Last September, due to the efforts of Suzanne Herman,
Representative Bill Posey (R-FL) sent an
excellent letter to Treasury Secretary Mnuchin,
asking him to deal with #FATCA.
This post included the text of the letter and some 60+ comments from Brockers. What Rep. Posey received is a stark contrast to the expectation expressed in this comment:
Bubblebustin says
October 16, 2017 at 2:12 pm@plaxy
According to RO on its FB page:
“At Republicans Overseas’ request, RNC Co-Chairman Bob Paduchik personally delivered Rep. Mark Meadows’ and Sen. Rand Paul’s joint letter on the Foreign Account Tax Compliance Act to Treasury Secretary Steven Mnuchin’s office. Secretary Mnuchin is fully aware that 9 million overseas Americans have been suffering under FATCA tyranny.
As a result, FATCA is included in the 2nd Report to the President on Identifying and Reducing Tax Regulatory Burdens by the Treasury (https://www.treasury.gov/press-center/press-releases/Documents/2018-03004_Tax_EO_report.pdf).
In the report to the President recommending actions to eliminate or mitigate burdens imposed on taxpayers by eight specific tax regulations, the Treasury indicated that it is considering possible reforms of regulations issued pursuant to FATCA. Thank you Co-Chairman Bob-Paduchick.”
This is the response Rep. Posey received from the Treasury Department:
November 8, 2017
The Honorable Bill Posey
U.S. House of Representatives Washington, DC 20515
Dear Representative Posey:
Thank you for your letter regarding the Foreign Account Tax Compliance Act (FATCA). As you are aware, Congress passed FATCA legislation in 2010 to strengthen the integrity of the U.S. voluntary tax compliance system and to combat the use of foreign financial accounts and foreign entities to facilitate tax evasion. FATCA provides the IRS with information about U.S. taxpayers’ use of foreign financial accounts and certain higher-risk foreign entities, so that these foreign accounts and investments are subject to disclosure to the IRS, similar to the disclosures for accounts and investments held or made inside the United States that the IRS already receives.
Between 2010 and 2012, the Treasury Department and the IRS issued a series of notices and other published guidance setting forth proposed rules under the FATCA statutes and, after extensive engagement with stakeholders, issued final regulations in 2013 that phased in the implementation of the new information reporting regime. Additional FATCA guidance has subsequently been issued to respond to stakeholder comments and to coordinate the information reporting regime with preexisting information and withholding tax regimes under the Internal Revenue Code. Concurrent with the work on developing the FATCA regulations, the intergovernmental agreement (IGA) approach was developed in collaboration with other governments as an alternative way to implement the information reporting objectives of FATCA that would remove legal impediments under local law and reduce administrative burdens for foreign financial institutions where appropriate. Congress has authorized the exchange of tax information with foreign governments pursuant to bilateral executive agreements, and information regarding financial accounts is relevant to tax administration.
The Treasury Department has identified FATCA as a potential area for regulatory burden reduction pursuant to Executive Order 13777. The Treasury Department and the IRS are engaged with taxpayers and other constituents regarding ways to reduce unnecessary burdens from FATCA compliance. In this regard, we have recently provided relief to financial institutions by providing them additional time to collect taxpayer identification numbers to be included in reporting under FATCA and the IGAs.
The Treasury Department and the IRS will continue to work closely with all interested
stakeholders to implement FATCA in a manner that appropriately balances the compliance objectives of the statute with the burdens that it imposes.
We appreciate your continued attention to FATCA and look forward to working with you as these discussions continue. If you have additional questions, please contact Bradley Bailey, Office of Legislative Affairs, at (202) 622-1900.
Sincerely,
Drew Maloney
Assistant Secretary for Legislative Affairs
One would think a member of Congress would be important enough to receive a response from Secretary Mnuchin himself.
For your convenience in determining the value of Treasury’s letter, the original letter from Rep. Posey follows.
*****
September 29, 2017
The Honorable Steven Mnuchin
Secretary of the U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW Washington, DC 20220
Dear Secretary Mnuchin,
I am writing to you regarding the Foreign Account Tax Compliance Act (FATCA) [26. U.S.C. § 1471-1474; 26 U.S.C. § 6038D]. As discussed below, FATCA is an invasive, costly failure that I strongly suggest must be repealed at the soonest possible opportunity, hopefully in the context of tax reform enacted this year. In addition, the means adopted during the tenures of your predecessors Jack Lew and Timothy Geithner to implement FATCA via a series of legally dubious and constitutionally infirm non-treaty agreements with other countries must not be allowed to stand. I ask your assistance in assuring that FATCA repeal is part of any relevant legislation, and that the Treasury Department takes prompt action to cease the implementation of FATCA via Intergovernmental Agreements (IGAs).
