A Senate report released Wednesday on a form of tax evasion was highly critical of the IRS for the way it handles foreign bank registration as part of the laws that govern how U.S. citizens and business entities can own foreign assets.
The report said that it was “shockingly easy” to obtain a certain kind of registration number from the IRS that signifies its holder to be a valid foreign financial institution. The registration process was mandated as part of the Foreign Account Tax Compliance Act (FATCA) passed in 2010, which requires Americans to report assets held outside the U.S. to the IRS.
“An entity must simply fill out a Form 8957 with the IRS, or register via an online portal. Applications are almost always approved without meaningful investigation or due diligence from IRS personnel,” the report found.
A write-up of the report from the Senate Finance Committee described the process of obtaining registration numbers — known as Global Intermediary Identification Numbers (GIIN) — as “alarmingly simple.”
“Applications to obtain a GIIN number and become a foreign financial institution under FATCA are nearly always approved without meaningful review by IRS personnel,” it added.
IRS representatives told committee staff the IRS does not adhere to the financial institution’s FATCA compliance protocol prior to issuance of the GIIN.
“In addition, the IRS does not ask questions about the entity’s assets, source of funds or wealth, beneficial ownership, or business and investment activities,” the Senate Finance Committee’s write-up said.
The report may be a sign that the 2010 FATCA legislation will be the subject of some reinvigorated attention from the IRS, which received a major funding boost in Democrats’ tax, climate and health care bill recently signed by President Biden.
An April report from the Treasury inspector general for tax administration found that in 2018, “despite spending almost $380 million on FATCA compliance, the IRS had taken limited or no action on a majority of the planned activities outlined in the FATCA Compliance Roadmap.”
Republicans have railed against the funding boost for the IRS in the Democrats’ Inflation Reduction Act, arguing that it will result in an increased number of audits against the middle class and small-business owners.
“My colleagues claim this massive funding boost will allow the IRS to go after millionaires, billionaires and so-called rich ‘tax cheats,’ but the reality is a significant portion raised from their IRS funding bloat would come from taxpayers with income below $400,000,” Senate Finance Committee ranking member Mike Crapo (R-Idaho) said in a statement earlier this month.
Meanwhile, Democratic lawmakers and members of the Biden administration have said that increased enforcement efforts from the IRS will be directed at corporations and richer Americans.
“These investments will not result in households earning $400,000 per year or lessor small businesses seeing an increase in the chances that they are audited relative to historical levels. Instead, they will allow the IRS to work to end the two-tiered tax system, where most Americans pay what they owe, but those at the top of the distribution often do not,” Treasury Secretary Janet Yellen wrote to IRS Commissioner Charles Rettig in an Aug. 17 memo.