The Treasury Inspector General For Tax Administration (TIGTA) recently conducted a report on the Internal Revenue Service’s (IRS) ability to enforce compliance with the Foreign Account Tax Compliance Act (FATCA).
Quick review: What is the FATCA? Congress passed the FATCA in 2010 to increase foreign financial reporting and tax compliance. The law requires taxpayers to use Form 8938 to report foreign assets that exceed a set threshold amount to the IRS. The government has currently set the threshold at $50,000 for single, $100,000 for married taxpayers living in the United States at the last day of the tax year or $75,000 and $150,000 at any point during the tax year. The agency has set the threshold for taxpayers living outside the United States at $200,000 for single filers or $400,000 for married filers at the last day of the tax year or $300,000 and $600,000 respectively at any point during the tax year.
The law also requires foreign financial institutions report certain information about United States taxpayers with accounts held within their establishment. A foreign financial institute that fails to comply with this law can face stiff financial penalties.
The Congressional Joint Committee on Taxation estimated the FATCA would generate approximately $4.8 billion in tax revenue off unreported foreign financial accounts by 2016. This projection has not been met.
What did the TIGTA find? The agency states that although the IRS has spent $380 million on the FATCA it has failed to meet the expectations, like the projection example noted above, of the FATCA Compliance Roadmap.
More specifically, the TIGTA notes that reports filed by financial institutions in an effort to comply with the FATCA did not include important information like Taxpayer Identification Numbers. Without this information the IRS could not match foreign financial accounts to individual taxpayers.
What does this mean for United States taxpayers with foreign assets? The report is a reminder of the importance of taxpayers to review their options if they have yet to come into compliance with applicable U.S. tax laws.
The report also included recommendations by the TIGTA to increase the likelihood of compliance. This could lead to increased disclosure by foreign financial institutions of any previously unreported accounts. Anyone contacted about such matters is wise to seek the legal counsel of Goldburd McCone LLP for assistance.