[May 18 2017 update: I now include in this LINK the recommendations of Elise Bean, a long-time FATCA supporter and witness at the FATCA hearing.]
On April 26 2017 there was a Hearing at the U.S. House Subcommittee on Government Operations dealing with the harm caused by the U.S. FATCA law imposed on the world.
At the conclusion of the hearing, Chairman Meadows asked the Witnesses for “three recommendations on how to improve the legal framework set up by the Foreign Account Tax Compliance Act” (FATCA).
My personal-only interpretation of this request is that the Chair is saying something like: “If FATCA has to be replaced with something else, can you recommend three compromise laws/approaches that would achieve the “good” aims of FATCA but minimize the harm, and which would receive bipartisan support?”
— I enclose as a link the May 15, 2017 submitted personal recommendations of Jim Bopp, a witness and attorney for the U.S. FATCA/IGA/FBAR lawsuit currently pending in United States Court of Appeals for the Sixth Circuit (I am one of the plaintiffs).
From the Bopp text:
“This letter provides three recommendations on how to improve the legal framework set up by the Foreign Account Tax Compliance Act (“FATCA”).
First, we recommend that any taxation of overseas Americans comply with established United States constitutional principles and international legal norms.
Second, we recommend that the current laws be repealed in their entirety [Bopp goes on to include specifically FATCA, IGAs, FBAR, and citizenship-based taxation] and certain proposals rejected.
Third, we recommend that Congress enact a 1099 requirement on foreign banks, established by treaty, as long as this complies with established United States constitutional principles and international legal norms…”
—- Appended to the end of the Bopp recommendations are my personal thoughts as a separate submission: I support, as does Mr. Bopp, the repeal in entirety of FATCA, FBAR, IGAs, and citizenship-based taxation (the latter to be replaced with territorial/residence-based taxation), do not support any “watered-down” FATCA-replacement legislation whatsoever — which I believe will continue the harm, and offer suggestions on changing U.S. citizenship laws in the very limited context of FATCA harm. In hindsight, I now feel that I should have gone further in my recommendations for citizenship law changes.
—- When I receive the recommendations of strong FATCA supporter Elise Bean, a hearing witness, I will post.
— Ongoing developments: Republicans Overseas has initiated an intensive lobbying campaign with Congress to kill citizenship-based taxation and replace with territorial taxation. There can be no promise of success, but these people are trying. I am not aware of similar efforts on the Democrat side.
I just read Bean’s recommendations. She’s not completely useless. For example, she does call for the renunciation fee to be lowered (I fail to detect any snideness on her part there), and in a separate recommendation, floats the possibility of a special procedure for “accidentals” to document their lack of US citizenship (or for their parents to do it on their behalf). This last idea makes me wonder whether it would follow some of the tax legislation in specifying that the expat must have been born dual, or include those who left the US as adults.
Since the odds of the USA either switching to RBT, or eliminating reporting requirements, are low, any small reform will be helpful.
As someone mentioned, parents can’t renounce US citizenship on behalf of a minor.
She’s a clueless homelanders who hates expats, imo.
Bean ball has no idea what she’s talking about. The State Dep’t doesn’t investigate ones tax status prior to expatriation. That’s no excuse for the exorbitant fee.
What are the chances that Rep. Meadows and Senator Paul get something through the Congress prior to the mid-term elections?
The response of Elsie Bean represents a Treasury Department compliance oriented viewpoint. This has been a significant problem for U.S. persons overseas that a compliance oriented viewpoint, what is best for the IRS and the government, has had an overbearing sway on regulations. True some of this comes from Congress, yet with strong influence from Treasury. Such compliance oriented viewpoint is divorced from concepts of: (1) justness, (2) impacts on individuals and businesses and, (3) the U.S. Bill of Rights including Prohibition of Excessive Fines, Equal Protection, and the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.
Overall there are some concessions in Bean’s submission. Yet why is this only after seven years?
There is an appeal to Bean’s suggestion to withhold U.S. Treasury Bond sales from banks who discriminate against U.S. persons overseas. This needs to be global. The U.S. Treasury may then make example of Fidelity Investments, Schwab and others for barring U.S. persons with an overseas address from U.S. investment accounts. Just bar a few and the rest would get the idea. Clearly, U.S. banks and financial institutions need to be included in this.
There are problems with this U.S. Bond sales barring proposal. Relatively large banks buy U.S. Treasuries. Small banks and other finance industry players may not buy them. So would this then be a green light for relatively small banks to discriminate against U.S. persons? Another problem is that while discrimination may be clear-cut for savings and checking accounts, for liability instruments such as mortgages there may be many factors a bank considers before offering such financial products.
