Paul L. Caron

Sunday, August 20, 2017

6th Circuit Rejects Rand Paul's Constitutional Challenge To FATCA On Standing Grounds

FATCAFollowing up on my recent posts (links below):   Crawford v. U.S. Treasury Dep’t, No. 16-03539 (6th Cir. Aug. 18, 2017) (citations omitted):

In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), a law aimed at reducing tax evasion by United States taxpayers holding funds in foreign accounts. FATCA imposes account-reporting requirements (and hefty penalties for noncompliance) on both individual taxpayers and foreign financial institutions (FFIs). FFIs are further required to deduct and withhold a "tax" equal to 30% of every payment made by the FFI to a noncompliant (or "recalcitrant") account holder. To implement FATCA worldwide, the United States Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) have concluded intergovernmental agreements (IGAs), which facilitate FFIs' disclosure of financial-account information to the United States government, with more than seventy countries. Separately from FATCA and the IGAs, the Bank Secrecy Act imposes a foreign bank account reporting (FBAR) requirement on Americans living abroad who have aggregate foreign-account balances over $10,000; willful failure to file an FBAR invites a penalty of 50% of the value of the reportable accounts or $100,000, whichever is greater.

Plaintiffs — who include Senator Rand Paul and several individuals who claim to be subject to FATCA and the FBAR — sought to enjoin the enforcement of FATCA, the IGAs, and the FBAR, and they now appeal the dismissal of their lawsuit for lack of standing. For the reasons that follow, we affirm the judgment of the district court. ...

C. No Plaintiff Has Standing as to Any Claim
1. No Plaintiff Has Standing to Challenge FATCA

[N]o Plaintiff has standing to challenge FATCA's individual-reporting requirements, the Passthru Penalty, or the FFI Penalty, because no Plaintiff has suffered direct harm that is fairly traceable to any of these challenged provisions, and because no Plaintiff has alleged sufficient facts to show a credible threat of prosecution for noncompliance with any of these challenged provisions. At best, Plaintiffs' claimed injuries are the second-order effects of government regulation on the market for international banking services. But "consequence[s] of the economics" of holding foreign assets are not, on their own, injuries in fact for the purpose of demonstrating Article III standing. Because the burden of establishing standing falls squarely on the plaintiff, and because we are constrained to examine the district-court pleadings alone to determine whether standing existed at the time the complaint was filed, we hold that no Plaintiff has standing to challenge FATCA.

2. No Plaintiff Has Standing to Challenge the IGAs

Senator Paul challenges the constitutionality of the IGAs. Senator Paul alleges harm because he "has been denied the opportunity to exercise his constitutional right as a member of the U.S. Senate to vote against the FATCA IGAs." But, as in Raines, any incursion upon Senator Paul's political power is not a concrete injury like the loss of a private right, and any diminution in the Senate's lawmaking power is not particularized but is rather a generalized grievance. Unlike in Coleman, in which the plaintiff-legislators' votes would have been sufficient to defeat the contested legislation, Senator Paul has not pleaded that his vote on its own would have been sufficient to forestall the IGAs. Rather, Senator Paul has a remedy in the legislature, which is to seek repeal or amendment of FATCA itself, under the aegis of which Treasury is executing the IGAs. Senator Paul therefore lacks legislative standing to challenge the IGAs. None of the other Plaintiffs have alleged injuries that are traceable to the IGAs. The other Plaintiffs thus also lack standing to challenge the IGAs. ...

In sum, none of the plaintiffs have standing to sue, and the district court was correct to dismiss their suit. ...


FATCA imposes far-reaching reporting obligations on individuals and financial institutions, which, like many government regulations, undoubtedly exact monetary and other costs of compliance. The IGAs, to be sure, are part of an unprecedented scheme of international tax enforcement. And the FBAR Willfulness Penalty, if it were to be imposed, is admittedly steep: it could theoretically bring a $100,000 fine for failure to report a foreign account with a balance of $10,000.01.

None of these considerations, however, help these Plaintiffs at this time to clear the initial jurisdictional hurdle of standing.

Accordingly, we AFFIRM the judgment of the district court, and we DENY as moot Defendants' motion to strike.

Prior TaxProf Blog coverage:

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The direct harm is being kicked out of a bank account you might have had for years, directly as a result of the bank not wanting to have to conform to FATCA. This is a Catch 22 and futile to prove standing. It's like voters who could never get standing to challenge Obama's qualification to run for office. At some point, people will decide they are better off to not give a crap about the law. Sadly, that point is coming very quickly.

Posted by: Concerned Citizen | Aug 21, 2017 11:55:15 AM

Total sophistry. The law's reporting requirements makes it so onerous for banks to open accounts for American expatriates that the banks won't do it. Americans can't open accounts in countries that are party to the IGA. That is the harm. Americans never even get the chance to violate FATCA.. The court is willfully blind and should be ashamed.

Posted by: mark Abrams | Aug 21, 2017 7:17:03 AM

Our most recent Repeal FATCA update w/ Solomon Yue -- Oregon RNC/Republicans Overseas committee member who helped put Repeal FATCA plank in Republican platform:

Posted by: Anthony E. Parent, Esq | Aug 21, 2017 6:58:18 AM

Haha, that's almost never stopped the Supreme Court.

Posted by: Anon | Aug 20, 2017 1:33:35 PM