The I.R.S. kicked off its Game against the offshore tax evaders successfully, meeting its September 30th deadline. The star of the Game is the new kid that has been “in the works” over the last five years, also known as F.A.T.C.A. (Foreign Account Tax Compliance Act). FATCA is the tool that the I.R.S. implemented to identify information from U.S. taxpayers using foreign accounts, or foreign entities to dodge taxes, and consequently be out of compliance. The I.R.S. is currently exchanging information with partner jurisdictions tax administrators under the Intergovernmental Agreements (IGA’s) that are implementing FATCA. The IGA’s set the groundwork for the cooperation between the jurisdictions. Some (reciprocal IGA’s, also known as Model 1), require the I.R.S. to reciprocally exchange financial information from the residents in foreign jurisdictions that maintain U.S. Bank accounts. This is a Win-Win for all the parties involved, and displays true sportsmanship. The mystery still lies in that the I.R.S. has not disclosed the names of the Nations that are exchanging information. Only the Canada Revenue Agency and the Australian Taxation Office have raised their hands, and publicly stated that they have actually exchanged information already. The I.R.S. has also not specified the type of information, and the extent of the information it is receiving from the countries that are exchanging information. Please go to: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx for a list of all the participating jurisdictions, and their respective IGA’s.
Many have been very critical of FATCA. Its main objective is to level off the playing field for all, by bringing the out of compliance evader into compliance. This sounds fair. Nonetheless, FATCA is also perceived to be a U.S. campaign which uses all of the banks of the world to search and find any “US person”. These banks are then forced to bankroll these searches under the threat of a 30% withholding penalty, if they do not perform the work. Meaning, if the Foreign Financial Institutions don’t comply, and provide the financial information to the I.R.S., their account holders will be docked 30% of payments from U.S. sources.
Net net, we have the I.R.S. receiving and giving information out on its citizens. Is this right? Many believe that this type of sensitive information (name, address, tax I.D. numbers, account numbers and balances) could potentially fall in the wrong hands (kidnappers, extortionists, etc.). Although the I.R.S. has reiterated that it will only exchange with the countries that meet very stringent privacy and technical standards, this type of information is automatically digitally transferred, and cyber –security risks will always be present. Many also think that the I.R.S. is still missing the boat, and that tax avoidance is still best executed via Real Estate. China and Russia are the largest investors in U.S. Real Estate. These countries have not signed IGA’s, and their citizens are pouring their wealth in our country.
Finally, there is always hope in our great country. Our country offers a plea bargain program; also known as the Offshore Voluntary Disclosure Program (OVDP), which the I.R.S. re-opened at the beginning of 2012. Still open today, until further notice.