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
@Shadow Raider
Yes, Senator Paul’s office wanted to make sure we got rid of the FATCA requirements on FFIs and on the Form 8938 requirement on individual Americans. Given how complex the rest of it is, we didn’t want to charge in like a bull in a china shop with respect to other items that were inexplicably stuck into Title V of HIRE along with FATCA and end up picking fights on tangential issues. So the Legislative Counsel (a staff person working for the whole Senate with technical expertise on statutory language) drafted it to those specifications. Even someone like me who worked in the Senate for 18 years and drafted lots of statutory language would have trouble figuring this gibberish out.
@All
Shifting gears, see relatively balanced article in Mother Jones, link below, with the comment I’ve posted. Some of the usual knee-jerk drivel, but some thoughtful ones too. Interested that she used as her source both the Accounting Today article by Michael Cohn (itself largely based the May 7 release from RepealFATCA.com) and Nigel Green’s release.
Anyway, for anyone who feels like it, please post a comment:
http://www.motherjones.com/mojo/2013/05/rand-paul-fatca-repeal-offshore-tax-evasion
Yes, ewrp, it’s true. Ms. Eichelberger and Mother Jones are to be commended on a balanced article on a controversial and poorly understood subject. Rand Paul is right about FATCA, which is a law that doesn’t accomplish its ostensible goal (catching “tax cheats”) and in fact doesn’t even try: instead of targeting actual tax evasion, it imposes a massive burden on institutions and consumers, and does so under the worst kind of extraterritorial, imperialist overreach — in the unsupported hope that the “tax cheats” will just fall out of the woodwork. In fact, FATCA doesn’t include a single reference to actual behavior indicative of tax evasion but instead employs a global “stop and search everybody” approach. It would impose some $1 trillion in costs (to be passed on to consumers) to “recover,” maybe, a projected $800 million (enough to run the government for two hours). It really boils down to how much distortion of the rule of law and of the international legal system, and victimization of people who aren’t doing anything wrong, we are willing to tolerate in the hope that real bad actors (who will probably mostly be able to escape the net anyway) will be tripped up somehow. Moreover, the way the US Treasury Department is trying to implement FATCA via unauthorized “intergovernmental agreements” (IGAs), which are not even part of FATCA, massive compliance cost will be passed on the US domestic institutions (banks, credit unions, mutual funds, pension funds, etc), with costs passed on to American consumers – probably with a net loss to the US government. Senator Paul’s calling attention to FATCA’s idiotic tax enforcement is like someone trying to take off the market a drug that’s been shown to be ineffective (and in fact makes the condition worse) and has deadly side effects. But the main media response has been, “Senator tries to kill treatment for really horrible disease!” They want to focus only on the disease (tax evasion), not the bad medicine (FATCA). So Ms. Eichelberger ‘s and Mother Jones’s fairness is very much appreciated – would that some of these comments were comparably informed. See RepealFATCA.com for more facts on the “worst law most Americans have never heard of.”
Rand Paul for president 2016!
Then ex-pats will actually have some meaningful representation in Washington, that is, if there are any left by then.
@Jim Jatras – brilliant work!
Correction: The bill would not remove form 8621 completely, it would repeal the requirement that people file the form simply for owning a PFIC (foreign mutual fund). The form would still have to be filed if the person receives income from a PFIC.
@Jim Jatras, Thanks for the explanation, I understand now. It looks like Rand Paul’s bill simply reverts almost all of the changes made by FATCA (title V of the HIRE act), and it doesn’t do anything beyond that. While I really hope that this bill passes, I’m a little frustrated that Rand Paul’s staff had such a simplistic approach of “repealing FATCA” and not looking at the whole picture, like other Republicans want to “repeal Obamacare” without looking at the few good parts of it or proposing something else. Form 8938 isn’t necessarily bad just because it was part of FATCA. It’s much better than the FBAR because it has higher thresholds, it’s filed with the tax return, it’s not required if the person doesn’t have to file a tax return, it’s not required if the amounts are already reported on other forms, and its penalties are proportional to a possibly unpaid tax, not to unreported amounts (there’s a minimum penalty of $10,000, but the FBAR also has that). Removing form 8938 surely simplifies things, but it’s an instinctive reaction just because the form is something new. A rational reaction would be to remove the FBAR instead (of course, removing both would be great, but I don’t think that’s possible).
@Shadowraider
Form 8938’s thresholds, unlike FBAR’s, also are in recognition of the fact that some taxpayers actually live outside the US! Also, both should be indexed to inflation.
This one from the Global Dispatch, “Keeping the Truth in Headlines”, and from what I read appear to be doing so:
http://www.theglobaldispatch.com/rand-paul-introduces-bill-to-roll-back-portions-of-fatca-56793/
The wise folks at Mother Jones have rewarded me with the title of:
TINFOIL BEANIE
http://www.motherjones.com/mojo/2013/05/rand-paul-fatca-repeal-offshore-tax-evasion#comment-891747109
http://www.motherjones.com/mojo/2013/05/rand-paul-fatca-repeal-offshore-tax-evasion#comment-891744710
At the going rate of things, I’ll be fried by a drone in a month or two to prevent me from sprouting. If I was Rand Paul, I’d renounce US citizenship.
