The United States Government Accountability Office (GAO) recently released a bulletin calling on the Internal Revenue Service (IRS), Congress and other government agencies to make changes to better address foreign asset reporting. The bulletin notes approvals of renunciations of United States citizenship have increased from 1,601 to 4,449 from 2011 to 2016. The agency suspects the increase in renunciations is the result of difficulties with reporting of foreign assets.
What has caused the problem? Lawmakers passed the Foreign Account Tax Compliance Act (FATCA) in 2010. Since its passage, government officials have noticed some problems. One example: almost 75 percent of taxpayers who need to report foreign assets unnecessarily report to both the IRS and the Financial Crimes Enforcement Network (FinCEN).
As a result, the agencies are dealing with unnecessary duplicative reporting.
How can government agencies fix this problem? The GAO has made a number of recommendations to help solve these problems, including:
- Congressional intervention: The agency recommends Congress make changes to the Bank Secrecy Act of 1970. The GAO contends this law, along with other statutes, should be updated to better address foreign financial asset reporting requirements.
- Changes by the IRS: The GAO also calls the IRS to develop a plan to better review Taxpayer Identification Numbers of United States account holders as supplied by Foreign Financial Institutions (FFIs). The IRS currently has difficulty matching the FFI reported numbers to taxpayer’s Taxpayer Identification Numbers.
Additional recommendations include streamlining the Statement of Foreign Financial Assets Form 8938 to provide more clarity for taxpayers who need to file the form. If the changes are implemented, the GAO suspects the rate of renunciations will decrease.