Skip to Main Content

Worldwide Tax Daily Quotes Mark Matthews on FATCA: Swatting Flies With Atom Bombs

April 2, 2015, Worldwide Tax Daily
Worldwide Tax Daily quoted Mark E. Matthews concerning the offshore tax evasion problem and the staggering costs of the U.S. Foreign Account Tax Compliance Act (FATCA). For the complete article, please visit Worldwide Tax Daily's website (subscription required).

Excerpt taken from the article "FATCA: Swatting Flies With Atom Bombs" by Amanda Athanasiou for Worldwide Tax Daily.

With FATCA, "the U.S. forced the world to the table in classic, American, our-way-or-the-highway style -- it was perceived as a stunningly arrogant play," said Mark Matthews of Caplin & Drysdale Chtd. "But it could have taken years to accomplish the same level of tax information sharing via traditional international consensus-building approaches," said Matthews, a former IRS deputy commissioner for services and enforcement.

While most of the cost of FATCA is being borne abroad, "the tax-deductible costs of the program to U.S. banks alone may exceed the revenue return," Matthews added.


Estimating the 'Pot of Gold'

But based on the numbers from the IRS's offshore voluntary disclosure program thus far, Matthews said, both of those projections may be too high. "FATCA will definitely increase foreign reporting of foreign assets, but I think people are seriously overestimating the pot of gold," Matthews said. "I spent most of my time on the government side, and I still feel that way."

OVDP and its predecessors have yielded over 45,000 voluntary disclosures and approximately $6.5 billion in collections, according to a June 2014 IRS fact sheet. But much of that revenue comprises penalties and interest, and OVDP participants were filing as many as six to eight years of back tax returns, Matthews said. "It would be a generous estimate to say Swiss-based tax evasion is generating about a half a billion dollars a year in revenue as measured roughly by the results of the offshore program to date," he said. And that's after five or six years of the U.S. government "pounding the Swiss banks as hard as humanly possible," he


Still, "compliance hasn't skyrocketed the way you would expect it to if the offshore tax problem was as large as it's been portrayed," Matthews said. Of the FBARs filed in recent years, "probably 90 plus percent were filed by domestic filers," he said. That leaves a significant gap between FBAR numbers and the State Department's 2013 estimate that 6.8 million U.S. citizens live abroad.


Matthews, who called OVDP the most successful tax evasion enforcement program in history, agreed that "a lot of these people are not the Al Capones that the IRS is making them out to be." If FATCA does generate a windfall of money, "I'm not sure that's because it's catching mostly criminals," he said.


The Cost of Ending Bank Secrecy

FATCA has "turned on its head how popular it is to be an American," Matthews said. "When clients who have lived abroad for years come in, concerned about whether they have an obligation under FATCA, they sometimes react to the suggestion that their kids might be American the way one might react to a horrible medical diagnosis," he said.

"How is FATCA going to work in a non-English-speaking, developing country where a bank clerk makes $30 per month trying to digest 500 pages in English to determine whether entities are 10 percent or more owned by U.S. people?" Matthews asked. "I personally think it's ludicrous."


Misallocation of Effort

According to the IRS's tax gap map   for 2006, underreporting of individual business income was much larger in scale than was the underreporting, underpayment, or nonfiling of any other category for which data was included in the study, at $122 billion. That suggests that FATCA's focus on offshore accounts is a "misallocation of effort," Matthews said.

"If you look at tax compliance as a dike and there are little holes in it and you're trying to patch those holes, the gusher is small business taxpayers," Matthews said. But there's never been a hearing on small business tax evasion, he said, adding that for political reasons, small business owners are unlikely to become a target.


About Caplin & Drysdale
Celebrating our 55th Anniversary in 2019, Caplin & Drysdale continues to be a leading provider of legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills -- combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment -- make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:
For more information, please visit us at
Washington, DC Office:
One Thomas Circle NW
Suite 1100
Washington, DC 20005
New York, NY Office:
600 Lexington Avenue
21st Floor
New York, NY 10022


This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.
©2021 Caplin & Drysdale, Chartered
All Rights Reserved.