade taxes on funds 

held in offshore accounts is greater than ever. To improve tax compliance 

for foreign accounts and entities, and cross-border transactions, 

Congress passed the Foreign Account Tax Compliance Act (FATCA) as 

part of the Hiring Incentives to Restore Employment Act of 2010.1

You asked us to review IRS’s FATCA implementation plans. Our 

objectives were to (1) assess IRS’s approach for implementing the 

FATCA requirements, (2) assess the extent to which IRS has developed 

plans to use the information from FATCA to improve tax compliance, and 

(3) determine the extent to which IRS is incorporating leading practices to 

develop its resource estimate for implementing FATCA.

FATCA 

requires certain U.S. taxpayers to report to the Internal Revenue Service 

(IRS) their overseas assets and requires U.S. entities to withhold a 

portion of certain payments made to FFIs that have not entered into an 

agreement with IRS to report certain information with respect to the FFI’s 

U.S. accounts. FATCA is an effort to reduce tax evasion by creating 

greater transparency and accountability with respect to offshore accounts 

and entities held by U.S. taxpayers and by providing IRS with tools to 

further enforce tax laws. IRS believes that implementing these new 

requirements will increase tax compliance, which will help close the gap 

between taxes owed and taxes paid. IRS recently estimated a net tax gap 

of $385 billion for tax year 2006, though IRS has not estimated the 

percentage of the tax gap specifically attributable to offshore accounts. 

Implementing FATCA will provide IRS with a substantial amount of new 

information. However, that new information could be challenging to 

manage.

 

1

Pub. L. No. 111-147, Title V, subtitle A, 124 Stat. 97 (2010).

 
 

Page 2 GAO-12-484 Foreign Account Reporting Requirements

To assess IRS’s approach for implementing FATCA, we reviewed the 

statutory requirements for FATCA.2 We reviewed IRS documents related 

to FATCA, including its data flow map and communication strategy, 

relevant notices, and temporary and proposed regulations.3 To further 

assess IRS’s approach, we identified leading practices on implementing 

new programs using past GAO reports and GAO’s internal control 

standards.4

To assess the extent to which IRS has developed plans to use the 

information from FATCA to improve tax compliance, we reviewed IRS 

documents on the use of FATCA information, including prepared 

presentations and documents outlining planned program design. We 

compared IRS’s plans to leading practices identified in past GAO reports 

on IRS implementation of new programs, which establish the importance 

of a documented strategy that includes developing a timeline and 

performance measures.

Those practices include identifying an implementation team, 

communicating with external stakeholders, issuing guidance, 

communicating with staff, and assessing risk.

5

To determine the extent to which IRS is incorporating leading practices to 

develop its resource estimate for implementing FATCA, we identified and 

reviewed existing IRS information on cost estimates for FATCA, such as 

 

2

Ibid. 

3

IRS uses notices to relate what regulations will say in situations where the regulations 

may not be published in the immediate future.

4

GAO, Patient Protection and Affordable Care Act: IRS Should Expand Its Strategic 

Approach to Implementation, GAO-11-719 (Washington, D.C.: June 29, 2011); ResultsOriented Cultures: Implementation Steps to Assist Mergers and Organizational 

Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003); Tax Administration: 

Planning for IRS’s Enforcement Process Changes Included Many Key Steps but Can Be 

Improved, GAO-04-287 (Washington, D.C.: Jan. 20, 2004); Financial Derivatives: 

Disparate Tax Treatment and Information Gaps Create Uncertainty and Potential Abuse, 

GAO-11-750 (Washington, D.C.: Sept. 20, 2011); Risk Management: Further Refinements 

Needed to Assess Risks and Prioritize Protective Measures at Ports and Other Critical 

Infrastructure, GAO-06-91 (Washington, D.C.: Dec. 15, 2005); Standards for Internal 

Control in the Federal Government, GAO/AIMD-00-21.3.1. (Washington, D.C.: November 

1999); and Internal Control Management and Evaluation Tool, GAO-01-1008G 

(Washington, D.C.: August 2001).

5

GAO, Tax Preparer Regulation: IRS Needs a Documented Framework to Achieve Goal 

of Improving Taxpayer Compliance, GAO-11-336 (Washington, D.C.: Mar. 31, 2011), and 

GAO-11-719. 

