The Internal Revenue Service has taken some initial steps to implement the Foreign Account Tax Compliance Act, but it still has a long way to go, according to a new government report.

FATCA was included as part of the HIRE Act of 2010 as a way to improve tax compliance and bring in tax revenue from Americans with previously unreported foreign bank accounts and other assets.

FATCA requires certain U.S. taxpayers to report to the Internal Revenue Service their overseas assets and requires U.S. entities to withhold a portion of certain payments made to foreign financial institutions, or FFIs, that have not entered into an agreement with IRS to report certain information on the foreign bank’s U.S. accounts. FATCA is an effort to reduce tax evasion by creating greater transparency and accountability with respect to offshore accounts and entities held by U.S. taxpayers and by providing IRS with tools to further enforce tax laws. The law has provoked controversy, with expatriates and dual citizens saying that it subjects them to double taxation, and foreign banks and governments balking at providing information to the IRS.

The IRS believes that implementing the new requirements will increase tax compliance, help close the tax gap, and provide IRS with a substantial amount of new information. However, that new information could be challenging to manage, according to a report from the Government Accountability Office.

The GAO noted that the IRS plans to compare multiple sources of information to identify U.S. taxpayers and FFIs failing to comply with the FATCA requirements and, more broadly, taxpayers failing to report their overseas income. The IRS has begun to discuss how it will use such information to improve compliance, but it has not yet completed or fully documented a broader strategy for doing so.

For example, the IRS has not developed key internal milestones for accomplishing the tasks necessary to enable it to use FATCA information to improve taxpayer compliance or performance measures to assess the cost and benefits of its compliance efforts, the GAO noted. IRS officials told the GAO that many of these decisions depend on areas of program design that have not yet been finalized.

If the IRS does not document a broad strategy, it risks negatively affecting FATCA implementation, according to the GAO. Given that the IRS’s implementation of FATCA is in its early stages, the strategy may be a high-level road map with timelines that could evolve over time.

In order to improve FATCA implementation, but recognizing that the IRS is phasing in implementation, the GAO recommended that the IRS develop a consolidated risk assessment; complete a broad strategy, including a timeline and performance measures, for how the IRS intends to use information collected based on the FATCA requirements to improve tax compliance; and establish and document a timeline for completing a comprehensive FATCA cost estimate.

The IRS acknowledged that it is still in the early stages of FATCA implementation. “FATCA is in the beginning phases of a six-year implementation project, which began in late 2010 and will continue through 2017,” wrote IRS deputy commissioner for services and enforcement Steven T. Miller in response to the report. He noted that the IRS and the Treasury Department recently published 388 pages of proposed regulations that provide guidance on implementing the information reporting and withholding tax provisions of FATCA.

“Once these regulations are finalized, a number of outstanding issues will be resolved, allowing further progress on the six-year plan,” Miller added. “Furthermore, Treasury and other U.S. government officials are still evaluating standards surrounding the exchange of government-to-government data. Therefore, the FATCA Program team has been largely focusing on implementation activities that are certain, such as Form 8938, Statement of Specified Foreign Financial Assets, inbound data, which began arriving in January 2012, and the Foreign Financial Institution (FFI) Registration system, which will be implemented by January 2013. Once the final regulations are issued as planned in the summer of 2012, the program team will begin addressing other long-term implementation efforts.”