http://www.treasury.gov/connect/blog/Pages/Myth-vs-FATCA.aspx
Myth vs. FATCA: The Truth About Treasury’s Effort To Combat Offshore Tax Evasion
The Foreign Account Tax Compliance Act (FATCA) is rapidly becoming the global standard in the effort to curtail offshore tax evasion. This month’s G-20 communique marked another important milestone; highlighting the importance of global tax transparency and a renewed commitment to work towards an international standard for the exchange of tax information.
For years, there has been concern about the so-called “tax gap” – the difference between the tax dollars that are owed under the law, and those that are actually collected. Offshore tax evasion is a significant contributor to the tax gap. FATCA establishes a process for foreign financial institutions (FFIs) to report information about U.S. account holders to the IRS.
Treasury developed intergovernmental agreements (IGAs) to implement FATCA effectively. These IGAs will require all of the relevant FFIs in a jurisdiction to report information about offshore U.S. accounts – a reporting obligation that will help the IRS catch tax evaders. Yet despite the clear, positive benefits of FATCA, many continue to make misleading claims about its implementation and impact. Here are the facts on FATCA:
Myth No. 1: Some claim it’s overly costly and burdensome due to complex regulations and difficult to meet reporting requirements.
FACT: Treasury and the IRS have designed our regulations in a way that minimizes administrative burdens and related costs. Specifically, the regulations were intentionally designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years. For example, the final regulations exempt all preexisting accounts held by individuals with $50,000 or less from review. For similar accounts with less than $1,000,000, an FFI is only required to search the account information that is electronically available. In many cases, FFIs are permitted to rely on information that they already must collect for local anti-money laundering and know-your-customer rules.
Many of these cost-saving simplifications were the result of comments received from affected financial institutions and foreign governments, which helped us to tailor the rules to achieve the policy objectives of the statute without imposing undue burdens or costs.
Myth No. 2: Some claim that U.S. citizens living overseas will become outcasts in the international financial world.
FACT: FATCA withholding applies to the U.S. investments of FFIs whether or not they have U.S. account holders, so turning away known U.S. account holders will not enable an FFI to avoid FATCA. We expect that many, if not most, of the governments implementing FATCA through IGAs will require their financial institutions to identify and report on all non-resident account holders, not just U.S. account holders.
Those governments agree with FATCA’s policy objectives, and want to facilitate the collection of information about the offshore accounts of their own residents. For example, 19 countries have already announced a pilot project to exchange account information about each other’s residents that will be collected by the governments in line with FATCA’s due diligence and reporting procedures. FATCA is quickly becoming the global standard for automatic information exchange and we expect the number of jurisdictions that choose to implement the same reporting procedures for all offshore accounts to continue to grow.
Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.
FACT: FATCA provisions impose no new obligations on U.S. citizens living abroad. Instead, FATCA’s withholding obligations fall on institutions making payments to FFIs, and the due diligence and reporting requirements fall on the FFIs themselves.
U.S. taxpayers, including U.S. citizens living abroad, are required to comply with U.S. tax laws. Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.
Myth No. 4: Some claim that countries are opposed to FATCA, in part because the legislation could force foreign banks to violate laws in their own countries.
FACT: Treasury’s decision to implement FATCA through IGAs that are respectful of the individual laws and customs of partner jurisdictions has contributed to the significant international interest in participating in FATCA compliance efforts. The two FATCA model IGAs incorporate a two-pronged approach: under the first model, FFIs report to their respective governments who then relay that information to the IRS; or, under the second model, they report directly to the IRS to the extent the account holder consents or such reporting is otherwise legally permitted, supplemented by government-to-government cooperation to facilitate reporting on non-consenting accounts. These model IGAs offer alternative frameworks for information sharing that abides by local laws.
The success of this approach is evidenced by the international response to this legislation. To date, Treasury has signed 9 IGAs and has reached 15 agreements in substance, including with Malta, Bermuda, and the Cayman Islands. We are also engaged with over 70 additional countries and expect to conclude negotiations with several others soon.
In September 2013, G-20 leaders committed to the automatic exchange of information as the new global standard, and endorsed the development of a single model for this exchange, which is expected to be based on the FATCA IGAs.
Myth No. 5: Some claim that FATCA will generate a backlash from foreign governments who view this as an overreach of U.S. law.
FACT: FATCA has received considerable international support because most foreign governments recognize how effective FATCA, and in particular our intergovernmental approach, will be in detecting and combatting tax evaders. G-8 leaders recently acknowledged the central role of tax information exchange, stating in their June 2013 communiqué: “A critical tool in the fight against tax evasion is the exchange of information between jurisdictions,” and urging that “[t]ax authorities across the world should automatically share information to fight the scourge of tax evasion.”
