Despite spending more than $8.6 million so far, with another $8 million projected to be spent still, on developing the online portal for handling the registration of foreign financial institutions for the Foreign Account Tax Compliance Act (FATCA), the IRS is still unprepared for the law according to a report by the the Treasury Inspector General for Tax Administration. Their incompetence threatens to compromise the information of both Americans and the foreign institutions coerced into serving the IRS.
The report reveals amazing disarray in the implementation process, as the IRS spent considerable resources developing the system before issuing the final regulations, which then had to be scrapped to accommodate new requirements. As we’ve previously noted, the process has also been marred by multiple delays, and the agency has gone well outside the bounds of the law’s authority in both negotiating directly with foreign governments and promising reciprocal information sharing on foreign deposits within the US (which means additional burdens placed on American institutions).
Given the recent and ongoing fiasco surrounding the rollout of the Obamacare website, we should be concerned not only with the gross incompetence of the IRS in implementing its reporting system, but also with the possibility that it will handle private taxpayer information with the same proficiency as it has the rest of the FATCA implementation process. The fact that the Obamacare website lacks any security whatsoever does not augur well for financial privacy rights when the IRS finally begins collecting data.
Even in the unlikely event that the website manages to keep all the new American taxpayer information that they’ll be collecting under FATCA from prying eyes, the IRS itself has already proven itself to be an untrustworthy steward of your private financial information. Leaks or unauthorized sharing between agencies to punish individuals for their political views are certainly not out of the question. Nations that stuck their necks out to partner with Treasury on FATCA should furthermore reconsider, as their institutions are now at the mercy of the IRS and a system that is fundamentally unprepared for the law’s enforcement.
When he introduced his legislation to repeal FATCA (S. 887), Senator Rand Paul cited the “deleterious effects of FATCA on economic growth and financial privacy of Americans.” The implementation process, along with other multiple recent scandals involving infringements on the privacy of American citizens, has done nothing to allay these concerns. For this and numerous other reasons, repeal of the disastrous FATCA law must be included as a part of tax reform. It remains vulnerable to challenge if the nations, institutions and individuals most affected stand up to fight it.
