First Professor @WilliamByrnes explained why #FATCA was misguided https://t.co/GOctkmz0zH and based on wrong assumptions. Now he explains why it is so difficult to get rid of such a misguided law. Hint: "FATCA Is The Gift That Just Keeps On Giving" https://t.co/0wn04Gf1nV

— U.S. Citizen Abroad (@USCitizenAbroad) March 16, 2020

Professor Byrnes exhibits an approach to FATCA (and other tax matters) that is logical and pragmatic. He analyzes the assumptions upon which FATCA is based. Was there really a tax gap of 200 billion dollars? Can this claim be justified? What are the costs of FATCA, etc. Do people really have foreign bank accounts to avoid U.S. taxation? We saw Professor Byrne’s “reasoning style” in this recent post Brock post.

In a subsequent post – “US Tax Reform, Simplification, and FATCA: “The Force Is Strong, Young Skywalker” – Professor Byrnes asks the question (this is a paraphrase): If FATCA is not working, then why is it so difficult to get rid of it?

He begins his article with …

On the first day of Federal Income Taxation class, my law students read this phrase, written in large letters upon the whiteboard: “The Force is Complex, Opaque, Uncertain, and Changing”. I exclaim, “For the students in the room serious about becoming tax lawyers, repeat this phrase as a mantra before class. And then continue repeating it throughout your life each day before work.”

Hoping the millennials understands my Star Wars reference, I continue, “The Force will take care of you with high salaried private firm and corporate employment as well as employment in a government position, or a policy thinktank, and even as an academic.” Inevitably a student brings up tax simplification to which I respond, “Young Skywalker,” “once a Jedi, always a Jedi.” Elaborating, I explain, “Legislation and regulations are written by Jedi, known as tax staffers and Treasury counsel, who have become one with the Force and the Force is strong.”

With respect he notes that …

The Force is FATCA and FATCA is the Force

Why did Congress choose to leave out of the TCJA any mention of the Foreign Account Tax Compliance Act (FATCA) that most impacts the readers of the IFC Review, US persons living in a foreign country? Even in the face of strenuous lobbying and fundraising efforts of Republican Overseas, the political organisation recognised by the Republican National Committee (RNC) representing nonresident Republicans, Congress rejected the repeal or the simplification of FATCA. At the bequest of Republican Overseas, in 2014 the RNC had adopted a resolution to repeal the 2010 Foreign Account and Tax Compliance Act. In 2017, the RNC adopted a resolution that the Republican-controlled Congress support a Republican filed- bill before the Ways and Means tax writing committee to reform FATCA by including a provision for the territorial taxation for U.S. nationals that are non-residents. While not supporting outright repeal or territorial taxation for individuals, Democrats Abroad agreed that FATCA harmed US non-residents and thus proposed four simplification FATCA reforms:

1. A “Same Country Exemption” that exempts from FATCA the accounts of Americans living overseas in banks and brokerage houses in their country of legal residency.
2. Index the FATCA reporting threshold to inflation.
3. Merge the Foreign Bank Account (FBAR) reporting requirement with FATCA reporting legislation to eliminate duplication in filings.
4. Offer amnesty to overseas Americans who are delinquent taxpayers that they may pay what they owe without the draconian FBAR penalties.

In her 2016 annual report to Congress, the Taxpayer Advocate Nina E Olsen concluded that the IRS’s approach to FATCA implementation created significant compliance burdens and risk exposures to a variety of impacted parties including non-resident aliens, US citizens living abroad, and foreign financial institutions (FFIs). Yet, both parties turned their backs on the lobbying by their respective official party apparatus for out-of-country voters, on the testimony provided in hearings by witnesses across the aisle, and reports from non-partisan government agencies, rejecting the idea of even bringing FATCA reform up for a discussion among the tax writing committees, much less a vote.

And concludes with …

With overwhelming evidence of its harm to the livelihood of U.S. persons living in a foreign country, the abuse of FBAR penalty implementation, and bipartisan support for reform, why has FATCA and related reporting compliance been ignored? I think the answer is exposed in the Wall Street Journal April 2, 2017 FATCA opinion piece aptly titled “A Corporate-Welfare Bonanza for Tax-Compliance Firms”. I am a tax Jedi: my Guide to FATCA Compliance reached the #2 seller for print and digital revenue for Lexis Tax in 2015. Am I afraid of FATCA reform harming book sales? Young Skywalker, the Force is strong.

I highly recommend the Byrnes article in its entirety.

Conclusion

Tax law and policy is not about fairness.

Tax policy and law is not about justice.

Tax law and policy is about benefitting special interest groups.

“The Force is Complex, Opaque, Uncertain, and Changing”.

This leaves emigrants from America and other residents of other countries on the receiving end of laws that are:

Complex – The Internal Revenue Code is complicated for U.S. residents. It becomes infinitely more complicated when the complex code is applied to residents of other countries.

Opaque – Mostly invisible. It’s not what they don’t know. It’s what they don’t know that they don’t know.

Uncertain – Are Canadian tax advantaged savings plans foreign trusts for U.S. tax purposes …

Changing – Think of the mayhem caused by the Tax Cuts and Jobs Act

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