International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, July 7, 2016

Taxpayer Advocate Mid-Year Report to Congress: IRS Implementation and Enforcement of FATCA Withholding Is Burdensome, Error-Ridden, and Fails to Protect the Taxpayers' Rights

While implementing FATCA and similar international withholding provisions, the IRS withheld refunds from tens of thousands of U.S. taxpayers who were entitled to them. Much of the Taxpayer Advocateproblem was attributable to the way the IRS attempted to match the Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, filed by the withholding agent against the Form 1042-S filed by the taxpayer with his or her income tax return. In one case, the IRS disallowed the refund claims of tens of thousands of foreign students at U.S. universities and colleges, most of who were fully entitled to those refunds. In the coming year, TAS will advocate for the IRS to improve the accuracy of its data-matching procedures to reduce the number of freezes placed on legitimate international refund claims.

Specifically, the National Taxpayer Advocate is concerned that:

■■ The IRS’s processes for reviewing and validating Chapter 3 and Chapter 4 refund requests have unnecessarily burdened taxpayers;
■■ The IRS’s unsuccessful systemic matching program has caused particular hardships for international students; and
■■ The IRS’s enforcement-oriented approach to international taxpayers creates problems for taxpayers, representatives, and other stakeholders, and wastes precious IRS resources.

Limited Service Options for U.S. Taxpayers Living Abroad.  The number of U.S. citizens living abroad was estimated at about nine million in mid-2016, and many non-citizens have a U.S. tax filing obligation, as evidenced by the nearly 642,000 Form 1040-series returns filed by nonresident aliens for tax year 2014.  Yet taxpayer service options for these taxpayers are limited and continue to be reduced.  Taxpayers located overseas generally cannot call U.S. toll-free telephone lines.  Almost two years ago, the IRS closed the last four tax attaché posts abroad, eliminating face-to-face service as an option.  For the 2016 filing season, the IRS eliminated its Electronic Tax Law Assistance program through which taxpayers could submit tax-law questions to the IRS and receive a response via email. 

The report says:  “The National Taxpayer Advocate is concerned the IRS is providing fewer options for international taxpayers even as the population of U.S. citizens abroad grows, and these taxpayers are facing greater challenges in voluntarily meeting their tax obligations, partly as a result of the Foreign Account Tax Compliance Act (FATCA), Foreign Bank and Financial Accounts (FBAR) reporting rules, and the Affordable Care Act (ACA).”

read the report here:  Download Taxpayer Advocate midyear 2016 FATCA

Lexis Guide to FATCA Compliance – NEW 2016 Edition 

Over 1,800 pages of analysis of the FATCA and CRS compliance challenges,  73 chapters by FATCA and CRS contributing experts from over 30 countries.  Besides in-depth, practical analysis, the 2016 edition includes examples, charts, time lines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers.   The Lexis Guide to FATCA Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments.  The 19 newest chapters include by example an in-depth analysis of designing a FATCA internal policy that is compliant with the initial two year soft enforcement initiative, designing an equivalent form to the W-8, reporting accounts, reporting payments, operational specificity of the mechanisms of information capture, management and exchange by firms and between countries, insights as to the application of FATCA, CRS, and the IGAs within BRIC, SEA and European country chapters.  This fourth edition will provide the financial enterprise’s FATCA compliance officer the tools for developing and maintaining a best practices compliance strategy.No filler of forms and regs – it’s all beef !  

A free download FATCA chapter is available at

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