FATCA’s proponents claim that it is simply a “transparency” measure – similar to a domestic 1099 – to ensure greater tax compliance for assets held offshore. This characterization is misplaced. Domestic tax law requires reporting of taxable events, such as income (a W-2 Wage and Tax Statement) or bank interest (a 1 099-INT). U.S. law, based on a presumption of innocence, does not generally require inquiry into asset principle unless there is reason to suspect wrong-doing. By contrast, FATCA requires wholesale reporting of Americans’ assets and transaction history absent any such suspicion, solely because the asset is held outside the United States. This is despite the fact that the IRS’s own Taxpayer Advocate Service reports that “the vast majority” of Americans residing abroad “actually appear to be substantially more compliant than a comparable portion of the overall U.S. taxpayer population.”
Despite such an invasion of privacy, FATCA has failed in its stated purpose of recovering revenue lost to offshore tax evasion. Last year the Internal Revenue Service (IRS) credited FATCA for “collecting” $10 billion from “taxpayers coming back into compliance, ,2 but that figure conflates genuine tax revenues with penalties for filing deficiencies and recoveries from all offshore enforcement programs, not just FATCA. In the estimate of Professor William H. Byrnes of Texas A&M University School of Law, the real net tax recovery of FATCA alone is about $200 million annually and may be only half of that. Professor Byrnes projects that FATCA may “soon cost more money than it brings in.”‘ Indeed, his view may actually be overly optimistic in light of the IRS’s commendable enforcement standard of recovering seven dollars for every dollar spent.4
By contrast, because of the IRS’s need to try to discern indicators of evasion within a sea of indiscriminate personal information belonging to non-evaders, W. Gavin Ekins of the nonpartisan Tax Foundation suggests that, under FATCA, finding “a dollar of tax evasion may cost us $5 of actually sifting through the data and compliance costs.”5 FATCA’s unsatisfactory ratio of return must also be weighed against the impact on taxpayers saddled with burdensome reporting paperwork. The Tax Foundation estimated in 2016 that these requirements cost individuals nearly four and half million hours and more than $165 million,6 an amount comparable to FATCA’s likely proceeds. This does not even take into count the massive compliance costs imposed 011 financial institutions.
The above summarizes the good and sufficient reasons why FATCA must be repealed and enforcement dollars spent on more effective programs to detect and punish actual tax evasion. While your support for that effort will be appreciated, it is a task primarily of Congress. But I now turn to a matter almost entirely within your purview, on which I ask your prompt and decisive action. This relates to IGAs invented by the Department in consultation with five European governments for the purpose of enforcing FATCA.
While the IGAs read like treaties and have the effect of treaties in purporting to create mutual obligations between sovereign states they are not submitted to the United States Senate for that body’s advice and consent to their ratification, though the non-U.S. “partner” country is required to do so under its necessary internal procedures for entry into force. In July 2013, I wrote7 to Secretary Lew with a specific request for the statutory authority for the IGAs. The Department responded, after a delay of nearly a year, with the following statutory justification: 8
“The United States relies, among other things, on the following authorities to enter into and implement the IGAs: 22 USC Section 2656; Internal Revenue Code Sections 1471, 1474(f), 6011, and 6103(k)(4) and Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B (Information Concerning Transactions with Other Persons).”
None of the sections cited above confers on the Treasury Department any authority for making agreements with foreign governments for the furnishing of private financial information. In particular, there is nothing in the cited sections that allows the Department to promise (under the so-called “Model 1″ IGA) on behalf of the United States FATCA-”equivalent” reporting to foreign tax services of private information obtained from domestic American financial institutions. Following through with this unauthorized promise would impose on American banks, credit unions, insurance companies, and other institutions crushing compliance costs of the magnitude already suffered by foreign institutions – costs that would inevitably be passed on to American consumers.
The IGAs represent a prime example of the kind of executive overreach that unfortunately typified the previous administration. I ask you to rein in this abuse by ceasing the negotiation of new IGAs and freezing the implementation of existing ones. This action should include a freeze on enforcement of FATCA regulations on taxpayers and financial institutions. Further, I ask that you notify IGA jurisdictions that these dubious pseudo-treaties are under legal review and that their nullification or abrogation from the U.S. side can be expected pending FATCA’s anticipated repeal.
