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.
I wouldn’t let Mr. Stack off so easily. He must be aware, more than any of us, of the flaws in FATCA. He could at least, like Dick Harvey, try to mitigate some of the more pernicious effects. He could even resign in protest (I’m sure he would not be unemployed for long). But he hasn’t done that – he’s come out with his mythical myths. Sometimes “I was only doing my job” is not an adequate defence.
No, Mr. Stack deserves all the criticism he receives. No one forced him to take on that position, lawyer or not. Too many human atrocities have been committed by people who were “just doing their job” for him to get off with that lame excuse. However, he may well have inadvertently done us a favor by writing that piece. It’s so full of blatant lies that it easily provides ammunition for FATCA opponents.
@Johnson and notamused…
I think your argument is that he could resign the job, the same way as he could decide not to represent a client any longer. That said, I think Wondering’s point is, he is just being a lawyer. We should not expect different behavior. It is what they do, on either side of the fence. It is just a realistic perspective. That is why lawyers are generally regarded in same category as politicians,… scumbags. That is why we have so many lawyer jokes, and why we still turn to them for help when we think we have been harmed. http://www.ahajokes.com/lawyer_jokes.html
@Wondering, even a lawyer has a choice of clients. Stack didn’t have to leave his practice to take on the FATCA job. He isn’t representing a client without other options or resources faced with the death penalty. He is providing life support to a deliberate government strategy that is hurting us needlessly. He made an active choice. He is obviously not an unintelligent or uneducated person. He has more inside information than we do. And is the government a client like any other? In this case, aiding FATCA is aiding the government’s aggressive and unreasoning persecution of millions abroad – who he knows full well most likely don’t even owe the US a dime even by IRS standards. And, who he knows full well are under layers of oversight by our home governments – with legal local accounts. Rather than address that, he is choosing to turn his talents and resources to continue on the same path. And, FATCA is not even going to achieve its stated aim.
So, I think our criticisms are legitimate. I choose not to earn my living in certain ways, not to work for certain employers, and not to advance certain interests. Why should lawyers in his position be absolved of their choices?
@ Badger, et al
That is the quandary with lawyers!
When in trouble, we want the most aggressive, diligent, experienced, never-say-die lawyer available. In a tussle with the Treasury, I’d want someone like Robert Stack on-side.
We need to work the problem. As I see it FATCA is the problem, imposing US law extra-jurisdictionally is the problem and the national origin discrimination at the heart of “US person-hood” is the problem., Robert Stack is not the problem; FATCA is the problem and Stack is it’s lawyer.
No doubt about it – FATCA is a bad client: guilty as sin and dumb as stump. But, lawyers in the middle of defending a client can’t start agreeing with the other side.
We can’t judge lawyers by their clients. We admire Joe Arvay, and hope he’s on-side if a Charter challenge is mounted. Meanwhile, Joe Arvay is currently defending a proceeds-of-crime property forfeiture case for the Hells Angels. It’s a high-profile case with significant constitutional implications. I am glad he took it on; its an important principal. And he is probably mounting a vigorous no-holds-barred argument. But we would not judge Joe by the behavior of his client.
I agree with much of what IBS stands for – and don’t want a fight on our own bench – but calling Robert Stack names will not advance our cause. Vigorous lobbying based on sound, factual and persuasive arguments will. In posting his “Myths” article, Stack likely did FATCA opponents by setting up key points that are easy to refute.
@Wondering, agreed. Mr. Stack is just doing his job like anyone and would probably be our friend if we knew him in person. One should never oppose the individual, but rather the issue. The issue is FATCA.
The messenger should be shot (so to speak) if the message is a lie, imo.
I fully understand your point @Wondering and agree somewhat in that I understand the goal.
But this does also appear to be a battle of appearances, propaganda and PR as much as/more than (?) as a contest of competing facts. FATCA (and all the CBT related stuff like the Ex-Patriot Act) serves many propaganda and political purposes – as we see from the deliberate dramas created by Schumer http://www.bloomberg.com/video/92889601-schumer-eduardo-saverin-can-never-set-foot-in-u-s.html et al. It serves as a useful diversion from the US taxes that are not being collected from the US corporations with assets offshore, and US government appointees with their very own Cayman and family trust accounts http://www.bloomberg.com/news/2013-05-21/pritzker-s-54-million-family-trust-fee-seen-as-unique.html and other US residents.
The US, Treasury and the IRS create their own carefully scripted dramatic pieces http://www.youtube.com/watch?v=emQEldcAqoQ (Note that Obama says that the target is only ‘some’ and a ‘small number of individuals and businesses’ – while announcing what we know of as the comprehensive and fanatic global monster that is FATCA).
Some of this at IBS is merely a relief valve, to hurl invective as an outlet.
But I am not sure that means that all of it is besides the point.
To some extent, isn’t one viable tactic to undermine the legitimacy of a voice and a message or even a messenger?