@SwissPinoy
Just got back to Seattle late tonight, and saw your comments on Rolling Stone. Thought I would copy and paste a few comments in also, in support of your efforts.
@Just Me, thanks for the backup. It’s a bloody battle zone.
@SwissPinoy aka “TINFOIL BEANIE”
Thats too funny, welcome to the world of trying to debate with anti-libertarians. Good luck, they are too much for me.
@Jim Jatras
I saw your comment and it was a GREAT one, as usual, and I agree with your analysis of the story…
@Swisspony aka tinfoil beanie
I responded to No Double Taxation note on your behalf.
I will rejoin the battle in the AM, and @FromtheWilderness, you might reconsider. I think the soft underbelly of these guys is they all love Civil liberties, hate Drones, loss of privacy and NDAA and TBTF banks, which FATCA actually helps eliminate smaller competition and make them bigger. So wrap FATCA into that cloak of issues they are passionate about. They don’t have to like Rand Paul or Libertarians to have common cause. Just need to help them understand that . 🙂
The uninformed and superficial comments there by those flag-waving, brainwashed patridiots remind me of some of the reasons I left the USA in the first place. It’s repugnant.
Unfortunately a login is required to comment so I couldn’t post there myself, but I did “like” all the comments by Brockers, FWIW.
The blogger Curtis Poe at Overseas-Exile.com has written a brief article on Rand Paul’s FATCA bill and the stories in the WSJ and Mother Jones. Might be worth a read:
http://www.overseas-exile.com/2013/05/the-end-of-fatca.html#more
Don’t get too excited. see “Prognosis” for its passage. http://www.govtrack.us/congress/bills/113/s887 I agree w this prognosis.
@Virginia La Torre Jeker, J.D, that’s a generous estimate. I’d give it a 0.0000001% chance of getting past committee.
ACA:
“FATCA to be Discussed in the Senate”
http://americansabroad.org/issues/fatca/fatca-be-discussed-senate/
Mother Jones has some very dangerous people, including one retired accountant who has all the answers. Who am I to say, I am only a retired administrative assistant? Perhaps he’s right. Is he?
(Yes, I know this is not good for me!)
Me: Re Your message below … “Receive income – earned or unearned – from a US source, in the US or abroad, pay taxes to the Department of Treasury per IRS code.”
No, it’s you who do not understand. Perhaps it is you who needs to pay for the services of a US tax lawyer or cross-border accountant.
I (and most of we) DO NOT RECEIVE INCOME, NEITHER EARNED OR UNEARNED FROM A US SOURCE. We live in other countries, work for and earn our salaries from non-US sources in the countries we reside in. Our US taxation has NOTHING to do with being taxed on money being earned or unearned from a US source — since 1969 for me. I wonder if you ever learned in any of your schooling anything at all about the subject of “US citizenship-based taxation.” It very much differs from how the REST OF THE WORLD taxes its citizens and residents — called “Resident Based Taxation.” The US, because it is exceptional, stands with citizenship-based taxation. The money it collects from US Persons Abroad is more for penalties than any taxes owed. Of course there are actual tax evaders, residing in your country — yes, sending their US earned and unearned money to an offshore tax haven (or even a US onshore tax haven state) without paying taxes to the Department of Treasury per IRS code. Go get ’em.
I have NOTHING to do with the US, except to have been born there (purely by accident — I had no choice in the matter) and have some relatives still living there.
There are, of course, those that do earn US income; there are US Persons working in other countries who intend to one day return to the US. We ARE NOT talking about this segment of the 6 to 7 million US Persons who reside beyond the shores of the USA.
Again, look for those pesky tax evaders right in your own country; they are among you.
TruthLiesInLogic 0 minutes ago in reply to calgary411
I have explained it repeatedly. You clearly do not understand US tax law. Receive income – earned or unearned – from a US source, in the US or abroad, pay taxes to the Department of Treasury per IRS code.
Me: I likely comprehend more about this tax law than you do. I am a retired person who was an administrative assistant saving for those retirement years. I am not a rich person, nor am I a tax evader. I am neither a tax lawyer. Are you?
Part 2 — since I do not have an option to reply to your message below, I did not say I had expertise per being an administrative assistant / secretary. That’s what I did, which didn’t make me wealthy. My “education” is by that school of hard knocks — very hard as administered by citizenship-based taxation — and the entrapment of my developmentally delayed adult son. BTW, you haven’t given your opinion on whether or not that is fair and just.
What is your US retired accountant designation? It obviously has nothing to do with international tax law, only law within the bounds of the US. Perhaps a brush-up on the IRS international taxation site would upgrade your tax law expertise. It is US-only accountants like you that those who are US Persons living abroad should never engage, but run away from as fast as they can. Your advice is very dangerous for the US Person living in a foreign country!
