In 2005, the Internal Revenue Service estimated that nearly 20% of income went unreported, costing the IRS more than $350 billion. In 2011, that sum was estimated to be close to $500 billion. With budget cuts increasing, the debt ceiling being raised, and as the United States continuing to build its debt, unpaid taxes have a great effect on U.S. policy and the economy.
A recent piece of legislation to help curb tax evasion in the United States is Foreign Account Tax Compliance Act of 2010. In conjunction with countries like Switzerland, its goal is to require foreign banks to disclose the balances, withdrawals and dealing of foreign bank accounts held by American citizens. It also forces the account holders to be subject to taxes on any income derived from those accounts.
The Foreign Account Tax Compliance Act also reports those foreign accounts to the IRS on new IRS forms and enforces penalties if any underreporting of foreign income exists.
This Act has caused a lot of controversy because many foreign banks are no longer accepting American consumers and are closing American accounts because of the extensive nature of this regulation. While this may have a negative effect on many American citizens, namely those living abroad or those with dual citizenship, the Act will have positive effects in the area of tax evasion because people will be forced to keep their money within the United States out of necessity—and this allows for easier monitoring by the IRS. The Act will also bring in hundreds of millions of dollars each year to the U.S. Treasury.