Paul L. Caron

Saturday, July 13, 2013

IRS Delays Implementation of FATCA

NY Times DealBookNew York Times DealBook:  Foreign Banks Win New Delay in Tax Evasion Rule, by Lynnley Browning:

Foreign banks on Friday won yet another delay in a sweeping Treasury Department law intended to end tax evasion by Americans and will now have until next July to begin complying with the requirements, the IRS said [Notice 2013-43].

The unusually broad law, the Foreign Account Tax Compliance Act, or FATCA, requires foreign financial institutions, including banks and mutual funds, to either collect and disclose data on American clients with accounts holding at least $50,000, or to withhold 30% of the dividend, interest and other payments due those clients and to send that money to the IRS.

The latest unexpected rollback of the deadline, an extension of six months to July 1, 2014, underscores a struggle by the Treasury Department to enforce the new rules. The law was approved in 2010 amid heightened scrutiny of offshore private banking services sold to wealthy Americans, and it was originally scheduled  to go into effect last January. But in late 2012, facing heavy criticism, the government delayed its rollout until January 2014.

Foreign banks have argued that the regulation will cost too much to carry out and is too broad, particularly regarding cross-border payments on swaps and other derivatives. Many European financial trade groups have derided it as an imperialistic push by the United States to impose its own tax laws on the rest of the world. The United States taxes its citizens and residents on their worldwide income, regardless of where they live.

Kenneth Kies, a lobbyist in Washington, D.C., said that the extension “underscores what has been obvious — that this is an enormously complex and burdensome regime to deal with,” adding, “People just aren’t ready.” ...

James Hines, a corporate taxation professor at the University of Michigan, said some foreign governments were refusing to cooperate with the new rules. “It puts the Treasury in a tough position,” he said. “It’s not clear how many delays they can have before FATCA starts to get undermined.”

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Look, FATCA is just another US program that is sold as being a tax program, but in reality, it is just another step along the way to complete capital controls. The US wants your savings where they can easily confiscate them and foreign bank laws make that difficult. Ergo, make it difficult to have foreign accounts.

BTW, FATCA will not work if the US dollar loses reserve currency status.

Posted by: Rick Caird | Jul 15, 2013 4:21:47 PM

If they withhold 30% of the dividend, interest and other payments, then most of this money collected by the IRS will be withholding tax when no taxation is due because tax is owed to the foreign governments (ie double taxation). So for instance, if the IRS collects 30% and foreign governments collect 30%, then only 40% of investment returns will be available to investors, at least until filing the next tax return and getting a refund.

This is essentially larceny.

Posted by: scf | Jul 15, 2013 3:06:12 PM

After I sold a business, what I had left after taxes was my life's savings. I was told by several people that because of "political risk" it was prudent to hold a portion of that wealth in other jurisdictions. To that end I had a managed equities account at a well known UK brokerage firm. As FACTA started to gain life, that firm ejected every single client who was a US Person. I found another UK broker that was willing to accept my account. Later I found out that I was the last US person they accepted.

When the full cost of complying with FACTA became known, rather than complying this firm rapidly ejected every single client who was a US Person.

I found a Swiss stock broker ( that was willing to accept my account, and that is where what is left of my non-US funds resides today. Of course, knowing that having a Swiss account was audit bait, I have meticulously kept records and complied with reporting requirements.

The UK brokers were very good and UK firms tended to pay higher dividends where US firms would not. While Swissquote has been excellent, it is not "managed" and I am on my own. My investment performance has not been as great and that translates to lower taxes for my overlords. I, your humble serf, promise to do better in the future. Maybe some day I can even regain my freedom.

Posted by: theBuckWheat | Jul 15, 2013 7:15:46 AM

"Welcome to the new world run by the 'progressives'."

Look at the advertisements in the publications they read. Look who sits on the Boards of the universities that indoctrinate them. Notice where the campaign funding comes from and who funds the foundations that push their causes.

There one will find the true FATCAts.

Posted by: Desiderius | Jul 15, 2013 7:10:37 AM

I live in France, with all my income coming from the US, but I have noticed that transfers from the US, to pay for ordinary expenses, have been delayed for days, for no obvious reason. "Instantaneous" wire transfers take nearly a week after my US institution releases them, while "something" happens and the transfer is scrutinized.

And the reporting form that they make us all fill out every year has becomea nightmare, even for someone who just has one foreign bank account - a checking account in a local bank.

Welcome to the new world run by the "progressives". Nudging forever to make us behave the way they want us to behave...

Posted by: rxc | Jul 15, 2013 4:16:10 AM

This illustrates that the adults at Treasury are finally waking up to the fact that FATCA is the worst piece of tax legislation in the history of the I.R.C., even worse than the carryover basis fiasco of TRA 1976. It originated in a Senate subcommittee with no tax expertise, was not subject to any public hearings, has no legislative history, and is explained only in the anti-rich rantings of a Senator from a state with a declining economy. When will the adults inside the Beltway stand up and say, "FATCA is not the answer to our budget problem, it is incredibly expensive to implement, the DoJ-Tax pursuit of foreign bank accounts is working well, and US banks are going to have to reciprocate and give up information on their customers to foreign governments. Does everyone remember our tax treaties with Russia and China have an information exchange provision?" But no, I don't see any Profiles of Courage moments here, just a lot of bureaucratic muddling.

Posted by: TexEcon | Jul 14, 2013 7:50:43 PM

Yes, and this stupid FATCA harms me, an Amerikan with no foreign income but who owns a modest property in Brazil and who has struggled to open and maintain a savings account with some $2000 to deal with eventualities and expenses pertaining to the property.

Posted by: Jimbino | Jul 13, 2013 7:52:59 PM