Let the exodus of foreign investments from the tax haven of USA begin! A new article out today at accountingtoday.com reports:
A federal court has ruled that U.S. banks must report to foreign governments on the holdings of nonresident alien account holders under the intergovernmental agreements that the Treasury Department has signed with other countries’ tax authorities in an effort to implement the Foreign Account Tax Compliance Act.
http://www.accountingtoday.com/news/Judge-Rules-Banks-Must-Report-Foreign-Countries-FATCA-Deals-69297-1.html
For newbies, this is what we have been calling DATCA lite. It was a controversial regulation which was a slimmed down version of a domestic FATCA (only applies to interest of Non Residents Aliens in excess of $10)
It was strongly opposed by the entire Florida Delegation in a letter to Obama and Congress passed the Posey Amendment to stop it, but it died in the Senate.
The IRS bulletin 2012 describes the requirements. It made up one of the reciprocity promises in the IGA and a natural blowback of FATCA onto Homeland shores.
The history of DATCA lite can be found here.
Spelling correction. Hit enter too soon ‘Senate’, not Sentate… It is too early here!
However, since none of the IGA’s are truly reciprocal, does this mean that the money launderers, drug lords, and assorted tax cheats have a few more years at least before panicking?
BTW
Word on the street from knowledgeable sources is that the Texas and Florida Bankers Association will appeal.
Of course the truth is that there is not real reciprocity here. The burden of what class of citizen to report on rests unevenly on the foreign banks who must report on their country’s “resident U.S. persons” whereas under FATCA and the IGA’s the U.S. banks must report on only non-resident foreign account holders.
The U.S. tax base is still protected while the tax base of all other nations is being eviscerated.
@WhiteKat
Right now the strategy is probably to hold funds in accounts that don’t generate interest, which frankly is almost ALL accounts with interest rates so low. I saw somewhere, and I did not document it, that in some legislation or is it regulatory ruling, they are going to try to get USFIs to create 1099s for ALL accounts regardless of whether or not there is the de minimis $10 interest. I really should find that reference again. Badger might know where it is at!
Would you do me a favor? Would you mind adding at the end of your title #DATCA. It is good for tweeting and using the ‘find function’ in the archives. I have tried to tagged all stories related to this issue as the domestic version of FATCA, or DATCA. Just to keep the connection that FATCA is begetting this, and WAS NOT the intention of Congress when they voted for it. 🙂
The difference is that US banks will only have to report information on NON-RESIDENT ALIENS, while every other country in the world must report information on their own residents and citizens. Hardly equal and very little incentive for the US to change the law.
If the courts rules against the data sharing FACTA may have been voided. If you are truly against FACTA it may be best for higher courts to rule against.
@Marie… But of course, but then if the Administration gets its way, there will be full blown DATCA reciprocity imposed on USFIs Page 202. http://1.usa.gov/12YGdoG
@GeorgeIII FATCA not FACTA 🙂 Common mistake we have all made, although I don’t get your logic on why this ruling would, as you say… “If you are truly against FATCA it may be best for higher courts to rule against.” Explain more
Having a long history with Michael Cohen on Accounting Today and his reporting on DATCA, I put this comment up. I left out links as that has caused problems with display in the past.
@GeorgeIII
That would seem true, making the IGA promises of working toward reciprocity disingenuous and misleading.
There’s something to be said about folks getting a taste of their own medicine, though.
@all
can this mean then there will be bank accounts closed and investments taken out of the USA?
BTW… Just received this via email… The actual opinion of the Judge…
http://texasbankers.informz.net/texasbankers/data/images/boasberg_opinion.pdf
Let the US banks report on foreign accounts and let them withhold 30% from FATCA non-compliant foreign banks.
And then just sit back and listen to the huge sucking sound of foreign investment leaving the United States.
The chickens will be coming home to roost and the US will get just what it deserves.
COCKADOODLEDOO!!
I don’t think the proposed reporting of interest above $10 is going to have much impact on US investment flows. I sincerely doubt that the people hiding money in the US are going to have a problem sidestepping this. The only thing they will be reporting is US source interest income. For example, you could switch from an interest bearing bank account to a money market fund. A money market fund is a collection of interest bearing assets but the fund payments (interest) are classed as ordinary dividends. Problem solved. If you have bonds from US companies or the US government you just switch them into US dollar denominated bonds issued by foreign corporations (which don’t generate US source interest income). Problem solved. If you hold shares, you don’t even have to worry since they won’t be reported.
There may be some shifting of assets but I don’t think it would cause the vast amounts of money hidden in the US to leave the US. Real reciprocity would which is precisely why the US isn’t offering it.
@Just Me,
Is this the kind of thing you were looking for?
http://taxfoundation.org/blog/baucus-administrative-reforms-target-bank-accounts-closing-tax-gap-measure
…..”..Pay close attention to the Senate Committee on Finance Chairman’s staff discussion draft of Tax Administration Provisions, Section C – Closing the Tax Gap. Its first provision requires banks to issue reporting statements (1099 forms) for all bank accounts, even those that pay no interest. Currently, the statements must be issued only if the interest exceeds $10 in a year. The 1099 forms are sent to the taxpayer and to the IRS.
