The Internal Revenue Service has wrapped up its first international exchange of taxpayer information as part of the Foreign Account Tax Compliance Act.
The IRS said information now available through the exchange provides the United States and partner jurisdictions with an improved means of verifying the compliance of taxpayers using offshore banking and investment facilities, while improving detection of those who may attempt to hide offshore accounts and income.
IRS Commissioner John Koskinen said the agreement “is a major milestone in IRS efforts to combat offshore tax evasion through FATCA and the intergovernmental agreements.” FATCA is an “important tool against offshore tax evasion, and this is a significant step in the process.”
Jonathan Horn, lead technical manager on the AICPA tax staff who handles international tax issues, told ThinkAdvisor in an interview that the IRS performed the exchange of information “with a limited number of countries,” including Australia and Canada, at the end of September. While Horn said that it was unclear how many countries were involved in the Sept. 30 exchange, “sometime next year the exchange of information will expand to 140 countries.”
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Kosikinen says the “groundbreaking effort has fundamentally altered [the U.S.'s] relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field.”
The “biggest part of the milestone,” according to Horn, is that the IRS got the exchange of information ”done and the back-office computer systems work properly.”
The information exchange is part of the IRS’ overall efforts to implement FATCA, enacted in 2010 by Congress to target tax dodging by Americans using foreign accounts or foreign entities.
As the IRS explains, certain intergovernmental agreements (IGAs) not only enable the IRS to receive information from foreign financial institutions (FFIs), but enable more efficient exchange by allowing a foreign tax administration to gather information and provide it to the IRS. Some countries have reciprocal agreements, requiring the IRS to in turn provide their tax authorities with information on their residents’ U.S. accounts.
Under these reciprocal IGAs, the first exchange had to take place by Sept. 30.