Taxation Task Force Response to FinCEN Comments on FBAR

Below is an outline of the submission the Democrats Abroad Global Taxation Task Force submitted to FinCEN for comment on the Review of Bank Secrecy Act Regulations and Guidance. The TTF strongly encourages Americans abroad to submit their own comments, which is open for comment until February 14th. Click here to download a pdf of DA's submission to FinCEN in full

 

Democrats Abroad is pleased to submit its comments regarding FinCEN’s review of the Bank Secrecy Act Regulations and Guidelines, having approached this from a policy perspective and from the firsthand experiences of our 200,000 members. Our submission provides both a general response and answers to specific questions. 

Since the passage of the Bank Secrecy Act in the 1970s, US citizens living abroad (“non-residents”) have increasingly become  caught up in ongoing efforts against tax evasion and malicious actors. While we recognize the importance of continued efforts, we believe that substantial adjustments to the Report of Foreign Bank and Financial Accounts (FBAR) are needed to ensure that the impact to ordinary law-abiding citizens is proportional to the financial law enforcement benefits. 

Our specific recommendations, with rationale elaborated on in the responses to specific questions, are intended to help FinCEN achieve that proportionality while simultaneously improving FBAR’s effectiveness as a law enforcement tool. 

We advocate for: 

  • A one-time adjustment of FBAR reporting thresholds to $70,000, which accounts for inflation in the 50 years since FBAR’s introduction, followed by annual inflation adjustments thereafter. 
  • Either:
    • An exemption of non-residents from reporting OR
    • A significantly higher reporting threshold for non-residents on the order of $400,000
  • A partial repeal of FBAR reporting under the BSA, noting that it is highly redundant with both self-reporting provisions (IRS Form 8938) and automatically reported data (FATCA IGA data exchange). We note that this has been a recurring point of feedback from the IRS National Taxpayer Advocate for multiple years.
  • Improving the proportionality of enforcement/penalties for FBAR violations and clearly defining willful vs. non-willful recommendations. We note that this has also been a point of feedback from the IRS National Taxpayer Advocate.
  • Restoration of paper FBAR filings and improvement of e-Filing options to allow popular tax-filing software to include FBAR e-filing. 
  • Exclusion of accounts under a de minimis threshold, even when the reporting obligations are triggered based on aggregate foreign bank account balances. 
  • For non-residents, exclusion of accounts where a US Person only has signatory authority on the account but in which they have no beneficial interest. 

At the present, FBAR reporting is redundant, disproportionate to risk, and it fails to take into account the necessities of holding foreign bank accounts when residing outside of the United States. At the same time, enforcement efforts are generally disproportionate, with FinCEN exercising little discretion and often pursuing statutory-maximum penalties even for infractions deemed non-willful. This results in highly, highly, regressive penalties that disproportionately harm the middle and working class. 

Our proposals for reform are intended to reduce paperwork burdens for both the public and FinCEN, align reporting to accounts that are large enough to pose a substantial risk relating to financial crimes, and to ensure that enforcement serves a public benefit. 

We thank you for the opportunity to provide commentary and recommendations, and we encourage you to read our responses to specific questions in the annex included with our letter. 

Please contact Rebecca Lammers of our Taxation Task Force on [email protected] with any questions about the information and recommendations provided.

Sincerely,

Candice Kerestan
International Chair
Democrats Abroad
[email protected]

Rebecca Lammers
Chair, Taxation Task Force
Democrats Abroad
[email protected]