Myth No. 6: Some claim that FATCA will unfairly expose FFIs to heavy penalties before they have the necessary mechanisms in place to comply.
FACT: We recently announced a six-month extension to our withholding and account due diligence requirements because we recognize that FFIs need sufficient time to register for, understand, and implement their due diligence and reporting processes. Those requirements will now start on July 1, 2014. This extension exemplifies our commitment to ensuring that foreign jurisdictions and FFIs have sufficient time to properly prepare so that the law can be implemented effectively.
Myth No. 7: Some claim that FATCA aims to use foreign banks as an extension of the IRS.
FACT: Individuals making this claim have confused reporting responsibilities with actual enforcement. The objective of FATCA is the reporting of foreign financial accounts held by U.S. persons or certain entities with U.S. owners. This law only requires FFIs to share information about financial accounts held by U.S. taxpayers, similar to what is already required of U.S. financial institutions; it does not include an enforcement component for those FFIs.
Exactly. And if/when Canada tables an IGA we need to be sure to hammer home (and get the opposition parties to hammer home) this fact to Canadians.
Robert Stack is nothing more than a paid liar for Treasury. Of course reciprocity is not on his “myth” list.
@tdott, reciprocity means nothing to Canada anyway. Besides the fact that we do not tax based on citizenship, we already have agreements in place with USA, to capture interest earned by our Canadian residents in American banks. Thus this myth (although it shows treasury to be a liar), does not affect Canadians in any way, and I am not sure there is much to be gained by hammering this point home to Canadians. We have enough ammunition to hammer home to Canadians, such as the FACT that Canadian-only spouses can no longer have their ‘US person’ spouses on any of their accounts without those accounts becoming FATCA reportable. That is something worth hammering home.
@WhiteKat
My understanding is that FATCA reporting requirements go quite a bit beyond the current agreements in place (and that’s not even taking into account CBT).
At any rate, the point of hammering home the lack of reciprocity to Canadians is to get them to understand that the US is unwilling to take its own medicine. It’s acting like a total hypocrite in requiring Canada to implement FATCA reporting at great expense, but is unwilling to do the same. Any benefits of FATCA flow solely to the US, and Canada picks up the lion’s share of expenses. Without reciprocity what’s left is a one-sided “agreement” that no sane government would willingly sign on to.
Given this, we need to make the Canadian government admit that it would be signing up under threat of sanctions (US bullying) and NOT because it thinks FATCA is a great tool in fighting Canadian tax evasion. And if that can’t get Canadians’ backs up, nothing can. We’ve seen other signatories ludicrously praise FATCA as a tool that is good for all involved and not be challenged on that. We need to not let that happen here.
Or to put it another way:
Being bullied by the US into accepting a non-reciprocal agreement can be framed as a question of Canadian sovereignty; whereas reporting requirements of Canadian-only spouses can be framed as “someone else’s problem”.
I’m glad that there are so many people who are refuting this “Stack O’Lies”. I would like for American Expats to be like the Giant Asian Hornet – attack us and get fatally stung. I would for once like a graphic with a whole bunch of hornets representing the world attacking Uncle Sam – “Fatca Backlash”. Frankly, I wouldn’t mind the world going after the United States for this “casus belli” attack on the rest of the world’s finances.
It was that fact sheet that finally convinced me that I was doing the right thing going forward and keeping my appointment to relinquish my U.S. citizenship. I had waffled, fretted, and put off for a long while. The insulting lies told in that “FACT/MYTH” sheet was the final straw for me. I knew what I had seen people going through. I knew what was happening to my family. All along I thought there might be some way things would be revised so as to not harm innocent expat families going forward.
Straw one: ACA’s report to House Ways and Means committee ignored
Straw two: Nina Olsen’s report to Congress ignored
Final Straw: Mr. Stack’s Alice down the rabbit hole insults to those who had suffered enough already. Basically telling the world we are lying and what you see in front of your nose is not there.
I’d had enough. He made it very clear to me what the U.S. actually thinks of expats. You can’t stay with an abuser and abusers always deny what is happening. Hilariously they cannot keep our stories quiet so this “FACT/MYTH” sheet might just come back to place egg all over treasury’s face.
Two things: If Canada signs and IGA I will be a huge champion of reciprocity for the U.S.A. from that day forward. Give over, no complaints and no amount of damage done will matter to me. I will say it is all a “Myth” when I hear them complain.
