May 7, 2013
Washington, DC
by James Jatras
Treasury Department’s Promises of U.S. FATCA IGA ‘Reciprocity’ Dead
In a major game-changer, Senator Rand Paul (Republican of Kentucky) today introduced a bill (S.887) to repeal mandates of the “Foreign Account Tax Compliance Act” (FATCA) on financial institutions and individual American citizens as a “violation of sovereign nations’ laws and privacy matters.” In a letter to his Senate colleagues, Dr. Paul pulled no punches about the destructive effects of the FATCA law and the unsupportable claims that FATCA is a legitimate tool to combat tax evasion:
“I intend to offer a bill to repeal certain provisions of the Foreign Account Tax Compliance Act, or FATCA (P.L. 111-147). The intent of this law was to prevent tax evasion by increasing access to overseas bank accounts held by U.S. citizens. However, any law enforcement benefits have been vastly outweighed by the deleterious effects of FATCA on economic growth and the financial privacy of Americans.
“FATCA requires the financial institutions of foreign countries to register directly with the IRS, and to provide financial information on the accounts of U.S. citizens – regardless of whether or not these U.S. citizens are suspected of tax evasion. A failure to comply with these requirements subjects that foreign financial institution (FFI) to a 30% withholding of U.S.-derived revenues. This has had the practical effect of forcing FFIs to relinquish any association with American customers, and to avoid direct investment in the United States. It goes without saying that overseas investment in the U.S. is an important engine of our economic growth and prosperity. FATCA endangers an estimated $25 trillion in foreign capital currently invested in the U.S.
“Perhaps even more troubling, the implementation of FATCA has allowed the Treasury Department to make independent decisions with respect to the sovereignty of foreign nations and the privacy of United States citizens. In order to implement this law, Treasury has initiated intergovernmental agreements (IGAs), citing the intent to engage in reciprocal information sharing with other nations. The Treasury Department, without the consent and authority of Congress, will force U.S. financial institutions to provide the bank account information of private customers to foreign nations. Such a requirement not only diminishes U.S. privacy protections, but also imposes billions of dollars in compliance costs here at home, which will be passed onto customers and the American public.
“My bill is drafted with the intention of removing only FATCA provisions that undermine Americans’ constitutional privacy protections and add burdensome regulations with a negative economic impact on the United States. Other provisions enacted at the same time, such as those pertaining to clarification of foreign trusts and treatment of dividends that do not have those negative impacts, have been left alone. The intent of this bill is not to disrupt legitimate tax enforcement, only to repeal counterproductive and constitutionally suspect mandates.”
Senator Paul’s bold and principled action comes on the heels of a federal lawsuit against the U.S. Treasury Department and the Internal Revenue Service by the Texas Bankers Association and Florida Bankers Association. In that suit, the bankers assert they will lose billions of dollars in business over improperly imposed regulations to report on foreign residents’ deposits to foreign governments. Such reporting, a key feature in the so-called “reciprocal” version of FATCA “intergovernmental agreements” (IGAs) non-U.S. governments are being pressured to sign, is just the camel’s nose under the tent of far more invasive and expensive reporting, for which the Treasury Department recently requested additional authority from Congress.
It is anticipated that a companion version of Senator Paul’s bill will be introduced shortly in the House of Representatives. In addition, measures to block the Treasury Department from carrying out the IGAs, which have not been authorized by Congress, are expected.
With the wind in Washington blowing against FATCA, foreign governments are on notice that Treasury’s promises of “reciprocity” are plain rubbish. Congress will not provide the needed authority to rescue this fatally flawed law. Instead of getting aboard the sinking FATCA ship, foreign governments should reject the constitutionally deficient IGAs Treasury has offered them, tell the U.S. they will not comply with FATCA or allow their domestic firms to comply with it, and signal their willingness to fight any illegal sanctions Treasury attempts to impose.
Activists in Washington are weighing in in support of Senator Paul:
“Senator Paul’s bold stand against FATCA has come at an opportune time. The world is fed up with U.S. fiscal imperialism, and the economy can ill afford another pointless and self-inflicted wound, as FATCA is the worst economic idea to come out of Congress since Smoot-Hawley. Rather than allow regulators to continue pursuing an unconstitutional ‘intergovernmental agreement’ strategy, it is time for lawmakers to accept defeat and abolish this fatally flawed law. Now would also be a good time for any foreign governments thinking about getting in bed with the US Treasury Department to think again. Their promises for reciprocation are simply worthless.” – Andrew Quinlan, Center for Freedom and Prosperity.
