Taxpayer Advocate Service: Your Voice at the IRS

National Taxpayer Advocate Annual Report to Congress

Burdensome Foreign Account Reporting Requirements

Foreign Account Tax Compliance Act (FATCA) Could be Burdensome

FATCA, the Foreign Account Tax Compliance Act, seeks to reduce the loss of revenue on accounts held abroad. It imposes a wide range of reporting obligations, along with potential sanctions on U.S. taxpayers, foreign entities, and withholding agents. FATCA will not be fully in place until 2017 at the earliest. However, questions remain about whether the information being compiled is necessary and will be effectively used, the enforcement benefits of FATCA justify the compliance burdens and economic hardships it imposes, and the program will preserve taxpayers’ right to due process. 
The National Taxpayer Advocate is concerned that the program may not be able distinguish “benign actors” who make innocent mistakes from “bad actors” who are trying to hide their income. Taxpayers could face consequences because of lax procedures or standards by foreign financial institutions in collecting and transmitting account data. The IRS also has been slow in acting upon recommendations well-informed stakeholders.

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The National Taxpayer Advocate cautions the IRS to gather only the information that it will actually use, to learn from its more effectively preserve the due process rights of taxpayers, and to burden impacted parties as little as possible.