The federal Foreign Account Tax Compliance Act, commonly known as FATCA, is a 2013 law that empowers the IRS to pursue taxpayers suspected of failing to disclose assets in foreign bank and investment accounts. The idea is that these individuals and businesses are defrauding the IRS by hiding these funds so that they can claim less income than they actually earned.
Among other things, FATCA requires financial firms based overseas to provide information to the IRS about their U.S. customers’ account balances and investment income. Failure to disclose could trigger a fine ranging from $10,000 up to $50,000 per offense.
The way those tax penalties are assessed, and how the law’s provisions are getting phased in, are a problem, according to one IRS official and the agency’s former leader. National Taxpayer Advocate Nina Olson and former acting IRS Commissioner Steven Miller both criticized FATCA in a recent interview, according to the Wall Street Journal.
As FATCA has come into effect, many U.S. expatriates have given up their citizenship, rather than risk having to pay penalties for hidden assets. From a business perspective, many foreign financial firms have become cautious of taking on expatriates as clients.
Olson said that many taxpayers do not fully understand the new law, because of its wide scope and the gradual way it has been phased in. She also criticized FATCA’s penalties for being objectively proportioned. She said the fines are “tormenting” taxpayers.
Miller said that FATCA will succeed in its goal of increasing federal income tax revenue. He predicted that taxpayers will simply become more creative in how they avoid paying taxes.
For more information about FATCA, please read our article on the subject.
Source: The Wall Street Journal, “Tax Officials Express Doubts About Fatca,” Laura Saunders, Oct. 8, 2014