Hasn’t Treasury and the IRS employed that tactic when they seek to undermine and dismiss any dissent by calling us all ‘cheats’ and tax evaders in their official propaganda? And they must think that this is a necessary and useful tactic since they have employed it consistently. Haven’t they sought to de-legitimize our complaints by dismissing them as ‘anecdotal’? The reliance on those tactics is even more glaring in the face of any robust statistics as to the tax gap or factual cost/benefit analysis of FATCA. It has become a battle to perpetuate an ideology – a progaganda crusade where the facts don’t count. See comments by ex. IRS Senior Counsel Yates “…..The Treasury and IRS have too much invested in FATCA to turn back now.” http://blogs.angloinfo.com/us-tax/2013/07/22/residence-based-taxation-interview-with-bill-yates-former-attorney-office-of-associate-chief-counsel-international-irs-2/
If this is a legacy issue like Obamacare, and now one of pushing on no matter what – in order to save US face, or a might makes right exercise by the US, then it is legitimate to discredit the US messenger. Certainly, Stack’s client – the Treasury and the IRS does not let any opportunity go by to discredit FATCA opponents and those of us abroad wholesale, and to make us scapegoats and divert from domestic US tax failures and US resident made debt. It was a deliberate tactic for the US to go even further and couple all mere reporting non-compliance with actual money laundering and tax evasion – witness the remarks of Harvey saying that it would make FATCA more saleable “Detailed customer due diligence may be easier to justify if it is being done for both tax and anti-terrorist or anti-money-laundering reasons. “… August 9, 2012
FATCA — a Report From the Front Lines from http://www.taxanalysts.com/www/features.nsf/Articles/7FE9806866554F5985257A5500712E6D?OpenDocument and the letter by Levin, to make the failure to report a precursor to the more serious financial crimes in general; …”Although FATCA is structured to address offshore tax abuse, offshore account information has sig-nificance far beyond the tax context, affecting cases involving money laundering, drug trafficking,terrorist financing, acts of corrupt
ion, financial fraud, and many other legal violations and crimes. Given the importance of offshore account disclosures, FATCA guidance and implementing rule should create account FATCA forms that are not designated as tax return information but, like FBARs, may be
provided to law enforcement, regulatory, and national security communities upon request. …”…. http://bsmlegal.com/PDFs/CarlLevin.pdf – despite owing zero or minimal US tax from abroad.
I do think that there is a legitimate criticism of the revolving door of law and other professionals from private practice defending those who have the money to seek to avoid or evade US taxes (like GE http://www.nytimes.com/2013/05/26/opinion/sunday/a-is-for-avoidance.html?_r=0 ), into US government to prosecute them, and then back to private practice again. Like the chicken and the egg, it is hard to say what came first. But I am not sure why we would exempt lawyers from the charge of hypocrisy or conflict of interest on this issue. I doubt that personal gain in prestige, and career advancement and eventual remuneration is not a factor in taking on these roles. It is not always a pure commitment to the law as a higher ideal.
And when US banks are said to be ‘too big to prosecute’ and ‘too big to fail’, it makes a mockery of FATCA as applies to the rest of the world. The US is only focusing on individuals because they can. Anyone whose job is to accept pay and status to defend that cannot reasonably be exempted from charges of hypocrisy, lack of legitimacy, and disingenuousness. Just as Geithner was fair game for criticism and ridicule for penalizing even the minor inadvertant errors of those abroad who owed no US tax, when he himself only paid up the tens of thousands he owed after being nominated by Obama to his Treasury post – presiding over FATCA.
I wonder – is the government of a ‘democratic’ country that claims to be ‘of the people, by the people, for the people’ a different type of client? Is it morally right to choose to assist the US Treasury and the IRS in a crusade in which their cause is being advanced – by almost any means necessary – even deliberate and disingenuous propaganda? Should we hold the US and its representatives and agents to any higher standard than the Hells Angels – or are all clients the same? If the result of assisting the US government in this issue is to harm millions of law-abiding fellow citizens around the world, and their families, is that acceptable?
There are active choices being made. I do not sell my services and knowledge to those who I do not respect – and I have far fewer resources and options than many lawyers. I have chosen to live a certain kind of life, in accordance with my worldview and values. I am not ready to exempt lawyers wholesale from moral and ethical inquiry. They do have the option to take only certain types of cases and clients and issues. There will always be another lawyer to take on the others. The US government is not without resources. It is a bit like David and Goliath. And, it is very ironic in the arena of CBT and US extraterritorial crusade against individuals abroad – the US Ihas stacked the deck in terms of personal UStax and financial reporting matters in this arena – we have discussed here how Circular 230 constrains tax lawyers and prevents us from the full benefits of legal representation. USCitizenAbroad has excellent discussions of this http://renounceuscitizenship.wordpress.com/2012/05/31/the-conscience-of-a-lawyer-and-the-fbar-fundraiser/ http://renounceuscitizenship.wordpress.com/2012/05/30/compliance-counseling-whats-a-poor-lawyer-to-do-circular-230-vs-the-fiduciary-duty-to-the-client/
An attorney may be called to defend heinous criminals. They must act in the interests of their clients – they don’t have to be fair, just or reasonable. Sometimes this upsets people but ultimately we understand why that’s how it has to be. It’s an honorable career.
