The IRS had been trying to curb tax evasion for as long as it has existed, but it was only after the strict enforcement of Foreign Account Tax Compliance Act (FATCA) that evading taxes by using tax havens became difficult. Under FATCA, U.S. taxpayers with overseas bank accounts and assets over a certain threshold are required to report all financial activities to the IRS.
Foreign financial institutions such as banks are also required to report financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Even though the rules sound simple, U.S. expatriates are finding it difficult to deal with the new change. It requires a lot of paperwork, which not only requires time and effort, but also the hiring of professional tax help. To avoid the problems that come with the new regulations, many U.S. citizens living abroad have renounced their U.S. citizenship.
Because under this law foreign banks are also required to report financial activities of U.S. taxpayers to the IRS, many banks are refusing to do business with U.S. citizens.
Even though FATCA is bringing down tax evasion, it is not without damaging side-effects for taxpayers living abroad. But bringing back of billions in tax revenue and curbing of tax evasion is the reward that seems worth the trouble.