Scope and 

Methodology 
 

Page 3 GAO-12-484 Foreign Account Reporting Requirements

a work breakdown structure and an investment summary report. These 

documents primarily discuss cost estimation for the information 

technology (IT) components of FATCA. We interviewed officials from 

IRS’s Modernization and Information Technology Services to discuss the 

IT cost estimate for FATCA and FATCA program officials to discuss 

future cost estimation plans. We compared this information with leading 

practices that agencies should follow when developing cost estimates, 

including ensuring that estimates are well documented and 

comprehensive.6

For all objectives, the leading practices we identified do not represent the 

universe of practices that agencies could employ when implementing a 

new initiative. We selected examples of leading practices that we judged 

to be important for IRS to consider during the early stages of FATCA 

implementation. We shared with IRS the practices on which we based our 

descriptions and assessments in our three objectives during the course of 

our audit work, and IRS agreed with our approach. We discuss these 

practices in greater detail in appendix I.

For all objectives, we interviewed IRS and Department of the Treasury 

officials to discuss existing and future plans related to FATCA 

implementation.

We conducted this performance audit from June 2011 to April 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

FATCA requirements for U.S. taxpayers and FFIs will be phased in over 

the next few years. Starting in 2012 for calendar year 2011, U.S. 

individual taxpayers with total overseas assets in excess of $50,000 

generally are required to report the assets to IRS on Form 8938 

 

6

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).

Background 
 

Page 4 GAO-12-484 Foreign Account Reporting Requirements

(Statement of Specified Foreign Financial Assets).7

Beginning on January 1, 2014, U.S. entities will be required to withhold 30 

percent on certain payments to FFIs

Taxpayers may be 

subject to penalties for failure to disclose overseas assets and for 

underpayments related to such undisclosed assets.

8 unless the FFIs have entered into 

an agreement with IRS. IRS has announced that FFIs must enter into an 

agreement by June 30, 2013, in order to ensure that they will be identified 

as participating FFIs in sufficient time to allow U.S. withholding agents to 

refrain from withholding beginning on January 1, 2014. FFIs that enter 

into an agreement after this deadline may experience withholding on 

some payments until U.S. entities have added the FFIs to the list of 

participating FFIs. By entering into an agreement with IRS, the FFIs agree 

to employ due diligence procedures to identify and report details on U.S. 

account holders to IRS and withhold a percentage of payments under 

certain circumstances. Figure 1 illustrates the timeline of when FATCA 

requirements are to take effect.9

 

7

An unmarried taxpayer living in the United States or married taxpayers filing separate 

income tax returns living in the United States must file if the total value of his or her 

specified foreign financial assets is more than $50,000 on the last day of the tax year or 

more than $75,000 at any time during the tax year. Married taxpayers filing a joint income 

tax return and living in the United States must file if the total value of their specified foreign 

financial assets is more than $100,000 on the last day of the year or more than $150,000 

at any time during the tax year. Taxpayers living abroad must file if the total value of their 

specified foreign financial assets is more than $200,000 total on the last day of the tax 

year or more than $300,000 at any time during the year. For married taxpayers living 

abroad filing a joint income tax return, they must file if the total value of all specified 

foreign financial assets that one spouse owns is more than $400,000 on the last day of the 

tax year or more than $600,000 at any time during the year.

8

An FFI is defined as a financial institution that is a foreign entity. An entity is a financial 

institution if (1) it accepts deposits in the ordinary course of a banking or similar business; 

(2) as a substantial portion of its business, it holds financial assets for the account of 

others; or (3) it is engaged (or holding itself out as being engaged) primarily in the 

business of investing, reinvesting, or trading in securities, partnership interests, 

commodities, or any interest in such securities, partnership interests, or commodities.

9

FATCA gives the Secretary of the Treasury authority to prescribe regulation and guidance 

to carry out the purposes of, and prevent the avoidance of, the law. (This provision has 

been codified as 26 U.S.C. 1474(f).) Under that authority to prescribe regulations and 

guidance, IRS and the Department of the Treasury have chosen to implement a phased 

approach.
 

