Democrats Abroad has just released a new report from its FBAR/FATCA Taskforce. Overall, it looks like most of its policy ideas have been cribbed from ACA without any attribution. Most unfortunately, the report’s authors can’t resist turning a disaster which cuts across party lines for all U.S. Persons abroad into just another excuse to take cheap partisan pot-shots as it concludes:
Republicans Abroad has been conspicuous by their absence in lobbying for reforms to FATCA. Political operatives at the RNC have woken up to the issue and have formed a new entity called Republicans Overseas to make political capital out of a FATCA repeal effort. They hope the movement will stir sentiment and drive overseas votes to Republican candidates and raise money. Their plan is at best quixotic and at worst a blatant political ploy – in either case it is likely to fail given the commitment that regulators have demonstrated to implementing the law and the recognition in the US and globally that tax dodging must be stopped.
Here, then, is the text of this new missive:
Democrats Abroad marks the start of tax season (woo hoo) with a new report, copied below, from the Democrats Abroad FBAR/FATCA Taskforce. This Task Force examines financial reporting requirements affecting Americans with accounts in foreign financial institutions and works to lessen their unintended adverse impacts on overseas Americans. We hope this report is helpful. Democrats Abroad supports government efforts to block and catch Americans avoiding tax through illegal means. We also urge the government to recognize that most overseas Americans are honest citizens, not tax cheats or money launderers.
Important: Please be reminded that we do not provide personal advice on US tax issues and obligations.
Please also go to the Task Force webpage on www.democratsabroad.org for more information on the Task Force and an archive of past communications about their work. This is the link: https://www.democratsabroad.org/group/da-international/fbarfatca-task-force-page-updated.
If you log in to www.democratsabroad.org you can join the FBAR/FATCA Task Force Group (See Email Notification Settings in the right hand column and click on “Notify me of postings of this group”) to post comments. We welcome your comments on the website.
Katie Solon
International Chair
Democrats Abroad
2014 REPORT TO MEMBERS BY THE FBAR/FATCA TASKFORCE
In 2011, the Democrats Abroad international Executive Committee appointed the FBAR/FATCA Task Force to examine the reporting mandates imposed on overseas Americans by the Foreign Bank Account Report (“FBAR” also known as Form TD-F 90-22.1) and the Foreign Accounts Tax Compliance Act (“FATCA”). Although the FBAR has been a reporting requirement to Treasury for many Americans(1) with bank accounts in foreign banks since 1972, it is only since 2004 that enforcement has escalated. FATCA was enacted by Congress in 2010 for the purpose of providing information to the IRS that it will use to identify and apprehend Americans making use of illicit schemes, structures, accounts and facilities to move untaxed earnings out of the US(2).
This report contains four things:
- A summary of the key provisions of FATCA
- Democrats Abroad’s position on FATCA
- The impact of FATCA on Americans living outside of the US
- Democrats Abroad’s Recommended Reforms
The Two Principal Provisions of FATCA FATCA is a complicated piece of legislation and the way some of its provisions are interpreted is in constant flux. What follows is a summary of its two basic components.
- Reporting Requirement for Foreign Financial Institutions (FFIs)
Most Foreign Financial Institutions—such as banks and brokerage houses—are required to enter into an agreement with the IRS to identify their US account holders, disclosing their names, addresses and account details. Any US financial institution making a payment to a non-compliant FFI must withhold 30% of the gross payment.
- Reporting requirement for individual US citizens and their families
A US citizen living outside the US must file the FATCA Form 8938 if he or she holds or has signatory control over funds in FFIs totaling $200,000 in aggregate at the end of the year or $300,000 in aggregate at any time during the year. The thresholds for couples filing jointly are $400,000 and $600,000, respectively. There are severe penalties for under-reporting income in any FFI. The thresholds for US-based citizens are much lower and US residents with signature power over jointly held overseas accounts may have to report even though the overseas citizen may not have to.(3)
Democrats Abroad Position on FATCA Although Democrats Abroad supports strong policies to improve tax compliance and limit tax evasion, we Americans living abroad now find our financial lives exposed to a degree of scrutiny – under threat of severe penalties, fines and even imprisonment – to which Americans living stateside are not subjected. Implicit in this stringent reporting regulation is the unfair and unjustified suspicion that Americans living abroad are tax cheats and/or money launderers, which clearly the vast majority are not. The Task Force has been working for more than three years to outline to legislators and regulators the nefarious implications of FATCA compliance and to promote reforms that both preserve the law’s intent and provide relief to law-abiding overseas Americans excessively burdened by it.
FATCA’s Impact Using evidence gained in a survey of our global membership – which generated thousands of responses – and a website to collect tax stories from overseas Americans, in addition to numerous inquiries, accounts and complaints from members around the world, Democrats Abroad has identified and documented FATCA’s unintended adverse impact on overseas Americans. These are examples, in brief, of some of the issues raised by overseas Americans in addressing the challenge of meeting FBAR and FATCA compliance:
Impacts on employment opportunity:
- Discriminatory impact on US senior managers in foreign companies where an American signature on corporate accounts triggers a reporting obligation to the IRS;
- Loss of job opportunities at all levels for Americans in multi-national corporations due to the cost of compensating for US tax reporting;
- Weakening of entrepreneurial opportunities for overseas Americans due to onerous reporting obligations.
Impacts on personal affairs and privacy:
- Escalation in tax filing complexity and cost;
- Inability to open new financial accounts or forced closure of existing accounts;
- Assets and accounts held jointly with non-nationals subject to IRS scrutiny;
- Exorbitant and confiscatory penalties for non-compliance;
Democrats Abroad’s Recommended Reforms
From our analysis of the data on the impact and our discussions with regulators, legislators and tax advisors, the Task Force established the following proposed reforms:
- Define a foreign or offshore account that must be reported as an account in a country other than one’s country of residence, thereby recognizing our legitimate need for local banking services. This would also relieve the IRS of the burden and distraction of scrutinizing filings that detail legitimate overseas accounts;
- Raise the FATCA reporting threshold for overseas Americans to $1 million, therefore putting the focus on taxpayers with wealth that is sizeable enough to justify the costly and complex investment structures normally used to conceal assessable earnings;(4)
- Index the reporting threshold to inflation so that it goes up every year just as the Section 911 income exclusion does;
- Add a provision that excuses anyone who does not owe taxes (because of the Section 911 Foreign Earned Income Exclusion or any other exemption or a tax treaty) from the obligation to file FATCA form 8983, regardless of the reporting threshold;
- Merge the FBAR reporting requirement with the developing FATCA legislation to eliminate duplication in filings;
- Offer true amnesty to overseas Americans who are delinquent taxpayers, inviting them to pay what they may owe and restore their status as tax-compliant citizens.
Urgent, achievable action is Democrats Abroad’s priority
In the best of all possible worlds, the US would have a policy of residency-based taxation rather than citizen-based taxation, and so foreign financial account reporting requirements established to catch tax cheats would focus exclusively on Americans who reside in the US and shift untaxed earnings abroad. US federal debt levels and funding needs suggest that it is not realistic to expect the US Congress to give serious consideration to residency-based taxation in the near term nor for the IRS to ease up on its implementation of the law.(5)
Urgency in providing relief to overseas Americans is our highest priority.
Our efforts, and those of some non-partisan organizations of overseas Americans, over more than three years to lessen the adverse impacts of the law have yielded significant results. The FATCA threshold for all individuals was originally $50,000 —regardless of where they lived. Democrats Abroad and others lobbied successfully to get the threshold raised for overseas Americans to the $200,000/$400,000 thresholds noted in the first section.(6) Our on-going advocacy plan will continue to focus on reforming the regulations established by the IRS and Treasury because we are confident that our reforms are achievable in the short run and will be effective.
Democrats Abroad will continue to provide full-throated support to strong, good faith efforts to block and catch Americans using illegal means to avoid paying taxes; we will also continue to urge the government to recognize that most overseas Americans are honest citizens, not tax cheats or money launderers. The burden of FBAR and FATCA compliance will be profiled during our March 2014 Congressional door knock, as it has been during Congressional door knock events over the past five years. The Task Force will also continue to engage with regulators (at the Treasury and IRS – including the Taxpayer Advocate) and legislators (especially on the Senate Finance Committee, House Ways & Means Committee and Americans Abroad Caucus) in the promotion of our recommended reforms.
We are very pleased to provide this update on our work. Please be reminded that we do not provide advice on US tax issues and obligations. Many Americans living abroad may find it necessary to seek professional tax advice.(7)
Respectfully submitted,
Democrats Abroad FBAR/FATCA Task Force
Joe Green (Canada)
Stanley Grossman (UK)
Maureen Harwood (Canada)
Carmelan Polce (Singapore) – Chair
Joe Smallhoover (France)
Endnotes
1. Where Americans or US Citizens are noted herein the terms also include Legal Permanent Residents/green card holders.
2. This is how Wikipedia defines FATCA. “The Foreign Account Tax Compliance Act (FATCA) is a portion of the 2010 Hiring Incentives to Restore Employment (HIRE) Act. The FATCA requires individuals to report their financial accounts held outside of the United States, and requires foreign financial institutions to report to the Internal Revenue Service (IRS) about their American clients. FATCA was designed primarily to combat offshore tax evasion and to recoup federal tax revenues.”
3. Here is a link to the official IRS publication on FATCA. http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA). More details and copious references can be found in the Wikipedia article on FATCA: http://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act#cite_ref-17
4. We note that while Section 1010.350 (a) of the Code of Federal Regulations prescribes a reporting requirement to the Commissioner of Internal Revenue, and Section 5314 of the Code of Federal Regulations designates the prescribed form as the Report of Foreign bank and Financial Accounts (TD-F 90-22.1), the dollar amount that falls under said reporting requirement is nowhere designated.
5. See Bloomberg reporting this on 6 January 2014. “Newly confirmed Internal Revenue Service Commissioner John Koskinen said some of the top priorities for his office include improving compliance, ensuring the IRS has enough money as part of the budget process, building employee morale and working to restore the public’s trust in the wake of controversy.
Speaking to reporters during a 45-minute meeting Jan. 6, Koskinen said implementing both the Affordable Care Act and the Foreign Account Tax Compliance Act are key goals, with FATCA expected to provide a significant amount of information to help the IRS fight offshore tax evasion. It symbolizes ‘the increasing capacity of the IRS and the U.S. to be able to track down offshore accounts and those who have been avoiding income taxes,’ Koskinen said. FATCA is expected to be a big step forward in tax compliance, he said.”
6. Republicans Abroad has been conspicuous by their absence in lobbying for reforms to FATCA. Political operatives at the RNC have woken up to the issue and have formed a new entity called Republicans Overseas to make political capital out of a FATCA repeal effort. They hope the movement will stir sentiment and drive overseas votes to Republican candidates and raise money. Their plan is at best quixotic and at worst a blatant political ploy – in either case it is likely to fail given the commitment that regulators have demonstrated to implementing the law and the recognition in the US and globally that tax dodging must be stopped.
7. Many US Consulates and Embassies include a listing in the American Citizen Services section of their website of local accountants who provide US tax advice.
This message is paid for by the Democratic Party Committee Abroad
Democrats Abroad
PO Box 15130Washington, DC 20003United StatesTelephone: +1-202-621-6085
mjh:
You’re right, it probably won’t happen. In which case they won’t get any votes or contributions from me. Quite simple.
That’s the deal, Democrats Abroad: Actively work to repeal CBT, or plan to do without my help in elections.
I’m a one-issue voter now.
In another thread I mentioned that on January 3 I had asked the Chair of Democrats Abroad whether this organization would match the specific efforts of Republicans Overseas stated on its facebook page (anti-fatca resolution from the RNC; global anti-FATCA petition drive) as I felt that these actions could be helpful.
