Tags: fatca | success | tax | money

Will FATCA Ever Become a Success?

fatca spelled in 3d capital letters in style of american flag with global foreign exchange currency signs at bottom
(Dollar Photo Club)

By    |   Monday, 07 January 2019 11:40 AM

It is no secret that the Foreign Account Tax Compliant Act of 2010 (FATCA) has not yet reached its goals of ending offshore tax avoidance and generating massive amounts of tax revenues.

Unfortunately for the Internal Revenue Service, Congress dumped responsibility for FATCA on it along with the Patient Protection and Affordability Act (a/k/a Obamacare).

The IRS was already struggling with the nightmare of trying to administer an enormously complex and convoluted tax code while Congress shortchanged the funding of the IRS budget.

It is also fair to say that the IRS suffered from being politicized through numerous administrations and, consequently, not well managed at the top end.

Notwithstanding this backdrop, FATCA did not come into existence as a well-conceived tax collection measure. It was a badly flawed piece of legislation so typical of Congress.

The cover story told by Congress was that FATCA would--over time-- generate the billions of dollars of additional tax to offset a few of the pork barrel spending provisions of the Hiring Incentives to Restore Employment Act (Hire) of 2010.

It’s a favorite scam of Congress to use hypothetical future revenue projections of some new tax provision to offset current spending.

Initially, Congress said that offshore tax gap cost $100 billion in lost tax revenues. Then Congress revised the lost tax gap to $150 billion.

Finally, the estimate of future FATCA revenues was $8.7 billion over ten years or a mere $870 million annually since that was all Congress needed to plug the tax gap in making the HIRE Act meet the pay-as-you-go rule.

Typical for Congress, FATCA was passed devoid of any valid data or analytical justification.

The IRS, undermanned, underfunded, and overburdened took the only alternative it could. It adopted a highly coercive enforcement approach using as its primary assumption everybody is a crook until proven innocent.

It then implemented a tax enforcement regime of mind-numbing draconian complexity which effectively ensnared every person and every financial institution from every country whether connected to the US or not.

A tiny handful in Congress objected while the rest did not blink an eye.

The burden of direct and indirect costs of FATCA to the world-wide financial industry is beyond calculation.

The important question Congress should answer is whether FATCA is successful or should it be repealed?

There is no current data on how much extra tax revenue for the US is generated because of FATCA. No doubt, if the Treasury were collecting additional tax revenues it would be touting FATCA as a revenue generating success.

Although FATCA passed eight years ago, the first prosecution under FATCA just recently occurred. It was a sting operation on a banker which did not raise any tax revenue.

Informed tax commentators have observed that the money collected from offshore accounts attributed to offshore tax compliance is mostly due to penalties under what is known as FBAR (Foreign Bank Account Report) failures—not a tax.

Can FATCA ever achieve the objectives which Congress intended?

As can be imagined, imposing financial reporting to the IRS by the entire international financial service industry and all account holders requires a vast, sophisticated computer system. A system which the IRS does not have.

The Government Accountability Office has reported that the IRS is still using two of the governments oldest databases. Integrating any new technology into these old systems is daunting, at best.

Although operating on tight financial resources, the IRS has spent some $380 million on technology.

The new technology the IRS acquired was devoted to systems needed in finding fraud, identity theft, and other existing US tax-related non-compliance problems. Not FATCA.

According to a July 2018 report by the Treasury Inspector General for Tax Administration, the IRS is still not prepared to enforce compliance with FATCA.

In congressional political theory, FATCA made sense. In practice, the theory doesn’t work.

It remains to be seen whether the staggering economic and social costs paid by the financial industry, government, and taxpayers alike will ever be beneficial.

Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Kleinfeld
In congressional political theory, FATCA made sense. In practice, the theory doesn’t work.
fatca, success, tax, money
679
2019-40-07
Monday, 07 January 2019 11:40 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved