Congress enacted the Foreign Account Tax Compliance Act, or FATCA, in 2010, to crack down on American citizens who use undisclosed, offshore bank accounts, often in "tax haven" countries, to hide substantial assets from the IRS. The law is extremely far-reaching, but individuals owing taxes on undisclosed offshore accounts were offered a chance to minimize financial penalties and avoid criminal prosecution through the IRS's Offshore Voluntary Disclosure Program.
People who may owe taxes on offshore assets should immediately consult a knowledgeable attorney, particularly in light of reports of foreign banks being pressured by the IRS to disclose the identities of American account holders. Indeed, FATCA appears geared toward an unprecedented level of international financial surveillance.
A recent post in the New York Times' DealBook blog revealed substantial opposition, both in the U.S. and abroad, to FATCA's long, sticky fingers and onerous, expensive compliance requirements. Yet the Treasury Department keeps patting itself on the back for persuading numerous countries to abandon their bank secrecy laws in favor of FATCA -- and even for its collaboration with financial institutions.
"We have worked very closely with financial institutions to come up with a practical, risk-based approach that balances benefits and burdens," a Treasury representative is quoted as saying.
Is Treasury's perception of that support accurate? DealBook blog asserts that individual bankers, while privately making their opposition to FATCA clear, are markedly reluctant to divulge it to regulators.
One former deputy commissioner of the IRS pointed to public and industry comments on the law saying, "It's all criticism, and that speaks volumes about the challenges." An international business consultant who lectures at Columbia Law School called FATCA "bullying and selfish" and accused the U.S. of "acting outside its borders as if they were its home." A spokesperson for Wall Street's largest lobbying group endorsed FATCA's underlying goal but warned it could result in a "train wreck" if key countries and banks don't sign on.
Moreover, critics ranging from tax scholars to members of Congress have raised grave concerns. For one, FATCA only applies to tax evasion by individuals, not corporations. For another, Treasury has pledged that U.S. banks share account data with other countries, which the original law didn't authorize. Yet another is that it will require costly, invasive monitoring of Americans' personal bank accounts -- and could result in another round of banks being pressured by the IRS.
Nevertheless, Treasury is moving apace and expects to put the law fully into effect, as scheduled, on June 30 of next year.
Source: The New York Times' DealBook blog, "Complying With U.S. Tax Evasion Law Is Vexing Foreign Banks," Lynnley Browning, Sept. 16, 2013