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Shutdown slows U.S. bilateral talks to fight offshore tax dodgers

By Kevin Drawbaugh and Patrick Temple-West

WASHINGTON (Reuters) - The federal government shutdown has interrupted U.S. efforts to negotiate agreements with other countries on implementing an anti-tax evasion law that is to take effect next year, tax lawyers said on Friday.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, is to take effect next July. It will require foreign financial institutions to tell the U.S. Internal Revenue Service about Americans' offshore accounts worth more than $50,000.

To implement FATCA worldwide, the U.S. Treasury Department is negotiating "intergovernmental agreements" (IGAs) with more than 50 countries. Each pact would give financial institutions in those foreign countries much more certainty about what they must do to comply with FATCA.

IGA talks have stalled for now, said Michael Hirschfeld, chairman of the American Bar Association tax section, blaming the federal government shutdown now in its fourth day.

"Negotiations on the IGAs have taken a little bit of a hiatus," he said during a panel discussion at a conference.

A Treasury Department spokeswoman could not immediately confirm that FATCA negotiations were on hold, but said 80 percent of Treasury's workforce had been furloughed.

Treasury's shutdown contingency plan did not mention foreign tax negotiations.

The start of FATCA has already been delayed twice, most recently in July when Treasury officials said they wanted an additional six months to finish hammering out IGAs.

"The shutdown obviously throws a monkey-wrench into all the planning that takes place" on IGA negotiations, said John Harrington, a former Treasury tax official who is now a partner at law firm SNR Denton.

The shutdown's disruption "will inevitably slow things down," he said.

At this stage in many of the IGA negotiations, the foreign governments are deciding what work they need to do to finish a deal with the United States.

In some cases, this may mean the shutdown would not have much impact because Treasury officials are not involved, said one lawyer familiar with the negotiations, who spoke anonymously because the talks are ongoing.

From the U.S. perspective, "it's 'take it or leave it' for foreign governments," he said of the IGA negotiations.

(Editing by Kevin Drawbaugh and Leslie Gevirtz)

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