FATCA Battle May be Heading to the Supreme Court

Oct 28, 2017

This recent FBAR-related news is brought to you by the FBAR Wiz, which will explore a current ongoing legal battle that may have big implications for offshore disclosure. An anti-FATCA lobbying group led by key US Republican Party members has recently vowed to take its fight against the Foreign Account Tax Compliance Act ("FATCA") to the United States Supreme Court, in the wake of a United States Court of Appeals decision, handed down in August of 2017, that affirmed a lower district-court ruling dismissing a legal attempt to derail the legislation. The Court of Appeals ruling found that the plaintiffs in the case – who included Kentucky senator Rand Paul, who has been campaigning against FATCA almost since it was signed into law in 2010 by President Obama – lacked the standing to sue, and that the harms they claimed to have suffered as a result of the law were not, in fact, directly caused by it. James Bopp Jr., the lead lawyer for the plaintiffs in the case, stated that:

“I am very surprised that the court is unwilling to recognize the very real harm that FATCA is imposing on overseas Americans, the court maintains that the decisions of banks not to serve US citizens is just a voluntary decision on their part, not as a result of FATCA. They also state that those citizens who have not filed their FBAR or FATCA forms are under no threat of prosecution. Among the genuine harms he said FATCA had imposed on the plaintiffs, were the loss and/or denial of bank accounts and mortgages by banks afraid of FATCA’s penalties as well as the very real threat of prosecution by the US Treasury, IRS, and the US Financial Crimes Network against those citizens who have not filed their FBAR and FATCA forms."

In addition to Senator Paul, the seven plaintiffs included expat U.S. citizens, some but not all of whom are members of the Republican party. As reported, elements in the Republican party have opposed FATCA almost since its inception, and in September, a Republican member of the US House of Representatives, Mark Meadows of North Carolina, introduced a bill aimed at repealing it. A group known as the Republicans Overseas Israel also mounted a Supreme Court challenge to the enforcement of FATCA in that country, which ultimately was unsuccessful. FATCA was signed into law in 2010 in the wake of the global financial crisis, as an attempt by the United States government to target the undeclared (and largely covert) offshore accounts of Americans. Almost at once, however, American expatriates began to find that the financial institutions in the countries in which they lived began insisting they take their accounts elsewhere. The IRS also began coming after American expats who had failed to file tax returns – as they are required to do, no matter how long they have lived abroad, unless they renounce their United States citizenship – many of whom hadn’t realized they were required to do so. American expats are also obliged to pay tax to the US on some of their income if, for example, it is not taxed by the government where they live. British politician and former London mayor Boris Johnson, for example, who was born in the US, was hit a few years ago with an IRS demand for tax on the sale of his first home, located in London. The UK would not have taxed the sale, therefore the US regarded it as due. To make sure that you are aware of your own IRS reporting obligations, check out the free FBAR Wiz app to find out if you are obligated to report offshore assets and/or offshore accounts to the IRS - and learn what Forms you need to file. Interested in learning more? Check out this related blog post exploring the unique IRS filing obligations for American expats living in Germany.