TruthLiesInLogic 5 minutes ago in reply to calgary411
Being retired as an administrative assistant, which normally equates to a secretary, how does that give you tax or any other law expertise?
I’m a retired accountant. That’s what gives me qualified expertise in tax and other law.
@calgary411
It may not be good for you, but is good and entertaining for me to take them on. Keep it up, it is good for them too! I have seen in my email that I have a few replies to some of my posts, and just haven’t had time for polite retorts.
I will get to them, as I intend to have the last word on all those that bother to reply. 🙂
@Calgary411
I understand your frustration with this so called accountant, as I am also participating in your conversation. He clearly DOES NOT GET IT! Next stupid remark from him is to ask him which Kellogg’s box he got his accountants certificate off of!
Calgary 411. I worry about your blood pressure. By and large commenting on those articles is a waste of your valuable time.
Of course the 2016 election had to creep into the debate.
“Senator Paul’s block on Senate votes for tax treaties as well as his bill repealing parts of FATCA, which is unlikely to get through the Democrat-controlled Senate, have gained the senator strong support from anti-tax groups that could be key to a successful presidential campaign in 2016, if Paul decides to run. These supporters include the Credit Union National Association, National Taxpayers Union, and Grover Norquist, who said, ”Unsuccessful tax systems attempt to force other countries to become their tax collectors. That’s what FATCA is, and it should be repealed.” Remarking on the economic costs FATCA could provoke, Chief Executive of the Devere group Nigel Green said, “Senator Paul’s heroic stance against this toxic, economy-damaging tax act is a landmark moment in the mission to have it repealed. He has taken a courageous stand against FATCA, [a law that] will impose unnecessary costs and burdens on foreign financial institutions.”
http://www.policymic.com/articles/40875/rand-paul-2016-fight-against-tax-haven-bill-could-predict-presidential-run
@bubblebustin…
Be kind 🙂 All you have to do is expose his ignorance of US international tax law in specific areas and that should shut them up or make them think. It seems to me you have done good so far.
@KalC… Generally, I would agree, but in the scheme of things, commenting only on blogs where you all agree could be considered a waste of time too, as it is singing to the choir. So if I do have the time, I like challenging the progressive audience because, while I might not turn the guy making the statements, there are other readers who will see superior arguments and you might influence their thinking.
It is a bit like having “Whoathat’sSteve” coming here to comment. He probably has concluded that is a waste of his time, but frankly I miss the challenge to my own CW that such input provides, even when I think his is wrong. So, personally, I kind of like the debate on this very progressive web site. It is has value if for no other purpose then helping you shape your argument, even if you are never going to turn a “true believer” on the left, any more than you will turn a “true believer” patriot on the right.
As I have said, let the debate on FATCA begin, and this new found opportunity provided to us by the Tea party Right wing as represented by Rand Paul is important in very small ways that we can each do. Most of us will never be in the position to influence policy at the government level, so we can only help in these small ways. You do have to decide how much time and effort to put into it, based upon your own level of tolerance, but don’t be dissuaded because you think generally it is a waste of time. Hell watching TV is a waste of time, but we all do it, as it entertains. Think of this as entertainment, and sharpen your skills. Don’t degrade yourself to name calling level, but be concise and pointed with your arguments. If it isn’t fun for you, then of course, don’t bother. 🙂 Don’t get your blood pressure too high.
That said, I see I have another response in email, so guess before I go to bed, I will go see how I was blasted and determine what response I can give to counter it, without being unkind.
@Just me
I know, it’s not worth it if you have to get down in the gutter with them. Just venting here and commiserating with Calgary 🙂
@calgary411, @bubblebustin, @Just me, etc.
TruthLiesInLogic seems to post to unconditionally defend FATCA using any means possible, including personal attacks. This one will not “get it”, will not bend and won’t understand. It will only attack anyone who does not love FATCA. Why this is so, I have no idea. I have no idea why one would unconditionally support something like that. Yet, if this is to become the future of America, then so be it. We cannot prevent America from becoming fascist like that, if that is what Americans really want. I would hope that America, in general, isn’t very supportive of such unconditional support for FATCA. As such, it would be nice if TruthLiesInLogic’s arguments could be taken outside of the MotherJones comment section and displayed more visibly for all Americans to see. People like TruthLiesInLogic could easily destroy FATCA if more people became aware of such.
TruthLiesInLogic makes me count my many blessings I am where I am, believe me.
You’re absolutely right in what you say, SwissPinoy — and Just Me and bubblebustin and KalC.
@Calgary411
The great thing about TruthLiesInLogic is that no other Progressives are joining in with wide support or thumbs up. He is a died in the wool ideologue that is only going to defend to the death a partisan perspective, that said, he is a useful pivot for educating other progressives who may be hearing about the subject for the first time, so in that way he is helping our cause. 🙂 I have some other responses I want to put up, but heading out to the airport again this morning, so maybe later. 🙂