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1 1 (July 15, 2022)

handle is hein.crs/govehyn0001 and id is 1 raw text is: Congre s&onaI Resedrch Sern anfrming Ih Ieg ilaive dIebate sin o 1914 0 July 15, 2022 The Foreign Account Tax Compliance Act (FATCA) The Foreign Account Tax Compliance Act (FATCA), enacted as part of the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147), was intended to increase compliance with U.S. tax law among U.S. citizens and residents with financial holdings outside the United States. FATCA aimed to reduce noncompliance by requiring certain U.S. taxpayers with assets outside the United States to report those assets to the Internal Revenue Service (IRS) and placing requirements on foreign financial institutions (FFIs). Under FATCA, FFIs and certain other entities are required to report foreign assets held by U.S. account holders to the IRS on Form 8966, FATCA Report. FFIs can register directly with the IRS or comply with the FATCA Intergovernmental Agreement (IGA) for their jurisdiction (if applicable). The United States currently has FATCA IGAs with 113 countries. FFIs that do not comply with FATCA may face 30% withholding on their U.S.-source income. FATCA disclosures generally require an FFI to obtain consent from its account holder to share the holder's financial information. If consent is not granted from the account holder, FFIs must withhold and remit to the IRS 30% of any U.S.-source income generated by these accounts. Under FATCA, certain U.S. taxpayers holding financial assets offshore greater than certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The specific thresholds depend on residence and marital status. The threshold for taxpayers residing in the United States is $100,000 on the last day of the tax year or $150,000 at any time during the tax year for those filing married joint returns and $50,000 (or $75,000) for all other taxpayers. Taxpayers living abroad have thresholds of $400,000 (or $600,000) for those filing married joint returns and $200,000 (or $300,000) for all other taxpayers. The threshold for certain domestic entities is $75,000. Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to nondisclosed foreign financial assets are subject to an additional substantial understatement penalty of 40%. The Organisation for Economic Co-operation and Development (OECD) subsequently implemented a multilateral program similar to FATCA, the Common Reporting Standard (CRS). CRS provides for reciprocal information sharing. More than 100 countries have adopted the CRS, but the United States has not. Effectiveness in Inducing Compliance The magnitude of individual tax evasion is uncertain, but recent estimates placed it at around $40 billion a year (see CRS Report R40623, Tax Havens: International Tax Avoidance and Evasion, by Jane G. Gravelle). When enacted, FATCA was projected by the Joint Committee on Taxation to raise $1 billion in revenues per year by 2019, which is a small share of current estimates of international tax evasion. Reporting requirements for FFIs on accounts held by U.S. taxpayers can increase compliance by providing third-party reporting and can increase revenue through data to identify noncompliant individuals, imposing a withholding tax, and encouraging voluntary compliance. The implementation of FATCA by the IRS had been delayed, in part, by the need to set up agreements with other countries, where domestic law does not permit the sharing of information, to arrange IGAs where FFIs report to their governments, which in turn report to the IRS. The IRS compliance program has also been delayed by resource constraints and, most recently, the coronavirus pandemic. A 2022 report by the Treasury Inspector General for Tax Administration (TIGTA) also highlighted difficulties with obtaining taxpayer identification numbers (TINs) from FFIs, the failure to institute matching, in part for that reason, and the lack of focus on nonfilers of Form 8938. TIGTA reports that the IRS appears to be moving toward identifying nonfilers, although it is hindered by the lack of data on TINs. In 2019, according to the TIGTA report, FFIs identified 1,286,866 unique individual TINS, while the number of Form 8938 individual filings was 467,145. However, this difference may be due to the fact that the filing threshold is higher for married couples for the Form 8938 than for the Form 8966. The TIGTA report indicates withholding of $536 million in 2018, and $8 million of penalties for underreporting. IRS stresses that the purpose of FATCA is not withholding or penalties but to encourage voluntary compliance. The effectiveness of FATCA is difficult to measure. In its response to TIGTA, the IRS noted the substantial increase in filings of Foreign Bank and Financial Account (FBAR) forms that are filed with another agency, the Financial Crimes Enforcement Network (FinCEN). Form 8938 reports have increased from 307,004 in 2014 to 467,145 in 2019. A study by Ahrens and Bothner estimated that FATCA and CRS together reduced evasion by 67%, but did not determine the separate effects of FATCA. A study of FATCA by de Simone, Lester, and Markle found that it

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