Page 5 GAO-12-484 Foreign Account Reporting Requirements

Figure 1: Timeline of FATCA Requirements

FFIs excepted from FATCA include foreign governments (including a 

wholly owned agency or instrumentality), international organizations, 

foreign central banks, and institutions IRS deems to pose a low risk of tax 

evasion.10

Separate from the FATCA requirements, the Bank Secrecy Act requires 

individuals and some businesses to file reports on foreign bank financial 

accounts with balances exceeding $10,000 during the year.11

 

10FATCA also provides for a category of FFIs deemed to be compliant. To be deemed 

compliant, an FFI must comply with procedures to ensure that it does not maintain U.S. 

accounts. The FFI must also meet other requirements that the Secretary of the Treasury 

may prescribe. The proposed regulations define the scope of deemed compliant entities to 

reduce or eliminate burdens on truly local FFIs and other FFIs that do not implicate the 

policy concerns of FATCA. 

The 

11Pub. L. No. 91-508, titles I and II, 84 Stat. 1114 (Oct. 26, 1970) (codified as amended at 

12 U.S.C. § § 1829b, 1951-1959; 31 U.S.C. § § 5311-5322).
 

Page 6 GAO-12-484 Foreign Account Reporting Requirements

information is filed on Treasury Form TD 90-22-1, known as the Report of 

Foreign Bank and Financial Accounts (FBAR), and is processed by IRS. 

Taxpayers required to file the FBAR form may also have to file Form 

8938. We recently reported that some FATCA and FBAR reporting 

requirements overlap and recommended ways to address that overlap.12

• IRS has taken initial steps to implement FATCA requirements in line 

with leading implementation practices, including establishing a team 

to manage the implementation process and issuing guidance and 

proposed regulations. IRS has involved external stakeholders in the 

implementation process, which has helped inform IRS’s 

implementation plans and regulations. IRS has also communicated 

initial information to IRS staff. However, although IRS assessed the 

risks of some aspects of FATCA implementation, it has not 

consolidated existing risk assessment information or future risk 

assessment plans into an overall risk assessment. Without a 

consolidated assessment, there is less assurance that all risks have 

been comprehensively identified. FATCA officials told us they had not 

documented a consolidated risk assessment because they were 

awaiting the release of final regulations, which will increase their 

ability to develop an overall risk assessment. Officials also cited the 

challenge of conducting a full risk assessment for a multiphased 

program still in its early stages. While we recognize this difficulty, we 

believe it is still important to lay the foundation for these plans. GAO’s 

internal control standards suggest that risk assessments can and 

should evolve as short-term and long-term forecasting occur and 

therefore should be reviewed on an ongoing basis.

• IRS plans to compare multiple sources of information to identify U.S. 

taxpayers and FFIs failing to comply with the FATCA requirements 

and, more broadly, taxpayers failing to report their overseas income. 

IRS has begun to discuss how it will use information to improve 

compliance, but it has not yet completed or fully documented a 

broader strategy for doing so, which we identified as a leading 

implementation practice in our prior work. For example, it has not 

developed key internal milestones for accomplishing the tasks 

necessary to enable it to use FATCA information to improve taxpayer 

 

12GAO, Reporting Foreign Accounts to IRS: Extent of Duplication Not Currently Known, 

but Requirements Can Be Clarified, GAO-12-403 (Washington, D.C.: Feb. 28, 2012). 

Summary of Findings
 

Page 7 GAO-12-484 Foreign Account Reporting Requirements

compliance or performance measures to assess the cost and benefits 

of its compliance efforts. IRS officials told us that many of these 

decisions are contingent on areas of program design that have not yet 

been finalized. If IRS does not document a broad strategy, it risks 

negatively affecting FATCA implementation. Given that IRS’s 

implementation of FATCA is in its early stages, the strategy may be a 

high-level road map with timelines that could evolve over time.

• IRS has developed its initial resource estimate for FATCA 

implementation, specifically for IT systems. For its IT resource 

estimate, IRS has taken steps to incorporate leading practices for a 

well-documented resource estimate, as identified in GAO’s Cost 

Estimating and Assessment Guide. However, IRS has not developed 

a comprehensive resource estimate for FATCA implementation. 

