According to its report to Congress, the IRS says that the agency assumes that taxpayers who hold offshore accounts are thus suspected of fraudulent activity. "The National Taxpayer Advocate has previously raised a number of issues regarding implementation of the Foreign Account Tax Compliance Act (FATCA) and the IRS's international withholding and refund policies," read the report to Congress. The National Taxpayer Advocate is a division of the IRS. FATCA was signed into law by Barack Obama. FATCA has been a matter that Sen. Rand Paul (R-KY) has litigated with other clients in federal court because of alleged burdens imposed by the federal government.
FATCA seeks to forestall tax evasion by any taxpayer, according to the IRS, who have financial assets and other accounts offshore. Those having offshore assets exceeding $50,000 in value, the law demands that they confess them on their tax return.
The IRS says the IRS is 'coercive'
The National Taxpayer Advocate says individuals who have foreign assets are thus suspected of fraud. Its report read: "Lacking either statistically valid data or analytical justification, the IRS has adopted a coercive approach to international taxpayers, reflecting an assumption that all such taxpayers are suspect of fraudulent activity."
"Financial organizations face substantial record-keeping burdens and economic risks as a result of the manner in which the IRS has implemented FATCA," the report continues. "This has prompted some financial organizations and their representatives to energetically seek repeal of the legislation."
In addition, the report read: "A return by the IRS from its current withholding and enforcement orientation to its prior information gathering approach would reduce the burdens placed on FFIs and potentially minimize some of the remaining FATCA opposition."
According to the FreeBeacon website, Chris Edwards of the Cato Institute decried the assumption on the part of Congress and the IRS that Americans are guilty “just because they hold foreign financial accounts.” Edward noted that foreign accounts are necessary for international business. He said, “FATCA is a bureaucratic abomination, and should be repealed."
InternationalInvestment.net reported that IRS recently extended its July 31 deadline for foreign financial institutions to have renewed their FFI Agreements. The agency is stating that the new deadline is October 24, 2017. On that date, foreign financial institutions that want to be in compliance with FATCA, and retain an IRS Global Intermediary Identification Number, must be in compliance. Those that do not will be removed from the list of “registered and approved FFIs” maintained and updated by the IRS on its website.
FATCA became law during the Obama administration in 2010 and was intended to make certain that Americans with foreign accounts pay taxes due on them. FATCA requires foreign banks to report all accounts held by Americans to the IRS or risk the levying of a 30% withholding tax. Taxpayers who wilfully fail to file a foreign bank account report also face a penalty of 50 percent of the value of the account or $100,000 (£77,674, €85,051), whichever is greater.
Rand Paul versus IRS
In a related court case, Senator Rand Paul (R-KY) and a number of Americans living abroad were found to “lack standing” to challenge taxes on their foreign bank accounts. The suit was originally filed in July 2015, and was dismissed on Friday by a Sixth Circuit Court panel. The panel upheld an earlier ruling by a federal District Court that decided that none of the plaintiffs “alleged either an actual injury that is fairly traceable to FATCA or an imminent threat of prosecution from noncompliance with FATCA.” The inconveniences cited by the plaintiffs included marital stress, and difficulty in opening bank accounts. “At best, plaintiffs’ claimed injuries are the second-order effects of government regulation on the market for international banking services,” the decision read.
The panel sided with the Department of the Treasury, the IRS, and the Financial Crimes Enforcement Network. They argued that the lower court rightly found that the plaintiffs did not directly link their alleged injuries to FATCA, the Bank Secrecy Act, or the Report of Foreign Bank and Financial Accounts. U.S. District Judge Thomas M. Rose ruled last year that the plaintiffs’ challenge to the disclosure provisions under FATCA was unwarranted because their accounts were not private under the U.S. v. Miller decision by the Supreme Court in 1976 that found that account holders voluntarily turned over their information to the bank and have no reasonable expectation of privacy for bank records.
Judge says IRS engaged in 'unprecedented international tax enforcement'
Judge Danny Julian Boggs acknowledged in the ruling that FATCA and the proceedings required by the individual intergovernmental agreements are an “unprecedented scheme of international tax enforcement” and feature “admittedly steep” penalties.
“None of these considerations, however, help these plaintiffs at this time to clear the initial jurisdictional hurdle of standing,” Boggs wrote. “[S]everal of plaintiffs’ alleged harms arise not from [foreign financial institutions’] acting under the command of FATCA or an IGA, but rather from the [foreign financial institutions’] voluntary choice to go above and beyond FATCA and the IGAs,” the decision said.
"First, no plaintiff has alleged any actual enforcement of Fatca such as a demand for compliance with the individual-reporting requirement, the imposition of a penalty for noncompliance, or [a foreign financial institution’s] deduction of the Passthru Penalty from a payment to or from a foreign account.”
Writing for the three-judge panel, Boggs added:
“Second, no plaintiff can satisfy the Driehaus test for standing to bring a pre-enforcement challenge to Fatca because no plaintiff claims to hold enough foreign assets to be subject to the individual-reporting requirement.”
In sum, the panel decided that foreign banks’ refusal to accept American clients may indeed be related to reporting requirements on the part of FATCA, but the decision to deny Americans access to accounts is the banks’ to make and that the injury cannot be imputed to the federal government.
The appeals court, which is based in Cincinnati, also rejected Sen. Paul’s claim that he has been denied the opportunity to vote against the FATCA intergovernmental agreements (IGAs) negotiated by the Treasury Department and IRS. “Any incursion upon Senator Paul’s political power is not a concrete injury like the loss of a private right, and any diminution in the Senate’s law-making power is not particularised but is rather a generalised grievance,” Boggs wrote.
“Senator Paul has a remedy in the legislature, which is to seek repeal or amendment of Fatca itself, under the aegis of which Treasury is executing the IGAs." In April, Paul introduced a bill to repeal FATCA in April. It has been referred to the Senate Finance Committee.
The plaintiffs claimed that the intergovernmental agreements, reporting requirements, and the penalties, violate the Constitution, including the Equal Protection clause and the Fourth Amendment. The plaintiffs’ attorney, James Bopp Jr., said that his clients may seek a before the court en banc or going to the Supreme Court. "This opinion of the Sixth Circuit continues the Sixth Circuit’s very strict standing requirement that the U.S. Supreme Court just a year or so ago overturned," Bopp said.
Sen. Paul told the Sixth Circuit this year that even though the plaintiffs’ issues are indirect, they are due to government action. The Kentucky Republican said that his injury comes from his inability to vote against the intergovernmental agreements in his capacity as a senator.
Two plaintiffs in the suit claimed they renounced their American citizenship because of FATCA. The plaintiffs are represented by James Bopp Jr., Richard E. Coleson and Courtney Turner Milbank of The Bopp Law Firm PC. The case is Crawford et al. v. U.S. Department of the Treasury et al., case number 16-3539, in the U.S. Court of Appeals for the Sixth Circuit.