Wednesday, August 8, 2012

The Unintended Consequences Of FATCA And The Bank Secrecy Act

How To Make The Government Listen To The Plight Of Americans Abroad And Recent Immigrants To The United States- What Works; What Doesnt

One of the hottest issues in tax compliance today is how to make the U.S. government address the unintended consequences of the IRS’s relatively new emphasis on FBAR compliance under the Bank Secrecy Act, and FATCA for Americans abroad and recent immigrants to the United States. There is a rising ground swell of protest throughout the world among Americans abroad who have no real economic connection to the United States who have established permanent roots in foreign countries and believe there must be some mistake if the U.S. government intends to lump them together with stateside tax cheats who are using offshore accounts to hide their money.

Recent immigrants who are simply happy to be here and consider themselves to be the luckiest people on earth having attained US citizenship, are now terrorized at the thought that the U.S. government may have set a trap for them by not telling them at their naturalization ceremonies that any family money they may have left back home is now subject to annual reporting, penalties, and worse once FATCA kicks in as their banks in India and England are scrambling to get on the FATCA band wagon and report all suspected Americans to the IRS for having bank accounts in a foreign country.

Web-based rabble rousers in some locations are whipping up a frenzy of suspicion and alarm by claiming the U.S. government has purposefully targeted Americans abroad for special abuse when the truth is, there is absolutely no support in the legislative history of FATCA or the Bank Secrecy Act for the proposition that Congress or Treasury ever thought about Americans abroad when the legislation was passed. In fact, it was the furthest thing from anyone’s mind when these two laws were enacted. 

It is now becoming obvious to good-willed people at the IRS and on Capitol Hill, that the requirement to file FBAR's was never intended to apply to Americans abroad with little or no economic connection to the U.S. and the once popular but now despised offshore voluntary disclosure programs are nothing short of a malicious compliance slow torture requiring thousands of people to spend a small fortune on lawyers and accountants just to prove that tax avoidance was the furthest thing from their minds in the conduct of their financial affairs.

All that said, the democratic process still works as organizations such as Americans Citizens Abroad and Democrats Abroad work within the system by letter writing, appearances at IRS hearings, communication with the IRS National Taxpayer Advocate, meetings with key Congressional staff and members, and crafting well-reasoned, respectful and well-researched papers which are appearing on web sites, blogs and elsewhere to get the message out: tax compliance is enhanced when the people see tax administration as fair, responsive, and proportionate. I for one believe the IRS, for all its muscle-bound faults, is run by people who genuinely believe this is the way to run the organization.

Undermining this whole process is a rabidly strident internet group which claims to speak for Americans abroad which is doing nothing but damaging the tax justice movement for Americans abroad by promoting misinformation and irrational fears by the use of race baiting, hyperbolic screeds, and plain mean-spiritedness. We are told that Americans citizens in droves are flocking to renounce their citizenship when the record shows that 576 ten thousandths of one percent of the US population of 310,500,000 renounced their citizenship in 2011. We hear from self-anointed leaders who apparently are experts on God, natural law, the Fifth Amendment, and the IRS that any minute now, the United States is going to collapse economically and as a last gasp effort to save itself, is about to attack and annex Canada so that the IRS can get its hands on all the tax protestors and other tax cheaters up there and teach them a thing or two about flaunting their tax obligations.

We are told that FATCA is nothing more than another iteration of American hegemony which is being resisted by governments and bankers all over the world who are about to rise up in protest. The reality is the international banking community is falling all over itself to invest billions of dollars to reinvent its computer infrastructure as dozens of European and other governments scramble to get on the FATCA bandwagon to help create an international banking data base which they can’t wait to get their hands on.

Why bother to spend any time at all on this message? The answer is we all need to stand up to the bullies of the world and in this age of instant information sharing, expose crack pots and those who hate this country and wish us ill for what they are.

Some years ago, Congress passed a law which said that the IRS could no longer refer to certain crack pots as "tax protestors." This was met with howls of laughter among the IRS rank and file who quickly came up with other code words for the people I am describing here: whack jobs, wing nuts, kooks and weirdos. Back at the IRS when we used to get letters and screeds about natural law, the unconstitutionality of the Internal Revenue Code, and comparisons of the IRS to the Gestapo, we used to howl with laughter before we placed them in a circular file on the floor where they were kept until the end of the day before they were hauled off to a huge trash dumpster in the basement of the building.

The tax justice movement for recent immigrants and Americans abroad is alive and well in spite of the efforts of those who seek to malign and tear down this country, its government and citizens. People of good will cannot remain silent in the face of crass bigotry and small mindedness.