Under the new provision, the $10 minimum would be replaced by $0, a minor change in the legal language, but a big change in practice and reporting costs. There is a big difference between replacing the current $10 de minimus rule with $1 or even $0.01, and replacing it with $0. If an account is non-interest bearing, why is the IRS interested in it? Accounts that pay no interest presumably have no associated tax…..”…
Here is the link to the draft http://www.finance.senate.gov/imo/media/doc/Chairman%27s%20Staff%20Discussion%20Draft%20of%20Tax%20Administration%20Reform%20Language.pdf
Search for the ‘Section C – Closing the Tax Gap’. I think what you want is just under the heading. Or, alternatively, search for ‘de minimis’ in the document until you find “Elimination of Minimum Interest Requirement”.
to Just Me
bubblebustin says
January 16, 2014 at 1:40 pm
@GeorgeIII
That would seem true, making the IGA promises of working toward reciprocity disingenuous and misleading.
If the court rule against it, Canada would have an easy out. The Canadian government really does not want it but the 30% withholding to all transaction would be devastating to Canadian economy not just banks. The Swiss who are far less dependent on US economy knows that and that why the referendum died. I doubt the NDP if they were in power, would not eventually submit to Obama FATCA.
Our best hope is the Supreme court of Canada deny certain provision of FATCA. Benedict Arnold case of freezing Canadian $ trading account would be the best case.
@Edelweiss
I’m sure the big fish can swim away as easily as they have with FATCA’s pursuit of US offshore accounts, but then why do the bankers associations seem so concerned about it?
@Bubblebustin
I can think of a number of reasons why they wouldn’t want this. First, it imposes costs on them that I’m sure they would rather not have. Second, some of them are actually likely to lose some or all of the NRA assets as NRAs seek out accounts (probably still within the US) that offer them assets which are not subject to reporting. This depends on the breadth of services offered by the border banks like custody accounts or asset management. Third, the reporting of interest is the first of multiple steps (if we are to believe the US government’s intentions regarding “reciprocity”) and it’s always easier to fight the first baby step than the subsequent step(s).
Perhaps someone with a knowledge of US law can explain this. It seems there are two possibilities:
1. US law permits the US government to require US banks to make reports on nonresident alien accounts.
2. US law does not permit this. Congress would need to explicitly authorise it.
The judge should decide which is true. It’s not his job to decide whether it’s a good idea or not. The news reports don’t address this basic point.
@Johnson
Exactly. In the USA, laws and the constitution are regarded by the courts as mere guidelines, recommendations or glossy marketing broschures without further import. Judicial decisions, on the other hand, are primarily based on gut feelings or adhering to “decrees” by the IRS or other govt. organizations, which of course have no basis in the judicial system.
@badger…
That’s it! Thanks… Watch out for that one. It closes the loophole, makes all NRAs reportable, and along with foreign John Does, it begins to look like DATCA…
The ruling does not represent any sort of reciprocity. If US banks only have to report on ‘non-residents’ and FFIs have to whistle blow on resident US citizens abroad even though they are dual citizens, the IGAs are clear one sided in the US’ favour.
It’s high time foreign governments start confessing to their citizens what FATCA and IGAs are all about.
This should be a bump in the road.
The judge is an Obama appointee, 2011. Google him. The judges brother took over a Colorado superintendent seat, with no other candidates interviewed, under the Colorado democrat leadership. The Superintdendent-s seat was vacated by Jim Bennet, who became Senator Jim Bennet just in time to vote yes for 2010 HR 2847 HIRE Act *FATCA.
His ruling ought to give way to any ambulance chaser / / that it is easy to report such a thing. Number one it isn.t, but….. It is also easy to put your hands up against a wall and spread your legs, so therefore a lawsuit against getting a patdown should hold up.
This judge is the same judge who wouldn.t let Obama bin ladens dead body pictures be released. Also the same one that helped stop the Occupy Wall Street.
The ruling will serve to make it be known to all the other banks in US that Florida and Texas need a little more funding.
There is already at least one top notch firm freshly reviewing this now, who has very significant backing.
Unlike European and Canadian numb nuts banks, these US banks made a risk (certainty) calculation, saw how much money is stake, saw how much money it took Florida and Texas to go that far, and estimated a likelihood of success of an appeal. The result of that calc will obviously say appeal decision.
Its only a matter of time. However, if strong enough, there is injunction possibilities.
After that, all they have to do, those that are motivated, is to ignore the IRS rule. Then it becomes IRS responsibility to push for a penalty through the courts. An enforcement can.t be enforced if there is no law behind it. They can try, but unlike minnows these banks have the money to fight.
Robert W. Wood over at Forbes has also weighed-in on this ruling:
Even U.S. Banks Must Aid IRS Hunt For Offshore Accounts
I left a comment there tonight: