Persistence pays off!
Suzanne Herman, a long-time Brocker, never gives up & look at the result!
We need more of this kind of thing!
See the original here
September 29, 2017
The Honorable Steven Mnuchin
Secretary of the U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW Washington, DC 20220
Dear Secretary Mnuchin,
I am writing to you regarding the Foreign Account Tax Compliance Act (FATCA) [26. U.S.C. § 1471-1474; 26 U.S.C. § 6038D]. As discussed below, FATCA is an invasive, costly failure that I strongly suggest must be repealed at the soonest possible opportunity, hopefully in the context of tax reform enacted this year. In addition, the means adopted during the tenures of your predecessors Jack Lew and Timothy Geithner to implement FATCA via a series of legally dubious and constitutionally infirm non-treaty agreements with other countries must not be allowed to stand. I ask your assistance in assuring that FATCA repeal is part of any relevant legislation, and that the Treasury Department takes prompt action to cease the implementation of FATCA via Intergovernmental Agreements (IGAs).
FATCA’s proponents claim that it is simply a “transparency” measure – similar to a domestic 1099 – to ensure greater tax compliance for assets held offshore. This characterization is misplaced. Domestic tax law requires reporting of taxable events, such as income (a W-2 Wage and Tax Statement) or bank interest (a 1 099-INT). U.S. law, based on a presumption of innocence, does not generally require inquiry into asset principle unless there is reason to suspect wrong-doing. By contrast, FATCA requires wholesale reporting of Americans’ assets and transaction history absent any such suspicion, solely because the asset is held outside the United States. This is despite the fact that the IRS’s own Taxpayer Advocate Service reports that “the vast majority” of Americans residing abroad “actually appear to be substantially more compliant than a comparable portion of the overall U.S. taxpayer population.”
Despite such an invasion of privacy, FATCA has failed in its stated purpose of recovering revenue lost to offshore tax evasion. Last year the Internal Revenue Service (IRS) credited FATCA for “collecting” $10 billion from “taxpayers coming back into compliance, ,2 but that figure conflates genuine tax revenues with penalties for filing deficiencies and recoveries from all offshore enforcement programs, not just FATCA. In the estimate of Professor William H. Byrnes of Texas A&M University School of Law, the real net tax recovery of FATCA alone is about $200 million annually and may be only half of that. Professor Byrnes projects that FATCA may “soon cost more money than it brings in.”‘ Indeed, his view may actually be overly optimistic in light of the IRS’s commendable enforcement standard of recovering seven dollars for every dollar spent.4
By contrast, because of the IRS’s need to try to discern indicators of evasion within a sea of indiscriminate personal information belonging to non-evaders, W. Gavin Ekins of the nonpartisan Tax Foundation suggests that, under FATCA, finding “a dollar of tax evasion may cost us $5 of actually sifting through the data and compliance costs.”5 FATCA’s unsatisfactory ratio of return must also be weighed against the impact on taxpayers saddled with burdensome reporting paperwork. The Tax Foundation estimated in 2016 that these requirements cost individuals nearly four and half million hours and more than $165 million,6 an amount comparable to FATCA’s likely proceeds. This does not even take into count the massive compliance costs imposed 011 financial institutions.
The above summarizes the good and sufficient reasons why FATCA must be repealed and enforcement dollars spent on more effective programs to detect and punish actual tax evasion. While your support for that effort will be appreciated, it is a task primarily of Congress. But I now turn to a matter almost entirely within your purview, on which I ask your prompt and decisive action. This relates to IGAs invented by the Department in consultation with five European governments for the purpose of enforcing FATCA.
While the IGAs read like treaties and have the effect of treaties in purporting to create mutual obligations between sovereign states they are not submitted to the United States Senate for that body’s advice and consent to their ratification, though the non-U.S. “partner” country is required to do so under its necessary internal procedures for entry into force. In July 2013, I wrote7 to Secretary Lew with a specific request for the statutory authority for the IGAs. The Department responded, after a delay of nearly a year, with the following statutory justification: 8
“The United States relies, among other things, on the following authorities to enter into and implement the IGAs: 22 USC Section 2656; Internal Revenue Code Sections 1471, 1474(f), 6011, and 6103(k)(4) and Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B (Information Concerning Transactions with Other Persons).”
None of the sections cited above confers on the Treasury Department any authority for making agreements with foreign governments for the furnishing of private financial information. In particular, there is nothing in the cited sections that allows the Department to promise (under the so-called “Model 1” IGA) on behalf of the United States FATCA-“equivalent” reporting to foreign tax services of private information obtained from domestic American financial institutions. Following through with this unauthorized promise would impose on American banks, credit unions, insurance companies, and other institutions crushing compliance costs of the magnitude already suffered by foreign institutions – costs that would inevitably be passed on to American consumers.
