The “tax gap” measures the difference between estimates of what taxpayers should be paying and what the Internal Revenue Service actually collects. In 2009, Congress attributed $100 billion of the annual $345 billion tax gap to offshore tax abuse.1 Given the amount of revenues lost to tax havens, the IRS’s recent focus on international tax avoidance is unsurprising.2
Over the last two years, this column has chronicled the IRS’s efforts to encourage non-compliant taxpayers to disclose their offshore bank accounts through its Voluntary Disclosure Practice.3 These efforts have focused on using the “stick” of increased enforcement and the “carrot” of reduced (and certain) penalties. In the long term, however, the Foreign Account Tax Compliance Act (FATCA), which became law as part of the Hiring Incentives to Restore Employment Act of 2010,4 may have an even more significant impact on offshore banking.
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