“The U.S. federal income tax system already imposes 6.7 billion hours of paperwork on individuals and businesses; FATCA would not only worsen this burden here at home, it would also impose onerous new liabilities abroad. The last thing America should be exporting is its complex tax laws. Senator Paul deserves a round of applause from taxpayers in our nation and around the world for recognizing the dangers FATCA poses to our economy and our civil liberties.” – Pete Sepp, National Taxpayers Union.
It is increasingly clear to everyone that FATCA has almost nothing to do with curbing actual “tax evasion” and everything to do with massive unintended consequences that will lose money for the federal treasury.
Finally, both American and non-U.S. firms that stand to lose millions of dollars each complying with FATCA need to help push the repeal bill through. FATCA repeal needs to be part of any tax reform deal between Congress and the Obama Administration.
You can help – contact us at RepealFATCA.com and find out how!
Vote your Support for S. 887 and email to your legislators all at the same time at PopVox
James George Jatras
+1.202.375.1007
Spread the word ye twits! 🙂
https://twitter.com/FATCA_Fallout/status/332258597457231872
The Hill: “Rand Paul introduces bill to roll back parts of tax evasion law”
http://thehill.com/blogs/on-the-money/domestic-taxes/298529-rand-paul-introduces-bill-to-roll-back-parts-of-tax-evasion-law
This article is in need of some comments from ex-pats.
This comment below from “danomano” is an indication of the current level of comments going up for this article:
“Bottom line: Rand Paul supports tax evasion. He can mouth on about principles, but the principles he support are that he wants unlimited campaign contributions by rich people, and rich people who can evade taxes in foreign shelters have the money to give to him.”
thnks @AbusedExpat
I put up a comment there, as well as at Reuters. Reuters took a while to show up, but on the Hill it did instantly…
Join in the public debate. This is great! We have wanted more public discussion, and this repeal effort provides it.
Can’t believe there are not comments on this Huffington Post story yet. It must be deeply buried!! (I don’t care to be the first.)
@Calgary… and the link is? Oh, comeon… Be the first! 🙂 Send me the link, and I will be it, if someone hasn’t beat me too it. 🙂
@Just Me
Rand Paul FATCA Opposition Aims To Weaken Law Fighting Offshore Tax Evasion
http://www.huffingtonpost.com/2013/05/08/rand-paul-fatca_n_3234435.html?utm_hp_ref=politics
I’m still shocked that it has no comments. No comments makes it a bit more difficult for me to decide how to respond.
Respond with why it is a great idea to Repeal FATCA. Don’t wait to counter some fool who doesn’t understand it as well as you do. 🙂 Be the educator before the first buffoon weighs in. Maybe I can do something at the airport. Have to run.
@Swisspony @Calgary411
Ok, I posted something, in moderation, so when it comes out, you can join in. Let’s get ahead of the ignorant masses!
If I get a moment before boarding the flight I might try another.
Cheers
I just checked before I closed the computer, and it still isn’t showing, and doesn’t even show as pending. Oh well…
@Just Me, ok, I’ll comment later too. I’ve already put in about 20 responses or so this morning in various other articles.
Text of bill:
S. 887, to Repeal Withholding, Reporting on Foreign Accounts in Violation of Sovereign Nations’ Laws, by Sen. Paul
113TH CONGRESS
1ST SESSION
S. __
To repeal the violation of sovereign nations’ laws and privacy matters.
IN THE SENATE OF THE UNITED STATES
Mr. PAUL introduced the following bill; which was read twice and referred to the Committee on _____
A BILL
To repeal the violation of sovereign nations’ laws and privacy matters.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. REPEAL OF WITHHOLDING AND REPORTING WITH RESPECT TO CERTAIN FOREIGN ACCOUNTS.
(a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by striking chapter 4.
(b) CONFORMING AMENDMENTS FOR RULES FOR ELECTRONICALLY FILED RETURNS.—Section 6011(e)(4) of such Code is amended—
(1) by striking ‘‘(as defined in section 1471(d)(5))’’ and inserting ‘‘(as defined in section 6038D(h)(3))’’, and (2) by striking ‘‘or 1474(a)’’.
(c) CONFORMING AMENDMENT RELATED TO SUBSTITUTE DIVIDENDS.—Section 871(l) of such Code is amended by striking ‘‘chapters 3 and 4’’ both places it appears and inserting ‘‘chapter 3’’.