Nothing in the foregoing should be construed in any way as being “soft” on tax evasion. Quite to the contrary, in addition to its other flaws FATCA is a distraction and a diversion of resources from effective tax enforcement based on standard investigatory techniques. As a member of the Financial Services Committee I look forward to working with the Department on measures to ensure effective tax enforcement that targets the guilty, without penalizing the innocent or
compromising our cherished American constitutional and legal norms. In the meantime, FATCA and the IGAs must go.
Thank you for your assistance on this critical matter.
Service, 2016 Annual Report to Congress, Vol. 1; “FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA): The IRS’s Approach to International Tax Administration Unnecessarily Burdens Impacted Parties, Wastes Resources, and Fails to Protect Taxpayer Rights,” page 221; See:https://taxpayeradvocate.irs.gov/Media/Default/Documents/2016-ARC/ARC16 Volumel MSP 16 FATCA.pdf
2 IRS press release, “Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance,” Oct. 21, 2016; See: https://www.irs.gov/newsroom/offshore-voluntarv-comphance-efforts-top-10-billion-more-than-100000-taxpayers-come-back-into-compliance
3 “Background and Current Status of FATCA” Texas A&M University School of Law Legal Studies Research Paper No. 17-31, pages 1-34, 35; See: https://paers.ssrn.com/soI3/papers.cfm?abstract id=2926 119
4 IRS press release, “National Taxpayer Advocate Delivers Annual Report to Congress; Focuses on Tax Reform, IRS Funding and Identity Theft,” Jan. 9, 2013; See: https://www.irs.gov/newsroom/national-taxpayer-aclvocate-delivers-2012-annual-report-to-congress
5 “Why Americans are giving up citizenship in record numbers,” Washington Post, June 1; 2016: See:
6 Tax Foundation, “The Compliance Costs of IRS Regulations,” June 15, 2016; See: https://taxfoundation.org/compliance-costs-irs-regulations/
7 See: http://www.repealfatca.com/downloads/Posev letter to Sec. Lew July 1, 2013.pdf
8 See: http://federaltaxcrimes.blogspot.com/2014/07/irs-letter-to-congressman-defending-its.html
For a definitive section-by-section demolition of the Department’s response, see Professor Allison Christians, McGill University Faculty of Law, “IRS claims statutory authority for FATCA agreements where no such authority exists,” http://taxpol.blogspot.com.au/2014/07/irs-claims-statutory-authority-for.html
People might want to listed to the podcast which includes it’s share of Canada bashing.
http://review.chicagobooth.edu/economics/2018/article/obama-wanted-corporate-tax-cut-too
The woman on the podcast sounds downright fascist.
I am on three non-profit boards. The bylaws of all three have been re-written so that signing officers cannot be American citizens, dual or otherwise.
Seems wise.
My question is: how does collecting information on foreign accounts benefit America? What can they do with all the information? Because the guy in the letter mentions this.
Evidence in tax cases against US taxpayers with unreported non-US accounts, presumably.
@plaxy
Exactly what I said to Congressman Posey’s Legislative Director, – just in case they need to build a case against you.
Turns probable cause on its head.
In her words, “we have a keen interest in pealing back the meta-data collection going on at the IRS. Addressing the data collection will be one of our priorities, and I think there are some good opportunities to get some relief on this issue.”
I hope so, because if lawmakers can’t do it, no one can.
BB – yes, it’s like a John Doe summons. A paper “Background and Current Status of FATCA” (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2926119) describes how the IRS started by asking the courts to approve John Doe summonses on credit card providers, back in the early noughties. FATCA’s the same thing only without the need for a summons.
Nearly every country in the world is doing it so it’s probably here to stay. Getting the OECD to agree a standard definition of tax-residence really seems to me to be the only possible change that would solve this problem globally.
I’m a bit sceptical about whether the IRS does anything with same-country reports; analytics seems beyond their competence. Corruptly selling the data to those who know all about analytics would be easy though.
“if lawmakers can’t do it, no one can.”
The State Department will see you right, for a price. Waiting around hoping US politicians will come to the rescue is in my view a waste of good living time.
