TaxConnections


 
 

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A recent decision by the Supreme Court further evidences that FATCA likely will not be repealed or amended any time soon.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.

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.

Appeal To Supreme Court

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.

The case was then appealed to the Supreme Court for one last attempt to bring down FATCA via the U.S. judicial system. On April 2, 2018, the U.S. Supreme Court refused to review the decision of the Sixth Circuit Court. As such, the decision dismissing the lawsuit against FATCA is now final.

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.

Have questions? Contact Ephraim Moss.

 

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.

One thought on “Supreme Court Decision Further Confirms FATCA Is Here To Stay

  1. Avatar Nononymous says:

    The fight against FATCA will continue outside the US. Lawsuits in Canada and the EU are moving forward, based on discrimination against dual citizens. (A Canadian citizen born in the US should not be treated differently than a Canadian citizen born in Canada, if both are Canadian residents.) There may be relief for dual citizens that would not be available to USC-only expats, unfortunately.

    In reality, FATCA causes problems with access to banking services in some countries, but not others, for anyone with a US citizenship, particularly birthplace. (Swiss banks are terrible; Canadian banks barely ask and rarely validate the answer, so it’s easy to sidestep FATCA reporting by not disclosing any US connection.)

    More importantly, the US has very limited collection powers outside its own borders. A dual citizen with no US financial ties is totally protected from any attempt by the IRS to collect taxes or penalties. For these individuals, the risk of FATCA identification is no reason to become compliant or voluntarily pay money to the US government.

Comments are closed.

Meet Tax Experts At TaxConnections...