DemsAbroad Sends FinCEN Recommendations for Updates to Foreign Financial Account Reporting

Democrats Abroad has published a submission in response to an invitation from the Financial Crimes Enforcement Network to provide comment on the introduction of the new beneficial ownership reporting requirement which was enacted in the Corporate Transparency Act of 2021 (CTA).  Congress expects the new law to form an important part of the IRS tax enforcement system cracking down on the use of foreign financial accounts in tax secrecy jurisdictions to commit financial crimes.  Democrats Abroad believes the implementation of mandatory reporting of (currently anonymous) shell companies gives us an opening to ask for foreign financial account reporting modifications to ease the burden on Americans abroad.  Click here to download our submission.

As detailed in our submission, Dems Abroad believes the implementation of the CTA gives rise to an opportunity for FinCEN to revisit the FBAR and consider adjustments that provide some relief to ordinary Americans living abroad without sacrificing law enforcement strength.  Court cases involving FBAR violations are not rare.  The foreign financial account reporting requirement is clearly instrumental in the apprehension of criminals abusing offshore financial accounts.  The perpetrators, however, are invariably citizens living inside of the U.S. rather than living abroad.

Rules guiding compliance with FBAR have not been adjusted since the law was passed in 1970.  Reasonable updates can both improve the report’s focus on bad actors and simplify compliance for Americans abroad.

PROPOSAL:  We propose the following reforms to the FBAR:

  1. Index the $10,000 reporting threshold for inflation
  2. Create a second, higher reporting threshold for Americans living abroad (IRS Substantial Presence Test)
  3. Address the duplication of reporting on FBAR and FATCA as recommended by the National Taxpayer Advocate
  4. Modify out-of-proportion penalties for non-willful failure to disclose accounts
  5. Restore the option to submit FBAR paper filings
  6. Provide for FBAR reporting in Spanish and other languages

These recommendations could be modified to exempt higher income individuals from eligibility and ensure that they enhance existing tax and law enforcement mechanisms.  They will put policy focus on bad actors while providing relief to those who have for a long time suffered unintended adverse consequences.  We are in an on-going discussion with members of Congress about these proposals.