The Next Obamacare? FATCA Roll Out Flounders
Thursday, January 9, 2014 - 8:45am — Written by David Kinkade
Website Woes Raise Concerns
The Internal Revenue Service (IRS), which is responsible for the law’s implementation and enforcement, has faced serious technological difficulties in launching the FATCA online registration portal, where foreign financial institutions are required to register and report information on their account holders. The IRS estimates that between 200,000 and 400,000 financial institutions will register.
The initial Foreign Financial Institution Registration System (FRS) was developed and near deployment in 2012 at a cost of $8.6 million—then summarily terminated in November 2012 due to regulatory changes and policy issues arising amid the law’s implementation, the Wall Street Journal reports.
A modified and expanded registration site launched in August. The new release entailed an additional cost of $8 million, according to a September report from the IRS Treasury Inspector General for Tax Administration (TIGTA). The TIGTA report suggests the new FRS is improved, but still faces potential problems. The TIGTA audit found that the redesigned FRS suffers from “poor management controls,” including inadequate planning, potential security flaws, and cost overruns, which “puts the system at risk of not functioning as intended once it is moved into production.”
The portal’s questionable security safeguards are particularly troubling, given that the site will be used to share sensitive information on account holders. James Jatras, a Washington, D.C., attorney who spearheads a movement to repeal the tax law notes that financial institutions and their clients should be concerned about how their data will be protected and used.
“There is nothing about the security protection of the data in the regulations,” Jatras tells Thomson Reuters in an assessment of how FATCA’s implementation woes are affecting stakeholders. “FATCA data is not treated as private and the data will be passed on to the intelligence agencies. If I was the [National Security Agency], I would love to get information on American accounts elsewhere, and what other account information looks like.”
While the FATCA technological challenges haven’t been a debacle on the scale of the botched launch of the Healthcare.gov site this fall, it’s worth wondering why the IRS should have such difficulty in launching a well-performing website with three years’ lead time.
Hurry Up and Wait: More FATCA Delays
The numerous delays to the law’s implementation raise additional questions about the law’s soundness. Initially slated to take effect in January 2013, the start date has been pushed back repeatedly—it’s now set for July 1, 2014.
But even that date could be a moving target. The IRS Information Reporting Program Advisory Committee (IRPAC), an advisory council to the agency composed of tax professionals, just this month proposed delaying FATCA implementation to January 2015, a view shared by various banking and financial organizations.
Some say the repeated delays are fostering additional uncertainty about the law.
“The law is very broad, with many moving parts. It is evolving as Treasury (rightly or wrongly) changes its implementation by using [intergovernmental agreements (IGAs),” tax analystJeremy Scott writes at Forbes. “If IRPAC and the financial industry want Treasury to wait for all the significant guidance to be finalized before the withholding regime is put into force, FATCA will be waiting a very long time to become law.”
Scott concludes that financial services providers will never be satisfied with FATCA, and argues the Treasury Department should let the law take full effect without delays. However, an equally strong case can be made that the endless delays and revisions are evidence that the law was poorly conceived and likely to suffer shoddy implementation.
Full text in https://www.uschamber.com/blog/next-obamacare-fatca-roll-out-flounders
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