  1. Steven: If Congress truly didn't intend to catch citizens and former citizens living abroad through their FATCA nightmare, the solution is simple. Stop it now.

    For whatever reason, Congress and IRS are intent on proceeding full steam ahead to invade the lives of people who have had no connection to US for years or, as in my case, even decades. Some (i.e. children of people born in US) have never had a US connection.

    As usual, US thinks only its laws matter and that the laws and constitutions of other independent nations can simply be stomped on to meet goals of United States of Arrogance.

    In terms of other websites, I recently took off my uniform and put down my sword on one of them. Some may think I am a deserter. I consider myself a conscientious objector to some of the comments and tone there.

    However, I don't think reverting to name calling as you have done here is helpful either. It just fuels the flames and does nothing to stop the attack of the US on the laws and constitutions of other independent nations and on the financial lives of so-called "US persons" who have the audacity to choose to live somewhere else.

    1. If US persons want to have any hope in improving the current situation, then they must attempt to work together even with the various differences. Everyone is going to get offended with some comments and some tone. I sure have, just like many others. Yet, the main objective is working together regardless of the differences to achieve progress. It's the size of the group which makes the most noise, not the whistles of the individual.

    2. ExpatAmi: Very well-said. All in all, there are certain rules of common decency in human discourse which set boundaries as to what is OK to say and what is not. Most people learn that from their parents. Some just don’t get it.

  2. Another point Steven. Why do you call those in IRS and Washington "good willed?" You're joking right?

    How can this financial attack of Congress and IRS outside US borders ever be considered "good willed"?

    Do you know what this has done to people's lives?!? Marriages are strained or are breaking down, careers have been destroyed, sleep has been lost, health has been damaged, family savings have been drained for accountants, lawyers and IRS. Plus, banks accounts have been closed or banks are refusing to open them.

    Do you truly consider that "good will"?!?

    1. I would guess that most IRS staff consists of "good willed" individuals who don't want to cause anyone any harm, but are being pressured by America's political inability to look beyond its borders to act in a manner which causes more harm than good.

    2. Hi Blaze: Your message is loud and clear. All I can say after working for the government for 30 years is that the IRS is not a monolith. I have first-hand knowledge and information that there are people of good will who work there who want to do the right thing and be fair and honest with taxpayers.

  3. I neglected to mention the most important point. In some cases, even suicide has been contemplated.

    So much for "good will."

  4. I'll make three points the first and the third you will like and the second you probably won't.

    1. I think it is very important for someone in government in a position of power to standup say their are real legitimate concerns about these laws and pledge to reach sometype of acceptable conclusion even if that will not happen overnight. I think H.R.6262 introduced by Carolyn Maloney is a good first step and hopefully can get additional co-sponsors(I have attempted to do my part specifically on this point). Where I have a concern is the odds of this legislation passing this year I feel are slim and thus by next year when the problem gets even worse we will need even more drastic action by Congress.

    2. I'll point out with FATCA two things that appear to be forgotten one is the Canadian govt. has never called for it to be repealed and the Secretary of the Treasury has a huge degree of discretion as to implement the law. Now what you probally won't like me saying is I believe as political matter the Parliament of Canada would have a hard time approving the current draft IGA and if did I believe it would subject to court challenge(the Constitutional issues are complex but I am pretty confident of my analysis and will write another post describing them if needed). I am sure there are many Washington that would see it as horribly unfair and an interference in US affairs for Canada not to approve a FATCA IGA or the Supreme Court of Canada to throw it out however, perhaps the current Treasury Secretary or his successor needs to start thinking more about using their expansive authority to implement the law in order to get approval in Ottawa even if some in the Treasury Tax Policy Office or IRS National Office don't like it. Remember the US is ALREADY getting much of the data it would receive under FATCA on "US Residents" from Canada Revenue.

    3. All this talk about Canada and the US having some "big fight" is baloney. Both countries in many areas are cooperting on an unprecedented level in areas like border security, product safety, and food inspection. I can't see other agencies in DC such as Customs and Border Protection being eager for the Treasury to get into a big a fight over FATCA with Canada when they are trying to increase cooperation with Canada to the benefit of the United States. It will be interesting to see how this departmental tug of war plays.

    4. I didn't intend to make a fourth comment but I think its an important one. Whenever the next Treasury secretary goes through the Senate confirmation process(I taking at face value the public comments of the current one that he is leaving in January no matter) they need to be put on the hot seat as to how THEY will use their extensive powers under the Bank Secrecy Act, FATCA, and the tax code in general to help make the system fairer. They need to forced to take personal responsbility for the issue and not pin it off on some underling. One thing that has to be given more thought is how exactly to go about this process of exerting pressure on the next Treasury Secretary.

