Individual tax filing season gets a lot of media attention. Historically, TV stations have run footage of taxpayers rushing to the post office in order to file. Even with more and more people filing online, filing day - usually on or around April 15 - remains etched in the popular consciousness.
Much has been written, on our California tax blog and in the broader media, about the upcoming implementation of the Foreign Account Tax Compliance Act, also known as FATCA. Overseas financial institutions have been fretting about complying with the act's reporting provisions, but they can rest easy, at least for a time.
The primary purpose of U.S. and California tax laws is to collect revenue for the government, but legislators are very familiar with the power of tax laws to influence taxpayer behavior. By imposing an additional cost on a transaction, tax laws alter the incentive structure of various decisions. The recent changes in tax reporting requirements for those who hold offshore bank accounts and other foreign assets, however, have provided some expatriate taxpayers with an unusual incentive: to renounce their U.S. citizenship.
The unpopular bank reporting requirements that are part of the Foreign Account Tax Compliance Act, or FATCA, are going to be delayed somewhat by the Internal Revenue Service. By unpopular we mean that offshore banks in particular are opposed to the FATCA's requirements. By delayed, we mean that the IRS will not implement some of the requirements for one, two or three years.
Earlier this year, Congress passed the Foreign Account Tax Compliance Act (FATCA) as part of the HIRE Act. FATCA is designed to convince foreign banks to disclose information on accounts held by American taxpayers and corporations. It does so by imposing a 30 percent withholding tax on payments made to foreign financial institutions that refuse to identify their U.S. investors.
In a speech before the George Washington University-IRS institute on international taxation earlier this month, Internal Revenue Service Commissioner Douglas Shulman announced that the IRS is "seriously considering" another voluntary offshore account disclosure program. Approximately 15,000 people made voluntary disclosures under the original voluntary disclosure program and another 3,000 people have informed the IRS of offshore accounts since the program ended.