It didn’t take long. Within 24 hours of the Republican National Committee voting to seek the repeal of FATCA, the expat blogsphere was abuzz. One popular Israeli site hailed the vote as good news for Americans living abroad. While it certainly is good news, the repeal of FATCA is far from certain and the ridiculous FBAR penalties aren’t impacted by the RNC’s vote.
If you are one of the many upset over FATCA, we are sorry to rain on your parade.
FATCA – short for the Foreign Account Tax Compliance Act – requires foreign financial institutions to review their accounts and report those with ties to the United States. The law has outraged some foreign governments (our two posts last week regarding the impact of FATCA in Canada generated 72 comments and over 25,000 page views.) It has also upset privacy advocates, foreign banks (they say the law is expensive) and American expats living abroad. One of the many unintended consequences of FATCA is that many foreign banks no longer wish to have Americans as customers.
All of this might be forgivable if FATCA put a serious dent in tax evasion. Unfortunately, many experts believe the law will cost more than it brings in. When combined with the onerous penalties for having an unreported account (FBAR penalties), many say that the law fails to differentiate between criminal tax evaders and the millions of taxpayers with legitimate offshore accounts.
Sen. Rand Paul has been particularly vocal in his opposition to FATCA and even introduced legislation to repeal the law. Until now, his bill has not generated much mainstream media attention. Expats, tax lawyers and privacy advocates closely watch this type of legislation but not Main Street USA.
That changed a bit last week.
Last Friday, the Republican National Committee formally voted to seek repeal of the controversial law. An RNC official, Solomon Yue, said, “I see FATCA just like Obamacare.”
The Obama administration and the IRS continue to support the legislation.
We applaud the idea behind FATCA but not the legislation itself. Combatting tax evasion is a worthy goal and greater financial transparency is needed but as drafted, FATCA isn’t the answer.
Does the GOP’s vote last week mean anything? Again, the answer is not what many folks want to hear. At the end of the day, FATCA is important to dual nationals, foreign born Americans, expats and a few Americans with overseas business interests. It isn’t a major piece of the GOP platform and isn’t likely to be.
Even if FATCA was repealed, it also won’t slow the Justice Department and IRS’ aggressive campaign against unreported offshore accounts. Add to that FBAR penalties of up to the greater of $100,000 per account or 50% of the highest historical account balance.
In recent years, the government has indicted scores of taxpayers for failing to file required FBAR forms. (Offshore accounts must be annually reported on a Report of Foreign Bank and Financial Accounts or “FBAR.”) The government has managed to find thousands of accounts all without FATCA which doesn’t even fully kick in until later this year.
The bottom line? We are happy to see rank and file Congressmen finally beginning to understand the weaknesses of FATCA. We hope that FATCA is repealed or fixed. More importantly, we hope for a broader global dialogue with banks and other nations as to how to best combat cross border tax evasion.
If you want to know more about FATCA and FBAR requirements, our blog has hundreds of text searchable offshore reporting posts. Ditto for TaxConnections, a very popular tax site with dozens of tax experts from around the world.
If after further research you believe that you have foreign accounts that should have been reported, contact an experienced IRS tax attorney. But don’t delay. The possible repeal of FATCA has little impact on the existing FBAR penalties under the Bank Secrecy Act and the government’s ongoing enforcement campaign.
The FBAR lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of offshore tax reporting services including FBAR preparation, FATCA compliance, foreign real estate transactions and more. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl is the preferred legal services provider for FBAR compliance to the CPAmerica organization of accounting firms. Our services are available throughout the world and United States. In most cases foreign reporting services can be handled on a reasonable flat fee or hourly basis.
Post by Brian Mahany, Esq.