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
“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”
Not Model 1. The Model 1 IGA only requires banks to report accounts to the local tax agency – the tax agency that has the right to tax income earned by the account.
Article here explains the Model 2 withholding in some detail:
“FATCA Withholding in A Model 2 Jurisdiction”
http://www.allenovery.com/publications/en-gb/Pages/FATCA-Withholding-in-A-Model-2-Jurisdiction.aspx
@plaxy. What are interest paying accounts paying these days. All over the world except very few places are paying interest as interest is very low and sometimes negative interest in places like Germany where you get charged interest even for keeping an account. It’s not about interest as IRS is fully aware interest is quite low all over the world it’s just reporting and penalties for not declaring they want to get people for by US. Even if you have less than 10k usd central banks all over the world are interested in getting info about to report to IRS . However it’s just collecting data to charge penalties as debt on over 10k for even one day of accumulated accounts that US wants to charge penalties. The idea is to collect as much penalties as they can get out by having a local bank account in a place where you are resident at. Basically it’s nothing but making sure their debt is filled up as now China has stopped buying US treasury notes and reducing their reserve of treasury notes and they want to come up with some type of revenue to oil their lamps. I know Canada is not collecting this penalty from several statements made here but apparently US govt is when you cross the border and apply for a US passport as evident from Virginia the attorney’s webpage this week. I am glad I complied with their nonsense but now I too am renouncing soon. As every one around me is seriously thinking of cutting ties with US completely
@Harrison
But the US cannot *collect* these penalties, unless (a) the victim has US assets or income, or (b) the victim voluntarily pays them. Otherwise the IRS is out of luck, there are generally very few provisions for them to collect penalties outside the US, as they cannot simply take the money directly from non-US banks (one notable example being tax – not FBAR – penalties owed by US citizens in Canada who do not have Canadian citizenship, for which the Canadian government will assist with collection).
@Nonanymous agreed already before. But if you pass your wealth to your US spouse or your children or mother or anyone for that matter they can collect it from them by charging gift tax or penalties on their accounts in USA or force it from them. This is what I read from several blogs. It means leave your children from inheriting any money from you which is somewhat disheartening and does not make any sense whatsoever.
“It’s not about interest”
No it’s not about interest – it’s about who has a right to the information. The G5 weren’t willing to concede that right to the US. Quite right.
@Harrison
Potentially a problem leaving/giving money to US resident or US tax compliant family members, yes. But if they are not US residents – and even better, dual citizens – then no reason for them to declare anything or give the IRS a share of the money.
@Nononymous not everyone specially when you are young wants to leave US. For my children it’s the best there is even for Canadians who live in USA as youths and that is what the US govt counts on to get money from those living there while the parents move away. For me US was never the land of opportunity as mine was inheritance from a non US parent that I went to a compliance condor with and got into this mess of reporting it.
@plaxy
“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.”
Easier said than done. I am stuck at Number 2 due to the prohibitive cost; it is a great deal of money for those of us on modest incomes. Although I fall under the relinquishment category, I believe I still need to undergo the same process…
Duality – yes, relinquishing now costs the same as renouncing, $2350. Indeed it’s a lot of money. It could get worse though. They’re just so unpredictable.
@plaxy. US laws are getting worst day by day. It was easy in 2009-2014 but first they had fees when they were none before and then they increased the costs prohibitively as my attorney friend had suggested to get out a long time ago as it would get worst and worst day by day. The cost of preparation every year is more than my total tax. Wish I had renounced too as it is now very bad as it requires 2 interviews six months apart as I was told by the consulate here. I had seen people giving up in long lines in 2010 all over the world including HK as this law was announced. Secondly there is a problem always in leaving anything to a US resident as none of my children are interested in leaving US for now. They realise too that there would be no RBT ever f they live outside the US as other countries. They want to pay taxes in a country where they live but not to country of citizenship. Why ? If you are using the services of a country you live at that is where you pay your taxes to get better services not to a country you don’t live at.
@Harrison
I am not sure where you are situated, but it is possible to renounce in other consulates quite quickly and some with one appointment. You could make a brief vacation of it it as others have done. Depending on where you are, you can try Iceland, Mexico, Amsterdam, Luxembourg, etc, just email a bunch and see what’s on offer. Like Plaxy, I enjoyed the experience much more than my naturalization, which I was always in two minds about!
“there is a problem always in leaving anything to a US resident as none of my children are interested in leaving US for now.”
