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.
@bubblebustin;
It’s all “…due to overwhelming interest from countries around the world…” rushing to sign on – (like Mongolia) that is causing a FATCAjam?
And as for Stack’s claim that it is a myth that FATCA isn’t causing US citizens to renounce/relinquish; many might not need to fully be aware of or understand FATCA to decide that because of all the other threats – the FBAR, 3520/3520-A, PFIC, double taxation, threats, slander (statements to the effect that expats are all ‘taxcheatingfairshareevadingdruglordmoneylaunderingterrorfunders’ requiring surveillance and punishment), etc. is more than enough reason to exit the abusive relationship with the US as soon as possible. FATCA is part and parcel of the same continuum, the last straw, the coup de grace for anyone of US origin trying to live a normal life as a dual or other deemed ‘US taxable person’ outside the US.
Stack may explain it away in a disingenuously literal sense, but he knows the level of unrest, distrust and resentment has and is rising amongst expats as awareness of the whole CBT system conflicts has been forced onto a wider stage. He is fully aware that our only recourse is to surgically remove our cancerous US citizenship status which has begun to metastasize.
Frankly, these latest attempts to produce and peddle more deliberately evasive and deceptive propaganda which is so obviously untrue just confirms for me that the underlying intent of this is consciously oppressive and abusive. If Canada and the political parties here buy it and repeat it, then we know they’ve drunk the kool-aid – or they’ve decided that we are expendable.
@Badger, it is really simple. If FATCA wasn’t causing US citizens to renounce/relinquish, then Stack would have never said anything about it. Yet, he spoke, so why? He spoke because he understands that most Americans will buy his statement and he had to speak so that they would buy his Argument. Otherwise, Americans would have realized the problem of FATCA and more Americans would then renounce. So, Stack had to speak to prevent renunciations. Basically, he was forced to lie because of the serious nature of the situation.
To me, when a government lies like that in defense of a problem, then the government really does have a serious problem. My trust in the US government just dropped a few notches. Renunciations are really no big deal and thus there is no reason why a government needs to lie about such, unless…
The underlying intent is to get other countries to do a true head count and locate assets. As it stand the USG hasn’t got accurate numbers and no real idea of potentially recoverable wealth.
If they truly wanted to curb tax evasion, they’d rewrite that mess of a tax code of theirs.
In the meantime, however, FATCA is giving other countries delusions of revenue, which in the end just degrades citizens everywhere to nothing more than serfs. Ironic really that the idea of civilization, society, law and citizenship sprang from the idea that the correct order of things is “ruling elite” and “serfs/slaves”. It doesn’t take a genius to see that we are swiftly coming full circle.
@Badger, re: “If Canada and the political parties here buy it and repeat it, then we know they’ve drunk the kool-aid – or they’ve decided that we are expendable”.
Maybe both? Our job is to steal their kool-aid, and make them realize we aren’t going down that easily.
I’m betting that one or more of the many wordsmiths associated with IBS, will soon have a well-crafted, logical, counter-argument that will refute Stack’s contradictions.
@badger
Indeed, your observations are spot on, as usual. For me, FATCA
was not the only reason for renouncing, but being a clear indicator of the direction the USG has chosen, it was the straw that broke the camel’s back.
I believe Stack was saying in his riddle that renouncing will not rid you of your tax obligation to the US. If US citizens and foreign banks believe that ridding oneself of US citizenship and US citizens will end their obligations, they are misguided. Dumping US citizenship without tax compliance and US citizens as customers is futile where FATCA’s concerned.
@notamused,
Several of us like your words,
Would you give permission for its further use?
EquityKing over at Forbes, is spinning more pro-FATCA BS: http://www.forbes.com/sites/robertwood/2013/09/24/fatcas-bleak-choices-for-accounts-income-disclosure/
Equity King writes: “@ just me I feel sorry for you that your IRS tax and FBAR OVDI did cost you $50,000 but do not blame everything on the US . Ignorance of the law is a defense and be lucky that they declared you at the time non-wilful. Has FATCA made it harder for those of us who reside outside the US? Yes. But the blame should be placed on those who hid their assets and income, not on the US government for finally forcing those evaders to pay their share for the benefits of their US citizenship. Should FATCA have been limited to the real fat cat evaders? Yes – the $50,000 limit is pitifully small. Should FATCA have simpler rules for those US citizens legally resident outside the US, allowing them to maintain financial accounts in their country of residence? Yes. But do away with FATCA entirely, and allow wholesale tax evasion once again? Emphatically no. I am in favor for FATCA-DATCA and finally GATCA !!”
@notamused, re; ..”but [FATCA] being a clear indicator of the direction the USG has chosen, it was the straw that broke the camel’s back…”
I suspect that is or will be true for many.
We’ve established that they are fully aware of the so-called ‘unintended’ consequences of the current extraterritorial CBT-based system, and that they are fully aware of what they have written and intended FATCA to do. As they continue on the same road, it is clear by the issuance of pap like this by Stack that they are entirely okay with whatever and whoever gets broken in the process. Adding more insult to the existing injuries.
