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Intergovernmental agreement

The IRS instructions describe an intergovernmental agreement as part of FATCA's framework for reporting by foreign financial institutions. For a U.S. citizen, the term also appears in Form 8938 instructions about certain foreign accounts.

Meaning in FATCA reporting

An intergovernmental agreement is an arrangement under which reporting foreign financial institutions identify U.S. accounts and report information about U.S. account holders. The term appears in the IRS instructions for Form 8938.[6]

The IRS describes the arrangement as one of two models. Under a Model 1 IGA, the partner jurisdiction's institutions report U.S. account information to their own tax authority, which exchanges it with the IRS. Under Model 2, institutions report directly to the IRS under an FFI agreement.[7]

The Treasury Department's FATCA page lists model agreement materials, including reciprocal Model 1A, nonreciprocal Model 1B, and Model 2 agreements. The listed versions also distinguish whether a preexisting information exchange agreement or tax treaty applies.[5]

These are related reporting channels, not the same filing. One concerns an institution's reporting under FATCA; the other concerns a U.S. taxpayer's Form 8938 obligation when the applicable filing rules are met.[4]

Effect on Form 8938 accounts

The Form 8938 instructions address accounts that an applicable Model 1 or Model 2 agreement otherwise excludes from the definition of a financial account. When the U.S. citizen is required to file Form 8938, those instructions require reporting certain retirement, pension, and savings accounts despite that exclusion.[1]

The agreement does not itself establish that a particular U.S. citizen must file, and the account rule does not replace the form's other requirements.[1]

FATCA is the U.S. law and reporting framework under which these agreements operate. Form 8938 is the individual taxpayer form identified in that framework, while an intergovernmental agreement concerns how participating jurisdictions' financial institutions report account information.[4]

Foreign financial institution, or FFI, is a key neighboring term because the IRS describes reporting FFIs as the entities that identify U.S. accounts under a Model 1 or Model 2 agreement. The Form 8938 rule then separately determines which specified accounts a filing U.S. citizen reports.[6]

A jurisdiction's agreement model and its account treatment are related, but the Form 8938 instructions direct uniform reporting for the named account types. They state that the result does not depend on whether the account is in a jurisdiction with an IGA.[1]

Model 1 IGA

Model 1 IGA is one form in the Treasury model intergovernmental agreement framework for implementing FATCA and improving tax compliance.[5] Treasury's jurisdiction listing identifies jurisdictions by agreement type and status, and its model agreement collection includes reciprocal Model 1A and nonreciprocal Model 1B forms, versions associated with different agreement in substance groupings, and Annex I and Annex II.[5]

Under the Model 1 reporting route, financial institutions in the partner jurisdiction report U.S. account information to that jurisdiction's tax authority, which then reports it to the IRS.[5]

Model 2 IGA

Model 2 IGA is one of the model intergovernmental agreements published to implement FATCA. Treasury's agreements list includes Model 2 versions associated with jurisdictions that had or did not have a preexisting tax information exchange agreement or double taxation convention. Treasury also lists Annex I and Annex II to the Model 2 Agreement.[1][5]

For a U.S. citizen required to file Form 8938, the instructions require reporting certain retirement and pension accounts and nonretirement savings accounts even when an applicable Model 2 IGA excludes them from its financial account definition. The rule also covers accounts meeting similar conditions under Regulations section 1.1471-5(b)(2)(i). These accounts follow uniform reporting rules whether or not they are maintained in a jurisdiction with an IGA.[1]

Under a Model 1 or Model 2 IGA, reporting foreign financial institutions identify U.S. accounts and report information about U.S. account holders. Treasury describes IGA compliance as one route for foreign financial institutions in jurisdictions with an agreement treated as in effect. The IRS describes institutions reporting to the IRS about accounts held by U.S. taxpayers or certain foreign entities with substantial U.S. ownership.[4][5][6]

Form 8938 instructions address a separate U.S. taxpayer filing obligation for specified foreign financial assets. They also discuss certain foreign trust interests held for investment outside a financial account. Under the Model 2 reporting route, foreign financial institutions comply with the terms of an FFI agreement with the IRS and report U.S. account information directly to the IRS in accordance with FATCA regulations and the applicable Model 2 IGA.[1]

Questions and answers

What does an intergovernmental agreement mean in the IRS FATCA instructions?

The IRS describes Model 1 and Model 2 agreements as arrangements under which reporting foreign financial institutions identify U.S. accounts and report information about U.S. account holders. The term therefore concerns institutional FATCA reporting.[6]

Does an agreement remove accounts from Form 8938 reporting?

The Form 8938 instructions say certain retirement, pension, and savings accounts must be reported even when an applicable Model 1 or Model 2 agreement otherwise excludes them from the financial account definition. This rule applies when Form 8938 filing is required.[1]

Does the Form 8938 account rule depend on the jurisdiction?

For the specified accounts, the IRS instructions say the reporting requirement applies without regard to whether the account is maintained in a jurisdiction with an IGA. The instruction is conditional on the taxpayer being required to file Form 8938.[1]

What is the difference between Model 1 and Model 2?

Under Model 1, financial institutions report to their local tax authority, which exchanges the information with the IRS. Under Model 2, they report directly to the IRS. Treasury's agreement materials list reciprocal Model 1A, nonreciprocal Model 1B, and Model 2 agreement forms.[5]

  • FATCA: FATCA requires certain U.S. taxpayers to report foreign assets and financial institutions to report accounts to the IRS. Form 8938 may apply at thresholds.
  • Participating foreign financial institution: The IRS describes a participating foreign financial institution as an FFI that reports U.S. account holders who are specified U.S. persons under FATCA.
  • Foreign financial account: Form 8938 treats an account outside the United States as a specified foreign financial asset. FBAR rules identify reportable accounts by type and location.

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Sources and data notes
  1. Internal Revenue Service, Instructions for Form 8938. https://www.irs.gov/instructions/i8938. Retrieved .
  2. FinCEN, Report foreign bank and financial accounts. https://www.fincen.gov/report-foreign-bank-and-financial-accounts. Retrieved .
  3. U.S. Government, 31 CFR 1010.350. https://ecfr.io/Title-31/Section-1010.350. Retrieved .
  4. Internal Revenue Service, FATCA summary. https://www.irs.gov/businesses/corporations/summary-of-key-fatca-provisions. Retrieved .
  5. U.S. Department of the Treasury, FATCA: agreements by jurisdiction. https://home.treasury.gov/policy-issues/tax-policy/foreign-account-tax-compliance-act. Retrieved .
  6. Internal Revenue Service, 26 CFR 1.1471-4. https://www.irs.gov/instructions/iw9. Retrieved .
  7. Treasury Inspector General for Tax Administration, Additional Actions Are Needed to Address Non-Filing and Non-Reporting Compliance Under the Foreign Account Tax Compliance Act (Report 2022-30-019). https://www.tigta.gov/sites/default/files/reports/2024-11/202230019fr.pdf. Retrieved .

Dates in this block record when each source was read for this page.