In a report to the President recommending actions to eliminate or mitigate burdens imposed on taxpayers by eight specific tax regulations, the Treasury Department indicated that it is considering possible reforms of regulations issued pursuant to the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010 and fully effective as of July 1, 2014, FATCA is a wide-reaching anti-tax evasion law that requires foreign banks and financial institutions to annually disclose to the Internal Revenue Service the identities and other information regarding their U.S. clients. To date, 113 countries around the world have agreed to implement FATCA’s provisions through bilateral tax treaties with the United States. FATCA is not without its critics, however. Financial institutions have objected to the substantial compliance burdens imposed by the law, and Americans residing abroad have complained that as a result of FATCA, foreign banks no longer wish to do business with U.S. citizens.
Executive Order 13789 called for immediate action to reduce tax regulatory burdens and provide useful and simplified tax guidance. That order directed the Treasury Secretary to identify significant tax regulations issued on or after January 1, 2016, that impose an undue financial burden on U.S. taxpayers; add undue complexity to the federal tax laws; or exceed the statutory authority granted to the IRS. Earlier this summer, in an interim report to the President, Treasury identified eight such regulations.
As required by Executive Order 13789, Treasury submitted a second report to the President on October 2, 2017, setting forth recommendations as to specific actions to mitigate the burdens imposed upon taxpayers by the eight regulations previously identified for reform. In that report, Treasury recommended that those regulations be withdrawn entirely, revoked in part, or substantially revised.
As it relates to FATCA, Treasury’s report to the President also noted that Treasury and the IRS have undertaken a comprehensive review of all tax regulations, regardless of when they were issued. According to the report, “[t]his review will identify tax regulations that are unnecessary, create undue complexity, impose excessive burdens, or fail to provide clarity and useful guidance, and Treasury and the IRS will pursue reform or revocation of those regulations.” Treasury further stated that it is continuing to analyze all recently issued significant regulations and is considering possible reforms of recent regulations beyond the eight specific regulations identified earlier this summer. Treasury’s report specifically identifies regulations promulgated under FATCA as under review and subject to possible reform.
Since FATCA was passed by Congress and signed by the President in 2010, Treasury and the IRS have issued thousands of pages of proposed, temporary, and final regulations, and well as numerous corrections to such regulations. Treasury and the IRS have also issued sizeable “coordinating” regulations intended to harmonize existing regulations addressing tax withholding under other Internal Revenue Code provisions with the new FATCA withholding provisions. FATCA took full effect on July 1, 2014, and since that time financial institutions around the globe have been required to implement and maintain FATCA’s complex regime of due diligence and reporting obligations, or face severe withholding tax penalties. While the likelihood of repealing (or even reforming) FATCA would have been remote only a year ago, in the current political climate, with tax reform a top priority of the new administration, significant reform of FATCA’s long reach may well be a possibility.