The IRS’s handling of foreign banks registered under the laws that control how American persons and business entities can own foreign assets has come under sharp criticism in a Senate report on a type of tax evasion released on Wednesday.
According to the research, obtaining a specific type of registration number from the IRS that designates its bearer as a legitimate foreign financial institution was “shockingly simple.”
As part of the Foreign Account Tax Compliance Act (FATCA), which was implemented in 2010, Americans are required to report assets owned outside of the United States to the IRS.
“An entity needs merely submit a completed Form 8957 to the IRS or register online. Applications are virtually invariably granted by IRS staff without any real inquiry or due diligence, the research found.
The acquisition of registration numbers, also referred to as Global Intermediary Identification Numbers (GIIN) was described as being “alarmingly simple” in a summary of the Senate Finance Committee’s report.
It went on to say that “applications to receive a GIIN number and to become a foreign financial institution under FATCA are nearly usually approved without substantive review by IRS officials.”
The committee staff was informed by IRS representatives that the IRS did not follow the financial institution’s FATCA compliance protocol before issuing the GIIN.
Additionally, according to the written report from the Senate Finance Committee, the IRS does not inquire about the entity’s assets, source of funds or wealth, beneficial ownership, or business and investing operations.
The IRS, which recently received a significant funding boost in the Democrats’ tax, climate, and health care measure recently signed by President Biden, may give the 2010 FATCA legislation some renewed attention as a result of the report.
Despite spending approximately $380 million on FATCA compliance in 2018, the IRS took little to no action on the majority of the anticipated actions described in the FATCA Compliance Roadmap, according to a report released in April by the Treasury inspector general for tax administration.
Republicans have railed against the IRS spending increase in the Democrats’ Inflation Reduction Act, claiming that it will lead to an increase in audits of middle-class and small-business owners.
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According to a statement made earlier this month by Senate Finance Committee ranking member Mike Crapo (R-Idaho), “my colleagues claim this massive funding boost will allow the IRS to go after millionaires, billionaires, and so-called rich “tax cheats,” but in reality, a significant portion of the money raised from their IRS funding bloat would come from taxpayers with income below $400,000.”
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Democratic politicians and officials in the Biden administration have meanwhile stated that the IRS will target corporations and wealthier Americans with enhanced enforcement operations.
“These efforts will not enhance the likelihood of audits for people earning $400,000 or less annually or for small enterprises compared to historical levels.
The two-tiered tax system, in which the majority of Americans pay what they owe while those at the top of the distribution sometimes don’t, will be eliminated instead, Treasury Secretary Janet Yellen wrote to IRS Commissioner Charles Rettig in a document dated August 17.