No Reprieve on Upcoming FATCA Deadline, Says Koskinen; Quest for Guidance Continues
March 24 –July 1 is a hard and fast deadline for implementation of the Foreign Account Tax Compliance Act, Internal Revenue Commissioner John Koskinen told tax practitioners.
Koskinen, speaking March 24 at the Tax Executives Institute midyear conference, said the agency will be understanding when financial intermediaries that are building new systems and processes to comply with the law have problems in “getting it exactly right” at the outset. However, he said, that will only happen if those intermediaries are “making reasonable, good faith efforts to comply with the statute.”
Some practitioners have encouraged the IRS to put its sympathetic position in writing in the form of guidance, but Koskinen said that would be difficult to do because some institutions are sincerely trying to comply with the law while others aren’t.
“What we are concerned about are the people who aren’t going to be anywhere close to up and running and that is to some extent because they hope that somehow or other it will all go away,” he said.
FATCA, which requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers or face a new U.S. withholding tax, goes into effect July 1.
Practitioners are concerned that their systems may not be ready to handle the new reporting and they will be required to do mandatory withholding that might lead to overwithholding.
Last month, the Treasury Department and the IRS issued the last substantial package of regulations improving the rules issued in January 2013 .
Koskinen said the IRS made 50 amendments and clarifications that took into account feedback from outside stakeholders. The IRS has also struck intergovernmental agreements with 24 foreign governments that will allow them to comply with the FATCA reporting provisions, he said.
Using the Information
The July 1 deadline puts pressure on the IRS as well–to have its own information technology in place to handle the influx of data the agency expects.
Under FATCA, the IRS will gain a wealth of information on various banks and advisers assisting people with offshore tax evasion, he said. “One of our biggest challenges lies with having the resources to build and maintain systems that can effectively use all the incoming data,” he said.
For fiscal year 2015, the budget allocates additional funds for IT systems needed to administer FATCA rules and expand coverage of international tax return filings, he said. The budget request also provides for increasing the number of staff needed to enforce FATCA. At least part of the $58 million the IRS has saved due to the freeze on hiring new employees would go to that effort, he said.
Still, he said, it is a learning curve for the IRS as well, and it will take time for the IRS to explore ways to effectively use the information.
Exempts Investigation Concluded
Koskinen also announced that as of last week, he wrote letters to congressional committees informing them that he has now turned over all documents they have requested related to the exempt organizations determination process, and that he hopes that at least that phase of their investigations will be complete.
“When they get it all, our view is that they know everything we know and everything we have been able to find scrubbing the files,” he told reporters following his speech.
That includes more than 600,000 pages provided to the tax-writing committees in the Senate and the House, he said.
The controversy in Congress over the IRS’s handling of primarily conservative groups seeking tax exemption over the last several years has been ongoing for nearly a year.
Koskinen said his hope now is that the investigation–at least in relation to determinations–can be concluded.
The committee will also have received all of the requested e-mails from Lois Lerner, former director of Exempt Organizations, about the determinations process, he said.
Questions About Exempts’ Appeals
However, Koskinen said lawmakers have started to raise questions about the how the agency treated exempt organizations in the appeals process, and how examinations are being decided.
“We have said as a general matter if we could finish the determinations process investigations we are happy to talk to them about how to investigate everything else,” he told reporters following his speech. Documents related to Lerner’s involvement in those matters will be turned over as well, he said.
The next step will be for the IRS to get congressional reports so that it can respond accordingly, he said.
The agency has also completed action on all the Treasury Inspector General for Tax Administration’s recommendations for improvement from its May report, Koskinen said.
“We’re making sure IRS employees understand what’s appropriate when reviewing applications,” he said.
In addition, more than 150,000 comments have been received on proposed tax code Section 501(c)(4) rules, what he called “a new American record for comments on a Treasury/IRS draft regulation. We seem to have managed to aggravate or raise concerns across the political spectrum,” he said.
Koskinen also repeated the difficulty the agency is having in meeting taxpayers’ needs for service, due to budget constraints. This year millions of taxpayers will see longer wait times to get basic questions answered and resolve tax issues, he said. The IRS will also have fewer resources to collect billions of dollars in enforcement revenues. Having visited 16 of the largest 25 IRS offices, Koskinen said employees are working hard.
President Barack Obama’s proposed fiscal year 2015 budget proposal is a critical step forward, he said. It proposes a funding level of nearly $12.5 billion, an increase of $1.2 billion over the current funding.