Comprehensiveness is another resource estimation leading practice. 

Without a timeline to develop the estimate, IRS may not be able to

develop a reliable cost estimate and therefore risks not 

communicating key cost information to Congress and IRS 

management in time for them to make decisions affecting the 

implementation of FATCA. Given that IRS is in the early stages of 

implementing the FATCA requirements, it would be difficult for IRS to 

develop a comprehensive cost estimate at this time. However, IRS 

can take steps that would help ensure that it produces a timely, 

comprehensive estimate, such as establishing a timeline for 

completing the estimate. IRS told us that it does not have a timeline 

for a comprehensive estimate because some design details will not be 

known until later in the implementation process.

Appendix I provides more detail on each of our objectives and related 

findings.

FATCA’s impact on improving taxpayer compliance will depend, in part, 

on IRS’s effectiveness in implementing the requirements. IRS has made 

progress by taking initial implementation steps that align with some 

leading practices, such as identifying an implementation team and 

communicating with external stakeholders and staff. IRS needs to build 

on its initial progress and complete other steps that could help it 

effectively implement the requirements. As IRS is phasing in FATCA over 

multiple years, and some aspects of program design have not been 

finalized, IRS will not be able to complete detailed plans for all aspects of 

FATCA implementation in the near term. However, IRS can begin to 

document its broad strategies for assessing risk, using information it 

obtains from taxpayers and FFIs to improve taxpayer compliance and 

Conclusions 
 

Page 8 GAO-12-484 Foreign Account Reporting Requirements

developing a comprehensive resource estimate. Given that FATCA 

implementation is in its early stages, initially IRS’s documented strategies 

may not be detailed but may evolve as IRS further develops its FATCA 

program design.

In order to improve FATCA implementation, but recognizing that IRS is 

phasing in implementation, we recommend that the Commissioner of 

Internal Revenue take the following three actions, which may evolve over 

time:

• develop a consolidated risk assessment;

• complete a broad strategy, including a timeline and performance 

measures, for how IRS intends to use information collected based on 

the FATCA requirements to improve tax compliance; and

• establish and document a timeline for completing a comprehensive 

FATCA cost estimate.

We provided a draft of this report to the Commissioner of Internal 

Revenue and the Secretary of the Treasury for their review and comment. 

IRS’s Deputy Commissioner for Services and Enforcement provided 

written comments, which expressed appreciation to GAO for recognizing 

IRS’s achievements toward implementing FATCA and agreed with all of 

our recommendations. In response to the first recommendation, the 

Deputy Commissioner stated that IRS has started developing a risk 

management plan that will incorporate risks from all work streams that 

make up FATCA. In response to the second recommendation, IRS will 

continue to develop a strategy to improve tax compliance that will evolve 

as FATCA regulatory issues are resolved. In response to the third 

recommendation, IRS noted steps already taken and said it will develop a 

comprehensive estimate once the FATCA regulations are finalized. These 

comments are reprinted in appendix II. Treasury did not provide official 

comments. IRS and Treasury provided us with technical comments, 

which we incorporated into the report as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Secretary of the 

Treasury, the Commissioner of Internal Revenue, and other interested 

parties. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov. 

Recommendations for 

Executive Action

Agency Comments
 

Page 9 GAO-12-484 Foreign Account Reporting Requirements

If you or your staff have any questions about this report, please contact 

me at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made key contributions to this report 

are listed in appendix III.

James R. White

Director, Tax Issues

Strategic Issues
Appendix I: Briefing Slides

Page 10 GAO-12-484 Foreign Account Reporting Requirements

IRS Has Incorporated Leading Practices in Initial FATCA 

Implementation but Has Not Developed a Consolidated Risk 

Assessment 

The Internal Revenue Service (IRS) has established a Foreign Account 

Tax Compliance Act (FATCA) implementation team, which is a small

office within IRS’s Large Business & International (LB&I) division. The 

implementation team includes representatives from divisions across IRS, 

and has engaged upper-level management as well. This includes a 

senior executive group that was organized early on that consists of

executives from the Department of the Treasury (Treasury) and IRS. 