Overall it sounds like another way to turn banks negative on America and Americans with potential for additional unintended consequences. There are potential negative consequences on the position of the U.S. Dollar as the reserve currency in the world. Added restrictions and rules on using U.S. Dollars provides incentives for global banks to buy bonds from other countries, and to use other currencies and payment systems other than SWIFT.
Bean fails to recognize that the 30% existential withholdings threat on banks is a prime source of unintended consequences.
Taxpayer Rights!
In my view, The IRS Taxpayer Bill of Rights has major failings including its definition of: The Right to a Fair and Just Tax System. The IRS qualifies this as the right to a fair and just administration of the existing tax system. This is Orwellian Double Speak. The Right should mean what it says.
The government has “a lot to answer for” in regards to double taxation of U.S. persons living abroad. Persons overseas receive no U.S. government services as one who lives within the U.S. states (roads, schools, hospitals, unemployment, etc.), nor do they receive U.S. protection of local property (laws, courts, police, etc.). Both factors underpin the justification of taxation according to Immanuel Kant.
The U.S. is not justified in claiming tax jurisdiction over U.S. Persons living overseas. Treasury does not understand this. Treasury understands compliance. The remedy can’t be left to Treasury.
Over 90% of the 9 million U.S. persons overseas live in equal or higher taxing jurisdictions than the U.S. They don’t go to such jurisdictions to evade tax.
The Taxpayer Bill of Rights has important omissions including The Right to Minimized Compliance Costs. Without such right and pursuit of such objective then there is no check on a runaway bureaucracy that piles form upon form without concern for the cost and time required of compliance. An example is FATCA with compliance, costs, and consequences inflicted way out of proportion to IRS receipts.
Proposal: The U.S. government should provide full credit against tax liabilities for compliance costs (not just an expense deduction) + 50% for taxpayer time required. For those stories of people spending $US2,000 in compliance with $0 U.S. tax liability then the U.S. government would owe such persons $US2,000 (for expert tax help) + $US1,000 representing 50% for the person’s time to collect the documents getting ready for and interacting with professional tax assistance. So then the U.S. government owes the $0 tax ower $3,000. Such a system would naturally provide a financial incentive to brake excessive prescription of compliance and forms without concern for taxpayer cost in time and money to comply.
Another key failing in the list of rights is the omission of The Right to a Clear and Easily Understood Tax System. There needs to be lots of pressure to make the system clear and easily understood. For U.S. persons overseas it is anything but clear and easily understood to the point where many feel compelled to engage expensive tax expertise to sort out the overlay of the U.S. 76,000 page tax code on top of ones tax code in one’s country of residence. Then one many discover unfathomable laws of U.S. double taxation of pensions, IRS regulations classifying as PFIC normal financial products, report employer accounts to the U.S. which constitutes grounds for termination, etc. all under threat of bankrupting fines not faced by everyday U.S. based taxpayers.
The U.S. tax code for U.S. Persons resident overseas should not be a minefield of Catch-22 gotchas that only very specialized tax expertise may understand, and often don’t get right because of different interpretations or because they can’t even understand it all.
Definition of Double Taxation. In my view The Treasury Department, with slant on compliance over what is right, has over dominated the definition of double taxation, in the context of a U.S. person overseas.
Double Taxation in the context of a U.S. person tax resident abroad should be defined as: any tax and compliance above that required by one’s country of residence for source income/assets in that country. Tax Treaties should be modified to prevent such double taxation.
A shift to residence/territorial taxation for individuals as practiced by all other OECD nations would remedy much of the unintended consequences and unjust nature of U.S. over-regulation and double taxation of U.S. persons overseas.
Some specifics
Bean references Income earned abroad. What about everything else that is not earned income, that families may accumulate over years to save for retirement, to save for education, and for family financial security, that are not covered by the FEIE and face extra penalty for being “foreign?”
Streamlined: “eliminate penalties”. No it does not “eliminate” but guarantees double taxation, double compliance, double tax on pensions, PFIC, and other penalties for “foreign” income and investments.
“Remove any legal impediment for IRS making full use of FBAR” sounds like more compliance, burden, and impacts.
Relief from penalties for those owing $0. This sounds nice yet what about if $1 is owed? What should be the cutoff? The laws are so complex and changing that one may never be certain if they are in compliance or not.
Concern for expatriation fee of $2,350. From many stories this amount is only a small fraction of the compliance fees required to get all the years of tax forms, FBAR, etc. required to get ready to then pay the $2,350.
IRS Medic’s reaction to “some rather amazing suggestions” by Elise Bean:
Great IRS Medic video. Shows how Bean’s compliance at all costs approach betrays a measure of nuttiness. There is truly no thought given to unintended consequences, failures, backfiring, counterproductiveness, lack of effectiveness, etc., of FATCA. It seems that even if it were proven that FATCA costs the US more money than it brings in she’d still insist on total compliance. Talk about pyschological rigidity.
