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Archive for FATCA

FATCA Historical (R)evolution:  The War On U.S. Criminals With Foreign Bank Accounts; A Subsidiary Of The Wars On Everything Else (Part II) Updated

FATCA has been used primarily as a tool to increase foreign bank and financial account reporting by establishing a worldwide-financial-industry informant system.  The tool of FATCA has increased reporting, but nearly all the money collected is FBAR penalty revenue, which disproportionately harms benign actors.

In FACTA Historical (R)evolution Part I, I argued that in light of JCTX-5-10,[1] Congress failed to engage in the due-diligence necessary to reasonably relate FATCA to the collection of tax revenue lost through “tax schemes” and “tax evasion” by U.S. persons with foreign financial institution accounts.  The U.S. Congress is a legislative fact-finder charged with determining whether evidence as presented negates a legislative policy-purpose.  If the policy underlying a piece of legislation is negated, then the purpose of the legislation is no longer tied to the policy-purpose.  In this case, JCTX-5-10 offered a direct answer to the question of how much revenue would be generated by FATCA.  Therefore, Congress knew FATCA would collect less than one-half of one-percent of what it was supposed to collect.[2]  Congress also knew that even after ten-years, FATCA would fail to pay for HIRE.  Bluntly, the stated policy-purpose for FATCA could not be achieved by FATCA.  So, why was it enacted and why does it remain the law?  FATCA has been used primarily as a tool to increase foreign bank and financial account reporting by establishing a worldwide-financial-industry informant system designed to curtail the use of secret foreign bank accounts for illegal purposes, including tax evasion, securities manipulation, insider trading, evasion of Federal Reserve margin limitations, storing and laundering funds from illegal activities, and acquiring control of U.S. industries without detection by the SEC.[3]

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FATCA Historical (R)Evolution: Legislative History Reveals That FATCA Had Little To Do With Collecting Tax Revenue From U.S. Persons Evading Tax Through Offshore Bank Accounts (Part I)

Prior to the enactment of FATCA, Congress and the Executive were in possession of concrete-evidence revealing FATCA would fail to collect any meaningful amount of tax-revenue from U.S. persons evading tax through offshore financial center holdings.  Congress should have halted enactment of HIRE – if in fact, FATCA’s purpose was to collect tax-revenue from offshore tax evasion by U.S. persons.

The United States Congress used estimates from the Joint Committee on Taxation (JCT) as the foundation for supporting the Foreign Account Tax Compliance Act (FATCA), contained in the Hiring Incentives to Restore Employment Act (HIRE).

HIRE was a tax expenditure designed to encourage U.S. small business to hire new employees.  HIRE included two tax expenditures of note: a payroll tax exemption to employers and a one-thousand dollar tax credit for employers hiring employees between February of 2010 and January of 2011.[1]  FATCA was included in HIRE because the tax revenue collected from FATCA was supposed to offset the tax expenditures authorized by HIRE.[2]  The tax revenue FATCA was said to be targeting was from U.S. persons with foreign bank accounts who were evading tax.

In July of 2008, and around the time of the UBS scandal and the Global Financial Crisis the U.S. Senate Permanent Subcommittee on Investigations held a hearing and issued a report entitled “Tax Haven Banks and U.S. Tax Compliance”.[3]  The underlying justification for FATCA as a substantial revenue raiser rested on a single statement found in a footnote in the 2008 hearing report:  “Each year, the United States loses an estimated $100B in tax revenue due to offshore tax abuses.”[4]  In a 2009 follow-up report, the Ways and Means’ Subcommittee on Select Revenue Measures held a hearing entitled:  Banking Secrecy Practices and Wealthy Americans.  During this hearing, the Senate increased the U.S. tax revenue loss-estimate by 50 percent stating: “Contributing to the annual tax gap are offshore tax schemes responsible for lost tax revenues totaling an estimated $150B each year.”[5]  The estimates entered into the record during these hearings measured the offshore tax gap, or the amount of tax revenue[6] that would be collected if offshore tax evasion by U.S. persons holding foreign bank accounts was ended.  One month, before HIRE was signed into law by President Obama, new evidence revealed the offshore tax gap was nowhere near as large as previously thought.