I asked whether a similar kill-FATCA resolution could be made from the “DNC”, which I assumed was equivalent to the RNC, and said out of courtesy that I would post the response.
During the next two and a half weeks there were many back and forth emails between Dems Abroad and myself as well as a phone call to me from a person on the Dems Abroad FBAR/FATCA Task Force. In this conversation I confirmed explicitly that I wanted ALL (not just part) of FATCA killed.
The final response to my question from Dems Abroad which I received yesterday (Jan 21), and which coincidentally came out at about the same time as their FATCA report, is:
@IRS compliant Forever
Democrats abroad is only for those Democratics who wish to remain connected forever to the USA. Most plan to return to the USA after working abroad. I met them at the Obama inauguration party in Toronto. The 2nd tome I met some was the FATCA party 3 years later with their “friendly” special expensive tax accountants to get you to comply and file US taxes like a good American. They don’t care about resident based taxation. They are homelanders living away from home. I am not them. I am Canadian in my heart snd soul. They are not the America that was great for me. All those Americans are now dead.
@tdott
“does the tax revenue received from non-resident filers outweigh the costs of processing non-resident tax returns?”
I’ve never seen any kind of analysis. Then, how could they know anything about Americans abroad when they don’t even know how many of us there are? Of those filing, apparently only about 20% actually pay US tax. Residency based taxation is currently before the Senate Finance Committee – you’d think they’d do some kind of cost/benefit analysis of CBT.
We all know what the cost of CBT is in human terms – renunciation numbers confirm it.
@bubblebustin, re; …”…Residency based taxation is currently before the Senate Finance Committee – you’d think they’d do some kind of cost/benefit analysis of CBT….”…
I think that we are deemed most invaluable as a population that is safe to beat, slander and use as a scapegoat. We’re a safe stand in for the US residents that the IRS and Treasury can’t apparently be bothered to pursue or who have the resources to pay for the loopholes and exceptions that keep their offshore family and personal trusts in the Caymans intact. Like the newest Commerce Secretary Pritzker and her relatives with Pritzker family trusts (ex. http://www.forbes.com/sites/peterjreilly/2014/01/02/pritzker-trust-dodges-illinois-state-income-tax/ http://www.bloomberg.com/news/2013-12-27/moguls-rent-south-dakota-addresses-to-dodge-taxes-forever.html ) . Funny that there are so many interesting family trusts operating in the US states http://www.bloomberg.com/news/2013-12-18/wealthy-n-y-residents-escape-tax-with-trusts-in-nevada.html http://www.newsobserver.com/2014/01/18/3546006/s-dakota-becomes-tax-haven.html , but the IRS is apparently so much more interested in locating, taxing and penalizing the piddly so-called ‘foreign trusts’ it deems the tiny RDSPs, TFSAs and RESPs of Canadian children and families. If you’ve got the right connections in the US, you’re going to be rewarded with a plum appointment – no matter where you (h-d-) ah, keep your funds and no matter how much you failed to pay the IRS (I’ll have a Geithner please). And you can make tax laws that bind millions of other people despite failing spectacularly to enforce them on yourself http://www.accountingweb.com/topic/watchdog/rep-charles-rangel-saga-continues . You can continue to serve in the US government http://www.boston.com/politicalintelligence/2012/07/03/john-tierney-seeks-address-nagging-questions-overshadowing-reelection-campaign/V1rZCVNIFRaX40ZxtPHNRM/story.html .
We’re really useful for the IRS to harangue and blame in the public statements it issues as justification for the FATCA/NSA joint partnership. I still laugh ruefully when I think of one of those IRS ‘prepared remarks’ addresses made by Shulman where he addressed US corporations with understanding in the area of ‘tax avoidance’, and then made a specific point of making a distinction between those corporate behaviours as opposed to that of individuals ‘not paying their fair share’ of US tax – and referred to individuals only as ‘tax evaders’. US corporations deliberately holding money ‘offshore’ were not addressed as ‘tax evaders’, but individuals who haven’t even been proven to owe the US any taxes, with local legal personal mostly post-tax wages in an ordinary bank account were all lumped into the evader class.