Sad illustration of how all (or at least some) those unworkable US laws get created: some Congressperson gets bee in bonnet, asks devoted but not very knowledgeable assistant to come up with a way to make it reality; devoted assistant commits to project heart and soul because The Senator has asked for it, and blunders around stitching bits of legislation together with no understanding or care for the unintended consequences.
There’s a good documentary in there somewhere.
Marie,
Good question.
I am usually wrong in my predictions, but here goes: My personal-only prediction is that the Republicans (because they must) will pass comprehensive tax reform legislation by May or so 2018, and that it is more likely than not that territorial tax legislation for individuals will be included. I have no prediction on what will happen to FATCA.
@Stephen Kish
When I had dinner with Solomon Yue and Jim Bopp they seemed pretty confident that TBT for individuals would happen but I am just pointing what “they” think.
@Tim: did they think TBT was more desirable than RBT or more valid philosophically or just easier to get passed in Congress?
Ms Bean wrote a list of suggestions using very broad strokes.It was a short outline simple enough for a layman like myself to understand. It didn’t lay down constitutional issues or amendment rights ,nor tackled complex tax codes and the need to simplify them. She said her peace very simply,after all her client is FATCA and the industry that that promotes.
However, I was surprised in her recognition of accidentals and that there is a class of citzen that shouldn’t be implicated in the FATCA issue at all and perhaps that can open the door to a realization that there are people who though not accidental fall in the same situation through dissociation ( of being an american ) over time. For myself,that is an eyeopener ,not the penalties nor simplified forms,just the realization there is some limit to the lunacy.I don’t believe that people like accidentals and the dissociated,like myself ,think in terms of filing any bloody tax forms to a foreign power but to be simply left alone.
She even concedes that there should be a citzenship exit door but I am not sure if it applies to the tax code only.
Still regret that there was no representation from this group at the hearings.
@Stephen Kish:
“I am usually wrong in my predictions, but here goes: My personal-only prediction is that the Republicans (because they must) will pass comprehensive tax reform legislation by May or so 2018, and that it is more likely than not that territorial tax legislation for individuals will be included.”
According to CNBC, Goldman Sachs agree on the likely timing but their expectations for the scale of the reform are not high:
“Goldman Sachs economists expect Congress to approve a stripped-down tax plan with much smaller tax breaks for individuals and corporations than the sweeping reforms proposed by Republicans.
[..]
Goldman now projects a “modest” personal tax cut and a corporate tax rate of 28 percent, instead of the 20 percent proposed by the House, the economists said. The current corporate rate is 35 percent.”
[..]
http://www.cnbc.com/2017/05/19/goldman-sees-slimmed-down-trump-tax-plan-with-smaller-cuts-less-bang-for-economy-in-2018.html
The cruial question, for the prospects of FATCA repeal/amendment, seems to me to be whether it would or would not be scored as revenue-neutral. If not, then its chances of surviving the tax-reform fight seem slim.
“Donovan dropping out as Trump’s nominee for deputy Treasury secretary”
http://www.politico.com/story/2017/05/19/jim-donovan-trump-deputy-treasury-secretary-238611
“Jim Donovan is dropping out as President Donald Trump’s nominee to serve as deputy Treasury secretary.
The Goldman Sachs executive, nominated in March to serve as Treasury Secretary Steven Mnuchin’s No. 2, informed the White House this week that he could not take the job due to family concerns. He was expected to play a critical role in helping shape the administration’s tax reform policy through Capitol Hill.”
One of my problems with Ms. Bean’s recommendations is that she suggests setting up another complicated system for “accidental Americans” to be excused from tax “obligations” that they never believed they had in the first place. Once again, it is the “accidental” or a parent who must come forward to the US government, hat in hand, and make application (supplication?) for his release from bondage.
There are many people on this blog who would refuse, and have refused, to sign a United States IRS W-8 form in their local bank. It’s obvious that these folks aren’t going to be willing to apply to the US government to please consider them not to be citizens. They KNOW they’re not citizens; they just want the US government to go away and leave them, their banks and their countries the hell alone.
Then there’re the hapless folks like me who innocently performed a “non-relinquishing act” over the course of their lives. I got a US passport after being denied entry to the US on one occasion (the right to *be* in my native land is the only US right I have ever claimed) and someone else who used to comment here was so moved by Obama’s candidacy for President that he got himself on the voters’ list for the first time ever, as an emotional, symbolic gesture. We, and others like us, remain on the outside of any consideration that has ever been proposed for letting some of us off the tax hook. We are no more “active Americans” in terms of our practical lives than the other “accidentals” that Bean magnanimously excuses.
The only simple … and fair … solution is for the US to adopt RBT. Period.The US needs less pages in its tax code and related citizenship law, NOT more.
