As I expected, the Foreign Account Tax Compliance Act (FATCA) and its related controversies have not gone gently into that good political night.
For starters, Republican U.S. Senator Rand Paul from Kentucky is part of a legal battle, filed this month via the federal court in Dayton, Ohio, against the U.S. Treasury Department and the Internal Revenue Service (IRS).
Suing the IRS may or may not help his effort to become the G.O.P. presidential nominee in 2016, but Paul has been consistent in taking action to stop the FATCA train. The senator re-introduced an anti-FATCA bill this past March and he put forth a bill to repeal FATCA two years ago.
According to media reports, one of the basic arguments of the legal action is that the intergovernmental agreements (IGAs) that the U.S. government has been racking up to enforce FATCA actually are treaties that need approval from the U.S. Senate. The suit also reiterates the common cry against FATCA that it has making too many demands upon Americans living abroad, and that the penalties of FATCA and the IRS’s Report of Foreign Bank and Financial Accounts (FBAR), which covers a bank and brokerage accounts, mutual funds, trusts, and other types of foreign financial accounts, are excessive and unconstitutional.
Almost simultaneously, Nina E. Olson, the National Taxpayer Advocate of the IRS, submitted a mid-year report on the objectives of the Office of the Taxpayer Advocate and FATCA. Olson is citing the consequences that “fall heavily on honest taxpayers,” according to a key part of her report.
“Many U.S taxpayers, particularly those living abroad, have incurred increased compliance burdens and costs as a result of FATCA’s expanded reporting obligations, most of which repeat existing Report of Foreign Bank and Financial Accounts (FBAR) filing requirements,” according to the report. “These hardships include additional tax preparation fees and the unwillingness of some foreign financial institutions to do business with U.S. expatriates.”
Olson has complained about FATCA before and in 2013 said that “… the weight of FATCA is being felt not by tax evaders, but by U.S. taxpayers who likely would be compliant regardless. U.S. taxpayers under the FATCA umbrella who must file Form 8938, Statement of Foreign Financial Assets, are generally at least as compliant as the overall U.S. taxpayer population.”
The report is intended to provide goals for the next fiscal year, which in this case is 2016 and starts October 1, 2015. While Olson does not advocate for the repeal of FATCA, she does make the following recommendations:
- Update and analyze research and stakeholder concerns regarding the impact and effectiveness of FATCA;
- Encourage the development of mechanisms, such as the “same-country exception,” to mitigate the unintended negative consequences of FATCA while perpetuating its broader goals;
- Provide recommendations to the IRS and Treasury regarding the policies and procedures that should govern the credits and refunds of amounts withheld under Chapter 3 and Chapter 4;
- Advocate for U.S. taxpayers experiencing significant hardship as a result of systemic Chapter 3 and Chapter 4 refund freezes and issue Taxpayer Assistance Orders (TAOs) as necessary; and
- Work toward the development of a FATCA regime that gathers only the information actually needed by the IRS, burdens impacted parties as little as possible, and preserves the rights espoused by the IRS in the Taxpayer Bill of Rights, including the right to pay no more than the correct amount of tax and the right to privacy.
Of course, it will be a while before we see if the the lawsuit and/or Olson’s recommendations actually have an impact on the FATCA reporting regime and the number of IGAs that the Treasury Department can complete.
However, time may be against the anti-FATCA efforts as each day the gathering, calculating and reporting efforts are becoming more entrenched, making it more difficult uproot a global system.
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