The Treasury loses billions of dollars of revenue each year due to tax evasion. This sizable loss of money is due to both legal and illegal tax evasion. In an effort to thwart illegal practices such as hiding income in overseas banks or tax havens and under-reporting income, the IRS implemented the foreign account tax compliance act (FATCA).

The government has been successful in improving transparency in the monetary transactions U.S. citizens conduct overseas through FATCA. Along with individuals, foreign financial institutions (FIIs) are also required to provide financial records to the IRS. The IRS has made agreements under FATCA with many countries, including Germany, Ireland, Canada, the United Kingdom, and Switzerland, and is expected to make more agreements in future.

Handling legal tax evasion is an entirely different matter, as changing a few tax rules would likely be ineffective. When companies or individuals exploit the loopholes in the tax code to minimize their tax liability, it’s considered legal tax evasion. As the companies or individuals are not breaking any laws in minimizing their tax liability, legal tax evasion cannot be punished. In order to prevent legal tax evasion, changes in the tax code are required.

As the tax code today is more complex and lengthy than ever, there is a consensus among many Americans and the government that a complete overhaul is necessary. The ultimate goal is to discourage or altogether end legal tax evasion and ensure tax money stays inside the United States.