U.S. Treasury finalizes anti-tax evasion pact with Ireland

“FATCA has come under fire from Americans with foreign financial accounts because they are accustomed to secrecy”??? What a facile and propagandistic generalisation. In reality, “Americans with foreign financial accounts” comprises a broad class of people, including immigrants who have retirement plans in the old country that they can’t withdraw, and emigrants who are “accustomed” to paying their rent and buying groceries with a local bank account just like you folks in the Homeland get to do. These cases are about practicality, not secrecy.

But of course you’re not going to be able to write a neutral and well-informed report when your only sources are the IRS and the Tax Justice Network. Where are the quotes from the rest of the extremely broad spectrum of opinion on FATCA? Art Cockfeld? Jim Jatras? American Citizens Abroad?

So, Patrick, I know you are under limited resources these days at Reuters, but did you just receive two press releases and regurgitate what propaganda was put forth by Treasury without a single clarifying question? It certainly appears so.

In the first section, regarding Ireland, it might have been helpful if you explained to your readers, that this was an agreement between Treasury technocrats. It will require modification of Ireland’s privacy and human rights laws to accept the FATCA CRAM Down that America unilaterally demands without regard to their sovereignty.

It will then have to be approved by the Irish Parliament. So, hardly a done deal yet, as the article seems to imply. Of course, that is the impression Treasury wants to create. You bought the myth and passed it on. But, it isn’t that simple or iron clad a process.

On the US side, no matter how Treasury tries to characterize it, they are dictating a Tax Treaty under the guise of negotiation. The only negotiation is one of capitulation by Ireland, with allowances for some very minor exemptions in Annexes to the basic FATCA demands of Treasury. To call it ‘bi-lateral’ is a total abuse of the definition of the word!

A Treaty would normally require an “Advise and Consent” process from the Senate. However, Treasury has just unilaterally declared it an ‘Executive Agreement’, so it can by-pass Congressional due process. Will they pull it off? Maybe, if Reuter’s journalist never ask a question.

But, then again, maybe not, as this requires imposition of a domestic FATCA (DATCA)to be imposed on U.S. banks to provide some faux face saving reciprocity to Ireland. Congress did not sign up for this when they passed FATCA.

This action by Treasury, acting alone without Congressional approval, is repatriating the huge cost of FATCA compliance back onto homeland shores. It pretty much wipes out any supposed tax revenue gains this fiasco was supposed to create.

As we have recently seen, the Senate doesn’t like its sovereignty violated with UN Treaties on the disabled, and they might not like the Treasury just doing what it wants by handing over information from U.S. banks to other governments with these FATCA agreements.

In the second section of your article, on Steven Miller’s comments, you seem to just accepts at gospel his claims about the Voluntary Disclosure revenues, without a couple basic questions like:

1. How many were the Wealthy Whales you imply all of these anti tax evasion programs are about? How many were benign collateral damage expat or new immigrant Minnows who got caught up in a net not designed for them? What was the ratio of Minnows to Whales? That answer, if provided truthfully, might surprise you.

2. Of the total revenues collected, what was actually taxes due, and what portion was penalties? They used the 1970 Bank secrecy Act FBAR form, that few knew about until they pulled it off the shelf in 2009, as their penalty generating hammer of choice. What portion of $5.5 Billion was FBAR penalties? If it was a significant amount, it certainly will not be reoccurring tax revenue, now will it?

Finally, you report that Mr Miller said, “he would consider merging a taxpayer’s FATCA compliance with an older, similar statute known as the Report of Foreign Bank and Financial Accounts (FBAR)”

I would have thought a tax journalist would have immediately known that he does not have the statutory authority to do that, however a good idea it might be.

I won’t bore you with the details, but FBAR form is under administration by FINCEN. That is a different Title Statutory authority than FATCA Form which does rest with the IRS. He can modify the FATCA form, but there is nothing he can do about the FBAR on his own, no matter how good the intention.