But Mr. Stack now works for the US Dept of Treasury. At least part of his job is to implement FATCA. He is not a defence attorney or a prosecutor. If he has a client at all, it’s the people of the United States. He should be using his knowledge of law to ensure a fair, just and efficient implementation of congressional intention. He is not an advocate and he should not be attacking his perceived enemies.
I’m not attacking him personally but I do claim he is doing a bad job. The Dept of Treasury, the IRS etc have substantial choice in how they implement the directives of congress. The original law passed by Congress was quite brief but has now expanded far beyond this. Mr. Stack and his colleagues are responsible for this. Their implementation benefits only the tax compliance industry while ignoring the concerns of the wider public, both domestic and foreign.
I agree with @Johnson.
The implementation of FATCA is not in the best interests of the US government, US citizens, or the rest of the world who would bear the costs. The benefits and costs are not even quantifiable. So, this obsessive pursuit of FATCA benefits neither Stack’s client the US government, nor the US people, nor US persons abroad, nor the rest of the globe.
FATCA has become a US vanity project and exercise of might deemed ‘too big to fail’.
Excuse me, I should have said it’s okay to shoot the messenger if the messenger’s a liar.
I wouldn’t lose sleep over it either way. I just listened to a debate in Swedish parliament today. The reigning coalition typically talked 30% about what great accomplishments they made, then sh_t talked the minority party for the next 70%. Then the minority party had nothing they could call their own accomplishments, so they had to sh_t talk for 100% of their time.
And the US elections are 97% sh_t talk.
So, whatever somebody says about Stack *o Lies, couldn’t be so terrible unless taken out of context by some external evil force.
Another general commentary by a US resident citizen – on FATCA and the stark choices; either expatriation or returning to the US to live. We are not myths.
http://sbpra.com/julielkessler/?p=451
….”…FATCA has also resulted in American expats being denied bank and brokerage accounts, business loans, and mortgages by foreign financial institutions that don’t want the burden of dealing with the Act. Some Americans have had retirement accounts summarily closed by foreign banks unwilling or unable to comply with the onerous reporting requirements to the IRS. In some instances, expats have been compelled to disclose financial information about loved ones even if those people are not U.S. citizens. This has resulted in many foreign spouses removing themselves from shared bank accounts to avoid having their personal information revealed to the IRS. Often, foreign banks simply refuse to do any business at all with families where one spouse is an American expat…..”……
…” A U.S. citizen residing abroad should not have to choose between giving up American citizenship and possessing the normal financial relationships that we have all come to expect following years of hard work, payment of taxes, and voting, even from afar….”
A Sept 2013 article in the Swiss NZZ “Dual citizens are becoming a risk to the banks” states:
“Maintaining a bank account with a Swiss bank is not a human right – that is the implicit message”.
This is a fear that many US Persons live with in Switzerland, causing us to recognize that the way out is to remove the anvil around our necks – US citizenship. Possibly coming soon to a country near you!
http://www.microsofttranslator.com/bv.aspx?from=de&to=en&a=http://www.nzz.ch/aktuell/wirtschaft/wirtschaftsnachrichten/doppelbuerger-werden-fuer-banken-zum-risiko-1.18155809
@Badger…When you read that by article, see the references she made and then note she lives in Southern California, you know she has been reading the Oct 14th LAX Times story. It had some impact…
http://www.latimes.com/world/la-fg-us-citizens-abroad-20131014,0,2523704.story?page=1
@innocente….
I liked the way the translator stated this about Americas… “a toxic smell adheres to them”.
@badger
It’s incredibly satisfying when someone living in the US recognizes that pain inflicted on Americans anywhere is pain inflicted on ALL Americans. The events of the last few weeks should be proof to even the most resistant homelander that the US is run by a dysfunctional government with a propensity for shooting itself in the foot. FATCA is just another manifestation of that dysfunction and deserves to go into the dustbin of history, the sooner the better.
@Just Me
In other words, we stink.
…which brings to mind this graphic (click on it to enlarge):
@Calgary411
I LOVE that graphic. I’d like to see someone draw the US congress in a circular firing squad too.
@Badger, re. your material quoted from Julie L. Kessler’s blog post: The link to this article has been removed by the author, as the article has been picked up for publication by The Los Angeles Daily Journal and will appear on October 18, 2013.
@Sosostris
I’m looking forward to commenting on Julie’s article there too!
@Sosostris
Thanks for that information. I had wondered where it had gone, and if it gets wider distribution on the other site, all the better. When you see it, would you mind posting the link back here? thnx
In the meantime, I still had it up so saved it. I’ll post it if there’s an interest and doesn’t cross any permission lines.
Calgary411….
I saved a copy too…