More than 77,000 foreign banks and other financial institutions agreed to share information about U.S. account holders with the Internal Revenue Service as part of a crackdown on offshore tax evasion, the Treasury Department said Monday.
Under the Foreign Account Tax Compliance Act (FATCA) passed in 2010, foreign financial institutions are directed to share information about U.S. account holders with the IRS, making it more difficult for Americans to use overseas accounts to evade U.S. taxes.
Starting in March 2015, the financial institutions have agreed to supply the IRS with names, account numbers and balances for accounts controlled by U.S. taxpayers.
Foreign banks that don’t agree to share information with the IRS face steep penalties when doing business in the United States.
The intention is to round up tax cheats, but critics believe the law will be expensive for banks implement, a cost they will pass onto account holders. Some also say the new law creates disincentives for wealthy individuals to live in the United States and increased the threat of identity theft.
Nearly 70 countries have agreed to share information from their banks. Participating countries include the world’s financial giants, as well as places where Americans have traditionally hidden assets, including Switzerland, the Netherlands, Malta, the Cayman Islands and the Bahamas.
The list also includes 515 Russian financial institutions. Russian banks had to apply directly to the IRS because the U.S. broke off negotiations over information-sharing agreements with the Russian government following Russia’s actions in Ukraine.
The law requires American banks to withhold 30 percent of certain payments to foreign banks that don’t participate in the program beginning in July, although recent guidance gives U.S. banks some leeway on timing as they prepare to comply.
U.S. banks that fail to withhold the tax are liable for it themselves.
Treasury released the list of complying banks Monday so U.S. financial institutions will know what firms they can send payments to without withholding the tax. The list should be updated next month.
Congress’s Joint Committee on Taxation estimated that FATCA could raise $792 million of additional taxes a year over the next 10 years.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.