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Monday, December 12, 2011

Harvey: FATCA and its Potential Future

J. Richard “Dick” Harvey, Jr. (Villanova), Offshore Accounts: Insider’s Summary of FATCA and its Potential Future, 57 Vill. L. Rev. ___ (2011):

Since its signing by President Obama on March 18, 2010, the Foreign Account Tax Compliance Act (FATCA) has been criticized by many in the financial community. As one of the architects of FATCA, the purpose of this article is to: (i) describe my perception of the origins of FATCA, (ii) discuss selected issues, and finally (iii) make recommendations that may ultimately be helpful to insuring FATCA’s success in both the short and long-run.

The article is written for several audiences. The entire article should be of interest to students and academics. For tax professionals and my former colleagues in government, the recommendations in Section 4 should be of most interest.

Since 2007 the US has made significant progress in addressing offshore accounts through a combination of tools, including the threat of FATCA. FATCA was a bold, unilateral action by the US intended to ultimately provide transparency surrounding offshore accounts of US taxpayers. However, FATCA will take time to successfully implement and there will be growing pains.

The long-term success of FATCA may depend upon whether the US can convince other countries to adopt a similar system, or better yet, join with the US in developing a multilateral FATCA system. Thus, as the IRS and Treasury implement FATCA they need to focus on the long-term goal. In the short-run various compromises will need to be made to ease the initial implementation of FATCA. Some of those potential compromises are discussed in this article. In addition, a multilateral FATCA system and the related benefits are discussed.

Finally, financial institutions worldwide should seriously consider attempting to help forge an international consensus. Although financial institutions will clearly incur substantial costs from FATCA, those costs may pale in comparison to the future costs that could be incurred over the next 5 to 20 years as other countries implement their own specific systems. It would be substantially cheaper for financial institutions if there is one global standard, rather than ultimately building separate FATCA type systems for each country.

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The author is visibly defensive about the damage his legislation is causing, yet remains unapologetic, and appears either unwilling or unable to grasp the full horror of what he has created. I count eleven occurrences of some form of the word "hope" in this paper. That pitches it somewhere around wishful thinking, and certainly far from than anything rigorously thought out. Like FATCA itself, this paper is worthless trash from beginning to end.

Posted by: Anonymous | Dec 16, 2011 3:19:54 PM

This "article" is more spin and rhetoric than substance. For example, the author states the IRS has had two "very successful" offshore disclosure programs, that brought in 30,000 previous non-filers.

Current estimates suggest around 6 million US citizens reside overseas. The IRS collects around 1.5 million overseas returns. A reasonable estimate is that 50% of expats should file but don't, so current compliance is 50%. The extra 30,000 filers raises that to 51%. Under what definition can a 1% rise in compliance be described as "very successful"?

Posted by: Anon | Dec 17, 2011 1:30:11 AM

The paper does not mention the adverse effects of discouraging investment in the US and imposing additional costs on US investors, or compare those to the value of benefits believed to be derived by the US Treasury from FATCA. I suspect this is because a realistic analysis of that would show that FATCA will cost the US far more than it stands to gain. I would not object to keeping the individual US taxpayer reporting portion - and it is silly to think that all but the most wildly aggressive US taxpayers are playing games with that at this point - but the non-US FFI side of things should be repealed for the economic benefit of the US and replaced with more bilateral negotiation.

Posted by: Arthur | Jan 9, 2012 8:08:58 AM