The Internal Revenue Service has launched a data exchange service so foreign banks and countries can more easily comply with a U.S. tax law — and to send other governments information too, the Wall Street Journal reported.
U.S. tax law requires Americans to pay taxes on their income no matter where they reside, so financial institutions and host country tax authorities will use the new International Data Exchange Service (IDES) to provide the IRS with information on financial accounts held by Americans, as required by the Foreign Account Tax Compliance Act (FATCA).
That 2010 law, which targets American tax evaders who stash money overseas, requires foreign banks and other companies to report to the IRS on their U.S. account holders with balances of more than $50,000 or face stiff penalties. Non-compliant institutions worldwide could be frozen out of U.S. markets, and foreign financial institutions must withhold a 30 percent tax if the recipient isn’t providing information about U.S. account holders, according to Forbes.
Using IDES, a web-based application, the sender encrypts his data and the exchange service encrypts the transmission pathway. That two-level encryption safeguards sensitive tax information, the IRS said. More than 145,000 financial institutions have registered to file financial data for FATCA.
IDES represents “the start of a secure system of automated, standardized information exchanges among government tax authorities,” said IRS Commissioner John Koskinen in a prepared statement.
The U.S. also has more than 110 intergovernmental agreements to implement FATCA. In cases where a country has a reciprocal intergovernmental agreement with the U.S. and it “has the necessary safeguards and infrastructure in place,” the IRS will use the exchange service to send similar information to that country’s tax authorities on accounts held in the U.S. by its residents, the IRS said.
Though FATCA was passed in 2010 and officially took effect on July 1, 2014, the IRS said last May that it wouldn’t enforce many of its provisions until 2016 so long as banks and other foreign companies are making a good-faith effort to comply. The full scope of the law doesn’t come into force until 2017.