The IRS has spent millions of dollars getting ready for FATCA yet is still woefully unprepared for the new law which kicks in this July. Does that sound like the opinion of another tax protestor or disgruntled taxpayer? Try the Treasury Inspector General for Tax Administration!
FATCA is short for the Foreign Account Tax Compliance Act. Under FATCA, foreign banks must examine their accounts and report those with ties to the U.S. The IRS hopes to ferret out an estimated 7 million people with unreported offshore accounts.
Originally passed in 2010, FATCA is scheduled to go into effect on July 1st for foreign banks and financial institutions. (It’s already in effect for individuals.) That’s just 5 months away. According to the Inspector General’s report, the IRS has had months and months to get ready and has spent millions of dollars. They still aren’t ready, however.
The IRS blames law changes and budget constraints. That may be true, but taxpayers and banks have the right to get answers to their questions and have a system that operates smoothly.
The inspector general’s report could not have come at a worse time for the IRS. Already delayed twice, US banks, foreign banks, American expats living overseas and some foreign governments are fuming over the law and asking for it to either be repealed or delayed again. The top IRS watchdog’s conclusion that the IRS isn’t even ready for the law may be just the ammunition these groups need to curtail the unpopular law.
When coupled with the poor website for Obamacare, many people have no faith in the government’s ability to roll out new programs. Politicians are worried about backlash from voters too although FATCA’s biggest constituency lives offshore and often doesn’t vote.
What’s next? The IRS is pressing forward with its July 1st target date. That means thousands of offshore banks, brokerage firms, hedge funds and insurance companies must spend tens of millions of dollars themselves to get ready. Will either side be ready? Our bet is on the banking community although their costs will likely be passed along as extra fees for customers.
Even if FATCA is repealed or delayed, time is running out for taxpayers with unreported accounts. The IRS and Justice Department have proven themselves very adept at discovering people and businesses with unreported foreign accounts and unfiled FBARs (an FBAR is a Report of Foreign Bank and Financial Accounts).
The penalties for having an unreported account can be huge. Although the IRS has several amnesty and voluntary disclosure options for those still not in compliance, many of those programs are off the table if the IRS gets your name first from a foreign bank.
We welcome questions about FATCA, FBAR and foreign reporting issues and will gladly explain your responsibilities and explore your options. Our FATCA attorneys have helped many taxpayers with a wide variety of offshore reporting problems. We handle IRS matters worldwide and most services can be handled for a reasonable flat fee.
For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author may also be contacted at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Need more information? Our Due Diligence blog has hundreds of text searchable articles on FATCA and FBARs.
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