TaxConnections


 
 

Higher Court Decision Confirms – FATCA Is Here To Stay



The linchpin legislation of the U.S. government in its effort to combat tax evasion abroad over recent years has been the Foreign Account Tax Compliance Act (FATCA). Last week, the latest legal challenge to FATCA was thwarted when the United States Court of Appeals for the Sixth Circuit affirmed a lower court’s decision to dismiss the case against FATCA.

Quick FATCA Background

The main objective behind FATCA is to combat offshore tax evasion by: (1) requiring U.S. citizens, including those living abroad, to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS, and (2) requiring foreign financial institutions (“FFIs”) (which include just about every foreign bank, investment house and even some foreign insurance companies) to report to the IRS the balances in the accounts held by customers who are U.S. citizens.

If U.S. tax return filers don’t comply with the FATCA rules, they can be subject to severe penalties, and if foreign banks and other institutions don’t comply, they and their account holders can be subject to an automatic 30% withholding tax on U.S.-source payments such as interest and dividends.

FATCA’s Impact

FATCA has impacted U.S. expats in many important ways. Most importantly, it has allowed the IRS to extend its global tax reach further than ever before. Local foreign banks are requiring U.S. citizens to sign a Form W-9 or similar documentation verifying their citizenship. Mass amounts of account information are currently being sent to the IRS. It is, therefore, becoming an increasingly bad idea for non-filing U.S. expats to hide their heads in the sand.

In addition, annual IRS information reporting requirements have increased significantly with the addition of Form 8938, the so-called FATCA form which must be filed to disclose specific information about one’s foreign financial assets.

Complying with FATCA has also proved quite expensive for banks and other financial institutions, with costs relating mainly to making processes and systems compliant with the FATCA regulations. Banks that want to be viewed by the IRS as FATCA compliant must also make certifications to the IRS regarding its U.S. customers, including those who were account holders prior to starting the process of FATCA registration.

Latest FATCA Challenge

In Crawford, et al, v. Department of the Treasury, et al (CA 6, 08/18/2017), Senator Rand Paul, a Republican senator and ardent opponent of FATCA, and several individual plaintiffs, challenged aspects of both FATCA and the Foreign Bank Account Report (FBAR) requirements. The Court of Appeals cited numerous different grounds for its decision with respect to the provisions challenged by the plaintiffs. For example, it found that Senator Paul’s alleged harm due to being denied the right to vote on the FATCA rules was an insufficient injury for purposes of establishing “standing” before the court (i.e., the right to bring the lawsuit before the court).

Because the plaintiffs in the case were found to have no standing to bring the lawsuit, the case was dismissed by the lower court and affirmed in this case by the Court of Appeals. It remains to be seen whether the case will be appealed to the U.S Supreme Court.

While some members of Congress and activist citizens continue to challenge FATCA, it remains the law of the land for now and for the foreseeable future. We will continue to monitor government actions involving FATCA and provide updates to you on our blog and monthly newsletters.

Avatar

Mr. Moss is a Tax partner in a boutique U.S. tax firm specializing in the areas of international taxation and expatriate taxation. The practice focuses on servicing U.S. individuals and small business located outside the U.S. with their U.S. and international tax matters and includes both tax planning as well as annual tax compliance (tax return preparation). He has extensive experience with filing delinquent returns under the IRS Streamlined procedure, FBARs, FATCA reporting (Form 8938), reporting interests in foreign corporations (Form 5471) and partnerships (Form 8865) as well as foreign trust reporting (Form 3520 and Form 3520/A). He works very closely with clients utilizing the various international tax treaties in order to maximize benefits through smart tax planning. Previously he held a senior position in the international tax practice of Ernst & Young. He is an attorney licensed in the State of New York.

5 thoughts on “Higher Court Decision Confirms – FATCA Is Here To Stay

  1. You really need to add the words “for now” to the title of your article.

    As you are aware, Republicans Overseas (and those “activist citizens”) have made it clear that they intend to seek leave of the Supreme Court to hear the appeal.

  2. Avatar John says:

    FATCA, citizenship-based taxation, and FBAR will all eventually die for Americans living abroad. We’ve only begun to see the wrongs with this system.

  3. Avatar User says:

    Regardless of what happens with FATCA, for US citizens permanently abroad, emigrants who left long ago or dual citizens due to birth or parentage, the worst possible thing they can do is enter the US tax system. If they have no US income or assets, the IRS has no leverage and, in most countries, cannot harm them because it cannot collect fines, penalties or taxes owing. Voluntary compliance can be a big, expensive, ongoing mistake.

    In some countries FATCA presents real problems with banking access. In other countries, financial institutions do not validate the answers to citizenship questions, or ask about place of birth, so it’s very easy to avoid FATCA by not admitting to US citizenship.

  4. Avatar Buck Burgess says:

    FACTA is totally unfair to the average american living overseas. Their are better ways to catch so called ‘tax evaders’. This just screws the average person living overseas by penalizing the banks in a foreign country. The GREED of the IRS is just too much

  5. Avatar Diane says:

    FATCA hurts the many millions of honest citizens who are not wealthy and have chosen to live a life abroad for love or a job opportunity. US citizens are refused banking services in their country of residence because financial services do not want to deal with the expense and paperwork involved. People married cannot share accounts with non US spouses because the spouse does not want to have their personal information reported to a foreign government. Our financial information is entrusted to a foreign government to transmit go the US with no safeguards that the private information is secure. In the race to catch some wealthy stateside citizens who try to circumvent their taxes by using overseas accounts, FATCA and FBAR have entangled and seriously injured innocent law abiding citizens. FATCA needs to be repealed and the US to go to Residence based taxation. The US should be ashamed that they and the despotic nation of Eritrea are the only countries that practice CBT.

Comments are closed.

Meet Tax Experts At TaxConnections...