Professor Allison Christians of McGill University has published in the July 9, 2012 issue of International Tax Notes an excellent article on FBAR and FATCA filing. Professor Christians has not only put a spotlight on the overreach of the United States through its required reporting of FBAR and FATCA by Americans overseas, but has also proposed a constructive legal solution to end this reporting requirement. All Americans abroad will be interested in reading this article.
Allison Christians seems to have used quite a bit of actual common sense in coming to her conclusions / suggestions. Perhaps a way for a Win:Win? At any rate, a good read and, although reprinted from TAX NOTES INTERNATIONAL, JULY 9, 2012, p. 157, Volume 67, Number 2, July 9, 2012*, I haven’t come across this before. I may have missed it here at Isaac Brock.
*Tax Analysts 2012. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
The title of this column asked whether a same country exception could serve to focus FATCA and FBAR. The answer seems to be yes for pragmatic reasons, by allowing the tax administration to turn its ever-diminishing enforcement resources away from what is likely to produce an enormous data dump with few productive leads — getting some of the haystack out of the way in order to render the needle more visible. The answer also seems to be yes for political and diplomatic reasons. FATCA and FBAR are either a rather nasty piece of arm-twisting, a bit of bad faith in the U.S. diplomatic relations department, or, worse, they are signaling a loss of faith in the pursuit of cooperation through diplomacy — a huge blow to the international tax regime as a whole. Carving out the bona fide residents who are using bank accounts to live their lives as residents and often dual citizens abroad could provide a means of backing away from either of these destructive positions.
*Good thoughts, but the same-country exception falls apart in the EU zone where the Euro is the common currency and where many “local” bank accounts are actually next door in one of the adjacent countries using the same currency. You may live in one country but the closest local bank may be in the larger city just over on the other side of the border. It might even be within walking distance of your home.
*Roger Conklin
I guess you could make the argument that the EU is all one “country”. In fact some elements of the proposed FATCA regs actually do this.
I found this interesting video of the interview of Charles Adams, co-chairman of Americans Abroad for Obama discussing FATCA on Dukascopy TV.
A few points I’d like to hightlight. The beginning of the video is good and he explains well FATCA and its consequences. The end is more interesting. Charles Adams says:
4:50 – american living overseas have been heard, resulting in the delay of FATCA implementation, and he hopes that it will be further delaid until the entire concept is revisited.
6:08 “the aim of the US administration, and this is not particular to the Obama administration – it was the case already with the predecessor adminstration – it will be the case tomorrow with whomever is elected to the presidency of the United States, is to pursue delinquent American taxpayers who owe money to the Federal government on unreported income from undeclared bank accounts“.
He seems to infer that that does not only include mainlanders, but Americans living abroad as well. He fails to mention that this whole thing impacts immigrants, and that FATCA or not, the chase of undeclared foreign accounts is going to continue.
And he continues on by:
“The undeclared bank account are not only in switzerland – in fact they’re not even principaly in Switzerland. They are in various offshore jurisdictions. I will share with you a simple fact, which is that by large, people with undeclared accounts offshore… like to have their money in places where they can go and visit it over a weekend, say. And that would suggest that most of the undeclared money belonging to American citizens are not at all in Switzerland, nor in Singapore. They are in places that are within easy reach of the American mainland.“
So here, he seems to talk mainly about tax evaders living in the US, obviously. He failed to mention that the main problem is citizenship based taxation.
bleck. There are a heck of an awful lot of contracters working for moving industries (for example, those who right code for international financial institutions, or auto designers or engineers, or oil engineers). It’s possible to file your taxes correctly anywhere you go, but impossible to file your US taxes. One needs to have accounts to survive. Remaining an IRS risk is not very attractive.
These Democrats Abroad are walking-, living-, and breathing-contradictions-of-terms.
@Christophe,
Thanks for providing a link to an interesting interview regarding FATCA. If only the US would look at their citizenship-based taxation — why can’t they explore a little in that vicinity — bullheadedness?
@Christophe
New one I hadn’t heard. “Typhoid America! Avoid at all cost”. That is good. We should see if we can’t pump up the viewership on this one. At 34 views, there are still 5 Americans who haven’t seen it :). Maybe consider a separate post.
@Just Me. Thanks. I never created a WordPress account and am not registered as a contributor to IBS. I don’t think I can create new posts. Feel free to do it for me. Thanks.
Prof. Christians’ argument would make sense if the US were acting in good faith, aiming to curb tax cheats. But it has already shown its hand. The plan is to hunt down and confiscate the financial assets of ordinary people. It is stealthy, opportunistic, and predatory. In light of the evidence I have seen, Prof. Christians’ argument seems naive.
Good stuff, thanks Calgary and Christophe.
