Every year, the IRS always finds a huge tax gap between the actual taxes collected and the taxes due.
The limitations on the IRS in its ability to audit and collect all taxes are always a huge challenge.
One of the areas believed to contribute the most to the tax gap is foreign income.
U.
S.
citizens are expected to report all the income they make outside the U.
S and pay taxes for such.
However, it is very hard for the IRS to get information about income made abroad.
It is believed that U.
S.
citizens have huge bank accounts abroad running into the trillions that they use as tax havens to avoid paying Uncle Sam their taxes due.
However, in an attempt to raise more taxes and meet the tax gap, the IRS is proposing two new bank rules that are set to improve disclosure for foreign incomes.
Over several years now, the IRS has set up partnerships and made negotiations with many foreign banks to have them reveal details of accounts held by U.
S.
citizens.
However, this is not always easy, as different countries have different privacy laws and it is in the best interest of these banks to keep the information of their account-holders secret.
However, one of the areas that the IRS is seeking to gain significant progress is in getting disclosure from foreign banks that operate in the U.
S.
In its first proposal, the IRS is seeking to require all foreign banks that operate from within the U.
S.
to provide information to the IRS about accounts held by U.
S.
citizens in their branches overseas.
The new proposal has been met with much resistance from these foreign banks and many see the rule as one that will negatively affect their businesses because U.
S.
citizens seeking privacy may move their accounts from these foreign banks into other banks that do not operate in the U.
S (that are not required to make such disclosures).
However, on top of the abovementioned proposal, the IRS is also making a second proposal that is more like a reverse-action; they are proposing that local U.
S.
banks also disclose information about accounts held by foreigners.
In this proposal, they suggest that information of any non-citizen who earns an income in the U.
S.
be made public and accessible to their country of citizenship.
The intention of this proposal is to try and lure more countries to disclose information on U.
S.
citizens.
Since the IRS is already facing difficulties negotiating with governments of other nations to have them require their local banks to release information about accounts held by U.
S.
citizens, it will make such negotiations easier if local U.
S.
banks can first release information on foreign accounts.
However, this proposal has also faced a lot of criticism.
Banks are arguing that such a move would keep the U.
S.
from being a tax haven.
They argue that many foreigners choose to keep their funds in the U.
S.
because of their own nation's secrecy policies and the move would result in the U.
S.
losing funds to nations that promote or allow secrecy.
However, the IRS seems to have downplayed such arguments and is leaning towards having the proposals implemented.