The Foreign Account Tax Compliance Act (FATCA) imposed a worldwide financial disclosure information regime on every financial institution in the world, it is an international nightmare.
There are several major problems with FATCA which are widely discussed and debated.
FATCA was passed into law in Y 2010 on the unsubstantiated (intentionally fraudulent) claim that each year the US loses an estimated $100-B in tax revenue due to offshore tax abuse.
When enacted, FATCA was projected to raise some $870-M annually leaving a $99-B shortfall.
The revenue raised by FATCA was not ever intended to close the tax gap. Its focus was on getting foreign financial institutions to disclose their US account holders.
The revenue received by the US comprises little by way of tax, but mostly from the extraordinarily high penalties imposed for failing to file the correct information disclosures.
Compared to the total budget of the United States, the money collected from the total of tax and penalties are statistically insignificant.
The US Treasury is having significant difficulties in administering an extremely complex tax code, hampered by an out of date computer system, under-trained personal, overburdened by responsibilities which include both FATCA and Barack Obamacare, all while being underfunded.
The financial institutions, both in the United States and around the world, are suffering staggering overhead compliance costs in the billions of dollars with no end in sight.
A new massive and expensive industry have arisen to provide all the FATCA necessary compliance services.
The difficulties experienced are exacerbated since effectively none of the compliance expenditures generate any income and become a hindrance to getting customers. For a financial institution, it is a financial and administrative “Horror Show”.
As you may expect, the FATCA service providers and tax bureaucracies are among its most enthusiastic supporters of this draconian and worthless law.
Because of FATCA, US persons are unwelcome as customers not only with financial institutions but other businesses. With about 9-M Americans living abroad, this has resulted into their being trapped in a traumatic situation. The greatest concern is the complete loss of financial privacy.
FATCA treats everyone holding a financial account anywhere in the world as a US tax evader unless the account holder can prove otherwise.
Read: For anyone owning a financial account, the Fourth Amendment doesn’t exist.
The government no longer needs probable cause or any cause to require the account holder to give to the government every year even the smallest financial details.
Under FATCA, privacy is dead.
Failure to inform the government can subject the account holder, and the financial institution, to potential civil or even criminal penalties even if no tax is involved.
FATCA is about the government obtaining private financial information on everybody. Tax is really an afterthought.
While the Internal Revenue (IRS) continues to cope with the burdens of administering FATCA as best it can, the fate of the law is being questioned by the Congressional Subcommittee on Government Operations.
On 26 April, the Subcommittee held a hearing “Reviewing the Unintended Consequences of the Foreign Account Tax Compliance Act” to examine the effects of FATCA on the US and international economy, and potential legislative remedies.
Senator Rand Paul, (R-KY), appeared as a witness. He had sued with 5 expats claiming that FATCA constitutes an unconstitutional breach of privacy and an illegal treaty. To give emphasis to his position, Senator Paul has held up the Senate giving consent to any tax treaties.
The US Treasury claims that the FATCA Intergovernmental Agreements (IGAs) are not treaties requiring Senate approval. Senator Rand Paul says that they are treaties.
In April, US Rep. Mark Meadows, (R-NC), and Sen. Paul, proposed House Resolution 2054 and Senate Bill 869, respectively. These bills are directed to repealing FATCA.
The Republican Party Platform in the Y 2016 federal election put forward the position that the Republicans are for repealing FATCA because of its breach of privacy and unconstitutionality.
The GOP-controlled Congress has yet to act.
If the Republicans decide to fulfill their campaign promises, then it likely will be contained in the coming tax-reform legislation.
There are an estimated 8 to 9-M Americans who live outside of the United States.
In a recent survey by Greenback Expat Tax Services shows that just over 4 out of 10 respondents did not rule out “canning” their US citizenship.
This is largely because Americans abroad must file a FATCA report if one has a bank account outside the US that has over $10,000 in it.
Note: getting tax information is not as easy as the already complicated 1099 Form in the US is and if you do not file your FBAR you face violation fees of up to $10,000.
If you knowingly disregard the requirement, you could pay as much as $100,000 in penalties or 50% of what the balance in your account is.
Americans’ giving up their citizenship is up sharply
The US Treasury reports that, in Y 2016, a record number of 5,411 people renounced their citizenship or long-term residence, up from the 4,249 in Y 2015.
Have a terrific week.