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
The Democrats can all go sit on a pickle and spin as far as I care. Same thing for the Republicans, too.
Lying bastards. All of them.
@Badger…
Well written commentary…
@Star… The offshore Jihad has had a similar effect on me, although I only voted Democrat when the Republicans were captured by the NeoCons, but now the Dems are captured by the #FATCAnatics!
@badger
Very good post about the Stepford Wives, too. ;^)
Glad to see the evolution in their position so far. Some suggestions:
“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.”
Good. Stop right there and expand on this further. Adopt ACA’s proposal for residency-based taxation.
“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.”
This is a cop-out. A fundamentally unfair and discriminatory law should not be fought against because of budgetary reasons?
In fact, if you want to argue budgetary impacts, I would personally end up paying more tax to the US than I do now, if the US switched to RBT. And yet I would be happier and less angry about the whole situation, because the complexity, restrictions, and threats of unreasonable fines for unintentional filing mistakes would be gone.
This whole budgetary impact issue should be looked at in more detail.
@foo
You’re right, it is a cop-out. But why? Why are Democrats Afraid unwilling to at least suggest some kind of cost benefit analysis to taxing its citizens abroad?
Maybe they saw this video. Perhaps we are key to saving the US’s from all of its fiscal problems!
I note that the DA update doesn’t say anything about pushing for a Presidential Commission struck to examine the tax, banking and financial issues those abroad face – most likely because FATCA and FBARs , and punitive ‘foreign trust’ tax, reporting and penalty regimes would be the focus of massive discontent and anger – recorded for posterity.
And I ‘d like Joe Green of DA Canada to tell us how he rationalizes the limbo many people are in, and the plight of the enforced lifelong US Taxable status that is forced on those who cannot renounce – yet who are taxed on their disability benefits and RDSPs. And how the US can help their own resident children with education tax breaks but not our RESPs and TFSAs or the equivalent.
Basic (stupid?) question time: does the tax revenue received from non-resident filers outweigh the costs of processing non-resident tax returns? Has anybody ever seen this breakdown? Is it publicly available?
I would hope DA is not just making unwarranted assumptions.
http://www.reuters.com/article/2014/01/21/usa-tax-fatca-idUSL2N0KV0XM20140121
Reuters: Republican Party to vote for repeal of U.S. anti-tax dodging law
“If adopted, the anti-FATCA resolution would reflect the party’s political priorities for the time being but would not change its presidential campaign platform, according to the RNC.”
“Repeal seems unlikely, but more political heat from Republicans could further complicate and delay implementation, said financial industry lobbyists.”
“Moreover, Republicans are eager to use FATCA as a campaign and fundraising issue against Democrats ahead of the congressional mid-term elections in November, RNC members said.”
“I see FATCA just like Obamacare,” said Solomon Yue, an RNC official from Oregon who is leading the party’s FATCA repeal effort. “It will attract American overseas donors.”
The moral of the story for expats? Support Republican efforts, but get rid of the cancer of US citizenship as soon as possible. CBT is here to stay.
Deja vu?
Obama’s campaign promises from ’08:
“Strengthen Economic Security for Americans Abroad: Barack Obama believes that the U.S. government should pay close attention to how American citizens are treated in the private sector while they live and work abroad. Our government must work to ensure that overseas Americans have every chance to compete on a level playing field, and he will work with Americans abroad to identify and understand problems they may face as a result of U.S. government policies.”
http://obama.3cdn.net/610c7f29ee85b124a3_3cm6bxltu.pdf
Are we about to get played AGAIN?
With no direct representation in the legislature, expats have no votes in the laws made about them.
Expats serve no other purpose other than for the extraction of tribute.
Cut the political bands now, while its still possible.
Bleccch! I’m not getting my hands dirty with the Republicans!
With their ‘resounding success’ in repealing Obamacare, (cough, sarcasm, cough) I will have already relinquished long before they ever get around to repealing FATCA.
I won’t get used again! 8^(
Ready?
@Samuel Adams
Hear hear! Not just for the extraction of tribute from us, but also from any ‘foreigner’ that is connected to us! Why the hell should I continue to take part in the sham?
Sauve qui peut! – Every man for himself!
I have substantially more confidence in the Republicans Overseas this time around.
I definitely support Republicans Overseas efforts, but the reality as I see it for ex-pats is, as MJH wrote, “every man for himself.”
Therefore, renounce or relinquish US citizenship!
Its the only Road to Freedom for Americans living abroad.
“I get all my papers and smile at the sky…”
I have zero confidence with the Republicans Overseas, and offering my support would only serve to validate a political system that I feel is irredeemably broken, and that I just don’t believe in.
Where were the Republicans back when I used to live in the homeland, back when it mattered? They’re just as guilty of the burgeoning police state there as the Democrats are now. They’re also just as guilty of creating the problem of TBTF banks as the Democrats, and neither party has bothered to make any effort at fixing the problem, or going after the crooks that made the mess, neither. Meanwhile, the Republicans have flipped flopped so much about the Edward Snowden issue that they’re now joining in with the Democrats in rewriting the ‘story’ on how ‘he must’ve been working with the Russians all along’.
I’m not supporting any one of those servile parasites. They’re all full of shit.
I totally agree with you, @mjh49783
Check out this article, that describes the republican attempt at repeal:
http://www.globalpost.com/dispatch/news/thomson-reuters/140121/republican-party-vote-repeal-us-anti-tax-dodging-law
“I see FATCA just like Obamacare,” said Solomon Yue, an RNC official from Oregon who is leading the party’s FATCA repeal effort. “It will attract American overseas donors.”
Disgusting. Looks like they’re passing this resolution just for the votes, and to oppose the Obama administration – not for the harm this law is really causing.
One thing to point out is the article was written by Patrick Temple-West of Reuters who is a known FATCA sympathizer. I do not put it past Tempe-West by any means to make the Republicans Overseas effort look in the worst light.
The editor of Thompson Reuters Compliance Complete just attacked Republicans Overseas on Twitter saying the Soloman Yue(the head of Republicans Overseas) is trying to hurt the poor.
The left wing twitter attacks on Republicans Overseas are starting RIGHT NOW.
Search for FATCA under Twitter.
@not me
This is what I thought right from the beginning . The Republicans want to repeal FATCA only because it is an Obama law. They want us for votes.
We are not like them. We are good people who want our familes to have a better world. It is not an American world, so corrupt and unjust.
The more I think about it, the more I conclude that FATCA/FBAR is a sideshow. It may be the straw that broke the camel’s back, but even if FATCA were repealed, the fundamental injustice of citizenship-based taxation would remain. In fact, if the US changed to residency-based taxation, FATCA would not even matter.
Democrats Abroad should focus on abolishing citizenship-based taxation as their core issue.
@northernstar
“We are not like them. We are good people who want our familes to have a better world. It is not an American world, so corrupt and unjust.”
I share that sentiment 100%!
@Not Me
“Disgusting. Looks like they’re passing this resolution just for the votes, and to oppose the Obama administration – not for the harm this law is really causing.”
Isn’t it? It’s very disgusting!
@foo
“Democrats Abroad should focus on abolishing citizenship-based taxation as their core issue.”
That will never happen. Every money sucking career politician over there needs a scapegoat to rally their unwashed masses, while they suckle on the teats of their lobbyists and their corporate sponsors.
The biggest kick in the face we can get as expatriates is for them to dare grovel to us for support (more like USE us as pawns) after fucking us over with injustices such as FATCA and CBT!
They can all pound salt up their orifices!