Even if FATCA were to be defeated or repealed somehow, it is a very clear message to US persons living outside the US that our wellbeing is of no importance, and that our rights, and treating us fairly will never be a consideration. And that goes for the compliant as well as the non-compliant. And it includes those who are only children.
I would add that the whole OVDI fiasco also sends this message as people who should never have gone into it were told to, and the IRS was happy to squeeze these people for whatever they could.
Can’t wait until I’m no longer dual.
Let me put it this way: We don’t know how many people are renouncing without certifying tax compliance. People may be renouncing this way, as Robert Woods suggests may be the case (see conversation with honeebadger in the above Forbes article).
Now this presents an interesting scenario. Someone who shows a CLN might stop their account from being reported, so in this respect it can be said that FATCA is causing people to renounce, but will it stop the IRS from using any other means to collect what it thinks it’s owed from that former citizen at a later date?
So I stand corrected. A CLN will spare your account – but will it spare you?
@WhiteKat, thanks for pointing to the comments at the Forbes article
Wood says;
“Yes, expatriation is becoming popular. In some cases, where taxpayers do not feel they want to file the requisite forms with the IRS, people may even do consular expatriations. It isn’t clear how much of that is reported to the IRS.
Regarding citizenship based taxation and how America should treat Americans abroad, I fear no one is listening. I don’t think it’s realistic to think we will adopt an entirely different tax system. Still, it would seem that we could give U.S. persons abroad a special deal that would be much more lenient (and much more inclusive) than the streamlined program. It turned out to be very narrow indeed.”
And, as for Canada and the kool-aid, already, IBS has made it harder for them to ignore us or discount opposition.
@calgary411
Yes, of course. Feel free to quote or rephrase as you like.
@bubblebustin, interesting questions and scenario. Closest I’ve seen is this : http://hodgen.com/deliberately-choosing-covered-expatriate-status/
Thanks, notamused. (None of us are amused!)
It’s anecdotal but not an unusual story, I’m sure:
A friend of mine came to Canada from the US in the 1960s, married a Canadian, became a Canadian citizen a few years later but maintained dual citizenship, and dutifully filed tax returns in both countries for four decades. With the increasing complexity and expense of filing, and with impending FATCA as the last straw, they finally decided that the US citizen should renounce, and they accomplished that last year. The exit tax required them to pay about $75,000(!) to the IRS, mostly due to computed capital gains on their Canadian house, which they bought around 1970.
They have lived and worked in Canada all their adult lives, but still they have had to pay that much money to the IRS to be free from future US tax reporting requirements and free to vacation in the US for a few weeks each winter. Having no children and wanting to simplify their lives in old age, they bit the bullet and paid the exit tax. But what an outrageous, extortionate seizure of Canadian wealth by the US that is!
this is not a myth. it is rather the type of straw that breaks the camel’s back:
http://mobile.nzz.ch/aktuell/wirtschaft/wirtschaftsnachrichten/doppelbuerger-werden-fuer-banken-zum-risiko-1.18155809
@AnonAnon, exactly right. An extortion. I wouldn’t have paid it. But then, I guess I am too patriotic.
@Whitekat, thanks and I’m not in a panic..I renounce this week, thanks for asking.
I agree that treasury can make it a “myth” that no one is renouncing over FATCA. No one has a problem reporting to the U.S. their foreign spouses income and banking data. Is he a fan of psychedelics??
MOST of the people I know who have recently renounced including myself have done it in response to FATCA and all that FATCA implies upon our lives.
This is the kind of ongoing debate that we are all having and going to continue to have with people like Equity King;his most recent response to me:
unfortunately you are just repeating everything that has been spread around already as arguments over the last 4 years on the www…. the other points you mention are just the facts according to the law but thank you for repeating them again for newcomers to the “scene“ and lets keep working on spreading the news with regards to CBT or RBT. Btw. here is another fact : 92% of the US tax returns filed with the IRS by US persons abroad, with the FEIE and the use of foreign tax credits, end up owing zero in taxes to the US. Lets hope Congress does not follow some ideas to cancel FEIE and FTC because Tax returns like this, instead of generating tax revenue for the IRS are tax revenue destroyers because it costs the IRS a lot of money to just to process and handle them. They create make-work jobs that produce nothing of value to the nation or its economy.
Remember that you are only treated as a criminal if you are staying in hiding – why are you refusing to comply – is it because you think the law in your case is unjust and unfair ? Sure,maybe from your point of view but I think you can appreciate that this is not how the world works today. Just because you don`t like something does not mean you can legally ignore it.
Coming out does NOT have to be expensive at all ! This is totally a myth. I have seen many cases (of course there are exceptions) where the non compliant taxpayer has done most of the work her/himself with the support of TAS. CPAs do not have to be $2-3000 pa.(again there are some exceptions) this is a myth as well. Again I have seen many cases where the person in question found a US-CPA (I know everybody thinks they are incompetent when it comes to overseas tax affairs and some of them really are ) for $500 per 1040 return or tax year. And finally it does not help repeating again and again the myth about life altering tax and FBAR penalties when we talk about non-filers or minnows – it is just not true anymore in 2013 … see Streamlined Program !!
