IRS Budget Crunch Limiting Use of Foreign Government Data

Photographer: Andrew Harrer/Bloomberg

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A pedestrian passes in front of the Internal Revenue Service building in Washington, D.C.

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Photographer: Andrew Harrer/Bloomberg

A pedestrian passes in front of the Internal Revenue Service building in Washington, D.C.

The Internal Revenue Service initially will make limited use of information supplied by other governments about U.S. citizens’ offshore holdings because of budget constraints, Commissioner John Koskinen said.

Major pieces of the Foreign Account Tax Compliance Act, or Fatca, take effect July 1 as the U.S. seeks to clamp down on tax evasion by its citizens with money outside the country. The law has led to agreements with governments around the world to exchange information.

“One of our biggest challenges lies in having the resources to build and maintain systems that can effectively use all of the incoming data,” Koskinen said today at the Tax Executives Institute conference in Washington. “As with any major new initiative, we expect a learning curve -- for the IRS as well as for everyone affected.”

Koskinen, 74, said he was conscious of the potential difficulties that foreign banks are having in developing systems to comply with Fatca.

“We will be understanding of these problems as long as these intermediaries are making reasonable, good faith efforts to comply,” he said. “We’ll be much less sympathetic to people who don’t have a good story to tell.”

He said the IRS, which doesn’t plan to postpone the July 1 deadline, would have difficulty coming up with a rule that would provide leeway to financial institutions trying to comply without benefiting those who haven’t tried at all.

Koskinen said the agency’s budget request of $12.5 billion for fiscal year 2015, a $1.2 billion increase, is a “critical step forward” in improving taxpayer service.

He also said the IRS has supplied Congress with all of the documents requested to investigate the agency’s scrutiny of Tea Party groups. Koskinen is scheduled to testify on March 26 about the investigations at the House Oversight and Government Reform Committee.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Justin Blum

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