In the end it’s up to your children where they want to live. You can’t save them from their residence-country’s tax laws.
” If you are using the services of a country you live at that is where you pay your taxes to get better services not to a country you don’t live at.”
It’s not logic but logistics that makes taxes collectable. The country of residence can enforce tax collection because they can get hold of the taxpayer and/or the income; the country of citizenship generally can’t, except when it’s also the residence country (when they can get hold of the taxpayer) or the source country (when they can get hold of the money).
FATCA is the problem. If moving to a Model 1 country is a feasible and acceptable option, that might make your FATCA situation less onerous.
Heidi – yes, good advice.
To play devil’s advocate, Either doing nothing or simply filing simplified (sanitized for their convenience) yearly data are viable options for some people. Some tax preparers and tax situations are fairly cheap, though not free. And DIY is possible, though I haven’t done it recently.
Imagine someone who truly wants nothing more to do with the US to the point that they are willing to renounce. In most cases this person will not have signature authority over a business account, or other such significant potential trouble. They can bank and give the bank their US taxpayer info. Or not. And file. Or not. Chances are nothing will happen. Imagine that person is 50 or 60 or 70 years old, no US assets. Probably not worth doing anything, right?
Fred(B) – “Imagine someone who truly wants nothing more to do with the US to the point that they are willing to renounce….Probably not worth doing anything, right?”
Surely that’s when it’s most worth renouncing, if it can be managed. That’s poor value, to stay shackled for life to a country you’re not attached to, that brands you as a tax cheat, if you can scrape up the fee to get them off your shoes for good.
Fred(B) – “Imagine someone who truly wants nothing more to do with the US to the point that they are willing to renounce….Probably not worth doing anything, right?”
And what happens when that person dies, and his estate is identified as a US person estate ( as more and more executors are becoming aware) and all that entails ?
@Heidi. HK embassy has two not one appointment months apart. I did not know you could go to other countries to give up your US citizenship as most of them don’t take non residents of the country you are giving up at. It’s interesting? Do you know which country has one only to go there and give it up for good. I am fed up as brokerages and banks are not accepting my toxic passport anymore. If you have this as one of your passports you are not welcomed to bank here or brokerage account here. We are sick of your country’s penalties on us on every little compliances we have to put up with or risk penalties. The congressman are not listening. Court is not listening what can a person do. As I remember seeing this on some website in 2010 that if you have US as one of your passport then pleae surrender it right away and it was sound advice as I discovered this blog too.
Plaxy & Heidi: true, of course.
Heidi: what happens if Joe has lived in Canada all his life, as a Canadian, but has a US birthplace. No US finances, but a nice house in Toronto. Do you mean the estate’s executors will have to contact the IRS?
There was a discussion about this somewhere here a while back. I don’t know where it is.
@Harrison
Many of us have gone to other Embassies/Consulates. I think you can find a list somewhere here on Brock.
I believe Iceland had one appointment, also Amsterdam. London had one by phone, then a follow up in person. Luxembourg had two but two days apart. You should email the ones that would be possible for you and see what they could offer.
Everywhere I am now seeing two appointments not one and at least six months between first and second appointment. It used to be one now they are all doing two. Trying their best for not letting you go. Form of slavery what a country.
@Fred
I am no lawyer but I see two considerations.
1 It is the executors job to see that all taxes and claims have been paid on the estate before it is distributed, an identified deceased US person could complicate matters.
2.If any of the inheritors are US persons then a US gift tax form 352O will have to be filed with the IRS with the risk of subsequent questions.
@Harrison
That’s unbelievable, do we have any recent reports anyone!
Try Luxembourg, it’s a little known place, easy to get to by air, train and you can even park for free outside!
US CBT and the difficulty of renouncing is a very clear form of slavery as far as I’m concerned.
And yes, these numbers are starting to look a little embarrassing and I’m sure the US government is not going to be making it easier to renounce any time soon.
Now it’s clear that those hanging on hoping for reform were wasting their time, watcha betting that the embassies phones have been red hot?
@Heidi I don’t know about Luxembourg but I did some searches on google. Most of the places who had one appointment previously are now doing two six months apart a chance to think over for your slarvery card which defines you as a toxic citizen everywhere. Let me check Luxembourg and get back to you. Yes giving to your children in USA can be taxed for any unknown reasons they could get your children with and the biggest nightmare faced by your children too now would be to open up an account anywhere in the world with their toxic passport giving them the same problem as you had.