The Internal Revenue Service is not alone in its effort to crack down on offshore tax evasion by American taxpayers. Last week, the federal government announced that it has enlisted the help of five European nations to enforce the Foreign Account Tax Compliance Act.
FATCA is set to take effect in 2013. The law is an integral part of the United States’ effort to help the IRS gather information about American-owned foreign bank accounts containing more than $50,000 in assets.
Reuters recently reported that France, Germany, Italy, Spain and the United Kingdom have agreed to jointly develop a framework for collecting information from their banks and sending it to the United States.
As originally drafted, FATCA would require foreign banks and financial institutions to do the reporting work themselves. However, once the five-country agreement is finalized, the foreign banks and financial institutions in the participating countries will not be required to disclose information directly to the U.S.
The deal does not feature several of the world’s major banking nations such as Switzerland or tax havens like the Cayman Islands. The Treasury Department, however, hinted that the EU nations’ framework is just the beginning, with more countries to follow.
The U.S. has been making a concerted effort to collect taxes owed on its taxpayers’ offshore accounts – both those over $50,000 and those with less substantial assets. Certain individuals and businesses with hidden or unreported offshore bank accounts can now receive less severe civil and criminal penalties from the IRS if they voluntarily disclose the details of these assets.
Reuters, “U.S. enlists 5 EU nations in offshore tax crackdown,” Lynnley Browning, February 8, 2011.