All is not rosy about the IRS’ efforts to tackle offshore tax evasion. Up until now, the IRS has spent millions to limit offshore tax evasion, something that is not mentioned when discussing the Foreign Account Tax Compliance Act. Under the act, the IRS has made agreements with many foreign governments, which means a substantial increase in the workload for the IRS. Many believe that the IRS is not yet prepared for the many tax changes that will come into effect next year, majorly due to FATCA.
Now that the foreign financial institutes (FFIs) of countries with FATCA agreements will be registering and reporting to the IRS, the agency will need to absorb the extra work. Due to the recent federal shutdown, the IRS is already suffering a backlog that it believes will take months to clear.
To counter its enormous workload, the agency has made many of its processes automatic. The IRS has kept many of its activities online such as the application that provides paperless registration which FFIs are required to complete with the IRS under FATCA. Paper registration is possible, but not recommended.
With FATCA, U.S. taxpayers living overseas will also need to fulfill certain new reporting requirements. For the IRS, it will mean an increase in the workload. The IRS has been complaining of the lack of staff, especially during the tax season. According to the Treasury Inspector General for Tax Administration (TIGTA) between 200,000 and 400,000 foreign banks, investment funds and insurers companies will register with the IRS to comply with FATCA.
When the law was implemented, the IRS made many changes in its policies and introduced new systems. The first FATCA software system, which cost $8.6 million, was not fully utilized by the IRS and needed to be redesigned. Even though the IRS has made public many of the FATCA initiatives, the agency has not openly discussed its budget restraints or lack of staff.