Blchh. Professor Adams asserts that US citizens are not being persecuted, but then states “delinquent American taxpayers who owe money on undeclared bank accounts” are being pursued. If he is referring to most Americans working and living abroad, he is unaware of the manner in which we have been pursued. The IRS position of pushing people who made paperwork footfaults into OVD programs that were designed for people with material criminal risk is a form of persecution, especially since reasonable cause is denied in these programs. One can opt out, but then the final decision is left up to a centralized review committee. As I understand it, in normal IRS functioning, decisions are left up to agent discretion (and their manager). The addition of the committee approval makes it feel more like an Inquisition than following the rules in the rulebook. Furthermore, taxpayer rights were violated in that payments received were not applied as the taxpayer requested and refunds due on timely filed returns under OVDI are still not processed. There was no mention of either of these in the FAQs of the program.
If we are not being persecuted, why not just let Americans resident overseas amend returns and send in FBARs if they wish to fix the past? There are plenty of penalties to pay if money is owed without applying FBAR penalties to long term residents abroad. Why rake them over the coals in OVDI and why make the criteria for participation in the Streamlined Program so narrow?
Immediately after mentioning that average Americans abroad are not being persecuted, Prof. Adams also states that most offshore accounts being pursued are in places close to the American mainland where they can be visited on weekends. What does he mean, Canada or Mexico? Of course, he is probably referring to the Caymans and other Caribbean islands, but now it is clear that he inconsistent. Your average American living and working abroad does NOT have an account on an island near the US mainland that he or she can visit on weekends. As a matter of fact, most normal banks where we have accounts are not open on weekends.
On the other hand, his recognition of the burden of FATCA is good and his comments on the delays and expectation that there will be a more reasonable approach to achieve its aims are interesting.
Unfortunately, the position he took that Americans abroad are not being persecuted convinces me even further that the Democratic administration does not wish to look at the realities, i.e., damages, of the storm it has unleashed.
@Roger @Tim – Schengen and EU would be more appropriate than just the EU. EU leaves out Norway, Iceland and Switzerland. Schengen leaves out the UK and Ireland. All of these countries make it relatively easy for people with the passports covered by these agreements to obtain residence and to obtain bank accounts. There is a lot more movement between countries these days. Taxation, driver’s licenses and health care agreements now take into consideration the free flow of people in the EU and Schengen.
Thanks Calgary and Christophe.
On first read, Prof Christians’ suggestion makes sense overall. But I tend to agree with Northern Shrike. The actions of the IRS certainly demonstrate a predatory/punitive approach with a harshness that is simply uncalled for. They’ve have enough feedback and could have acted to make changes and they haven’t. Several people outside of our situation suggest that 8938 is a sneaky way to see how much they could gouge us for a wealth tax and/or building records so they can maximize on estate tax.
I was talking with someone today who indicated he had lived in Arizona for a year (don’t know how long ago-he’s a doctor and it was probably a long time ago as he has a very established practice in this area). His perception was that the US government treated citizens harshly and inhumanely. No consideration whatever. He was horrified by what I told him. Ditto for a financial planner I spoke to last week. I was surprised someone like him had yet to hear of FATCAT. Both originally claimed it couldn’t happen because of our privacy laws. Lots of educating to do, eh?
Prof Adams seems knowledgeable enough and I also got a kick out of “Typhoid America…” How he can claim USPs in Switzerland have not been persecuted and have nothing to fear is beyond me. Did he indiate where he lived?
The EU discussion brings up a more reasonable alternative to FATCA. Eu forced its membership to accept a bank secrecy compromise, which was implemented sometime about 2005. Luxembourgh banks (for example) were forced to ask their customers to choose if they would like to declare their account with their EU residence home, or to let it remain secret. If secret, the bank just witholds tax from the interest, and sends it anonymously to the resident’s EU country. So the gubbermints all got what they wanted without screwing their residents or citizens.
*Let’s face one fact. FBAR reports, when these were instituted in the the 1970s were for the purpose of extracting masssive penalties out of those involved in money-lanundering activities. The fact that honest taxpaying US citizens abroad were technically subject to this law was largely ignored. No information was even included the tax instructions for taxpayers resident abroad that FBARs even existed, let alone that it ever appplied to them. It has only been just a couple of years ago that the responsibility for enforcing FBAR reporting was transferred from the Treasury Department to the IRS, at which time their existence was for the first time made available to overseas taxpayers through PUB 54.
Meanwilee back in Washington it was apparently realized that enforcing this law where it had been ignored and its existence effectively concealed before could produce vast penalties from those who were totally unaware that such a law even existed. These are the consequences we have been reaping since.
