The Foreign Account Tax Compliance Act (FATCA) is so complex and unworkable that 8 years later, the IRS still cannot administer the law. This failure to implement FATCA comes despite spending $380 million in taxpayer dollars on enforcement and implementation according to a report by the Treasury Inspector General for Tax Administration.
FATCA was enacted into law in 2010 to ensure that Americans using off shore bank accounts were not evading taxes; however, this law has done nothing more than increase compliance costs for Americans overseas.
The IRS is required to implement FATCA as outlined in the “FATCA compliance roadmap.” However, as the TIGTA report notes, over half of the 31 actions under the roadmap are in the early stages of development, and another 7 have not even been acted on:
“Of the 31 activities, the IRS indicated that it has taken action on 24 activities. However, for 16 of those 24 activities, we observed that action was either limited or in the early stages of development. In addition, we identified delays of one to two years in implementing 20 of the 24 activities, 10 of which are still experiencing delays from being fully implemented…As a result, the IRS is not taking appropriate enforcement action on FATCA compliance activities or measuring its performance.”
This lack of progress comes despite the IRS spending $222 million on IT costs from 2012 to 2017, with another $157 million being spent on “other costs.”
One of the main FATCA provisions requires foreign financial institutions to file form 8966s, which contain detailed financial information of taxpayers. As of 2017, 2.4 million, or nearly 30 percent of all 8966 forms filed were rejected. One reason for this is that the IRS still does not have the resources necessary to match FFI (foreign financial institution) and individual tax payer data, even after spending $222 million on it, leading to millions of records being rejected due to invalid TIN or missing/inaccurate information.
According to the TIGTA Report, “IRS management acknowledged that they have only taken limited action related to the matched and unmatched records, and noted that they have not taken any compliance action.”
This complicated and unenforceable law impacts any American with an overseas bank account and imposes burdensome reporting requirements on FFIs.
Americans with assets abroad that meet or exceed $50,000 are subject to compliance with FATCA tax filing. FATCA is especially burdensome for expatriate Americans who are forced to comply with tax laws in their country of residence and the IRS.
Americans have also had to deal with being locked out of foreign financial institutions due to a 30 percent withholding penalty that can be imposed on the U.S. assets of any foreign institution that fails to comply. Foreign banks, stockbrokers, hedge funds, and insurance brokers often times find it easier to deny Americans their services, than to have to worry about complying with the costly and complex IRS law.
Eight years, and 380 million dollars later, FATCA is still as unenforceable and complex as it was when it first became law in 2010. It is time to put an end to this costly and overreaching law once and for all before even more money goes to waste.