    1. Tim: Good solid points. There is no doubt that the fallout from FATCA is certain to be a lot of litigation on many different levels. Cooperating and participating foreign banks are going to be sued by other foreign nonparticipating “correspondence” banks. There will be class action law suits in countries like Canada trying to force their governments to refuse to cooperate with the United States and disclose their personal financial information. Individuals in foreign countries will be suing their banks over the disclosure of their personal banking records to the United States. The list goes on and on.

      As far as the next Secretary of the Treasury is concerned, that poor man or woman is going to be pulled in many different directions. The Treasury Secretary serves many different constituencies not all of which are after the same goals: the public which wants transparency and fairness, the White House which has its own political agenda, the IRS which has to administer the law and Capitol Hill where individual Congressmen and Senators want to advance their own personal agendas and careers. I wouldn’t get my hopes up about trying to have any input on who gets the job or how responsive that person will be to your specific issues.

      There is one powerful overriding force here which must be kept in mind: the governments which are scrambling to conclude their own separate FATCA deals with the United States are in favor of this. Their own separate career bureaucrats want an international banking data base. They are not rushing to conclude their own deals just to be nice to the U.S. government. There is a great benefit to them as they desperately try to make their own tax and revenue systems more efficient and profitable.

      As for the banks, take a look at the number of international conferences, web sites, job postings and interest groups which are appearing all over the world. There may be a few voices in the wilderness crying foul but the FATCA train has left the station and the banking community sees FATCA as nothing more than a chance to improve their bottom lines and satisfy their shareholders and their own constituencies.

    2. I think one big problem is that since the big tax re-organization in 1998 International tax issues are largely seen as something affecting only big corporations and wealthy individuals. Thus it is very hard for the average joe to have a lot of influence over these areas. I don't know how to change this. Do you reverse the 1998 reorganization of the IRS and re-open offices all over the world to deal with international tax issues. I have to say I think this is fairly unlikely.

      I would also say for big banks, big corporations, big bank shareholders, and wealthy inviduals in general the incentive structure is far more tilted in terms of going along with the current policy than trying to get into a big fight over it. From the standpoint of someone say with 100 Million dollars living in Canada who didn't realize they were a US citizen something like the OVDI 2012 might still seem like a pretty good deal(That might still be stretching things a little to far maybe OVDI with opt-out) given the alternative of getting a big legal fight with their bank in Canada and/or never travelling to the US again. Someone without a lot of money and with little to lose on the otherhand might take in their "mind" a more "principled" stand.

      One group of the banking community that does I suspect have some real legal issues going forward are the "fidiciary" type institutions such as pension funds, insurance etc. where historically there have very strong statuatory guidelines as to how the should conducts their operations(In same cases the pension "benefit" lets say is specifically legislated by law). Thus at least from my contacts in the financial industry many Pension fund responsible officers are very reluctant to sign an FFI agreement that includes provisions dealing with recalcitrant account holders(in the case of a pension fund "pensioners") and/or passthru witholding. Pension fund administrators for example cannot be protected by liability insurance and in many countries the US included there are criminal penalties for fund administrators violating their fiduciary duty. A lot of the goal of the FATCA IGA's is to get these institutions off the hook to speak by exempting them under the terms of the IGA.

  5. Steven, I absolutely agree that we must stand up to the bullies. Where we part ways, I suspect, is that I see what the US is doing with their outdated citizenship-based taxation and resulting FBAR and FATCA as bullying. The first letter I ever wrote to my government was exactly on this point - the Canadian government must stand up for its citizens against the bullying of a foreign government.

    I think it should also be noted that the groundswell of protest is not only from Americans abroad, but those of us who thought they had parted ways with the United States decades ago and who resent deeply (and that's really too mild a word) the attempt of the US/IRS to claw them back into US citizenship in order to
    a) invade their privacy
    b) invade their spouses privacy (joint accounts)
    c) invade the privacy of any business or charity where they have signing authority on financial accounts
    d) force them to spend thousands on specialized tax preparation and
    e) to allow the IRS to impose simply ridiculous penalties.

    There thousand, possibly hundreds of thousands of Canadians who are living in fear of what is coming at them - fear that they will be ruined financially, that they will be destitute in their senior years, fear that they'll lose their house.

    I don't know how the people behind all of this mess actually manage to live with themselves.

