Paul L. Caron

Tuesday, December 27, 2011

NY Times: Law to Find Tax Evaders Denounced

New York Times, Law to Find Tax Evaders Denounced:

Legislation meant to help the U.S. government locate overseas assets of American tax cheats created little stir when it was quietly slipped into a jobs bill last year. But the Foreign Account Tax Compliance Act, or Fatca, as it is known, is now causing alarm among businesses outside the United States that fear they will have to spend billions of dollars a year to meet the greatly increased reporting burdens, starting in 2013. American expatriates also say the new filing demands are daunting and overblown.

“Congress came in with a sledgehammer,” said H. David Rosenbloom, a lawyer at Caplin and Drysdale in Washington and a former international tax policy adviser for the Treasury Department. “The Fatca story is really kind of insane.”

Congress created the act after the Justice Department’s successful pursuit in 2009 of UBS that resulted in the Swiss bank — which had encouraged American citizens to set up secret offshore accounts — paying $780 million and turning over client details to avoid criminal prosecution.

The law is meant to ensure Americans cannot use hidden trusts overseas to evade taxes, a goal that is widely applauded. But critics say that it amounts to gross legislative overreach, and that the $8 billion the Treasury expects to reap in taxes owed over 10 years pales next to the costs it will impose on foreign institutions. Those entities are being asked, in effect, to pay for the cost of tracking down American tax evaders.

The law demands that virtually every financial firm outside the United States and any foreign company in which Americans are beneficial owners must register with the IRS, check existing accounts in search of Americans and annually declare their compliance. ...

The IRS, under pressure from angry and confused financial officials abroad, has extended the deadline for registration until June 30, 2013, and is struggling to provide more detailed guidance by the end of this year.

But beginning in 2012, many American expatriates — already the only developed-nation citizens subject to double taxation from their home government — must furnish the I.R.S. with detailed personal information on their overseas assets.

American Citizens Abroad, an advocacy group, estimates the new form will add three hours to tax preparation. Considering that the law provides harsh penalties for even unintentional errors, the organization says it is “simply not realistic for a vast swath of the normally law-abiding filer community unable to afford the expensive services of a professional tax adviser.” ... “The Fatca legislation treats all Americans with overseas bank accounts as criminals, even though most of them are honest, hard-working individuals who happen to be living and working or retired abroad,” said Jacqueline Bugnion, a director of American Citizens Abroad. ...

There are also questions about whether the IRS will be ready for millions of complicated new filings each year, with critics charging that Congress failed to provide the agency with the capacity to handle the coming avalanche of data. ...

Then there is a question of reciprocity: Would the United States accept the same demands for information from the tax authorities in other countries — say Russia or China?

(Hat Tip: Ann Murphy.)

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1% bad apples spoil the bunch.

look at the load of cheaters (felons if not for voluntary compliance -- had the IRS been able to catch them but for Swiss tax criminal haven-land) that came in. FATCA was a sledgehammer to slam home a needle. But that needle -- the people in the top 1% of the US income/wealth -- has so much money in it that dispropotionate force was applied.

As always, the average middle-class person gets the fuzzy end of the lollypop -- the investor, the overseas worker, etc. You guys got the raw deal on FACTA, but it really came out of the fact that the rich/weathy were hiding tons of money overseas -- money that should have been reported as income but was kept in secreat overseas banks. I hope that there will be some reform for the sake of the middle class, but seeing as there has been none this Century/Millenium, I hold out little hope for you.

Posted by: tax guy | Dec 30, 2011 6:15:56 PM

I just want to renounce and be done with it!! I DON'T have any money stuffed away in foreign accounts, but I don't like being told NO when I try to open a bank account overseas when I physically reside overseas, and have for many years! We (people born in America that carry blue passports that live abroad) are the unfortunate victims of these short-sighted laws. I've tried to find work-arounds for this, but any passport I may get will always show a birthplace, so the only possibility is to renounce. No, I can't do things in the spouse's name either because all overseas instititutions have very strict money-laundering laws in place already. It's not something that I want to do, but I'm being forced into doing it.

This is really a crying shame: very short-sighted and all about turning countries against America and former Americans into fierce criticizers of America. But this, I'm afraid is what they really want because if you look at the cost/benefit, there is no logic to this.

Posted by: geeez... | Dec 29, 2011 6:03:38 AM

There are currently tens of thousands of young Americans teaching English in China. Most of them are paid in RMB by deposit into a Chinese bank account. It sounds like the US Government is now determined to make criminals out of most of them, because you can be certain that few, if any, will either file the required forms or if they do, do so correctly.