Secondly, Allison Christians has been invaluable during this time of trying to figure out what they are actually doing or not doing. Clearly, the U.S. is saying one thing and doing something else.
@AtticusinCanada
There have been so many articles coming out recently associating FATCA with the increase in renunciations. If that doesn’t put egg on his face, nothing will.
If FATCA wasn’t set to hurt so many people, I’d be gleefully looking forward to the US reciprocating too! Hear that sucking noise? It’s coming from what used to be the biggest tax haven in the world!
I spoke with two people yesterday. One of whom is a CPA here in Canada. Both said “It’s the FBAR fines that are terrorizing people” “The tax forms aren’t that big of a deal since most all Canadians wouldn’t owe any tax.” One of the things Canada ought to demand is NO FBAR PENALTIES IF NO TAXES OWED.
The fact that FBAR was applied to average expat families to begin with is repugnant but, they can fix it. I hope they do.
@Atticus, Re: ” One of the things Canada ought to demand is NO FBAR PENALTIES IF NO TAXES OWED.”, that is not good enough. For example, I collected EI a couple years ago. That in combination with the mutual funds (pfics) in my kids RESPs could mean I owe taxes. This is ridiculous considering the source of the income, and the fact that it was way under the 90K FEIE which does not apply to either of those types of income. Why should someone on EI, or disability, or pension income who would likely actually owe taxes, have FBAR penalties assigned to them? It is not just the high income earners who would owe taxes.
I spoke with the IRS many times over the years and they were always helpful in telling me “you didn’t meet the requirement to have to file.” Not one time did anyone in 33 years mention something called an FBAR. CPA said “They should have been telling you about that.” Where is the fine or fee on those who knew and didn’t say. They have to know not even IRS, preparers NO ONE was telling the majority of long term expats about that form. NO ONE not even the IRS.
@Atticus, In my case, even though I am a full-time homemaker, the Canadian mutual funds held in TFSA’s, and RESPs would cause huge headaches in paperwork for filing. Unless one’s life is EXTREMELY simple as a Canadian, regardless of income level, the tax forms ARE A BIG DEAL!
It amazes me that a CPA would say the tax forms are no big deal!! Who are their clients? People with no Canadian mutual funds, no RESPs, no RRSPs, no RDSPs, no TFSA’s? The CPA I spoke with when I first considered entering the streamlined program, told me to dump all my Canadian mutual funds asap, and warned me that the reporting for these would be expensive and complicated. Multiply that by 3 years, and the accounting bill was going to be more than I had earned in 2 out of the 3 years covered by the streamlined program.
#FATCA MYTH #2 “THE #IRS REFERS TO ME AS A ‘WITHHOLDING AGENT’. THIS MEANS I HAVE TO BUILD A WITHHOLDING ENGINE.” http://bit.ly/H4CDzP
@Robert Stack:
Thought you might be interested in this Local.ch article from April 2013 on how FATCA led an American abroad to give up his US citizenship. You might also wish to read the first comment by “allamericangrl” who has decided to retain her US citizenship but the family house cannot be in her name as a result.
http://www.thelocal.ch/20130402/american-expats-fall-out-of-favour-with-swiss-banks
Myth No. 2: Some claim that U.S. citizens living overseas will become outcasts in the international financial world.
Fact: Americans abroad are outcasts in the international financial world.
Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.
Fact: Americans abroad are renouncing their US citizenship due to FATCA.
As always, sorry to let facts get in the way on your FATCA ill-informed propaganda. Perhaps you should make a fact-finding trip to Switzerland to learn more.
Excerpt from International Business Times FATCA article on October 30, 2013:
“But only one country – the U.K. – has actually imposed a tax sharing regime, and 10 signed agreements have yet to be implemented. More than 30 agreements are under negotiation, which could take years to complete.
“It is disturbing. It does cause concern,” said attorney John Staples, of London-based international tax firm Burt, Staples, & Maner LLP, at the industry conference. “The pace of IGA [agreement] implementation has been slow… It’d be nice to have some of the other major economies coming into play.” ”
http://www.ibtimes.com/international-tax-evasion-crackdown-slow-tricky-only-first-step-fatca-legal-reform-1447796
Note to Robert Stack: Put more resources on the FATCA project, and update your resume.
According to this saved description of his work as a tax partner, Robert Stack was heavily involved in international tax planning, including of transfer pricing and intellectual property:
“A partner in the Washington office of Ivins, Phillips & Barker and head of the firm’s international tax practice group, Mr. Stack has over 20 years of experience in international tax matters, including representation of US investors investing in non-US jurisdictions, as well as non-US investors investing in the US. This work has included the formation of joint ventures and investment funds, the structuring of mergers and acquisitions, and tax-efficient cross-border structures, planning with respect to the cross-border ownership of intangible property, advising with respect to cross-border license arrangements and similar sophisticated domestic and international tax planning issues.”