    1. Outragedcanadian: I had hoped to capture your sentiments in my Tax Justice article and I think your voice is being heard in Washington. Also, despite my realistic, if not cynical view of which way the wind is blowing here, I still firmly believe that there is hope in getting the IRS to see that the problems you point to are all unintended consequences of the Bank Secrecy Act and FATCA. The issues you raise were never considered by Treasury people or the Congressional staff who really write the laws. Congressmen can bluster and posture but the real work in Washington is done by staffers, many of whom are career people on whom the elected officials rely from everything to finding the rest rooms to knowing what to say and what position to take on a given issue. The IRS has the power right now to do the right thing. I have been writing about this for months. A simple Revenue Procedure outlining those situations with a low risk of compliance abuse would make this problem go away for millions of people. The problem is democracy is a great thing but democratic governments don’t act quickly. I for one have faith that this issue can be favorably resolved.

    2. Hi Steve, I do know you've raised the issues, and I do very much appreciate it. It is just very, very difficult to be patient when what I want to do is scream and shout and kick things because of the outrage I feel. I'm so angry that this has stolen my life. I should be out walking in the beautiful weather, but no, here I am, inside, on the computer again, commenting again about this. It's become an obsession, and that's not going to go away until and unless something is done. I hope you continue to press and plead and write about this injustice, and that someone actually listens. You just can't know how much I hope someone will actually listen! Getting out of this mess would be like winning the lottery (in Canada, where it's NOT taxed!)

    3. outragedcanadian: I'm just as mad as you are, maybe even more so. I've been denied by three banks the possibilty to refinance the mortgage of my home that I've had for the past 20 years just because I'm an American citizen, or as they put it a "U.S. person".

      Steve: I hate to say it but I'm just as upset about this whole situaution as the man shown on a video at a different site that had Enlish subtitles. What I personally picked up from that video was a person who is very upset and is letting it all out. I didn't relate to his reason for being upset, but it was his anger that I was able to relate to, but my reason for anger is very different. I think you all know what I'm talking about.

      For some reason the preview shows me as Anonymous, but I go by UncleTell

    4. Uncletell, I can't tell you how badly I feel for you. It will definitely cause me more sleepless nights knowing what has happened to you, and knowing that it could very well happen to me when mine comes due next year. I'm very very afraid that I will lose my house.

  6. Steven,

    It seems a trifle odd "speaking" with you here on your blog rather at IBS. But I suppose that's just the way it is. At any rate and in spite of it all, please realise that so many of us who are caught up in this vicious tax whirlpool have (or appear to have) so few advocates on our behalf and you must always remember that we are very thankful for all you have done and continue to do for us.

    It's been nearly a year now since this horror crashed into our very ordinary lives and in that time our nerves are far beyond the fraying point. Whether the IRS realises it or not, the damage they have caused to our hearts and minds has severely, perhaps irrevocably altered the way in which we view the land of our birth.

    By far most of us don't want to storm the gates, overthrow the system, or even defy the rules, unjust and unfair as some of them are. We want to be treated with decency, with respect and with understanding that this debacle is hardly and soley our fault and that most of us are simply trying to comply. Is the fact that the United States finds itself in dire financial straits enough justification to shakedown the American residents and dual-citizens of its own allies?............ Will

  7. This might have been a good article but you have marred what might have been a good article with rhetoric. You have also minimized the issue.

    You pick out "Recent immigrants ... having attained US citizenship...". That completely neglects anyone who has moved to the US under a green card, H1, H4, L1, L2 or any other work visa. US tax law paints with an unbelievably broad brush. Anyone who has moved to the US for perhaps as little as just a few months on a temporary work visa must now fear for accounts left in their home country.

    Later on "It is now becoming obvious to good-willed people at the IRS and on Capitol Hill, that the requirement to file FBAR's was never intended to apply to Americans abroad..." If that is really so, then why has it not been stopped? Why has nobody at treasury or the IRS publicly declared this to be the case? Is it because the good-willed people are outnumber by those of lesser moral fiber?

    Finally, I'm certain that there are any number of "crack-pots" who offer all sorts of baseless and specious arguments why certain rules should not apply to them. This does not mean, though, that the converse is true. Not everyone who thinks the IRS behaves poorly is paranoid or delusional. Yet you glibly dismiss every criticism of FATCA as if it were just another tax protester argument. This is your blind spot. FATCA is doing massive damage daily to the US's reputation, and if anything is happening to stop that it is not "in spite of" but solely BECAUSE of the the folk you so glibly dismiss in this article.