These executives analyzed policy choices, obtained and assessed 

internal and external stakeholder input, and obtained decisions on the 

key policy issues from the Commissioner, Chief Counsel, and Assistant 

Secretary. Team officials told us that for the past year, the team has 

worked toward developing the structure of the FATCA office, estimating

resource needs and defining program goals. The team has requested 

and received funding for contractors to support the development of the 

foreign financial institution (FFI) registration project and other areas 

related to FATCA implementation. The team also received approval to

assign 15 full-time equivalent staff. This team manages the

implementation of outreach for, education on, and updates to the FATCA 

program. The team also led the development and rollout of Form 8938, 

which IRS began receiving from individual taxpayers in January 2012. 

IRS has involved external stakeholders, such as industry groups, 

researchers and experts, law and accounting firms, foreign governments, 

and FFIs, in implementing FATCA. IRS initially communicated with 

stakeholders through published notices, which IRS uses to relate what 

regulations will say in situations where the regulations may not be 

published in the immediate future. IRS also communicated through draft 

reporting forms and other information posted on IRS’s website. IRS 

obtained information from stakeholders through formal written comments, 

receiving 278 public comments as of February 2012 from various sectors 

and industries, including banking, insurance, and mutual funds. In these 

comments, many entities expressed objections to the law itself, citing 

adverse effects the law would have on their businesses. Other concerns 

included the time and costs needed to make significant modifications to 

the information management systems of FFIs and withholding agents 

and the need for extensive coordination with foreign governments. IRS 

designated a team to catalog, analyze, and share comments internally 

across various divisions. Further, as of February 2012, IRS and Treasury 

had held 45 meetings with stakeholders to address such comments. As a 

result of stakeholder input, IRS and Treasury determined that a phased 

implementation for FATCA was reasonable. IRS and Treasury 

subsequently released proposed regulations. Likewise, IRS and Treasury

are currently considering ways to collect needed information through 

intergovernmental transfers of information, thus potentially reducing 

reporting burden and addressing legal impediments some FFIs face in 

reporting directly to IRS. 

IRS and Treasury have issued some guidance on FATCA 

implementation, but regulations have not been finalized. Treasury and 

IRS released proposed regulations for public comment in February 2012. 

After considering public comments, they anticipate publishing final 

regulations in the summer of 2012. 

Objective 

Assess IRS’s approach for

implementing the FATCA 

requirements. 

Leading Practices

• Identifying an implementation 

team. Previous GAO work has 

emphasized the importance of 

identifying an implementation 

team—including representation 

of high-level management—to 

manage the process and define 

program goals. (GAO-03-669, 

GAO-11-719) 

• Communicating with external 

stakeholders. GAO internal 

control standards indicate that 

management should 

communicate with and obtain 

information from external 

stakeholders. (GAO/AIMD-00-

21.3.1) 

• Issuing guidance. As previous 

GAO work has reported, IRS 

guidance can come in many 

forms and can improve 

taxpayer compliance. (GAO11-750)

• Communicating with staff. GAO 

has reported on the importance 

of keeping employees informed 

of decisions and maintaining 

communication about the goals 

and progress of the effort.

(GAO-04-287)

• Assessing risk. GAO’s internal 

control standards state that 

management needs to 

comprehensively identify risks 

and should consider all 

significant interactions between 

the entity and other parties. 

(GAO/AIMD-00-21.3.1) 
Appendix I: Briefing Slides

Page 11 GAO-12-484 Foreign Account Reporting Requirements

IRS has communicated preliminary FATCA implementation plans to IRS 

staff and additional guidance is pending. For staff involved in the 

execution of the Form 8938 rollout, officials told us that they provided 

more specific guidance, such as responses to frequently asked questions 

on the website and servicewide program updates. By highlighting press 

announcements and the Commissioner’s speeches on the agency’s 

intranet site and using internal employee e-mail and news channels, IRS 

officials have attempted to increase IRS employees’ awareness of 

FATCA. IRS is currently developing an advisory document for the 

workforce summarizing key aspects of FATCA and drawing attention to 

the information posted on the FATCA site. According to IRS’s draft 

communication strategy and LB&I officials, IRS will provide specific 

guidance for employees whose jobs are directly affected by FATCA. 

These include employees in taxpayer assistance, stakeholder liaison, 

media relations, and compliance. 

IRS has begun some FATCA risk assessment activities but has not yet 

developed a consolidated risk assessment approach. According to 

FATCA program officials, IRS has conducted an initial risk assessment

based on scheduled deployment dates of the activities throughout the 

phased implementation, with the main focal point being the deliverables 

that are due earliest. For example, they explained that for the first year, 

Form 8938 was already delivered and the risks mitigated. The next 

deliverable is the FFI registration portal. IRS has begun to catalog and 

address risks for the information technology system deployment and the 

business processes needed to support it. IRS has developed a risk 

management plan that addresses risks and issues associated with 

establishing the FFI registration portal but, understandably, has not yet 

documented a detailed risk management plan for the latter stages of 

implementation. 

Officials stated that they have also identified high-level program, 

budgetary, legal, and legislative risks and are working to mitigate them.

Further, they have created a tracking tool for issues that remain 

unresolved so that they can be addressed. However, IRS has not 

consolidated existing information or future plans into an overall risk 

framework. FATCA program officials told us they had not completed a 

consolidated risk assessment because they were awaiting the release of 

final regulations, which will increase their ability to develop an overall risk 

assessment. Without a consolidated assessment, IRS has less 

assurance that all risks have been comprehensively identified.

Documenting an ongoing effort is key to ensuring that various 

stakeholders and contributors within IRS have a common understanding 

of program goals and progress. Officials also cited the challenge of 

conducting a full risk assessment for a multiphased program still in its 

early stages. While we recognize this difficulty, we believe it is still 

important to lay the foundation for these plans. Leading practices suggest

that risk assessments can and should evolve as short-term and long-term 

forecasting occur and therefore should be reviewed on an ongoing basis. 

A consolidated risk assessment is key to identifying and evaluating

potential risks to the program’s goals so that countermeasures can be 

designed and implemented to prevent or mitigate the risks. 
Appendix I: Briefing Slides

Page 12 GAO-12-484 Foreign Account Reporting Requirements

IRS Has Begun Developing a Strategy to Use FATCA 

Information but Has Not Completed It 

The Internal Revenue Service (IRS) has begun to discuss how it will use 

Foreign Account Tax Compliance Act (FATCA) information to improve 

compliance, but has not yet fully completed a broader strategy for doing 

so. FATCA program officials have identified the primary method for using 

FATCA information to improve tax compliance. According to the officials, 

IRS will compare multiple information sources to identify U.S. taxpayers 

and foreign financial institutions (FFI) failing to comply with the FATCA 

requirements and, more broadly, taxpayers failing to report overseas 

income. Specifically, IRS plans to match the following documents:

• from taxpayers, asset information from Forms 8938 and financial

account information from Report of Foreign Bank and Financial 

Accounts (FBAR) forms;

• from registered FFIs, U.S. taxpayers’ foreign asset information on 

a yet-to-be-developed information return; and

• from other third parties, information from Form 1042-S (Foreign 

Person’s U.S. Income Subject to Withholding) and international 

third-party data. 

IRS has not developed a broader documented strategy to guide its 

efforts. For example, FATCA program officials told us that as IRS

receives Forms 8938 from taxpayers, it will conduct research to better 

understand and prepare for the information it will receive as the 

implementation progresses. However, IRS has not included this work 

within the framework of an overall strategy for FATCA. Documenting the 

research within a strategic framework could identify the purposes of the 

research and the potential uses of the research as implementation 

continues. Such research could be included in a broader discussion of 

the methods and tactics IRS is considering to improve taxpayer 

compliance results through FATCA. 

Although IRS has established a timeline for implementing the FATCA 

requirements, it has not developed a timeline for using this information to 

improve tax compliance. A timeline would identify key internal milestones 

IRS needs to achieve to enable it to use this information to improve tax 

compliance. Without a timeline to help it manage implementation, it is 

less certain that IRS will be prepared to use the FATCA information

timely and effectively. 

