WASHINGTON (Reuters) - The Internal Revenue Service has spent 19 months and more than $8.6 million getting ready to enforce a new law against offshore tax evasion that takes effect next year, but the agency is still not prepared, a watchdog group said on Thursday.
More IRS computer and staff improvements are needed to administer the Foreign Account Tax Compliance Act, said the Treasury Inspector General for Tax Administration.
Enacted in 2010, FATCA is set to take effect in July 2014. It will require foreign financial institutions to tell the IRS about Americans’ offshore accounts worth more than $50,000.
The law was enacted after a Swiss banking scandal showed U.S. taxpayers hid substantial fortunes overseas.
Between 200,000 and 400,000 foreign banks, investment funds and insurers companies are expected to register with the IRS to comply with the law, TIGTA said.
Implementing the law has involved policy changes along the way that in November 2012 undercut the IRS’ first FATCA software system. “The IRS was unable to fully utilize the initial system,” which cost $8.6 million, TIGTA said.
Many FATCA staffers have not yet been assigned and budget constraints have delayed work, TIGTA said in a report.
The IRS challenged TIGTA’s findings. “The need to redesign the system in 2012 was due to significant and necessary regulatory changes,” the IRS said.
In November, four bank lobbying groups asked the Obama administration for a six-month delay in FATCA.
The TIGTA report suggests FATCA should be delayed, said Michael Hirschfeld, chairman of the American Bar Association tax section and a lawyer at Dechert LLP. “This is more fuel for the fire to delay things,” he said.
Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Mohammad Zargham