The Internal Revenue Service (IRS) has hunted down those who attempt to hide assets in foreign accounts for decades. In 2010, members of Congress and President Barack Obama gave the agency one of its strongest tools against this form of tax evasion: the Foreign Accounts Tax Compliance Act (FATCA).
What was so important about the FATCA?
This law provided the United States government with the ability to demand foreign institutions provide the names of U.S. clients. Those who fail to comply face steep financial penalties.
Did the FATCA work?
Yes and no. Financial institutions have mostly adhered to the rules set out by the FATCA. This has led to a reduction in tax evasion, to an extent. A recent study published in the Stanford Graduate School of Business found the FATCA reduced the use of foreign tax havens to avoid tax obligations by billions of dollars.
Unfortunately, the researchers with the study also note the tax law spurred on more innovative forms of tax evasion. One example: an increase in the use of the art market to evade tax obligations.
What can taxpayers learn from this publication?
The IRS is aware of various forms of tax evasion. This agency will investigate any disparities and, if evidence is found to support allegations of tax evasion, the IRS will likely pursue criminal charges.
As a result, those who have assets that are not yet in compliance with applicable U.S. tax law are wise to proactively resolve their tax issues. An attorney experienced in foreign tax compliance issues can review your assets and discuss the benefits and risks with each option.