The Internal Revenue Service (IRS) released a notice on May 2 stating its agents will go easy on enforcing the Foreign Account Tax Compliance Act (FACTA), aimed at preventing US citizens from dodging tax obligations by setting up offshore tax shelters.
The law will still be in effect as of July 1, but after persistent criticism in the industry regarding bureaucratic complexity and a lack of clear guidelines, the tax agency has decided to not aggressively police foreign financial institutions during 2014 and 2015. The IRS will instead “take into consideration the good faith efforts of withholding agents in the event such withholding agents experience a compliance failure.”
FACTA, enacted by the US Congress in 2010, was designed to ensure the IRS gets information on the financial accounts of US citizens at foreign financial institutions. While FACTA is US law, it requires all firms worldwide to disclose information to the IRS if they have US customers, adding to operation costs and potentially driving up fees. Failure to comply with FACTA could result in fines of up to US$50,000 for individuals who fail to report foreign assets.