It will be up to Congress to modify the 1970 Bank Secrecy Act, from hence the form comes. Then again, Treasury has been showing a lot of hubris recently, acting unilaterally without regard to the will of Congress, so maybe he thinks he can. However, I would caution him, that his title still includes the word “Acting” in front of “Commissioner”. :)

An aspect of FATCA that is normally not discussed is its security risk to Americans abroad. FATCA agreements require that foreign governments or banks build data bases of American citizens with non-US bank accounts. Consider that you are a US citizen living and working in Pakistan, Afghanistan, Lebanon, Somalia, etc. and now, because of FATCA, you are identified in the local bank’s electronic records as an American. A terrorist or mob group infiltrates the bank or government agency and, presto, they have a well-prepared list of Americans living in the country with personal and financial details. The Taliban, Hezbollah, al-Qaeda, al-Shabab, etc. buys the list and then begins to assassinate or extort Americans abroad using information conveniently gathered for FATCA purposes.

Michael Young, the opinion editor for Lebanon’s Daily Star, describes such a scenario in the Now Lebanon on-line newspaper today. Search on “Fatca’s security problem” to read this excellent editorial.

With a threshold at $50,000, you really have to wonder which tax evaders they’re trying to catch. The threshold is so low that it emcompasses a big percentage of Americans living abroad, who have bank accounts in their country of residence, and most IT immigrants to the US, and most indian and mexican immigrants to the US who regularly send money back home, as it is common for immigrants of these countries.

“FATCA has come under fire from Americans with foreign financial accounts because they are accustomed to secrecy.”

NO, most Americans with foreign bank accounts are americans living abroad – about 6 millions of them, as well as naturalized immigrants who did not close their home country’s accounts prior to moving to the US. FATCA has come under fire, because to avoid the 30% withholding penalty, instead of spending roughly $100 million dollars in compliance costs, foreign banks start closin US citizens accounts.
FATCA has come under fire, because to provide the name of dual citizens without any sign of wrongdoing, foreign countries have to breach their own privacy laws.
FATCA has come under fire, because the ONLY compliance options proposed by the IRS is a “voluntary” extortionist disclosure program where people basically deny their rights and have to agree to pay accountants and lawyers for 8 years of backtaxes and penalties, AND a penalty of 27.5% of the high balance of their foreign accounts in these 8 years. You can opt out, but they threaten you with even higher fines (Since you mention the FBAR in your article, the NON WILLFULL failure to file a FBAR is $10,000 per account per year, on 6 years of statute of limitations. The willfull failure is the maximum of $100,000 or 50% of the amount of the account still on 6 years).
The IRS does not differentiate between the millionaire tax evader and the immigrant/emigrant. Most US tax lawyers advise EVERYONE to enter this program, regardless of their level of “guilt”. Most accountants, up till a couple years ago did not know what an FBAR was. That is what is causing the outrage.
Even the National Taxpayer’s advocate has denounced the program as being “bait and switch” in her reports to Congress. Yet nothing has been done to provide a path to compliance for “benign actors”, especially immigrants.

There are other ways with treaties already in place to catch tax evaders, without the cost and vast extra territorial over reach of FATCA. No cost/benfit analysis have been seriously made. If you have one, please publish it.
However, the cost is coming back home… To sweeten the pill, one version of these IGAs promises reciprocity, meaning all US Financial Institutions will have to get the information about the nationality of their customers, to send it to their respective governments and maybe threaten the client to close the account if they refuse. How do you think this will fly in the US?

Maybe in a follow up article, you can talk about these other aspects.

“FATCA has come under fire from Americans with foreign financial accounts because they are accustomed to secrecy”. ARE YOU KIDDING ME??? Fatca has come under fire because there are millions of Americans living abroad with no financial connection to the United States whatsoever. Many of us were born in other countries, or moved out of the US as children. Fatca threatens our financial security and our privacy rights by passing our data on to a foreign country, the US. The US is the only country in the world that taxes based on citizenship, not residency. That means that we expats must pay tax to our resident country, and then to the US.