Note the last sentence about setting up “tax-efficient cross-border structures, planning with respect to the cross-border ownership of intangible property, … similar sophisticated domestic and international tax planning issues.” He should hope that his old emails have been erased and that a hacker doesn’t find that they are archived:
https://web.archive.org/web/20130609165402/http://www.lawyer.com/robert-stack.html
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@Innocente
Wouldn’t it be great if we could discover his work with a bullshit tax shelter (as Jack Townsend calls them) You have to wonder if some of those “tax-efficient cross-border structures,” which is a euphemism for manipulating the elaborate tax laws and regs exploiting the loop holes. Maybe some of his might be classified BS indeed!
Just saw this recently – worth a read in entirety – commentary on Stack’s myths:
http://tax-expatriation.com/2014/01/22/how-much-myth-versus-reality-is-in-the-treasurys-claim-myth-vs-fatca-the-truth-about-treasurys-effort-to-combat-offshore-tax-evasion/
“………Mr. Stack goes on to say “U.S. taxpayers, including U.S. citizens living abroad, are required to comply with U.S. tax laws. Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.”
This statement assumes that U.S. citizens residing overseas have somehow been using their normal individual, business or other investment accounts in their home country of residence to “evade tax obligations”! This is where there is a big disconnect in the understanding (or lack of understanding) of the U.S. Treasury Department and IRS of those millions of U.S. citizens who reside overseas. Undoubtedly, there are some U.S. citizens residing overseas who are taking steps to evade tax and not comply with the law. However, this author’s experience is that far far far more of the U.S. citizens residing overseas, simply do not have a complete understanding of a very complex U.S. tax law and bank secrecy reporting…….”
@badger
Thanks for that. I have thought that one of the best point by point rebuttals of the FATCA myths was posted as a comment at FSI. Maybe I have drawn folks attention to it before.. Maybe in this thread. I guess I should check before I put it up again… Well, I checked a few pages back, and don’t see it, and out of time to search more, so here it is again…
by PJM whoever he is…
Accounting Today reports that the “final” FATCA regulations were released yesterday. In response to a question posed by Accounting Today, a senior Treasury official denied that FATCA was “directly correlated” to the increase in USC expatriations:
“A senior Treasury official who requested anonymity said in a conference call with reporters that they view the regulations released Thursday as the last big step in implementing FATCA. The staff took into account many of the comments and feedback they had received on the proposed regulations. Asked about the increase in citizenship renunciations by Accounting Today, he pointed out that there are a number of reasons why a citizen may decide to renounce their citizenship and expatriate, and there is not necessarily a direct correlation between FATCA and the increase in renunciations in recent years.”
http://www.accountingtoday.com/news/Treasury-IRS-Amend-Final-FATCA-Regulations-69657-1.html
Another myth debunked:
http://www.letemps.ch/Page/Uuid/223e9404-9ae1-11e3-9956-3df8fd64a756/Des_Californiens_chez_les_montagnards_vaudois
“Second surprise: no bank wanted them. “Even the Post Office refused to open our account. We must pay for everything in cash. We even had to take the rental car “is still surprised Trina”
@Innocente
What are the true believers, the FATCAnatics going to say? “Yes, we were wrong, and this is having a negative side effect we didn’t expect.” Weasels words is all they can come up with…
@Just Me: The FATCAnatics don’t care about the collateral damage. They have their marching orders and the FATCA compliance industry has resources that need billable hours.
It would be great if someone who had Robert Stack design a dubious tax shelter were to step up and expose him for the fraud he is. Meanwhile, Robert Stack is learning the FATCA loopholes so that when he returns to private practice he can advise clients on how to get around this disastrous law and earn big sums in the process.
On another topic, it is not considered clever to out yourself publicly as an American citizen as it can impact your income, job and banking relationships. Today’s TagesAnzeiger interviews a veterinarian on how she voted on the mass immigration referendum and who identifies herself as a “halb Amerikanerin” (half American). Not to worry, a quick search of the internet shows that someone with her name expatriated in 2012:
http://www.tagesanzeiger.ch/schweiz/standard/Warum-Ja–warum-Nein/story/17603181
Of course, her renunciation couldn’t possibly have had anything to do with FATCA, ownership of her small animal practice and maintaining normal banking relationships.