Government spending watchdogs have slammed the US Internal Revenue Service for compliance blunders while spending hundreds of millions of dollars on the Foreign Account Tax Compliance Act (FATCA).
The IRS has spent $380 million but has failed to implement most of the measures in the FATCA Compliance Roadmap.
The main problem was matching assets with reports from foreign financial institutions as taxpayer identification information from abroad did not match IRS data.
The inquiry, by the powerful Treasury Inspector General for Tax Administration (TIGTA) also found that a ‘significant percentage’ of Forms 1042-S for reporting US income subject to withholding for foreign persons did not have the correct tax identification numbers either.
“There were 62,398 Tax Year 2015 Forms 1042-S with invalid TINs reporting more than $717 million, of which just over $47 million was withheld,” said the TIGTA report.
TIGTA recommended the IRS should sort out the problem over taxpayer identification.
The watchdog also demanded the IRS should start compliance action against taxpayers who did not file a Form 8938 detailing their foreign assets when a foreign financial institution filed a report detailing the taxpayer’s overseas holdings.
TIGTA carried out the audit to ensure taxpayers and foreign financial institutions comply with FATCA.
“We agree with the importance of the enforcement efforts highlighted in the report. However, the narrow focus of the report should not be used to draw conclusions about the entirety of the IRS’s enforcement efforts in this area,” said an IRS spokesman.
What is FATCA?
“The report leaves the reader with the incorrect impression that FATCA is not being enforced.”
The FATCA Compliance Roadmap was designed to avoid some of the errors highlighted by the inquiry, but the IRS has made little progress on 26 of the 30 or so points to consider in the past two years, says TIGTA.
FATCA is a framework that demands foreign financial institutions with accounts controlled by US taxpayers reports the customer’s personal and financial data to the IRS each year.
The information is cross-referenced against Forms 8938 and other taxpayer filings to ensure they have paid the correct amount of tax on any offshore earnings or gains.
The law was introduced by former president Barack Obama in 2010.