FATCA to Take Full Effect on July 1

Last updated on August 26, 2014

The Foreign Account Tax Compliance Act (FATCA) was established to fight tax evasion. On July 1, 2014, the law will take full effect. Under FATCA, both U.S. citizens living overseas and foreign financial institutions are required to report to the IRS.

Before FATCA, the U.S. had agreements with various countries to limit tax evasion, but those methods were not as strict as FATCA. Under FATCA, foreign banks, insurance companies, trusts, stock brokers, etc., are required to report their financial transactions with U.S. citizens to the IRS. Using this data, the IRS will identify and penalize tax evaders.

Even though FATCA has been successful in curbing tax evasion, it has caused filing and reporting complications for Americans living abroad. The IRS is now considering the problems FATCA has caused for American living overseas and plans to address them in the near future.

Armed with FATCA and the Offshore Voluntary Disclosure Program (OVDP), the IRS is focused on preventing tax evasion. Alongside FATCA and OVDP, the overhauling of the tax code will also help the government to limit tax evasion caused by exploiting the loopholes in the tax code. Together, these efforts will make a marked difference in restricting tax evasion.