The IRS is going after assets held in foreign accounts like never before. First it was not one but two iterations of the Offshore Voluntary Disclosure Initiative (OVDI). Coming soon is a new law called the Foreign Account Tax Compliance Act (FATCA).
FATCA is an offshore account enforcement law passed by Congress in 2010. It aims to enlist foreign financial entities in collecting tax owed to Uncle Sam by Americans with foreign accounts.
Though FATCA will not fully take effect until 2014, planning for the implementation of the law has already begun. There have strident objections to it by foreign banks and other financial institutions who assert that the cost of compliance will be excessively burdensome.
The latest development is that the U.S. and five European countries have agreed to an information-sharing deal that is supposed to help implement FATCA. The five countries are Germany, France, Britain, Italy and Spain.
FATCA, as currently written, will require foreign financial institutions to report accounts held by Americans or be subject to a withholding penalty. Foreign banks are concerned that compliance would put them in a position of violating laws on national secrecy.
Under the deal announced with the five countries last week, banks in those countries will share the data on American assets not with the IRS, but with their own national governments. Those governments, in turn, will share the data with the U.S.
This government-to-government approach for FATCA compliance is supposed to address the issue of national secrecy laws in the five countries involved. It remains to be seen whether other countries will take similar actions.
Source: “5 European Nations Agree to Help U.S. Crack Down on Tax Evasion,” New York Times, 2-8-12