Feds finalize rules on tax evasion measure

By Bernie Becker - 01/17/13 07:17 PM ET

The Treasury Department and IRS on Thursday issued final regulations on a measure that takes aim at taxpayers using offshore accounts to evade their taxes.

Treasury officials said that the final rules for the Foreign Account Tax Compliance Act (FATCA), signed into law in 2010, were quite similar to proposed regulations released last year.

But officials also said they had taken into account constructive criticism from foreign governments and financial institutions, who have said that FATCA went too far, was too broadly written and would be a burden.

“These regulations give the administration a powerful set of tools to combat offshore tax evasion effectively and efficiently,” Neal Wolin, the deputy Treasury secretary, said in a statement.

“The final rules mark a critical milestone in international cooperation on these issues, and they provide important clarity for foreign and U.S. financial institutions.”

A White House push against tax evasion helped spur the passage of FATCA in 2010.

The law came after federal prosecutors had charged the Swiss banking giant UBS with helping American clients avoid U.S. taxes. UBS eventually paid a fine and gave the IRS information on American clients to avoid prosecution.

On Thursday, the Treasury Department also announced that Norway had joined six other countries – Denmark, Ireland, Mexico, Spain, Switzerland and the United Kingdom – in reaching an agreement with the U.S. on implementing FATCA.

Those agreements, which Treasury predicts the U.S. will sign with more countries, seek to reduce the administrative burdens of complying with FATCA. In all, Treasury says, the U.S. talking with over 50 countries on how to battle offshore tax evasion.

Banks in some of the countries that have signed agreements with the U.S. will report on American account holders to their own governments, which will then share information with the IRS.

In other countries, banks will report directly to the IRS.

The final FATCA rules also will be phased in over an extended time, and would limit the reporting required for retirement funds and other low-risk items.

Under FATCA, foreign banks that don’t share information with the IRS would face a 30 percent withholding fee on certain payments connected to the U.S.