FATCA and the Fight Against Tax Evasion

Last updated on August 26, 2013

The Foreign Account Tax Compliance Act (FATCA) has been making headlines, for both positive and negative reasons. Under FATCA, the IRS has been making tax agreements with many countries, including Australia, Finland, Germany, Costa Rica, Cayman Islands, Ireland, Mexico, Italy, France, Denmark, Jamaica, New Zealand, Norway, Spain, Canada, and the U.K.

FACTA was enacted in 2010 to target non-compliance by U.S. taxpayers who use foreign accounts to hide their income and/or assets. FATCA requires both U.S. citizens and foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

The IRS has been aggressively pursuing tax evasion and been able to collect billions of dollars of revenue money that had been lost to tax evasion. Due to FATCA and the IRS expanding access to information, many taxpayers used the Offshore Voluntary Disclosure Program (OVDP) to come back into tax compliance. Under OVDP, taxpayers disclose their foreign financial accounts previously unknown to the IRS and can gain back compliance while paying less in penalties and minimizing the risk of imprisonment.

FATCA has now become an important tool for the IRS in its fight against tax evasion. After its full implementation, FATCA will not only increase tax revenue, but will also prevent tax evasion.