In the president’s most recent proposed budget, a relatively obscure direction appears. It reads that the federal government shall “Provide for reciprocal reporting of information in connection with the implementation of FATCA.” This provision will likely mean little to many Americans and will affect few Americans directly. However, it will impact certain individuals and corporations in significant ways.
FATCA stands for “Foreign Account Tax Compliance Act of 2010.” This legislation helps to ensure that American individuals and companies do not misuse offshore accounts in attempts to evade federal tax liabilities. This important law was inspired partially by a number of tax investigations that revealed significant abuses of the system and evasion of massive federal tax liabilities.
The FATCA mandates that certain foreign financial institutions must search their corporate records for federal tax evaders and file related reports with the U.S. Internal Revenue Service. Although this measure is controversial, many foreign institutions cooperate willingly. However, they have asked that U.S. institutions similarly search for foreign tax evaders and report their findings to appropriate governments and their agencies.
Until now, information has largely been provided only by foreign institutions. The newest reform to the FATCA, present in the president’s budget, would correct that imbalance and make reciprocal sharing of evasion information a reality. As a result, it is critical that any foreign individual or company evading taxes by hiding them in the U.S. should speak to an attorney about potential ramifications of this aspirational shift in federal and international tax evasion policy.