Further, IRS has not yet identified performance measures for its FATCA 

efforts. IRS officials told us that performance measures are contingent on 

areas of program design that have not yet been finalized. For example, 

because it is not certain whether foreign governments or FFIs will 

transmit asset information to IRS, it is difficult to set up performance 

goals for processing this information. Although challenging, it is still 

important to lay the foundation for performance measurement early on, 

as a performance measurement plan could help IRS assess the costs 

and benefits of its compliance efforts.

If IRS does not have a broad strategy, it risks negatively affecting FATCA

implementation. First, without this strategy, IRS may not be able to 

effectively communicate to internal stakeholders the overall goals of 

FATCA and steps needed to achieve these goals. Second, because the 

program has already experienced implementation challenges because of 

program design uncertainty, a documented strategy would allow IRS 

management to make more informed resource and program decisions. 

Objective

Assess the extent to which IRS has 

developed plans to use the 

information from FATCA to improve 

tax compliance. 

Leading Practices

• Documented strategy. A 

documented strategy can 

serve as a high-level road

map to achieving taxpayer 

compliance results sooner and 

at a lower cost, and could 

include information on IRS’s 

strategies and tactics for 

improving taxpayer 

compliance. (GAO-11-336) 

GAO has identified areas that a 

strategic document can address. 

These areas include the following: 

• Timeline. Establishing a 

timeline that includes critical 

phases and essential activities 

that need to be completed by 

particular dates to achieve 

results is important for 

accountability and success in 

implementing a project. (GAO11-336) 

• Performance measurement.

GAO has highlighted the 

importance of identifying 

potential program benefits 

early to help aid program 

success, including the ability 

to monitor and evaluate the 

program, as well as identifying 

opportunities for improvement. 

(GAO-11-336, GAO-11-719) 
Appendix I: Briefing Slides

Page 13 GAO-12-484 Foreign Account Reporting Requirements

An incomplete strategy hinders accountability. Given that FATCA 

implementation is in its early stages, the strategy may be a high-level 

road map with timelines and performance measures that could evolve 

over time. 
Appendix I: Briefing Slides

Page 14 GAO-12-484 Foreign Account Reporting Requirements

IRS’s Initial Resource Estimate Is Well Documented, but IRS 

Has Not Established a Timeline for Completing a 

Comprehensive Estimate 

The Internal Revenue Service (IRS) has developed an initial resource

estimate for Foreign Account Tax Compliance Act (FATCA) 

implementation. Currently, its estimate includes the cost of two new

information technology (IT) projects: developing the foreign financial 

institution (FFI) registration portal and developing the document matching 

program described previously.

1 IRS has used a resource estimation team 

and guidance from various sources, including GAO’s Cost Estimating 

and Assessment Guide (Cost Guide) and lessons learned from past IRS 

initiatives, in developing this estimate. IRS also submitted a budget 

request of $37.1 million for funding FATCA implementation for 2013, 

including the costs to staff examiners and agents dedicated to enforcing 

FATCA, along with IT development costs. This budget request does not 

identify the resources needed for implementation beyond fiscal year 

2013.2

For its IT resource estimate, IRS has taken steps to incorporate best 

practices for a well-documented resource estimate. IRS identified the 

sources of the estimate and the methodology used to develop it. IRS has

identified the planned capabilities of the IT system—a technical 

baseline—with the known information. It also documented the steps 

taken to develop the estimate for the IT system. As IRS continues to 

develop cost estimates for implementing FATCA, it will be important to 

continue incorporating the best practices of a well-documented estimate.

A well-documented estimate is essential for validating and defending a 

cost estimate. It will explain the methodology and the calculations 

underlying the cost elements and provide a historic database that can be 

used to replicate or develop future estimates.

 

IRS has not identified all the components needed for a comprehensive 

resource estimate. Because the program design is not final, IRS has not 

been able to identify all of the work necessary to accomplish the 

program’s objectives. Consequently, it has been unable to ascertain all 

potential costs beyond those for IT resources. FATCA program 

managers told us that they plan to further develop their estimate as 

additional information on program design becomes available. The 

officials told us that they plan to include estimates for other resources 

needed, including staffing, contractor needs, and training. A 

comprehensive estimate provides the basic framework necessary to 

facilitate resource tracking. 