Ideologues like the DA, and disingenuous politicians like the FATCAnatics don’t need a cost/benefit analysis – because the true benefits can’t be named explicitly (raising revenues via penalties, double taxing non-residents), and the true costs laid bare (ex. extorting RDSP and disability benefits from the vulnerable, wasting scarce IRS/Treasury resources threatening those living and already paying full home country taxes abroad with local legal bank accounts) would show all the world that not only is the emperor naked, he is extortionate and abusive to those he claims extraterritorially as subject persons/citizens.
Hence the rising rates of renunciations and relinquishments – another cost the US cannot afford to have quantified. Note that the DA do not make mention of that in their allusion to the testimonials they have collected.
@all
I would like to write to the finance committee why they won’t change to resident based taxation. I am not going to because I am waiting for my CLN and I remember Patrica went before them and they changed nothing.
I am Canadian. I am not “exceptional”. I am on the same boat as the rest of Canadians. Lets all work together to keep the pirates from boarding.
@Badger
You are soooo good with all the info you give us. Thank you so much for all you do. I look foward for the next name and shame list coming out. I won’t be surprised that the number is way up.
Patricia’s submission that we all know so well went before the Ways and Means Committee. Her submission there now has been passed on to the Senate Finance Committee — by Patricia herself and by many others on her behalf in their own submissions to the Senate Finance Committee (as, unbelievably all of the Ways and Means Committee submissions did not get automatically passed on to the Senate Finance Committee). Why is that?
Because the right hand doesn’t know what the left hand is doing. It’s what makes the US government function so well (not).
Yes, we definitely are being scapegoated and we need to do something to make it stop. This i why I am encouraging U.S. citizens, if they are not renouncing or planning to do so anytime soon, to register to vote in the primary and write to their members of Congress telling them how FATCA or U.S. taxation law towards overseas Americans is affecting them personally or people they care about and that they will be voting in the 2014 primary. The problem with relying on anyone else is that it won’t necessarily be clear to Congress that the ACA has any grassroots support and that the discontent is real. Nobody votes in the midterm primary, so we could have a real impact.
In the primaries, we can make ourselves heard in both parties. If the person who is representing your district is not sympathetic (mine doesn’t deal with e-mails from non-resident constituents, so I am leaning against voting for him), you could vote for their opponent or at least write in the name of someone else who lives in the district (maybe from farther down the ballot). It would at least help to wake them up a bit. Unfortunately, there is a U.S. musician named Isaac Brock who sounds really weird. ..
I don’t think that we should go partisan. We don’t really need to.
@Vote in 2014
Hmmm….not sure that there will be many ‘US persons’ who are not planning on renouncing, other than the ones who don’t know about FATCA and CBT, or the ones who do but are hiding out until the storm passes – none of whom will vote.
Thoughts on the cost-benefit. I was thinking about this yesterday and wondering if FATCA is really about estate tax, since that is the only tax my family is likely to have to pay. Only 0.14% of U.S. citizens pay estate tax because the exemption for transferring to a U.S. citizen is $5.3 million, but the exemption is just $144,000 with a non-resident non-U.S. citizen spouse. It dawned on me yesterday that if I had $6 million dollars and wanted to give my children $5.3, a non-U.S. spouse wouldn’t necessarily be a problem in some tax efficient locations (not a long-term resident of Britain like me). I would simply give the spouse $145,000 year up to $5.3 lifetime allowance and they, if there is no inheritance tax, could pass the full amount on. This doesn’t work for non-fat cats outside of tax havens..
@northernstar, you are far more active in your community in a hand’s on way than I am, for which I admire you greatly, and I am so happy to be part of the crew with you and the others at IBS, repelling the IRS and Treasury pirates who’re trying to board and plunder the good ship Canada!