@plaxy you are so right about US politicians and even Judicial action as so many of the Congressman went for judicial cases like Senator Paul Rand. The size of compliance industry giving donations to legislative branch to address this isssue is the biggest issue here. The compliance industry pays a lot of donations to find willing people to threaten them outright and make their money on compliance cost as I discovered by so many people going through this process. The best option is to renounce quickly asap as many tax attorneys I talked to are getting their second passport and residencies in different jurisdictions. Mark Nestmann is a resident of Panama and would retire in Panama after his work is over. Please read his emails and take everything seriously as he states on his subscription. The greatest threat to you and your asetts whatever you have left is the US govt with its ruthless power to get people even living overseas with its laws. Yes i am not living in canada but I realise the impact even in HK as Chinese dual nationals , Mideast dual nationals are all running in frenzy towards renouncing this type of slavery imposed on its citizens the world over. I am sorry to bring you a bleak world but look at the top post of this forum what they are saying is absolutely thr truth of what I am seeing on ground in HK, Singapore, Mideast countries like Saudi Arabia too. Years ago an attorney friend told me this threat and I wish had not complied and renounced too. He was correct of course. If you have children living or visiting the US just be aware.
To all, same country exception does not matter at the moment as for US govt all accounts hold by a country other than US are tax reportable to US and this is what it is really after. Trying to make money on everything to feed their tremendous bankrupted machine and you are the fodder. As I understand from all the reports and different emails passport revocation is under full swing and all dual nationals are now hiding. For those who are in compliance please think carefully like the blogger Patricia did and renounce before they hit you on the door out. Patricia I commend you for making this forum available for all to realise this threat years ago but some of us became fodder anyways and now realise the impact of compliance as you are never too sure about the US govt.
“The greatest threat to you and your asetts whatever you have left is the US govt with its ruthless power to get people even living overseas with its laws. ”
The US government doesn’t have any ruthless power to get people living overseas with its tax laws. If you live outside the US, and your life is centred in your country of residence:
1 – don’t write to the US every year detailing your income and offering to pay US tax;
2 – renounce your US citizenship.
@plaxy You are right but some of us complied who are under threat now. I have my grown children living in USA who enjoy whatever they are getting in USA but now realise the impact of govt power to me by them.
You have my sympathy. It’s hard when you have family there and are torn between two countries.
@plaxy if you don’t have any children or any connection to USA then you should not care too much but if you have any children moving back to USA then be aware of these laws that impact them too. I am realizing the impacts day by day. I don’t know the impact on Canada though. I understand they have treaties btw Canada and US that would not impact the dual Canadians US but for some of us dual citizens who don’t have Canadian citizenship we are in bigger bind as we live in HK. In Hong Kong, all banks are scared of US passport even if you have dual tri nationality and resident in HK. This is released by newspaper in HK. I read that many mideastern clients of Phil Hodges’s were panicked too and renouncing US citizenship in droves as most of them can’t take dual citizenship due to their country’s law of having one citizenship and they wanted to travel to USA without the visa hassle and millionaires wanting to come to USA and spend their money are now panicked and renouncing their dreams shattered as their banks and brokerage accounts are asking them to either renounce or loose their accounts (closed) as the banks and brokerages don’t wish to comply with the ruinous Penalties of US laws. I showed my HK banker a copy of tax return with the bank account of his bank on there listed on FBAR as he wanted to close my account as per his compliance team and he told me we would freeze my account in HK if we get any word from IRS to send us the money to our US branch in USA. I was shocked and closed my account immediately as this was the first time I heard such a thing and this was in 2014 four years ago. Now I am reading that banks all over the world have signed on it. I am complying but banks and brokers don’t want my second citizenship as they call it the world’s most toxic passport. Unfortunately IRS and treasury is not making easy for them too. Trust me it was not from an attorney or CPA but a HK banker who told me he would wire the amount to US branch office if they get any notice from IRS. I don’t know how effective was this
Harrison – the banker sounds a little hysterical. Personally I wouldn’t stay with a bank that was threatening to steal my money.
I don’t think Harrison’s banker is being any more hysterical than anyone else in Hong Kong financial circles. As I’ve detailed on
UBSIBS in the past, I have an acquaintance who works in the compliance department at one of the major Hong Kong banks. He was transferred from the business banking department, which is cutting back, to compliance, which is their fastest-growing department. He and his colleagues–none of whom wants to work in the FATCA compliance department–all feel as though, on the one hand, they have big fat targets painted on their foreheads in case they get the slightest thing wrong; and on the other hand, feel like traitors to the clients they used to serve, having to turn them in for the slightest hint of any American taint. They are all trained to be scared. I am certain that if the USA whispered to anyone at that bank, “Boo! Transfer all fund from Joe Schmoe to the IRS or we haul you into US Federal Court!”, then everyone from the CEO on down would perform somersaults on their way to the vaults to dish out the cash to the USA. It’s inhuman to all affected. I don’t blame the bankers for over-reacting.I didn’t mean UBS in my above comment. I meant IBS. Very different connotation. Moderators, please find a new WordPress template which allows us to edit our posts.
