In spite of an $8.6 million spending spree and nearly 19 months to rally its troops in an effort to enforce a new law against offshore tax evasion that takes effect next year, the IRS remains unprepared. According to the Treasury Inspector General for Tax Administration, more IRS computer and staff improvements are necessary in order to administer the Foreign Account Tax Compliance Act.
FATCA, brought to life in 2010, is expected to take effect in July 2014 and will require foreign financial institutions to tell the IRS about American offshore accounts worth $50,000 or more. Support for the law grew after a Swiss banking scandal revealed the rather common practice of U.S. taxpayers hiding fortunes overseas. More than 200,000 foreign banks, investment funds, and insurance companies are expected to register.
Implementing the law has proved rather complex and has involved policy changes that in November 2012 undercut the IRS' first FATCA software system. "The IRS was unable to fully utilize the initial system," which cost $8.6 million, TIGTA said.
The IRS challenged TIGTA's findings. "The need to redesign the system in 2012 was due to significant and necessary regulatory changes," the IRS said.
With four bank lobbying groups attempting to persuade the Obama administration to delay FATCA for six months and TIGTA's less-than-satisfactory report, the law's effective date may have been set prematurely.