The IGAs represent a prime example of the kind of executive overreach that unfortunately typified the previous administration. I ask you to rein in this abuse by ceasing the negotiation of new IGAs and freezing the implementation of existing ones. This action should include a freeze on enforcement of FATCA regulations on taxpayers and financial institutions. Further, I ask that you notify IGA jurisdictions that these dubious pseudo-treaties are under legal review and that their nullification or abrogation from the U.S. side can be expected pending FATCA’s anticipated repeal.
Nothing in the foregoing should be construed in any way as being “soft” on tax evasion. Quite to the contrary, in addition to its other flaws FATCA is a distraction and a diversion of resources from effective tax enforcement based on standard investigatory techniques. As a member of the Financial Services Committee I look forward to working with the Department on measures to ensure effective tax enforcement that targets the guilty, without penalizing the innocent or
compromising our cherished American constitutional and legal norms. In the meantime, FATCA and the IGAs must go.
Thank you for your assistance on this critical matter.
1 Taxpayer Advocate Service, 2016 Annual Report to Congress, Vol. 1; “FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA): The IRS’s Approach to International Tax Administration Unnecessarily Burdens Impacted Parties, Wastes Resources, and Fails to Protect Taxpayer Rights,” page 221; See:https://taxpayeradvocate.irs.gov/Media/Default/Documents/2016-ARC/ARC16 Volumel MSP 16 FATCA.pdf
2 IRS press release, “Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance,” Oct. 21, 2016; See: https://www.irs.gov/newsroom/offshore-voluntarv-comphance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance
3 “Background and Current Status of FATCA” Texas A&M University School of Law Legal Studies Research Paper No. 17-31, pages 1-34, 35; See: https://paers.ssrn.com/soI3/papers.cfm?abstract id=2926 119
4 IRS press release, “National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Tax Reform, IRS Funding and Identity Theft,” Jan. 9, 2013; See: https://www.irs.gov/newsroom/national-taxpayer-aclvocate-delivers-2012-annual-report-to-congress
5 “Why Americans are giving up citizenship in record numbers,” Washington Post, June 1; 2016: See:
6 Tax Foundation, “The Compliance Costs of IRS Regulations,” June 15, 2016; See: https://taxfoundation.org/compliance-costs-irs-regulations/
7 See: http://www.repealfatca.com/downloads/Posev letter to Sec. Lew July 1, 2013.pdf
8 See: http://federaltaxcrimes.blogspot.com/2014/07/irs-letter-to-congressman-defending-its.html
For a definitive section-by-section demolition of the Department’s response, see Professor Allison Christians, McGill University Faculty of Law, “IRS claims statutory authority for FATCA agreements where no such authority exists,” http://taxpol.blogspot.com.au/2014/07/irs-claims-statutory-authority-for.html
According to RO on its FB page:
“At Republicans Overseas’ request, RNC Co-Chairman Bob Paduchik personally delivered Rep. Mark Meadows’ and Sen. Rand Paul’s joint letter on the Foreign Account Tax Compliance Act to Treasury Secretary Steven Mnuchin office. Secretary Mnuchin is fully aware that 9 million overseas Americans have been suffering under FATCA tyranny.
As a result, FATCA is included in the 2nd Report to the President on Identifying and Reducing Tax Regulatory Burdens by the Treasury (https://www.treasury.gov/press-center/press-releases/Documents/2018-03004_Tax_EO_report.pdf).
In the report to the President recommending actions to eliminate or mitigate burdens imposed on taxpayers by eight specific tax regulations, the Treasury indicated that it is considering possible reforms of regulations issued pursuant to FATCA. Thank you Co-Chairman Bob-Paduchick.”
Congressman Posey got an honourable mention in the comments 🙂
I’m looking forward to seeing which FATCA regulations they’re reviewing. Not an easy mess to unpick.
Thinking about it, what FATCA regulation(s) could be changed that would solve, say, bank access problems for US citizens and former citizens? Any suggestions?
The IGAs? Is that a regulation, in IRS-speak?
The IGA’s are supposed to be agreements, but we all know that they only came about in response to the US government issued FATCA directive.
Here are some, if not all of the FATCA regulations. They make my eyes cross reading them. I haven’t a clue which ones could possibly be axed in order to meet any tax reform objectives.
Perhaps it won’t matter in the end. It’s beginning to look as if FATCA may be following CBT into a similar kind of half-life – not enforced because not enforceable, but lingering on the books like an exasperating zombie that nobody wants but nobody knows how to get rid of.
plaxy – I don’t think the IGAs are “regulations”, though they are supported by and refer to regulations. However, they were negotiated by the executive branch without specific legislative authority or approval. I believe the statutory authority (such as it is) comes from section 1474(f):
So, if that is the basis for the IGAs, then perhaps they do fall under a review of regulations.
As for what could be changed to solve bank access problems – IMO this problem stems from US extra-territorial punitive penalties on FFIs, especially in Switzerland (and to a lesser extent in the rest of Europe). Hong Kong and Singapore may be wary of US imposed penalties as well. I’m not sure this is a problem that can be solved by rescinding a few regulations. After all, any regulations rescinded today could easily be reimposed when someone else is in the White House.