Barbara – I have limited sympathy for bankers, especially bankers who are ready to hand over a customer’s money to the IRS to save their own skins.
@plaxy with the OECD in CRS nowadays every bank wants to satisfy that you are living where you are supposed to be living which we all are. However, our good ole US CBT makes us all tax residents in USA as per the info what we have received from FATCA forms that are now with every bank in the world. Actually the banker was senior level manager of the bank who are under HK regulators to find any US citizens account and if anything found out of ordinary to report it to them. I was traveling to countries outside of HK and they all have to report to their central banks and agencies. Mind you I am not trying to scare anyone but this is what was frightening all expats wherever I went to and everyone is worried now about their banks refusing them if they are dual Chinese US nationals as their banks and brokerages are off limits to US passport holders even if dual national. India was in news on yahoo a year ago and so were all countries reporting to USA any US citizen or resident account. Everyone in India had to sign FATCA forms even if living in India and anything to do with US and so was HK, Singapore, Malaysia, Thailand etc. This is clearly done under the act of perjury not to leave any room for anyone. Years ago the attorney friend was correct as per his advice and so was Patricia Moon. I think you think Canada is an exception but let me tell you every citizen in the world had to sign those forms and no one liked these forms non citizens of USA too. Felt kind of relieved that I had complied so far with all their nightmarish forms but now feeling I should renounce like others and get out.
@Barabara you are so correct. @ Plaxy they would drag the bankers and banks to federal courts if they don’t comply and their compliance dept is very very scared of US laws and loosing their precious USD deposits in their correspondence accounts in USA. Trust me attorneys told me about that part and some banks who did not were fined heavily and that is when President Obama leashed this monstrosity on everyone of world’s citizens and banks and brokerages started throwing away US taint. Now Trump owns it and every expat in the world is now loosing the accounts or brokerage accounts being closed out due to US taint. Bankers in HK, Singapore do not want US citizens to be their clients from past 5 years as I was one of the last ones to get out .
@Barbara you are correct. They would perform some type of acrobatic act to satisfy USA as this is the single most govt that scares the bankers of every country in the world over. Many in Mideast countries, HK, Singapore, India etc have been heavily impacted as I was travelling earlier and seeing this sign up of forms in various countries and surfing the internet as people are now signing FATCA forms the world over. US govt withholds all proceeds from a bank if not complying of all their gross transactions from USD. I am sure they would be complying with US laws as I saw their compliance team in a major bank trying to work out with FATCA forms online and filling out info to send it to IRS in 2016.
Harrison – yes it’s a difficult situation and apparently more difficult for USCs living in countries with Model 2 IGAs.
“…feeling I should renounce like others and get out.”
That’s the best solution (IMO) if achievable.
“Plaxy they would drag the bankers and banks to federal courts if they don’t comply”
They tried that with Swiss bankers – three times – and failed to get a conviction. It would be interesting to see if a US Court would convict a banker from a Model 2 IGA country for refusing to embezzle customer’s accounts on behalf of the IRS.
So having read up a bit on the Model 2 IGA, I understand that banks in Model 2 countries can only report USP accounts to the IRS with the consent of the accountholder. Accountholders who don’t consent are labelled “recalcitrant.” (Whereas under a Model 1 IGA, a “recalcitrant” acc-holder is one who doesn’t provide SSN and sign perjury form.)
The banks in the Model 2 country are supposed to sign a FFI Agreement with the IRS, under which the bank agrees to withhold 30% from payments of US-source income to “recalcitrant” acc-holders.
In certain circumstances, the income subjected to withholding might include some pass-through non-US-source income (because the pass-through withholding is calculated based on the percentage of US-source pass-through payments handled by the bank, rather than being based on the percentage of US-source pass-through payments to the “recalcitrant” account. What could be fairer?
The US is entitled to require payers to withhold tax without obtaining payee consent on US-source income, and generally does so, in which case no further money should be withheld.
The US is not entitled to require non-US payers to withhold tax without obtaining payee consent on non-US-source income.
That would be an interesting test case; but unfortunately, one we’ll probably never see.
Appreciate correction if I’ve got anything wrong.
@plaxy as you stated in Model 1 countries it is the total pass through payments of US source payments by the banks that their compliance teams are worried about and that is why they don’t want US citizens as their clients anymore. I saw 4 years ago a bank compliance team having a hard time doing reports on internet about each of their clients on IRS website. The bank officers were panicked and in frezby doing all this info gathering as they personally hated it theirselves. But now maybe it’s a different story