Thursday, November 22, 2012

Senator Levin Urges IRS and Treasury to Make FATCA Disclosure Non-Tax Return Information to Aid Financial Fraud Fight

Senator Carl Levin (D-MI) has urged Treasury and the IRS to issue guidance on the Foreign Account Tax Compliance Act (FATCA), that would assist foreign financial institutions in meeting their legal obligations, while facilitating law enforcement's use of foreign account information to combat tax evasion, financial fraud, and money laundering. In a letter to the IRS and Treasury, the SEnator said that treating FATCA offshore account information as non-tax return would ensure that the information is accessible to law enforcement and securities authorities to combat financial fraud and crimes other than tax evasion. 

Although FATCA is structured to address offshore tax abuse, he noted, offshore account information has significance far beyond the tax context, affecting cases involving money laundering and financial fraud. Given the importance of offshore account disclosures, FATCA guidance and implementing regulations should create account FATCA forms that are not designated as tax return information but, like FBARs, may be provided to law enforcement and regulators upon request. 

Foreign financial institutions are not U.S. taxpayers, he said, and will not be supplying tax information on behalf of their U.S. clients; they will instead be providing information about accounts opened by U.S. persons. According to the Senator, the U.S. Supreme Court has long held that bank account information is not inherently confidential but is subject to inspection by law enforcement and others in appropriate circumstances. Foreign account information is too important to a wide range of civil and criminal law enforcement and financial regulators efforts to be designated as tax return information bound by IRC Section 6103's severe restrictions on access.

Similarly, he urged that FFI Agreements, auditor verification forms, copies of actual account documentation be treated as non-tax return information available to the larger law enforcement and regulatory communities. 

In addition to giving FFI forms the same status as FBAR forms, the implementing rules should construct those forms to ensure that they collect and produce account information in a standardized electronic format that will enable efficient analysis of data. Treasury and the IRS should consult with IRS analysts and revenue agents as well as the Tax Division of the Justice Department to determine how the collected information should be structured to provide timely and usable data in tax enforcement efforts. Treasury and the IRS should also consider making the FFI data compatible with the existing FBAR database so that the two sets of forms can be easily analyzed in an integrated fashion. 

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