(d) OTHER CONFORMING AMENDMENTS.—
(1) Section 6414 of such Code is amended by striking ‘‘or 4’’. (2) Paragraph (1) of section 6501(b) of such Code is amended by striking ‘‘4,’’. (3) Paragraph (2) of section 6501(b) of such Code is amended— (A) by striking ‘‘4,’’, and (B) by striking ‘‘AND WITHOLDING TAXES’’ in the heading and inserting ‘‘TAXES AND TAX IMPOSED BY CHAPTER 3’’.
(4) Paragraph (3) of section 6513(b) of such Code is amended— (A) by striking ‘‘or 4’’, and (B) by striking ‘‘or 1474(b)’’. (5) Section 6513(c) of such Code is amended by striking ‘‘4,’’.
(6) Section 6611(e)(4) of the Internal Revenue Code of 1986 is amended by striking ‘‘or 4’’. (7) Paragraph (1) of section 6724(d) of such Code is amended by striking ‘‘under chapter 4 or’’. (8) Paragraph (2) of section 6724(d) of such Code is amended by striking ‘‘or 4’’. (e) EFFECTIVE DATE.—The amendments made by this section shall apply to payments made after the date of the enactment of this Act.
SEC. 2. REPEAL OF INFORMATION REPORTING WITH RESPECT TO FOREIGN FINANCIAL ASSETS.
(a) IN GENERAL.—Subpart A of part III of sub-chapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by striking section 6038D.
(b) REPEAL OF MODIFICATION OF STATUTE OF LIMITATIONS FOR SIGNIFICANT OMISSION OF INCOME IN CONNECTION WITH FOREIGN ASSETS.—
(1) Paragraph (1) of section 6501(e) of the Internal Revenue Code of 1986 is amended by striking subparagraph (A) and by redesignating subpara-graphs (B) and (C) as subparagraphs (A) and (B), respectively. (2) Subparagraph (A) of section 6501(e) of such Code, as redesignated by paragraph (1), is amended by striking all that precedes clause (i) and inserting the following:
‘‘(A) GENERAL RULE.—If the taxpayer omits from gross income an amount properly included therein which is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed. For purposes of this subparagraph—’’. (3) Paragraph (2) of section 6501(e) of such Code is amended by striking ‘‘and such amount is described in clause (i) or (ii) of section 6501(e)(1)(A)’’ and inserting ‘‘which is in excess of 25 percent of the amount of gross income stated in its return’’. (4) Paragraph (8) of section 6501(c) is amended— (A) by striking ‘‘pursuant to an election under section 1295(b) or’’, (B) by striking ‘‘1298(f)’’, and (C) by striking ‘‘6038D,’’.
(c) CLERICAL AMENDMENT.—The table of sections for subpart A of part III of subchapter A of chapter 61 of such Code is amended by striking the item related to section 6038D.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.
(2) RETURNS.—The amendments made by subsection (b) shall apply to returns filed after the date of the enactment of this Act.
SEC. 3. REPEAL OF PENALTIES FOR UNDERPAYMENTS ATTRIBUTABLE TO UNDISCLOSED FOREIGN FINANCIAL ASSETS.
(a) IN GENERAL.—Section 6662 of the Internal Revenue Code of 1986 is amended— (1) in subsection (b), by striking paragraph (7), and (2) by striking subsection (j).
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.
SEC. 4. REPEAL OF REPORTING OF ACTIVITIES WITH RESPECT TO PASSIVE FOREIGN INVESTMENT COMPANIES.
(a) IN GENERAL.—Section 1298 of the Internal Revenue Code of 1986 is amended by striking subsection (f) and by redesignating subsection (g) as subsection (f).
(b) CONFORMING AMENDMENT.—Section 1291(e) of such Code is amended by striking ‘‘and (d)’’ and inserting ‘‘, (d), and (f)’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall take effect on the date of the enactment of this Act.
SEC. 5. REPEAL OF REPORTING REQUIREMENT FOR UNITED STATES OWNERS OF FOREIGN TRUSTS.
(a) IN GENERAL.—Paragraph (1) of section 6048(b) is amended by striking ‘‘shall submit such information as the Secretary may prescribe with respect to such trust for such year and’’. (b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.
SEC. 6. REPEAL OF MINIMUM PENALTY WITH RESPECT TO FAILURE TO REPORT ON CERTAIN FOREIGN TRUSTS.
(a) IN GENERAL.—Section 6677(a) of the Internal Revenue Code of 1986 is amended— (1) by striking ‘‘the greater of $10,000 or’’, and (2) by striking the last sentence and inserting the following: ‘‘In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount.’’.
