Since the implementation of reporting rules under the Foreign Account Tax Compliance Act, U.S. citizens living in foreign countries have found that some foreign banks are less than enthusiastic about taking them on as customers. It goes further than just refusing to do business with expatriates: Some banks have closed existing accounts. And it's all because of FATCA's onerous reporting requirements.
The National Taxpayer Advocate has taken up the cause, and her organization, the IRS' Taxpayer Advocate Service, has offered a practical solution. The fix would be a simple rule change that would not -- we repeat, would not -- involve Congress.
There are times when a problem can be worked in reverse: Rather than looking at the process, it seems the TAS looked at the result. It turns out that the IRS is already receiving some of the information included in the FATCA reports from the taxpayers themselves -- under the foreign bank account reports, or FBARs, they are required to file.
The idea behind all of the reporting rules, of course, is to make it difficult for taxpayers to hide assets in foreign bank accounts. Think of all the crime novels that mention "off-shore accounts" or "numbered Swiss bank accounts": The money in these accounts was not reported to the IRS, so the IRS was unable to collect taxes on it. While other countries have made it harder to maintain complete anonymity with financial accounts, the FATCA reporting requirements were designed to make it easier for the IRS to track down unreported assets. (For more about FATCA and FBAR, please see our article, FATCA, FBAR and foreign tax compliance issues: What you need to know.)
So, the TAS came to the surprising conclusion that the IRS was collecting information that it already had. Even more surprising, the TAS saw an advantage in eliminating the duplication.
We'll continue this in our next post.
Source: Accounting Today, "Taxpayer Advocate Recommends Merging FATCA and FBAR Reporting Rules," Michael Cohn, April 21, 2015