@Vote in 2014 U.S. PRIMARY Elections
Your understanding of the gift/estate tax exemption and mine are different.
The $5.34 exemption is a unified gift and estate tax exemption. What this means, among other things, is that during your lifetime you can gift any amount up to $5.34M to anyone at any time, and not pay taxes. You will have to fill out the appropriate tax forms.
The $144K annual gift tax exemption to a NRA spouse is something totally different and has no effect on your lifetime $5.34M gift/estate tax exemption. So it doesn’t make sense to talk about “give the spouse $145,000 year up to $5.3 lifetime allowance”. This exemption does *not* require you to fill out tax forms.
My 2 cents.
@Vote:
I will write to the primary candidates and ask their positions on RBT. If I get a positive reply from anyone, I will vote for them. Otherwise, I will not vote for anyone.
That also is what I did last time. One candidate was actually sympathetic to our problems, but lost the primary. The other candidate, who eventually won the primary, did not even return my e-mail. Needless to say, I did not vote for the candidate who won the primary when it came to the overall election.
Ok, I’ve fired off queries to all of the Democratic candidates for Congressional seats this year in my old district. Will sit back and see what happens. Not honestly expecting much, but at least I have given them a chance. Surprise me.
@ tdott Legally, the gift tax and the estate tax are separate things but they cannot be entirely separated as long-term financial management strategies. I have heard from someone who is in the business of setting up QDOTs that many people with non-citizen,, non-resident spouses are now simply choosing to give the annual gift allowance rather than setting up a QDOT trust. I am sure that the desire of the IRS was not to make overseas Americans transfer as much money to non-U.S., non-resident spouses as fast as possible, but that’s been the impact. for some. My point was simply that not everyone has a fancy tax advisor or can transfer funds so easily during their lifetime. If you organize your finances in a half-way normally with a non-U.S., non-resident spouse. you get absolutely soaked by U.S. tax law. This isn’t new with FATCA, it’s been a problem since 1988 that was worsened in 2001. I spent most of Christmas trying to find something sensible to do with a bit of money and the rules governing what I can do both from the U.S. and U.K. side are so overwhelming and conflicting that I have been reduced to just having my husband do everything. Yes, he might die before me, but in the meantime he can at least do something sensible with the money and not have to fill in loads of forms/get lots of expensive help to do so.
Perhaps unrelated to earlier comments RE the FBAR above (I know & agree FBARS are totally vile) but didni’t know where else on this IBS site to leave this tidbit of further vileness. I sent the following link to hubby (who has done all our cross-border taxes now for 45 years) and it was news to him. So thought it might be news to other IBSers.
According to this American Abroad posting, we who are trying to remain in compliance (until renouncing, like me later this Spring) now have to file FBARs by INTERNET!
http://americansabroad.org/issues/fbar/fbar-e-filing/
IMO, this is hutzpah in spades!! Outrageous. Now, not only do they expect every scrap of our information, but also they are dictating how to file it. Or what, they will claim that we never filed????
NOT EVERYONE HAS OR USES A COMPUTER!!!
And even if they do, not everyone trusts to send such very detailed personal information over the internet. I mean, how really secure against hackers is the IRS infrastructure? This just screams “HI HACKERS/SCAMMERS OF THE WORLD – – HERE’S A GEM OF A PUZZLE JUST FOR YOU – – HAVE FUN!!!”
In their “kindness”, the IRS is allowing ONE alternate – – you can dispense with your privacy another way. According to the article:
If, as a private individual, you don’t want to or can’t register with the system in order to file the FBAR electronically as is now required, you can authorize someone else, for example your tax adviser or your spouse, to do it for you
So much for your rights to privacy between you and your government (which holds YOU as a probable criminal).
Thanks LM.
My husband and I learned about the switch to e-filing FBARs a few months ago, which was recently confirmed in an email from our accountant’s office.
So you either have to have a computer or a lawyer to file FBARs now.
I guess their attitude is that if you’re rich enough to have those offshore accounts, you’re rich enough to have either.