On April 18, 1775, Paul Revere famously rode through the streets of colonial America announcing, "The British are coming, the British are coming." The ride was dramatized in a poem by Henry Wadsworth Longfellow and became an iconic moment in American history.
The Foreign Account Tax Compliance Act (FATCA) is unlikely to receive similar poetic dramatization. It is too complicated and — to many people and banks — too unwelcome for that. But since Congress passed the law in 2010, tax specialists have been warning that FATCA is coming.
The law's application will not only affect taxpayers from Texas and across the nation who have interests in offshore accounts. It will also affect U.S. taxpayers who live abroad and the foreign financial institutions that FATCA seeks to enlist in an American-led effort to crack down on the use of foreign accounts to evade taxes.
The U.S. Treasury Department has already delayed the full implementation of FATCA's reporting requirements before. Today, Treasury announced that is doing so again. The deadline for compliance will now be July 1, 2014, rather than the first of the year.
The reason for the delay lies in the new law's ambitious reach. It attempts to enlist foreign banks as information providers about accounts held by U.S. taxpayers. A big problem, however, is that many countries have banking privacy laws that prohibit disclosure by financial institutions of customer information to third parties.
The U.S. has sought to get around issue by negotiating intergovernmental agreements with other governments. The idea is that foreign banks would disclose the information to their own governments, which would then share it with the IRS.
But getting such agreements requires more than an act of imperial will by the U.S. It requires detailed negotiation, including with countries such as Switzerland that have strong traditions of bank secrecy.
So far, the U.S. Treasury has negotiated nine intergovernmental agreements. But in order to enlist more countries in the offshore tax evasion effort, the U.S. now realizes it needs more time. There are also practical implementation issues with creating the forms and mechanisms for electronic bank reporting to occur.
So FATCA is still coming. Indeed, given all the preparations and uncertainty, in a sense it's already here.
Source: USA Today, "Foreign bank rule to discover tax evasion delay," Kevin McCoy, July 12, 2013