Unlike most recent fiscal legislation, the FBAR reporting legislation does not provide for any adjustment in the reporting threshhold with the changing value of the dollar. In 2012 US dollars, $10,000 in 1970 is equivalent in value to $59,648.98 today. And $10,000 today is equivalent to $1,676.70 in 1970 dollars. These are the values appliying the official Consumer Price Index variation between 1970 and 2012.
And of course if you translate the relative values of foreign currencies, such as the Swiss Franc into US dollars in 1970 and 2012, then the differences are very significantly higher. These conmulative differences contribute to exagerating the impact of this 1970 FATCA legislation on US ciizens living and working abroad today by several orders of magnitude. The effect of this this legislation goes far beyond the intentions of those who enacted it back in 1970. But it still is the law.
@Roger, thank you for that reminder re the context of the FBAR – it’s original intent, and the effects of a monetary threshold that has been unchanged for decades – since 1970. There can be no remaining doubt that the US Treasury, Congress and the IRS are entirely aware of what you say. They proceed deliberately, in spite of that knowledge, proving themselves to be morally and ethically bankrupt. US citizens abroad must act according to that knowledge, and make whatever choices are available to them to protect themselves in the face of the deliberate exploitation and persecution perpetuated by the US.
The IRS own watchdog Nina Olson made some of this very clear in her report to Congress http://americansabroad.org/issues/taxation/tax-advocate-criticizes-irs/ . Nothing has changed, and I don’t believe it will change. There ample evidence that this is a deliberate choice by the US to continue in the same vein, no matter the consequences to the many abroad who do not owe the US anything.
There is no accident, this situation continues unabated as a conscious choice made by the US to extort money in any way they can – via penalties if thwarted by the FEIE and Foreign Tax credits from assessing and collecting double taxes from those abroad, who they see as vulnerable – too weak and dispersed to resist – with no effective representation.
BTW, since we are discussing the ACA November report. I wish to draw your attention a couple other things..
First,
there is a good posting on the ACA web site that you can use to send to folks who do not understand the Citizenship taxation fuss.
Taxing Americans Overseas – think about it this way…
Secondly,
ACA Tax proposal for Americans Resident Abroad.
ACA has been working on a tax proposal to submit to Congress for some time, and a final version of the ACA tax proposal is now available online. They are holding off on the press release right now because of the elections. It would be drowned out.
Currently the document is being sent to Congressional offices that ACA is targeting in November.
Feel free to distribute it.
@Just Me, I exchanged several emails in August and September with Marylouise Serrato and Jackie Bugnion, ACA’s directors, discussing this proposal. I also discussed it with Marylouise Serrato in person. ACA’s approach is to appeal to Congress by showing that the proposal would increase revenue. I understand their approach, but as I told them, I don’t like the proposal because it’s just too complicated. I read the Internal Revenue Code myself and I know how difficult it would be to write a bill to implement it, if not impossible without creating inconsistencies. This is the typical request for a “tax break” by a “special interest group”, it creates more definitions, more exceptions, more forms, more types of taxpayers, more confusion. And it does nothing for immigrants with similar FBAR problems or to stop FATCA.
The purpose of taxes is to provide revenue for government services, period. Tax law should not be used to promote or punish behavior in every possible individual situation. US tax law already does that too much as it is, and I cannot agree with a proposal that would make it even more complex. It would be good for Americans abroad if Congress approved ACA’s proposal, so I won’t oppose it, but I won’t help with it either.
@ Shadow Raider, thanks for your thoughts on the ACA proposal, – particularly valuable since you’ve been immersed in an effort to revise the IRC.
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*I think the proposal is a good first step I will try to share some more comments here and directly with ACA.
@JustMe:
The ACA proposal is exactly what I have thought should happen for a long time: give Americans abroad the option to be taxed like non-resident aliens.
In my case, it would actually result in my paying more tax to the US: right now I pay nothing, while under this proposal interest etc. earned in US-based accounts would be subject to US withholding tax. And yet, I would be much happier with the reduced paperwork burden and fewer bizarre restrictions on how I can function where I live. I would also find this system much fairer, with the withholding tax being basically a user fee for services received (maintenance of banking regulatory infrastructure that covers US-based accounts).
I really hope this ACA proposal takes off.
*Just Me, the ACA proposal perfectly matches the situation I created for myself by renouncing. With such, I create jobs in America, am taxed on my US income and the US now respects and appreciates the fact that I live abroad. This would not have been possible if I had not renounced. So, I’d say that it makes sense, is reasonable and is the way to go. Hopefully politicians will see it this way too because otherwise I’ve set an example for others to follow and can only recommend it. If you love America and live abroad, then show your patriotism and renounce US citizenship for the benefit of everyone! There are some unique situations, like the current one, where one’s nationalism benefits more from the lack of citizenship. One does not have to be a US citizens to love America and help it to succeed!