I think you may be right. The bank access problems (which are really investment problems) may be something that has to be lived with, for those who can’t or don’t want to renounce. Us former USCs will just have to fight it out bank by bank as the problem arises.
You can add the Reed Amendment to your list of zombie laws, not fully alive (enforceable) but as dangerous to the wary as the unwary if you happen to run into one.
Thanks for your valuable insight. Boggles the mind how a law that unfairly affects so many could pass in the first place, continue to generally go unnoticed of its catastrophic effects only mitigated by the fact that for various reasons it’s not being enforced by the country that passed it.
Meanwhile a huge amount of resources are going into compliance for laws no one wants, with no clear way out. It’s depressing. You don’t know how much I wish I could go back to being blissfully ignorant, when it’s only my awareness of the law that’s the source of my troubles – not the law itself.
“You can add the Reed Amendment to your list of zombie laws, not fully alive (enforceable) but as dangerous to the wary as the unwary if you happen to run into one.”
The Reed Amendment doesn’t seem to me to be dangerous to anyone, being unenforced and unenforceable. It’s a fact of life that renouncing US citizenship entails loss of the right to enter – a factor to be taken into consideration when deciding whether to renounce. Part of the deal.
“Boggles the mind how a law that unfairly affects so many could pass in the first place, continue to generally go unnoticed of its catastrophic effects only mitigated by the fact that for various reasons it’s not being enforced by the country that passed it.”
It seems to have become a habit with America – pass a law to fit a narrow set of circumstances and then leave it on the books in case it comes in handy.
You’re right about that plaxy, all bets are off when you hand in the blue passport. A border guard taking issue with some photos in your phone could bar you from the US.
I believe two people have had the Reed Amendment enforced against them. The only thing anyone needs to know about the Reed Amendment is to not hand over the information it takes for the US to enforce it – that is an admission that you renounced because of taxes. The Reed Amendment is there to silence dissent, and it’s working.
From the reports I’ve seen, people seem to have no difficulty visiting the US after renouncing. Some points of entry are no doubt worse than others.
I think renunciation is a complicated concept for American politicians. They want to punish us, they want our assets, and at the same time they want to get rid of us because obviously we’re evil people. Result – bizarre contradictory laws trying to force us to give up privileges (passport, right of entry, gun ownership!), but not let us get away with “avoiding” US taxation. Massive Congressional cognitive dissonance. But it all mostly seems to get ignored, just like CBT.
Maybe the two who were banned insisted on being banned. That could be quite cathartic. 🙂
I’ll try that again:
Since CBT can’t be enforced, all roads don’t lead to renunciation.
“…the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country, and the tax be legal, the government having power to impose the tax.”
The government not having power to impose the tax, the government can get knotted.
Bubblebustin: “As a result, FATCA is included in the 2nd Report to the President on Identifying and Reducing Tax Regulatory Burdens by the Treasury (https://www.treasury.gov/press-center/press-releases/Documents/2018-03004_Tax_EO_report.pdf).” Thank you for posting this! Music to my ears!
If they want to keep FATCA but reduce its regulatory burdens, adopting residence/territorial taxation is the perfect solution. I hope our petitions and letters help them to see this.
Perhaps I am not 100% on this information, yet there was a recent change of FATCA requirements so that social security numbers are no longer required and date of birth would be sufficient, as long as the FFI then requests the social security number each year thereafter if it does not have it.
Could that be the FATCA change hinted at? We hope for lots more.
Apparently FFI in France were asking for SSN. That caused all sorts of angst especially for accidentals. I never heard of that before asking for SSN. This is not done in Australia.
My understanding of the recent change (pdf) was that the IRS was delaying the date when US TIN would be required for pre-existing accounts. FFIs that are unable to obtain a TIN for pre-existing US reportable accounts can supply date of birth and show an annual attempt to obtain the US TIN instead, but only for reporting 2017, 2018 and 2019 data – by 2020 they must collect a US TIN for every US reportable account. I don’t think this is a significant change – though it is another instance of the IRS kicking the can down the road when it comes to actually imposing the 30% sanction.
If you open a NEW account in Australia, they will ask you whether you are a tax resident of any country besides Australia (the way they ask can be ambiguous, and they don’t really want to get a positive answer, so they can be pretty lax). If you say yes, they will collect your US SSN. When I was made a signatory on an account recently they asked “Are you or have you ever been, a taxpaying resident or citizen of any other country”. I have no idea why they included “have you ever been” – when I admitted that I previously paid tax in another country, she asked whether that was current, and I said “No”. End of conversation, and she never asked which country or when.
If you don’t open a new account and your pre-existing account remains below the threshold for more thorough due diligence, your bank probably won’t ask for self-certification or SSN unless your address is changed to one outside of Australia or some other US indicia comes to light. If their electronic records search was going to identify you as a US person, you would have already received a notice.
@Karen Thanks for the detail as always.