On January 12, 2015, the IRS announced the opening of the International Data Exchange Service (IDES) for enrollment. The appearance of IDES is not a surprise to FATCA Attorneys, because most FATCA attorneys knew IDES was the next logical step since its purpose is going to be for foreign financial institutions (FFIs) and host country tax authorities (HCTAs) to securely send their FATCA reports about US account holders under regular FATCA compliance or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.
So far, more than 145,000 financial institutions have registered through the IRS FATCA Registration System. Moreover, the IRS made tremendous progress with IGAs – there are now more than 110 IGAs, either signed or agreed in substance.
FATCA Attorneys Update: How Will IDES Function?
Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information. This means that FFIs and HCTAs can have a high level of confidence in the data about US account holders that they will be transmitted to the IRS.
“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS Commissioner John Koskinen. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”
Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.
IDES runs on all major browsers, including Chrome, Internet Explorer, Safari, and Firefox and will support application-to-application exchanges through the SFTP transmission protocol enabling a wide variety of users to interact with IDES without building additional infrastructure to support transmission.
FATCA Attorneys Update: IDES and Model 2 IGA Jurisdictions
The IRS encourages HCTAs in Model 2 IGA jurisdictions and FFIs to begin the enrollment process well in advance of their reporting deadline. To begin transmitting information in IDES,an FFI or HCTA will need to first obtain a digital certificate. Digital certificates bind digital information to physical identities and provide data integrity. IDES stores each user’s public key and related digital certificate. All IDES enrollees (including host country tax authorities) must obtain a proper digital certificate in order to enroll (there is a list of approved Certificate Authorities available on irs.gov).
FATCA Attorneys Update: IDES and Model 1 IGA Jurisdictions
For HCTAs in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. FFIs will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list. The online address for IDES enrollment can be found here.
FATCA Attorneys Update: IDES and Offshore Voluntary Disclosure
The opening of IDES is considered by FATCA attorneys as an important development in FATCA implementation which is likely to affect a very large number of US persons with undisclosed foreign accounts. It should be remembers that if the IRS receives the information about an undisclosed foreign account through IDES, it may prevent the US owner of such an undisclosed foreign account from being able to enter into the IRS Offshore Voluntary Disclosure Program.
FATCA attorneys also should warn their US clients who closed their foreign accounts prior to 2014 that the closure of such accounts prior to the implementation of FATCA does not mean that these accounts will not be reported later. On the contrary, FATCA attorneys should stress to their clients that the IDES is likely to be used by FFIs and HCTAs to report prior non-compliance with respect to closed accounts to the IRS as early as March 31, 2016 if not earlier.
Contact Sherayzen Law Office for Help With Undisclosed Foreign Accounts
Almost all FATCA attorneys stress that time is running out for US persons with undisclosed foreign accounts to start their voluntary disclosure process. With the introduction of IDES, a significant practical hurdle to FATCA implementation has been removed. This means that your undisclosed foreign account may be reported at any point now to the IRS.
If you have undisclosed foreign accounts, you should contact Sherayzen Law Office as soon as possible to explore your voluntary disclosure options. Our experienced FATCA law firm will thoroughly analyze your case, determine your existing exposure to U.S. tax penalties, identify the available voluntary disclosure options, prepare all legal and tax documents for your voluntary disclosure, and vigorously advocate your position against the IRS.