Law passed in 2010 goes even further than promise
During the 2008 presidential campaign, Barack Obama promised to "create an international tax haven watch list of countries that do not share information returns with the United States.” Obama hasn't done this precisely, but a new law now being implemented does even more.
That law is the Foreign Account Tax Compliance Act, part of a larger bill passed by the then-Democratic controlled House and Senate and signed by Obama on March 18, 2010.
The broad purpose of the law, according to the the Government Accountability Office, is "to reduce tax evasion by creating greater transparency and accountability with respect to offshore accounts and entities held by U.S. taxpayers and by providing IRS with tools to further enforce tax laws. IRS believes that implementing these new requirements will increase tax compliance, which will help close the gap between taxes owed and taxes paid. IRS recently estimated a net tax gap of $385 billion for tax year 2006, though IRS has not estimated the percentage of the tax gap specifically attributable to offshore accounts."
Specifically, under the law, "certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS. In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest,” according to the Internal Revenue Service.
This is more far-reaching than just creating a list -- it's a whole new layer of scrutiny for both Americans who have overseas accounts and foreign financial institutions that have Americans among their account-holders.
Indeed, this long reach has inspired a fierce backlash in some quarters, citing bureaucratic costs and privacy concerns, among other issues. Some European banks have reportedly said they won't serve U.S. investors once the law is fully implemented in 2013, citing the penalties they'd be subject to for a failure to comply.
"FATCA goes far beyond tax havens -- it applies to everyone,” said H. David Rosenbloom, director of the International Tax Program at the New York University School of Law.
In Rosenbloom's view, "FATCA is an expensive, resource-wasting mess.” But the Obameter doesn't assess whether the policies implemented are good, bad or somewhere in between -- only whether they fulfill a campaign promise. In this case, FATCA goes well beyond what Obama pledged during the campaign. So we rate it a Promise Kept.
Internal Revenue Service, "Summary of Key FATCA Provisions," accessed June 8, 2012
Government Accountability Office, "Foreign Account Reporting Requirements: IRS Needs to Further Develop Risk, Compliance, and Cost Plans," April 2012
The Economist, "Scratched by the FATCA," Nov. 26, 2011
Der Spiegel, "European Banks Stop Serving American Customers," Nov. 14, 2011
Email interview with H. David Rosenbloom, director of the International Tax Program at the New York University School of Law, May 16, 2012
Making progress on tracking tax havens
Since taking office, President Barack Obama has been making strides to fulfill his promise to crack down on foreign tax havens.
In February, the Swiss bank UBS, under an agreement with the Internal Revenue Service (IRS), admitted to allowing U.S. citizens to illegally hide taxable income abroad. In August, under pressure from the United States to release the names of the account holders or face criminal charges, the bank turned over the names of 4,450 American clients whom the IRS suspects of tax evasion. By November, after reports of the IRS crackdown began to circulate, the IRS reported that it now has information on over 14,700 previously undisclosed offshore bank accounts.
Meanwhile, in April, following the meeting of the G20 leaders in London, the Organization for Economic Cooperation and Development, a group that represents 30 wealthier, industrialized countries, issued a list of countries that are failing to comply with the established tax information exchange standards. Stephen Timms, the financial secretary to the Treasury, said that he expects "there to be sanctions against countries that don't sign up [to the OECD standards].
In May, the White House released a detailed outline of how the president seeks to curb the growth of offshore tax havens. Among other steps, the plan calls for the hiring of 800 additional IRS international enforcement agents, increasing the penalties on individuals who fail to report overseas income, extending the statue of limitations, and requiring foreign financial institutions that have dealings with the United States to sign an agreement with the IRS to become a "Qualified Intermediary" and share as much information about their U.S. customers as U.S. financial institutions do.
Finally, in June Reps. Charles Rangel, D-N.Y., and Richard E. Neal, D-Mass., introduced the Foreign Account Tax Compliance Act of 2009. The bill increases the penalties on individuals who fail to report overseas income, reforms the reporting requirements for accountants and financial advisers who help U.S. citizens acquire foreign entities, and puts pressure on foreign institutions to report the names of all U.S. account holders to the IRS.
To be sure, plenty of challenges remain. The Foreign Account Tax Compliance Act has to be passed by Congress, where it must overcome considerable opposition from corporate lobbyists. The OECD initiative is likewise still only in its infant stages, and faces opposition from countries like China, which is skeptical about maintaining a global tax haven blacklist. But Obama has made considerable progress on this promise, so we rate it In the Works.
G20 declares door shut on tax havens
, by Nicholas Watt, Larry Elliott, Julian Borger, Ian Black, April 2, 2009.
New York Times, 14,700 Disclosed Offshore Accounts , by Lynnley Browning, Nov. 17, 2009.
White House Web site, Press release: "Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives For Shifting Jobs Overseas," May 4, 2009.
WebCPA, "Rangel Bill Clamps Down on Unreported Foreign Income," by Ken Rankin, Nov. 9, 2009