Why don`t you complain and send registered mail letters to Caplin & Drysdale , a private law firm out of Washington that had a major influence how the guidelines for OVDI/P were laid out. Complain to the 4400 US tax cheats from UBS that were the straw that broke the camel’s back… complain to whoever you think is appropriate but do realize it will change very little in the end with regards to your situation.
Quoting my twitter follower David http://lesperanceassociates.com/ : Watching the reaction of Americans abroad to their liability to the US tax regime is similar to watching someone who is stricken with a possibly terminal disease caused completely by their own actions/inactions. As a result, the whole process can best be viewed through the Kubler-Ross model of “Stages of Death” :
1) Denial — Denials fall into several categories including
A) Denial of being a US person for tax purposes: Eg. “I am not an American, I don’t have a US passport”; “One of my parents is American but they never registered my birth, so I am not an American”; “Yes I had a Green Card, but it expired so I am no longer a Resident Alien” ( Note: See the widget on my webpage to determine if you are a US taxpayer);
B) Denial that the US has the ability to enforce and collect: Eg: “I haven’t filed in the US for 40 years I have been abroad, why should I worry now?” (In short, while the liability was always there, the ability to find you and collect from you has increased dramatically); “I pay taxes in a foreign country with a tax treaty with the US already (This doesn’t relieve you of filing obligations. It may only provide you with a foreign tax credit on all or part of your US tax liability IF you file in the US); “All my assets are in Canada, so the US cannot collect” (Suggest you look at the mutual exchange of information and collection clauses of the Canada-US tax treaty).
Denial can be a conscious or unconscious refusal to accept facts, information, or the reality of the situation. Denial is a defense mechanism and some people can become locked in this stage.
2) Anger —”The US is being imperialistic”; “I already pay tax in my country of residence on this income. That’s double taxation and unfair!”. Once in the second stage, the individual recognizes that denial cannot continue. Because of anger, the person is very difficult to deal with due to misplaced feelings of rage and envy. Anger can manifest itself in different ways. People can be angry with themselves, or with others (Including me or their non-American bank when advised of the facts of the situation) When I get a call from a client who is at this stage, I let them rage against the machine for about 15 minutes and then say, “I agree it is unfair, but at some point, your cellmate is going to get tired of hearing about it”;
Bargaining — “I would give them something but the cost of this Voluntary Disclosure Program is too much” “I will pay all my tax from this point forward and let sleeping dogs lie”. The third stage involves the hope that the individual can somehow postpone or delay the impact of US taxation and legislation on their financial lives.. In terminal disease, bargaining rarely provides a sustainable solution.
Acceptance —With US tax problems, it is the last chance to have the least worst result. At a minimum, this means catching up on existing US filing and tax obligations. Once in compliance, the individual then needs to decide to either continue to remain a US person and comply with US law or expatriate.
Is anyone seeing a pattern here? David sounds a lot like Otter.
ooops, I meant EquityKing. They are all starting to sound the same.
@AnonAnon, this was one of my many reasons for renouncing US citizenship now instead of later, and a reason of why I wrote the following:
http://isaacbrocksociety.ca/2013/09/10/why-i-renounced-us-citizenship/
I have another 30 years to go until retirement and the Switzerland government is responsible for my success, not the US. As far as the US is concerned, I’m a “good riddance”. The US is happy that it got rid of me and should have even paid me to leave! Whatever happens in the future is now a Swiss problem and not a US matter.
I find it so ironic that Stack could state unequivocally that FATCA is not causing US citizens to renounce. How would he know? Who is keeping those statistics? What is his source?
Has he filed an FOI for those stats that the State Department says they don’t have?
AND how could he possibly have the arrogance to say that he or anyone else in the US government is privy to the reasons – do we believe that many of the renunciants are sharing their reasons with the US Treasury or the IRS? It is not a requirement, and we’d be stupid to say anything they could possibly seize on in order to use against us.
And those who are deemed to be covered expatriates are already assumed to be expatriating for tax reasons, and have to pay an exit tax anyway. Why would they discuss anything about their motivations with State, Treasury or the IRS?
Many more people would stand up and challenge Stack’s ‘myth’ about FATCA and renunciations not having a causal relationship – if not for the regular threats and insults levied against those who renounce/relinquish – even those who owe the US a big fat zero – and who are already fully tax compliant in their home country – where they also already have another non-US citizenship.
Even IF FATCA and the rising rates of renunciations, relinquishments and greencard surrenders do not have a directly demonstrable causal relationship – the timing of these rising statistics shows a likely correlation. No-one pays 450. US and files complex forms and travels to a consulate or embassy just for fun.
@WhiteKat, all FATCA internet warriors are employed by the same mobster.