Posted by: Doug Levene | Dec 29, 2011 5:47:30 AM

When are you guys going to get it? The current Administration DOESN'T WANT America to succeed. They HATE America as it is and think that anyone who is successful but not a "limousine liberal" should have to pay through the nose. The Dems want to be generous (translation: want to buy votes) with someone else's money, and that someone else who gets stuck with the bill tends to be white and male. That makes the Dems even happier about jacking these taxes.

They know they're hurting successful Americans--and they don't care. They're actually glad about it since it hurts people they loathe. Moreover, they'll only enforce this law against conservatives; liberals will get a pass. Don't believe that? Look at our Treasury Secretary, Turbo Tax Timmy! Look at who would have to enforce the law: "Fast and Furious" Eric Holder! Still think there is ANY interest in enforcing the law when libs break it?

Anyone who takes an objective look at the US Government should be disgusted to the point of physical revulsion. However, given that the American people were stupid enough to elect the current inhabitant of the WH and may well do it again, it's hard to say America doesn't deserve the government they have. Expect to see a lot more expatriation/citizenship renunciation in the near future from Americans who won't hang around to be robbed by US Government thieves.

Posted by: mac | Dec 28, 2011 8:36:01 PM

In the long run all this does is isolate the US more and causes foreign companies not to hire Americans. Plus any Americans wanting to set up a bank account outside of the US will more and more likely be turned down by the foreign banks not wanting to hassle with this.
Total stupidity by the US government.

The US Government should be supporting that more Americans travel and work overseas, not punishing them for doing so.

Posted by: Ben T. | Dec 28, 2011 12:40:14 PM

The end result of this is less Americans working overseas as foreign companies and foreign investors see an American as an extra cost. I know as I have a friend who is worried sick that the family he works for is moving him out, as it happened to another friend of ours after the private bankers started raising hell about all the compliance.
As for those who have little sympathy for Americans abroad, the current laws were fine to catch the UBS crowd, and this new regulatory regime is just overkill.

Posted by: Hong Kong man | Dec 28, 2011 9:58:21 AM

Please allow me to add that last year, my total tax return was 54 pages long and cost well over $1,000 to have professionally prepared. The time and money required to comply is itself a tax.

Posted by: theBuckWheat | Dec 28, 2011 9:57:29 AM

This just not apply to classic foreign institutions. US companies with foreign entities will need to appply. This is the case with probably all US managed hedge funds which have offshore funds meant mainly for foreignors and US tax exempt entities.

Posted by: D Mark | Dec 28, 2011 9:14:52 AM

As part of prudent diversifcation, I kept a portion of my retirement holdings in an advisory brokerage account in the UK. For one reason, UK companies tended to pay higher dividends. A lot of the companies that I was interested in were not available to me through any of my US accounts.

In reaction to this law, my account was summarily kicked out of two successive UK brokers. A manager at the last firm said that they were tired of putting up with the IRS agents who came to audit their client files and they could not make a business case to spend over a million pounds to implement the necessary IT support system to comply with the new law.

So, in the Land of Free, my liberty to invest where I choose and how I choose has been significantly abridged. I fully comply with the reporting requirements. Now, a nice dividend income stream has been cut off from me and from the US taxes I paid as a result. No good deed goes unpunished. The tax-grubbing Congressmen who voted for this outrage are like the monkey grabbing at the food in the jar. Now that they have their "comprehensive reporting", but not a penny more in taxes, will they repeal their offensive and outrageous law? Not on your life.

BTW, US Persons have had to report their non-US financial accounts for a number of years. They have to file Treasury Form TDF 90-22.1 annually.

If I win $10,000 in a poker game with a Japanese citizen on board a Panamanian registered cruise ship in international waters, I still somehow am required to report an pay taxes on the winnings. For this and many other reasons, why does any rational person support this tax system?

Posted by: theBuckWheat | Dec 28, 2011 8:25:43 AM

Like commenter Rick Caird, the Wikipedia article on FATCA, mentions capital controls. (Remember the trial balloons early in this Administration that government could take some or all of individuals' retirement assets in exchange for a "guaranteed" retirement income?) The article also mentions that foreign financial institutions have cancelled the brokerage accounts of US customers because of the regulatory hassle.

Similarly, many foreign companies have delisted their stocks from US exchanges: US listings are not worth the regulatory hassle that was imposed after the Internet bubble.

I don't want to get too far off topic in this tax blog, but IMO the counterproductive FATCA policy described in the post is part of a larger trend that goes beyond tax issues.

Posted by: gs | Dec 28, 2011 8:22:25 AM

FATCA affects every American working or living outside the US. Americans living and working overseas cannot now, in many instances, open bank accounts because foreign banks do not want to incur the disproportionate expense of compliance. People who think FATCA is a good idea must have never traveled beyond the county line.

