The Foreign Account Tax Compliance Act hasn’t generated the billions of dollars in revenue originally anticipated, nor has the IRS come within striking distance of the envisioned compliance plan, according to a new report.
By the close of 2020, FATCA should have yielded $8.7 billion in revenue, according to Joint Committee on Taxation estimates from 2010, the Treasury Inspector General for Tax Administration said in a report released April 12. Despite implementation expenditures of $574 million, the IRS remains unable to demonstrate that compliance activity has resulted in revenue gains above $14 million in penalties, the report says.
Those penalties were assessed during normal examinations for foreign asset disclosure failures and not as a result of two Large Business and International Division campaigns established as part of the IRS’s FATCA compliance efforts, neither of which have yielded any assessment revenue, the report notes. Campaign 896, for example, which relates to private offshore banking, has resulted in the issuance of 830 education letters and five soft letters but no section 6038D(d) penalties because of LB&I’s early focus on the underreporting of foreign assets rather than on nonfilers of Form 8938, TIGTA said.
“This had left a significant gap in FATCA enforcement,” the report says. The IRS responded to TIGTA’s recommendation that LB&I find a way to identify nonfilers by stating that it is now pursuing that population and that “civil and criminal examinations are underway.”
Campaign 975, announced in October 2018, was designed to target foreign financial institutions with U.S. account holders that fail to submit Forms 8966. But it resulted in just a dozen soft letters between November 2019 and October 2020 and “has not reduced foreign financial institution noncompliance,” the report says.
“The IRS has significantly departed from its original comprehensive FATCA compliance roadmap in favor of a more limited compliance effort,” the report says. The IRS says its departure from updating broad strategy documents like the roadmap is the result of a shift toward incorporating FATCA more broadly into tax administration through compliance campaigns, but abandoning the roadmap has hindered compliance efforts, the report says.
“We believe the IRS would be further along in using FATCA data for compliance activities had it maintained the FATCA Compliance Roadmap,” TIGTA said. Without it, the agency’s capacity to collect and use FATCA data for enforcement is curtailed, it said.
“FATCA provisions have been in effect for over 11 years, and the IRS has not made significant measurable progress towards ensuring compliance,” the report says. “The IRS has not come close to building the compliance plan that was originally contemplated.” IRS officials have said that FATCA has improved voluntary compliance, citing increased foreign bank account reporting.