All is not rosy about the IRS’ efforts to tackle offshore tax
evasion. Up until now, the IRS has spent millions to limit offshore tax
evasion, something that is not mentioned when discussing the Foreign Account
Tax Compliance Act. Under the act, the IRS has made agreements with many
foreign governments, which means a substantial increase in the workload for the
IRS. Many believe that the IRS is not yet prepared for the many tax changes
that will come into effect next year, majorly due to FATCA.
Now that the foreign financial institutes (FFIs) of countries with
FATCA agreements will be registering and reporting to the IRS, the agency will
need to absorb the extra work. Due to the recent federal shutdown, the IRS is
already suffering a backlog that it believes will take months to clear.
To counter its enormous workload, the agency has made many of its
processes automatic. The IRS has kept many of its activities online such as the
application that provides paperless registration which FFIs are required to
complete with the IRS under FATCA. Paper registration is possible, but not
recommended.
With FATCA, U.S. taxpayers living overseas will also need to
fulfill certain new reporting requirements. For the IRS, it will mean an
increase in the workload. The IRS has been complaining of the lack of staff,
especially during the tax season. According to the Treasury Inspector General
for Tax Administration (TIGTA) between 200,000 and 400,000 foreign banks, investment
funds and insurers companies will register with the IRS to comply with
FATCA.
When the law was implemented, the IRS made many changes in its
policies and introduced new systems. The first FATCA software system, which
cost $8.6 million, was not fully utilized by the IRS and needed to be
redesigned. Even though the IRS has made public many of the FATCA initiatives,
the agency has not openly discussed its budget restraints or lack of staff.