Given that it’s tax season and many Americans will be reaching into their pockets to settle what they owe to the government, the timing of a new inspector general report seems appropriate. U.S. Taxpayers are probably not going to be thrilled to learn that a report released on April 8, 2026, by the Treasury Inspector General for Tax Administration (TIGTA) shows that the Internal Revenue Service (IRS), despite having a program in place to assess taxes on foreign financial assets held in offshore accounts held by American citizens, performed a shockingly low number of examinations and applied even fewer penalties.
If that’s not enough to make individual taxpayers grumble, the IRS also disagreed with almost every aspect of the three recommendations made in the TIGTA report to assess and improve the Foreign Account Tax Compliance Act (FATCA). The Internal Revenue Code provisions that allow IRS employees to target nonfilers, underreporting, and noncompliance from offshore private banking accounts. Despite this, TIGTA found that the IRS has spent almost $683 million administering FATCA overall, while Campaign 896 targeted about $6.2 trillion in offshore balances but produced only about $41 million in additional tax and penalties, and left roughly $4 million in potential Form 8938 penalties unassessed.
For those scrabbling to make their payments each tax year, the failure of IRS management and the Department of the Treasury to punish those abusing the tax system is beyond maddening. Why is FATCA, which allows federal agencies to hold tax scofflaws responsible, failing so badly? And can it be saved?
My Money Loves To Vacation in the Cayman Islands
Introduced in 2010, FATCA was intended to narrow the Tax Gap by making the offshore accounts of U.S. taxpayers more transparent and accountable to tax laws. Specified foreign financial accounts that met or surpassed a certain threshold were required to file Form 8938, Statement of Specified Foreign Financial Assets, with their income tax return. Failure to do so resulted in a failure-to-file penalty of $10,000 per month, with a maximum of $60,000 in fines per year. It was believed that FATCA would generate around $8 billion in revenue over the fiscal years 2010-2020.
Things did not go as hoped. A 2018 TIGTA report found that the IRS repeatedly failed to follow up on failure-to-file violations and cases showing underreported income. In addition, some records from Foreign Financial Institutions (FFIs) failed to include correct Social Security or Taxpayer Identification numbers. As a result, the IRS launched the Offshore Private Banking Campaign (Campaign 896) in 2019. The Large Business and International (LB&I) Division, which oversees FATCA administration, was put in charge.
Campaign 896 was intended to identify qualifying accounts that failed to file Form 8938, assess the $10,000 fine for noncompliance, and open an examination to determine if additional taxes were owed by the account holder. While the information reporting aspect of Campaign 896 worked as expected, the use of additional actions to apply penalties and collect additional taxes from offshore accounts during the filing season came up short. Way short.
Of 164 taxpayers with accounts at foreign financial institutions referred for examination for either ignoring reporting requirements, having discrepancies on their income tax returns, or not bothering to file any taxes with the federal government, only 12 were actually examined. Five paid a combined total of just under $40 million in tax revenue, with another $80,000 in non-filing penalties. For these 164 noncompliant taxpayers, the average unreported foreign account balance was about $1.3 billion each.
It gets worse. There were 241 other noncompliant taxpayers who had income over the legal threshold but failed to file, with an average of $377 million in their accounts. 225 were sent an “educational” letter that required no action on the taxpayer’s part. The remaining 16 received a so-called “soft letter,” which did require a response. Under the Campaign 896 policy, those who don’t comply are to be referred for an examination. Despite receiving no responses, this did not happen in any of the cases.
In addition to its findings, the TIGTA report provided suggestions to improve FATCA results. Despite the marked failures to date, the IRS was less than enthused about the proposed policy changes.
Aren’t You Supposed To Be the Really Scary Federal Agency?
Believing that the methodology behind FATCA is sound, TIGTA suggested that the IRS make three changes to the existing system. These were:
- Implementing additional performance measures to give decision makers comprehensive information about the effectiveness of the FATCA program
- Revising Campaign 896 processes to include assessing FATCA failure-to-file penalties
- Assessing the viability of using Form 1099 data to identify Form 8938 nonfilers
Aside from agreeing to evaluate the possibility of using 1099 data, the IRS disagreed with all of TIGTA’s attempts at the modernization of Campaign 896. It also questioned the assertion that the agency had left close to $4 million uncollected by failing to assess failure-to-fine penalties on identified noncompliant taxpayers.
In 2025, the IRS saw more than half its budget slashed by the Trump administration, along with massive reduction-in-force (RIF) firings that included 742 agents from the LB&I division. This, along with the agency’s current stance that it’s the legislation, not the enforcement, that's flawed, makes it unlikely that FATCA revenue will experience any significant upswing in the near future.
Related Resources
- Tax Problems and Audits (FindLaw’s Individual Income Tax Law)
- The Taxpayer Bill of Rights: How To Protect Yourself in an IRS Dispute (FindLaw’s Federal Tax Laws)
- How To Stop IRS Collections, Liens, and Levies (FindLaw’s Tax Problems)