Posted by: TexEcon | Dec 28, 2011 8:05:45 AM

Yet another significant sign of our nation's declining financial health and a tacit admission by our government of the dollar's falling real worth. Multiple nations already reject dollars for transactions (believing them to be increasingly worthless), while countries such as China, Brazil, Russia et al, discuss the development of a successor world reserve currency.

When confronted by an already fragile dollar, coupled with draconian rules such as this, why would any foreign entity wish to involve itself with an individual American citizen and/or U.S.-based corporation? There's far more money to be earned at far less inconvenience by banks and other institutions servicing non-Americans.

Like so much government activity today, this action vividly illustrates dramatic over-reach done at a highly questionable cost. What a tremendous shame.

Posted by: Jack L. | Dec 28, 2011 7:35:04 AM

The tax code as it relates to expatriates is phenomenally despotic and unfair. Most of us are struggling to stay in the middle class. I, for one, cannot afford to shell out an additional 1000 USD per year to comply with the US tax code. I do my best to file myself, but the complexities and poorly written 'help' material almost ensure that I will make mistakes. I find the German tax code far easier to understand and to comply with than the American one as it applies to expatriates like myself--and have not needed professional help for several years in filing my German self-employment taxes.

For artists such as myself, who have been forced by economic necessity to pursue our careers in Europe, this Soviet-like belligerence on the part of the IRS makes unwitting criminals out of many hard-working, law-abiding people, often barely above the poverty line--or not above it at all. I have no intention of renouncing my American citizenship, but the injustice of the tax laws make that option by far the most logical one from the standpoint of pure economic self-interest. More and more Americans are choosing the nuclear option. See this link from the NY Times itself (

Of course Americans abroad hail from all 51 electoral college members; our disparate nature blunts what one would ordinarily consider the power of 3 million voters. Out of sight, out of mind. Unless you can wring some more Euros out of us.

Posted by: AmericaninGermany | Dec 28, 2011 6:59:23 AM

"I have some trouble finding sympathy for this." -Mike

Gee. Double taxation and overwrought, counterproductive burdens?

I guess some people are happy slaves and unworthy descendants of the American Revolution - itself born in a patriotic tax rebellion.

Posted by: Orson | Dec 28, 2011 6:37:26 AM

Jim, you sound like a typical liberal. How about we investigate the reasons (e.g. government overreach) that wealthy Americans feel compelled to create these accounts in the first place?

Posted by: alanstorm | Dec 28, 2011 6:35:52 AM

"I have some trouble finding sympathy for this."

Of course you do. They are not coming for you. yet.

Posted by: John | Dec 28, 2011 6:15:00 AM

This is just another step in the implementation of capital controls. The US government has already tipped over the edge into insolvency and is now preparing for outright confiscation of citizen's assets. The idea here is to keep the assets in the US to make that process easier.

If the US expects to "reap" $8 billion in taxes over 10 years, that comes to about $1.25 billion a year. That is against a budget of $3.5 trillion. The additional taxes are not even a rounding error. This is absolutely not about taxes. It is about capital.

Posted by: Rick Caird | Dec 28, 2011 6:07:11 AM

In the 30 years I have lived in the US it has steadily gotten worse and worse. If I look ahead, I don't see any improvement, to say the least. Now that I am working temporarily overseas I am giving serious consideration to giving up my green card. I've already met someone who had it taken away from him after paying a number of years of overseas taxes to the US.

Posted by: gazzer | Dec 28, 2011 6:03:27 AM

He started appointing tax evaders now he is appointing racist radicals like Van Jones and Sotomayor how much more can the american people take from this incompetent socialist,

Posted by: excel training | Dec 28, 2011 4:40:01 AM

I have some trouble finding sympathy for this.

Posted by: mike livingston | Dec 27, 2011 3:41:50 PM

For the individual reporting his or her own foreign accounts, yes. But the part of FATCA that institutes rules that seek to force non-US financial institutions to enforce the US tax laws under punishment of 30% withholding on US investments is likely to result in less US investment and punitive actions by the other governments. That half of FATCA should be repealed, or we will wind up losing much more than we could gain. Those types of efforts should be left to treaty and negotiations between sovereign governments.

Posted by: Arthur | Dec 27, 2011 2:06:26 PM

Quite a number of well-to-do Americans would maintain very substantial secret foreign bank accounts. Based on the recent amnesty, it was around 1,000 in a state the population of Texas. Good reason for the new rules.

Posted by: jim harper | Dec 27, 2011 11:28:00 AM