IMO, Bean proposes to let Accidental Americans escape only because she’s afraid that if there’s no escape route, an unwilling Accidental with no US ties and no US visits might challenge forced citizenship in court. That could bring the whole shebang down.
@Muzzled
No offence, but in my view, once you claim the “right to *be* in my native land” you’re no longer a pure accidental.
In practical terms that doesn’t mean anything if you can successfully evade FATCA reporting and remain non-compliant. You just don’t have as high a moral high ground as others.
@Nononymous
” No offence, but in my view, once you claim the “right to *be* in my native land” you’re no longer a pure accidental.”
I left the land of the free fifty years ago practically to the day and never transgressed in any way .It was easy for me since I left to wash away my tainted ,though naturalized as a minor, blood.Does that make me almost pure accidental ? How many sins do you have to commit to be be condemned to CBT hell? I believe that your view is a bit simplistic.
“…, an unwilling Accidental with no US ties and no US visits might challenge forced citizenship in court. That could bring the whole shebang down.”
Very unlikely to happen in Canada since the accidentals here have not their accounts closed but very possible with European accidentals . Curious as to why it hasn’t happened yet.
On what grounds? It’s the bank that refuses the account, and here in the UK, they’re not breaking any laws by doing so.
As long as the IRS doesn’t bring a case against an accidental, there’s no grounds for a counter-claim.
But I’m only armchair-theorizing, not being a lawyer.
@Nononymous
“No offence, but in my view, once you claim the “right to *be* in my native land” you’re no longer a pure accidental….. You just don’t have as high a moral high ground as others.”
So you would be happy to blame the victims?
Where do you start drawing the line to delineate the “higher moral ground”? What about those who were told by border agents upon seeing a US birthplace on their home country passport that “once an American, always an American” and that one must get a US passport to be able to enter the US? What about those who were assured by Democrats Abroad that voting would have no effect on taxation issues, failing to mention that they only meant state, not federal, taxes?
What moral imperative did anyone transgress by getting a passport so they could continue to visit ageing relatives? What moral imperative did they transgress by believing (however foolishly and much regretted) that Obama was a better option for the rest of the world, most importantly for their own country of residence, than the alternative?
Isn’t there any moral imperative on border agents or DA or the US government to advise of the dire consequences of following their misleading instructions? Isn’t there any moral imperative to take the high road when in a position of power as the US government most definitely is? Must you be a “pure” accidental or expatriate or emigrant to be entitled to any relief for your financial rape, forced to answer over and over why didn’t you just keep your knees together?
Why would any accidental feel safe coming forward to even claim this exemption? Can the USG even be trusted? If you are safely under the radar especially without a US birthplace why take the risk that the USG wouldn’t agree that you are an accidental?
The passport rule should have no relevance for the Accidental status. It is a law that one must use a US passport to enter the US, many may have been reminded of this law when entering on another passport. Most people don’t like breaking laws and no one knew about CBT and the consequences. This is not proof of being a US citizen. next they will be saying if we use American expressions in our speech or eat hot dogs that makes us not accidental Americans.
“On what grounds? It’s the bank that refuses the account, and here in the UK, they’re not breaking any laws by doing so.
“As long as the IRS doesn’t bring a case against an accidental, there’s no grounds for a counter-claim.”
One day the bank refuses the account .You ask why. What does the bank answer.?To get back your account you have to pay an extortion fee? So you have to pay an extortion fee to reopen a bank account because you are an accidental american .Is that a valid scenario? Isn’t that a valid claim for obstruction to a normal life caused by CBT.
My suggestions: 1) change / mitigate FATCA so that those wishing to remain tax compliant Americans under CBT can do so with less difficulty
2)Change the citzenship laws so that those who relinquish can do in either applicable fashion with no fee. Drastic change to the born in the USA citzenship by requiring some retention requirement ,at least 3- 5yr residency in the US between 18 yrs and 25 ,just as an example only. Some return to retention requirements in other cases, as of old . The USSC to prevent the loss of citzenship of a single individual entrapped everybody under the assumption that everybody else wanted it as well.
” Why would any accidental feel safe coming forward to even claim this exemption? Can the USG even be trusted? If you are safely under the radar especially without a US birthplace why take the risk that the USG wouldn’t agree that you are an accidental?”
We are safely under the radar that is satisfying enough, isn’t it ? With court or congressional immunity , what is a Canadian accidental risking and what does a European accidental without a bank account risking.Besides.with no American ties ,financial or family ,in most cases, what can the US do . Kill them,maybe ? Is one missing something here?
The point is (the point I was making), Bean’s recommendation is not designed to mitigate the effects of FATCA on accidental Americans; it’s designed to protect FATCA from legal challenge.