In the notes below, our FBAR/FATCA Task Force reports in on what's happening on the Hill and in Treasury, and on changes in reporting requirements.
General FATCA Update
- Although the RNC put FATCA repeal in their 2016 platform, ex RNC Chair Priebus hasn’t made it a priority since he started work at the White House.
- We understand the Republicans who introduced FATCA repeal legislation in the last Congress - Rep Mark Meadows (R-FL) and Senator Rand Paul (R-KY) – are to reintroduce the same bill before the Easter break.
- The House Ways & Means Committee has scheduled a hearing on FATCA on April 26th. The witness list includes one Democrat (we don’t know who yet) but the rest are Republicans, including some of the appellants in the FATCA lawsuit (more below) and “super lawyer” Jim Bopp of Citizens United fame. Bopp has acted as counsel to the plaintiffs/appellants of the FATCA Lawsuit since the beginning. We are working through Congresswoman Maloney’s office to get onto the witness list.
- The FATCA Lawsuit (challenging the constitutionality of the law) is in the appeals court. Oral arguments were heard in late January. No further proceedings or rulings have been published since then. The appellants’ proceedings include no further arguments than those included in the original filings. The success of the appeal does not appear to be any better than the original suit.
- Treasury is still arranging Intergovernmental Agreements (IGAs) between the US and other countries (most recently last month with Vietnam) guiding the implementation of the law. Treasury is not behaving like they think FATCA will be repealed.
- We understand the European Union is sending a delegation to Washington to discuss the reciprocity inherent in the IGAs. Though reciprocity is an important aspect of the IGAs that remains unfulfilled, financial account reporting has the support of the governments of Europe. Those nations and the many other countries implementing both FATCA and the OECD’s financial account disclosure regime see financial account reporting as a valuable tax enforcement mechanism. Other countries are not behaving like they believe FATCA will be repealed.
- Foreign Financial Institutions keep adding FATCA compliance staff and are building compliance platforms for the OECD financial account disclosure regime using their FATCA platforms. Banks are not behaving like they think FATCA will be repealed.
Eliminating FATCA
The FATCARepeal.com (set up to raise money to fund the FATCA lawsuit) people have teamed up with the long-time FATCA critics at deVere financial advisors to form a lobby group working steadily to raise money and advocate for repeal on the Hill.
Those unable to believe a FATCA repeal bill will succeed or unwilling to wait for it are advocating for an Executive Order demanding Treasury cease its enforcement of FATCA. As noted above, FATCA does not, at this point, appear to be a White House priority.
FATCA Reform
Back in October, Congresswoman Maloney was prepared to introduce legislation implementing the Same Country Safe Harbor exception, which would exempt the accounts of Americans living abroad from FATCA disclosure by both the tax payer and Foreign Financial Institutions. We continue to urge Rep Maloney, Chair of the Americans Abroad Caucus, to introduce the bill.
Residency-based Taxation
Since the end of 2016 our colleague organisations representing Americans abroad have shifted their tax advocacy focus from FATCA to Residency-based Taxation, believing the proposal should be pushed forcefully at this time when the Congress is working to undertake comprehensive tax reform.
A couple of proposals for structuring the introduction of RBT have been drafted. Our friends at American Citizens Abroad are working on an initial model evaluation by a "scoring agency" with the ambition of producing a final RBT proposal that is revenue-neutral to the federal budget. Their further strategy is to promote the RBT proposal to other sponsors of tax reform proposals and have it embraced within their larger plan.
Depending on how long it takes to resolve health care, Congress is next expected to turn its full attention to tax reform. It is the opinion of the FBAR/FATCA TF chair (I do not speak for the rest of the TF nor for the DA Executive Committee) that tax reform is likely to fall victim to the same GOP in-fighting that is plaguing the passage of the Obamacare repeal and AHCA replacement. The Trump government’s populist ambitions for tax reform are likewise not going to mesh well with the free-market ambitions of establishment Republicans in Congress. Corporate tax reform is going to take much longer than expected. And, personal tax reform will move to the back burner – ie into the 2018 midterm election year – which will make it much harder to achieve.
Despite political conditions, Democrats Abroad continues to support Residency-based Taxation and believes the proposal that has the best model will both minimise fees and penalties for exercising the reporting exemption and be revenue neutral.
FBAR
As you may know, Americans with accounts in foreign financial institutions with a total balance across all accounts at any point during the year of $US10,000 or more need to file a FBAR (Foreign Bank and Financial Accounts Report) Form 114. This year, for the first time, the form is due for submission on 15 April, as opposed to 30 June as it has been in the past.
The form is filed with Treasury, rather than the IRS, with FinCen - the Financial Crimes Enforcement Network. (To say that it disturbs Americans abroad that we need to make this voluntary disclosure to the section of the US Treasury set up to investigate and apprehend perpetrators of financial crimes would be the understatement of the decade. But I digress.) The form is filed electronically using the BSA E-filing system, a change mandated back in 2014 (though it can be prepared online or offline and uploaded).
Many Americans living abroad know nothing of their obligation to report to the IRS the earnings they make in their country of residence. Even fewer know that they are obliged to report their financial accounts if the aggregate account balances exceed the reporting threshold. The Form 114 provides a space for new FBAR filers to make this claim. The penalties for failing to file an FBAR report can be highly punitive, as this reporting from this week notes. The taxpayer in this article filed a tax return but not a FBAR.
Americans abroad who don't file a Form 1040 may no longer feel safe hiding from the IRS "in the shadows," because their bank's FATCA filings may be used by the IRS to identify them as out of compliance with their tax filing obligations. The good news in this piece is that the IRS admits it lacks the resources to prosecute every non-compliant tax filer. Further, the article suggests that Americans in Canada may be protected because the IRS has a limited ability to collect penalties in Canada.
If you have concerns about your tax filing or reporting status we strongly recommend you find a US tax return preparer to provide advice and assistance using this directory sponsored by American Citizens Abroad. Non-filers should discuss with their advisor the Streamline Voluntary Disclosure Program set up by the IRS for those who have not filed due to ignorance of the law.
Double Taxation
Many areas of the tax code were developed without due consideration for the impact they would have on Americans residing abroad. The Taxation sub-section of section I: Issues Affecting Americans Abroad of the 2016 Democrats Abroad Platform itemises the problem areas and our recommended reforms.
The Democrats Abroad 2017 Global Meeting will feature a Congressional Door Knock during which our delegation will present our taxation and other reform recommendations on Capitol Hill. The Door Knock Committee will be preparing a “leave-behind pack” of briefing documents that summarise our issues and reform recommendations. These documents will be posted on our site as well under Take Action/Stuff to Share.