    "'We are living war out there' regarding tax deals"

    Two teenage children of a Swiss asset manager were held and questioned by the U.S. authorities at an American airport back in May about their father’s work in the USA. Earlier this year, it was revealed that Swiss banks had given data about their own employees to American authorities investigating tax evasion.

    1. Here is an article about TV interviews in Switzerland with bank employees and a lawyer who has sued the Swiss government for their complicity in the sharing of employee information:

      It is my understanding that the complaint was refused by the Swiss attorney general and that an appeal was lodged in court.

  9. Two further observations, if I may.

    Firstly, you excuse the current situation by noting that government works slowly. The implication is that they will sooner or later "fix" things. However, government does not always work slowly. Both HEART and FATCA were passed in a matter of days, with NO effective congressional discussion of either. So they can work quickly when they believe it is in their interest to do so. Conversely, FBAR is now some four decades old, yet if, as you claim, it wasn't intended to apply to expats, wouldn't even the slowest operating congress have got round to changing that by now?

    And secondly, you criticize other sites for drawing hyperbolic comparisons. That's true, they do, though you should realize that the sentiment behind the statements is I'm afraid genuine. Remember that those of us not in the US are subjected daily to equally hyperbolic statements in the other direction. Here's one of your own, from your previous post. It's just as "rabidly strident" as the ones you dislike elsewhere, and demonstrably false:

    "America is the only country on the planet from which no one is trying to escape and so many are trying to get in."

  10. True US patriot - and champion of those living abroad.

    September 3, 2012
    "Andy Sundberg: A Patriot Abroad
    By Daniel Warner
    Andy Sundberg passed away on August 30 of complications following surgery. He was a graduate of the U.S. Naval Academy, a Rhodes Scholar at Oxford University and served as a naval officer on combat ships before moving to Geneva in 1968 where he worked as a business consultant for major corporations and international organizations throughout the world.
    .......He was a founder of American Citizens Abroad, and fought tirelessly for improving the situation of Americans overseas. He served as the worldwide chairman of Democrats Abroad, was a member of the Democratic National Committee, and, while living in Geneva, was on the staff of a member of the House of Representatives. In 1988, he ran as a presidential candidate in the overseas Democratic Party primary election. He was also active in the Liberal International association."........

    The report that Andy helped organize and produce, that is being mailed today, is below:

    The Americans in Switzerland
    Town Hall Meeting Working Group

    5 Rue Liotard,
    1202 Geneva, Switzerland

    Honorable Congressperson / Senator
    U.S. House of Representatives/U.S. Senate

    Dear Member of Congress,

    On behalf of your constituents living overseas, as well as those living in theUnited States, we are writing to ask for your urgently needed assistance.

    Earlier this year a group of American citizens and organizations based in Switzerland carried out a series of well-attended “Town Hall Meetings” (in Geneva, Bern, Lausanne, Basel and Zurich) to discuss U.S. Government policies and actions specifically affecting the several million U.S. citizens who live abroad. We are writing to call your attention to the attached report, which we think you will find interesting and hope you will find persuasive....

    Key Problems Identified and Discussed

    The most urgent motivation for these recent Town Hall Meetings here in Switzerland has been the unintended consequences and the deplorable collateral damage caused by the US government’s recent FATCA legislation, and other laws and regulations that are discussed in the attached report. We hope you and your staff will take a few minutes to read this document because it has major implications for all of your constituents, at home and abroad.

    Recent measures aimed at finding holders of undeclared foreign bank accounts, the vast majority of whom are not resident abroad but living in the U.S., have been applied in such a manner that has made ordinary life very difficult for average, law-abiding American citizens who live and work overseas. Banks are refusing to have clients who are U.S. citizens, employers are refusing to consider U.S. citizens for jobs having signatory authority over company accounts, and individuals are facing problems investing in U.S. securities. These and other unforeseen problems are growing and creating significant damage to U.S.interests and are becoming ever more commonplace.

    Tragically, bi-national marriages are now also coming under increasing stress because of the reluctance of the non-American partner, who is neither a citizen nor a resident of the U.S., to share joint account information with the IRS. Young “accidental Americans” adults, who were born in the United States to non-American parents, or whose parents gave them citizenship at birth abroad, but who have never lived in the U.S., are discovering that they too are obliged to file income tax returns with the IRS on their worldwide income.

    Sadly, a rising number of individuals confronting these mounting problems are concluding that the heart-wrenching option of citizenship renunciation is the least bad option open to them. A disproportionate number of those who are renouncing their U.S. citizenship are currently living here in Switzerland.

    The heart of the problem is the U.S. government’s unique policy of “citizenship-based taxation”.......


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