Without a comprehensive estimate, management may not have the 

proper insight to successfully calculate resources needed or reliably 

estimate the cost of future similar efforts. Given that IRS is in the early 

stages of implementing the FATCA requirements and the uncertainty 

about key features of the program, it would be difficult for IRS to develop 

a comprehensive cost estimate at this time. However, IRS can take steps 

to prepare for a comprehensive estimate, such as establishing a timeline 

 

1

In September 2011, IRS estimated that the total life cycle cost of developing 

and maintaining the FFI registration portal will be $31.4 million and the total life

cycle cost of developing and maintaining the document matching compliance 

program will be $12.8 million. 2

IRS also submitted a budget request for implementing FATCA in fiscal year 

2012, but this request was unfunded. IRS officials told us they were able to 

reallocate funding to FATCA implementation during this year. 

Objective

Determine the extent to which IRS 

is incorporating best practices to 

develop its resource estimate for 

implementing FATCA. 

Leading Practices

GAO’s Cost Guide identifies best 

practices for cost estimation (GAO09-3SP). Among other functions, 

cost estimation supports the 

budget process by providing 

estimates of funding to efficiently 

execute the program. Congress 

and IRS need reliable cost 

estimates to make well-informed

decisions. According to the Cost 

Guide, cost estimates should be 

well documented, comprehensive, 

accurate, and credible. Satisfying 

all four criteria is important, but in 

the early stages of developing an 

estimate, the first two 

characteristics—well documented 

and comprehensive—are key. 

• Well-documented estimate. 

Among other characteristics, 

the estimate tracks data to their

source documentation, 

includes a technical baseline 

description, and documents all 

steps in its development. 

• Comprehensive estimate. An 

estimate should be structured 

in sufficient detail to ensure 

that cost elements are neither 

omitted nor double counted. 

Among other characteristics, 

the estimate identifies the 

assumptions and definitions 

used to produce the estimate, 

and includes the work 

necessary to accomplish the 

program objectives. 
Appendix I: Briefing Slides

Page 15 GAO-12-484 Foreign Account Reporting Requirements

for completing the estimate. IRS has told us that it does not have a 

timeline for a complete estimate because some design details will not be 

known until later in the implementation process. However, a timeline that 

identifies those key details and sets time frames for completing the 

estimate could be developed. 

Without such a timeline, IRS may not be able to timely develop a reliable, 

comprehensive cost estimate, and therefore risks not communicating key 

cost information to Congress and IRS management in time for them to 

make decisions affecting FATCA implementation.

3

 

3

GAO recently recommended that IRS ensure that it is following best practices in 

its cost estimation for the new Information Reporting and Document Matching

system. See GAO, IRS Management: Cost Estimate for New Information 

Reporting System Needs to be Made More Reliable, 

Without the proper 

information, IRS decisions may not lead to the most efficient execution of 

the program. Furthermore, because reliable cost estimates inform budget 

requests, IRS may not be able to properly support budget requests to 

fund FATCA operations over time. 

GAO-12-59 (Washington, 

D.C.: Jan. 31, 2012). 
Appendix II: Comments from the Internal 

Revenue Service

Page 16 GAO-12-484 Foreign Account Reporting Requirements

Appendix II: Comments from the Internal 

Revenue Service
Appendix II: Comments from the Internal 

Revenue Service

Page 17 GAO-12-484 Foreign Account Reporting Requirements
Appendix II: Comments from the Internal 

Revenue Service

Page 18 GAO-12-484 Foreign Account Reporting Requirements
Appendix II: Comments from the Internal 

Revenue Service

Page 19 GAO-12-484 Foreign Account Reporting Requirements
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 20 GAO-12-484 Foreign Account Reporting Requirements

James R. White, (202) 512-9110 or whitej@gao.gov

Michael Brostek (Director) and Jeffrey Arkin (Assistant Director) managed 

this assignment. Sonya Phillips (Analyst-in-Charge) and Jeffrey Niblack 

(Senior Analyst) made key contributions to all aspects of the work. 

Cynthia Saunders provided methodological assistance; Stacey Steele 

provided assistance with cost estimation best practices; Sabrina Streagle 

provided legal support; and Melanie Papasian provided key assistance 

with message development and writing.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(450911)
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