(b) EFFECTIVE DATE.—The amendments made by this section shall apply to notices and returns required to be filed after the date of the enactment of this Act.
oh, I guess one has to dig Deep into the code to figure this out.
Translation: “Rand Paul wants to abolish FATCA”
http://www.nzz.ch/aktuell/wirtschaft/wirtschaftsnachrichten/us-senator-will-fatca-abschaffen-1.18078579
Wait, that looks like he’s repealing the Form 3520 and Form 8621 requirements in addition to Form 8938? And repealing the $10,000 penalty on unreported “foreign trusts” in addition?
Ok, at the Sydney airport, and I see the Huffington Post article has 10 comments and 2 pending…
Mark Twain ala Samuel Clemmons went wild. 🙂 I favored them ALL! LOL I see that mine showed up. Maybe I will put up another.. 🙂 Get them in before the “find those Tax Cheats” crowd starts commenting…
from the German article above
The president has recently proposed the Ministry of Finance to grant new powers: it should be able to commit American banks to teach similar information, as required under FATCA by banks abroad. However, such a request in the Republican-dominated House of Representatives has little chance.
Thanks, Just Me. Will be there later this morning.
@ all
I suggest trying to interest National Post Conrad Black columnist in this issue. As a columnist he has wide latitude in picking his subjects, and the luxury to do in-depth commentary.
His contact is: cbletters@gmail.com
I don’t know if this is on his radar. He is likely a “US person” under FATCA. And he is acutely interested in US issues. Also, he covers the “boomer” demographic beat as well – so the impact of this on retired Canadians is another hook as well
The involvement of quotable high profile people – like Peter Hogg and now Rand Paul – are also news.
@Eric, Exactly. The bill would repeal:
1. FATCA (the reporting requirements on foreign banks and the 30% withholding tax on their US transactions);
2. Form 8938 (FATCA form similar to FBAR);
3. The requirement to file form 3520 simply to report ownership of a foreign trust (but the reporting of transactions in the trust, form 3520-A to be filed by the trust itself, as well as of inheritance from nonresident foreigners, would remain), and the minimum penalty of $10,000 for failure to file form 3520 (but the penalties proportional to the nonreported transactions, 5%, 25% and 35%, would remain);
4. Form 8621 (the actual tax treatment of PFICs would remain, just the form would no longer be required).
The bill would still keep the penalties proportional to amounts that are not even taxable (FBAR and form 3520), instead of making them proportional to nonpaid tax or repealing the forms altogether. If I had to choose one, I would prefer to repeal the FBAR and keep form 8938 (without the minimum $10,000 penalty). But hey, the bill has more than I expected so I can’t really complain. Repealing FATCA is already huge.
@Shadow Raider, my bet is that the repeal likely encourages nations like Switzerland to focus more on reciprocity with the calculation that Americans will reject DATCA due to its related costs.
Maura Drew-Lytle from the Canadian Banking Association responded to my suggestion yesterday that “Perhaps at this point the CBA’s efforts would be better spent in support of lobbying efforts to repeal FATCA than to press the Canadian government to enter into an IGA with the USG.”
The Director of Media Relations and Communications wrote:
“Thank you. Yes, we are aware of Senator Paul’s bill and are following developments in the U.S. regarding FATCA.”
That is pretty useful information when you are contacting the politicians in the country where you live—-that the 30% with holding is targeted. Foreign banks could lobby US to make the bill happen rather than lobbying their own gubbermint to submit to an IGA.
@SwissPinoy
Exactly! The US is perfectly willing to force this bitter tasting medicine on everyone else, but when it comes time for the US to take its own medicine, it’s a very, very different story.
IMO reciprocity is the Achilles’ heel of FATCA and we should be driving that point home at every opportunity to anyone that will listen.
Also, like Wondering’s idea of trying to interest Conrad Black. Whatever you may think of the man, he’s a sharp cookie who has the ability give FATCA a proper going over.
For investors from countries that require reciprocity, which is NOT going to happen, the moment of truth will come as the FATCA compliance deadline arrives.
The choices for such investors will be:
a.) pull out of US investments before the deadline arrives or
b.) lose 30% afterwards
My bet is that we will soon start to hear the beginning of a loud sucking sound from the US capital markets.
The good Ol’ folks at Mother Jones is seeking input on the matter too:
http://www.motherjones.com/mojo/2013/05/rand-paul-fatca-repeal-offshore-tax-evasion