2015 will bring the first data transfers under the Foreign Account Tax Compliance Act (FATCA), which is a major milestone for the international tax legislation. However, some analysts have questions about whether the IRS will be able to effectively use this data due to recent IRS budget cuts.
CPA Practice Advisor noted the agency is primed to crack down on cross-border tax evasion, though it may not have the resources to do so. This line of thinking is not surprising, as the IRS has stated it will need to cut back many aspects of its operations to stay within the slim budget. Many analysts, including National Treasuries Employee Union (NTEU) President Colleen Kelly, have expressed their belief that enforcement spending will be among the items that are put on the back burner.
Furthermore, July 2013 reports from the National Taxpayer Advocate and the Galen Institute confirmed the substantial amount of new staff and training the IRS needs to keep up with the many changes to tax information reporting legislation that are coming to fruition at the same time, which include the Affordable Care Act (ACA).
What does this mean for FATCA reporting?
Not only is the IRS tasked with ensuring governments and foreign financial institutions (FFIs) are sending the appropriate U.S. taxpayer information and enforcing the 30 percent withholding penalty for non-compliant entities, but it must also facilitate the transfer process and work out any kinks in the system that arise during the inaugural upload, according to CPA Practice Advisor.
While it’s not clear whether the agency has the capacity to handle all of these duties, the deadlines for governments and FFIs to submit their data is firm. This means these entities must meet their obligations regardless of the IRS’ ability to provide additional guidance and support.
For the moment, FATCA‘s momentum doesn’t seem to be slowing. The U.S. Treasury Department signed a few intergovernmental agreements (IGAs) with jurisdictions pledging to comply with the international tax law in December 2014. This list included Singapore, which finalized talks about the bilateral agreement in May 2014 and signed a Model 1 IGA Dec. 9, 2014.
The specifics of what 2015 holds for FATCA regulations and the first data transfer are yet to be seen. However, as more jurisdictions sign IGAs and implement local legislation to facilitate the law, the IRS will likely not be the only source of enforcement.