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IRS Rules: FATCA Reporting For U.S. Taxpayers

IRS, U.S. Citizens Reporting Foreign Assets, TaxConnections

The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to combat tax evasion by U.S. persons holding accounts and other financial assets offshore. The Treasury Department and the IRS continue to develop guidance concerning FATCA. For current and more in-depth information, please visit FATCA.

Under FATCA, certain U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. There are serious penalties for not reporting these financial assets (as described below). This FATCA requirement is in addition to the long-standing requirement to report foreign financial accounts on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly TD F 90-22.1).

FATCA will also require certain foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The reporting institutions will include not only banks, but also other financial institutions, such as investment entities, brokers, and certain insurance companies. Some non-financial foreign entities will also have to report certain of their U.S. owners.

Therefore, if you set up a new account with a foreign financial institution, it may ask you for information about your citizenship. FATCA provides special (and lessened) reporting requirements about the U.S. account holders of certain financial institutions that do not solicit business outside their country of organization and that mainly service account holders resident within it. In order to qualify for this favorable treatment, however, the local foreign financial institution cannot discriminate by declining to open or maintain accounts for U.S. citizens who reside in the country where it is organized.

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Supreme Court Decision Further Confirms FATCA Is Here To Stay

One of the key pieces of legislation used by the U.S. government in its effort to combat tax evasion abroad is the Foreign Account Tax Compliance Act (FATCA). To the surprise of many, FATCA remained completely untouched by Trump’s sweeping tax reform passed late last year.

A recent decision by the Supreme Court further evidences that FATCA likely will not be repealed or amended any time soon. Last month, a legal challenge to FATCA was thwarted when the United States Supreme Court refused to review the Sixth Circuit Court’s decision affirming a lower court ruling which dismissed the case brought against FATCA.

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Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets

IRS, FATCA, OVDP, FBAR, Department Of Justice, U.S. Tax, Undisclosed Foreign Financial Assets, Tom Kerester, Tax Ambassador, Tax Blog, Washington D.C., USA, TaxConnections

The implementation of FATCA and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments.  Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

  1. Offshore Voluntary Disclosure Program;
    Note: The Offshore Voluntary Disclosure Program (OVDP) is closing. Refer to the OVDP FAQs for an outline of the sunset provisions.
  2. Streamlined Filing Compliance Procedures;
  3. Delinquent FBAR submission procedures; and
  4. Delinquent international information return submission procedures.

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What US Expats Who Receive Form W-9 from a Foreign Bank Should Do

Hugo Lesser, Tax Advisor

Over the last few years, millions of US expats have been asked by their foreign banks and investment firms to fill out IRS form W-9. Receiving form W-9 often causes surprise or alarm. While there’s no need to panic, there are a number of things that expats should know if they receive form W-9, to ensure that they don’t create any problems in the future. Read more

Filing IRS Back Taxes for US Expat Americans

Hugo Lesser, Tax Advisor
American expats are still required to file a US federal tax return to the IRS. As expats also have to comply with the tax rules in the country where they live, it’s counterintuitive but nonetheless important that they file US taxes too.
Taxing US citizens abroad, or Citizenship (rather than Residence) Based Taxation, dates back to the Civil War, but until recently the IRS was powerless to enforce expat taxes, so few expats filed.

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deVere Group CEO Demands ‘Firm Action’ from Secretary Mnuchin on FATCA

William Byrnes, Tax Advisor

The CEO of one of the world’s largest independent financial services organizations has co-written an assertive open letter to the U.S. Treasury Secretary to demand the Trump administration scrap the Foreign Account Tax Compliance Act.

Nigel Green, together with Jim Jatras, his co-leader of the Campaign to Repeal FATCA, have sent the five-page letter to the Honorable Steve Mnuchin as, after a year in office, nothing has been done to abandon the “worst law most Americans have never heard of.” This despite promises in the election campaign that, should they win, the Republicans would “call for repeal” of FATCA.

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What US Expats Can Learn From the Paul Manafort Indictment

Hugo Lesser, Tax Advisor

President Trump’s former campaign manager Paul Manafort, along with his associate Richard Gates, were indicted last week, with a long list of criminal charges filed against them.

The charges include engaging in conspiracies against the United States and to launder money, making false statements, acting as an unregistered foreign agent, and failing to report foreign bank and financial accounts.

