The Internal Revenue Service, tasked with implementing the Foreign Account Tax Compliance Act with no new funds, spent $380 million on a roadmap for documenting overseas assets but made little progress, a watchdog found.
The tax agency “has taken limited or no action on a majority of the planned activities outlined in the FATCA Compliance Roadmap,” said the report dated July 5 from the Treasury Inspector General for Tax Administration.
The agency’s efforts to match reports of U.S. taxpayer assets with foreign financial institutions against individual taxpayers’ data linked to identification numbers “were unsuccessful, which affected the IRS’s ability to identify and enforce FATCA requirements for individual taxpayers,” the report said.
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Before the 2010 law, the United States had many tax information exchange agreements with other countries to help prevent the use of foreign accounts to facilitate tax evasion, TIGTA explained. Foreign treaty partners were always required to report to the American IRS, but the 2010 law required far more detail from foreign entities about their U.S. customers, and on an annual basis. “As a result, the FATCA is an important development in U.S. efforts to improve tax compliance involving foreign financial assets, including offshore accounts held by U.S. taxpayers,” the report said.
Reviewing records from February to December 2017 at several regional offices of the agency’s Large Business and International Division, auditors also faulted the agency’s delays in initiating action to enforce compliance with FATCA’s requirements on foreign entities that withhold U.S. taxpayers’ foreign income. Many of the tax forms completed by the withholding entities lacked valid taxpayer identification numbers, the report said.
TIGTA recommended that the IRS establish follow-up procedures and initiate action to address error notices related to file submissions that were rejected, improve guidance and expand efforts to correct invalid taxpayer identification numbers.
The IRS agreed with four of TIGTA’s six recommendations. But Douglas O’Donnell, commissioner of the division, after reviewing a draft of the report, wrote that “the narrow focus of the report should not be used to draw conclusions about the entirety of the IRS’s enforcement in this area. The report focuses on an early planning document, the roadmap, which was not intended to be a comprehensive compliance plan and was superseded by campaign planning and more task specific documents that more timely address changing circumstances.”
O’Donnell added that “with no separate appropriation to implement FATCA, the IRS built a world-class Data Exchange System—the International Data Exchange Service—as a secure electronic platform for transmitting and exchanging data.”