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What Can We Learn From Paul Manafort’s Tax Problems?

Clinton Donnelly, Tax Advisor

What will the IRS do with Paul Manafort if the special prosecutor’s allegations are true? On October 30, 2017, the special prosecutor released an indictment against Paul Manafort, former campaign manager for President Trump, related to his actions as an unregistered agent of the Ukraine government. The prosecutors allege that Manafort had opened 16 foreign companies and conspired to money launder over $18 million of payment through these companies.

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IRS’ Information Reporting Program Advisory Committee Issues Annual Report Recommending FATCA Delays

William Byrnes, Tax Advisor

The Information Reporting Program Advisory Committee (IRPAC) has issued its annual report for 2017, including numerous recommendations to the Internal Revenue Service on new and continuing issues in tax administration. The report includes a discussion on how to improve some processes, such as for penalties, abatement requests and levies, as well as business master file entity addresses. The report also recommended enhancements to Form W-9 and the truncation of Social Security numbers on Form W-2, IRC § 6050S and Form 1098-T reporting.

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Testimony: Green Card Holder Victim Of FATCA After Failing To Return Expired Card

John Richardson, Tax Advisor

To anyone who doesn’t really understand the fear and frustration of FATCA and the insanity of the US tax system:

I am not and never have been American. I don’t live in the USA and I have no financial connections to the USA.

However, many years ago I got a green card when I married an American. We lived in the so-called, Land of the “Free”, until we decided to move permanently to my home country to care for my elderly parents.

A year or so after my return to my home country my green card expired, became null and void, but I didn’t know I was supposed to return it to USCIS along with an I-407 form. (Green cards don’t come with a set of disposal instructions.) Years later when I found out about this I searched for days to find that old green card and then I sent it away. It was received (according to the mail trace) but never officially acknowledged and there were no replies to my follow-up inquiries.

This left me trapped in a perpetual state of deemed US “personhood” which comes with onerous US tax filing and now highly intrusive FATCA reporting too. The threatened penalties for not filing FBAR (FinCEN114) forms are staggering. They would exceed my life savings (mostly a modest inheritance from my non-American parents). If I lose my life savings to the IRS I could end up on welfare and that would not be fair to taxpayers here in my home country.

What did I take from the USA when I left? I took savings of less than $5K and a gain of less than $75K from the sale of the house we built with our own labour and paid for entirely from the savings I brought with me from my home country (no mortgage on that house). All of this was reported to the IRS and taxed appropriately.

What do I get from the USA? Absolutely nothing – NO right to return to the USA to live or work; NO US Social Security because I have never had US income; NO rescue by US marines in a disaster; NO US vote; NO representation in the US Congress; and since I haven’t visited the USA in almost 20 years (and never will again), NO benefit from the USA’s infrastructure. I do not want any of those things anyway.

What do I want from the USA? I want to be left alone so that I can lead a normal life without the stigma of being called a “US person for tax purposes” (and ONLY tax purposes).

What’s the biggest irony of my whole situation? Well, my husband is no longer American since he recently relinquished his US citizenship. He now has a priceless piece of paper called a CLN (Certificate of Loss of Nationality) which means he can open and retain bank accounts here with no intrusive FATCA reporting.

Meanwhile I, who never was American, will have to live with uncertainty for the rest of my life. If my bank finds out about my past connection and failed disconnection to the USA, it will report me and my accounts to my country’s tax agency which will forward that information to the IRS. And then … well I shudder to think.

Some Americans may hate me for saying this but I have no love or respect for what the USA is doing with its irrational citizenship-based tax system and now its FATCA overreach. These same Americans might even laugh and gloat about how I became trapped as a “US person for tax purposes” but at least my husband, an upstanding citizen, has escaped the clutches of the USA. He did so with no regrets and when his CLN finally arrived he felt nothing but relief. I and my country are proud and pleased to have him. His warm and welcoming citizenship ceremony here in my, now OUR, country was one of the best days of both of our lives.

Neither of us is “un-American” but we are “non-American” and we cannot fathom why the USA will not graciously let its people go.

Anonymous

Original Statement on April 9, 2015
Submission to the United States Senate Finance Committee
International Tax

Have a question? Contact John Richardson

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