FATCA – Chapter 4
Record Number Gave Up U.S. Citizenship or Long-Term Residency in 2014: WSJ: By, Laura Saunders (10 Feb. 2015)
Her most recent article has a number of excellent observations, including the following regarding an academic study of those citizens living abroad:
According to a recent survey of 1,546 U.S. citizens and former citizens living abroad, 31% of participants have actively considered renouncing their U.S. citizenship and 3% are in the process of doing so. Many who were considering the move cited increasingly onerous and intrusive financial reporting requirements. The survey was conducted between Dec. 5 and Jan. 20 by Amanda Klekowski von Koppenfels, a researcher at the University of Kent in the U.K.
For other articles written by Ms. Laura Saunders, on this related subject, see the Media: News & Articles section –
Wall Street Journal: Expats Left Frustrated as Banks Cut Services Abroad Americans Overseas Struggle With Implications of Crackdown on Money Laundering and Tax Evasion, (The Wall Street Journal, 11 Sept 2014) By –Laura Saunders
IRS Eases Up on Accidental Tax Cheats: Agency Lowers Some Offshore-Account Penalties, Raises Others (The Wall Street Journal, June 18, 2014), By – Liam Pleven and Laura Saunders
IRS Warns of Breach of Individual Financial Information – Bank Account Details and other FATCA Related Account Data
This is not new news; indeed it is somewhat old and stale. It has become more relevant, however, as the exchange of financial information under FATCA is to commence in a few months in 2015.
The IRS issued a warning in September that reads in relevant part as follows:
WASHINGTON — The Internal Revenue Service today issued a fraud alert for international financial institutions complying with the Foreign Account Tax Compliance Act (FATCA). Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identity and financial account information.
The IRS does not require financial institutions to provide specific account holder identity information or financial account information over the phone or by fax or email. Further, the IRS does not solicit FATCA registration passwords or similar confidential account access information.
This statement may be a bit misleading, since the FATCA law does require specific individual account holder information be provided to the government. It is detailed in its scope of information required; including account numbers, names of account owners, addresses of account owners, income from such accounts, taxpayer identification numbers (which means Social Security Numbers for U.S. citizens), etc.
Time will tell, how effective governments will be in maintaining their taxpayers’ information confidential; as opposed to private institutions, such as JP Morgan. See, JPMorgan data breach entry point identified: NYT
“Neither Confirm nor Deny the Existence of the TECs data”: IRS Using the TECs Database to Track Taxpayers Movements –
See for instance, the following posts: Should IRS use Department of Homeland Security to Track Taxpayers Overseas Re: Civil (not Criminal) Tax Matters? The IRS works with Department of Homeland Security with TECs Database to Track Movement of Taxpayers
Interestingly, the release of IRS internal training manuals and materials (which were obtained through a Freedom of Information Act – FOIA – request) and includes the Power Point slide in this post, describes the TECs database and how it can be used by IRS agents regarding foreign assets and individuals as follows:
The Treasury Enforcement Communications System (TECS) is a database maintained by the Department of Homeland Security (DHS), and it is used extensively by the law enforcement community. TECS contains historical travel information such as records of commercial airline flights, border crossings, and specific dates that individuals have traveled to and from the United States.
All this information could provide you with potential leads to pursue.
For example, the discovery of where the taxpayer may hold assets or accounts or where the taxpayer conducts business. It may also assist in determining taxpayer’s residency and the credibility of taxpayer testimony. TECS may have gaps in the information captured, caution is advised. For example, it might contain incomplete information about border crossings, private plane and private boat information. It does not contain enough stand alone data to determine residency. It should be used together with other sources of information.
In addition, the IRS training materials demonstrates the secrecy of the TECs database and what steps the IRS tells their agents to take regarding the TECs database. The following excerpt directly from the IRS “Matrix Application Training International Individual Compliance: Basic Structures Part II: Pre-Audit, Investigative Techniques & Statutes”
• IRM 188.8.131.52.10 – Covers using TECS Historical Travel Information
First and foremost, do not discuss the existence of TECS with the taxpayers. We must neither confirm nor deny the existence of TECS data.
FATCA IGA with Hong Kong Signed: U.S. Citizens and Lawful Permanent Residents Residing in or Around Hong Kong Need to Know
Those USCs and LPRs who are living in Hong Kong or the Pacific Rim with accounts in the Hong Kong financial sector, need to be aware of the FATCA implications and the Intergovernmental Agreement (IGA) that was just signed.
The Hong Kong government’s press release with pictures can be viewed here. Of course, even those not resident in Asia with accounts, investments, financial instruments and other activities such as private equity funds, will be effected by this IGA.
The U.S. Treasury had announced in May 2014 that Hong Kong had previously ” . . . reached agreements in substance and have consented to being included on this list . . . “
The Government of the Hong Kong Special Administrative Region (HKSAR) publishes facts about the financial sector that can be reviewed here:
OECD’s Automatic Exchange of Information – Following the U.S. Lead of FATCA – for Better or for Worse
There has been much grumbling and lamenting around the world about the U.S. law of FATCA that went into effect in 2014. See, Part 1- Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.
For better or worse, FATCA has become the basic model that has driven all of the large economies (some 50+ countries) to move along the same path of automatic exchange of information with countries around the world. Recent revelations last week of Luxembourg is likely to only increase the political motivation to push forward these efforts. See, the Guardian’s recent article, Luxembourg tax files: how tiny state rubber-stamped tax avoidance on an industrial scale, (5 Nov 2014, by Simon Bowers).
The OECD is now moving at light-speed, at least compared to the normal speed of the OECD, as its member countries have signed a ” . . . Common Reporting Standard for automatic exchange of tax information, now contained in Part II of the full version of the Standard. On 6 May 2014, the OECD Declaration on Automatic Exchange of Information in Tax Matters was endorsed by all 34 member countries along with several nonmember countries. . . ”
See the Automatic Exchange of Information programs provided by the OECD in its website
Importantly, and most recently on October 29, 2014, ” . . . 51 jurisdictions, 39 of which were represented at ministerial level, signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Multilateral Convention. This agreement specifies the details of what information will be exchanged and when, as set out in the Standard. . . ”
Interestingly, it seems clear that the Common Reporting Standard for automatic exchange of tax information will become the future standard of automatic information.
Technology and a world wide financial sector that is globally connected throughout, allows governments around the world to make these systems possible; for better or for worse.
Is it hype or is it real?
It’s difficult to know with certainty how accurate are the various claims that U.S. citizens overseas are having their accounts closed by foreign financial institutions. If it has happened to you, of course you will know it. See for instance the following reports, just to name a few:
Association of Americans Resident Overseas: Americans Abroad are Denied Access to Banking and Investment Opportunities
Time Magazine: Swiss Banks Tell American Expats to Empty Their Accounts
The Huffington Post (Aug 2014) – Expatriate Tax Sense or Broad-Brush Overreach: The U.S. Foreign Account Tax Compliance Act (FATCA)
The New York Times (April 2013) Overseas Finances Can Trip Up Americans Abroad
Anecdotally, I have certainly seen it in my practice, in places such as Hong Kong, London, Geneva and Zurich, but I can’t say I have seen it as a widespread practice. Indeed, for those individuals with large investment accounts (e.g., greater than US$1M, the banks seem to accommodate, or at least require them to move their assets to their U.S. affiliate or branch). I suspect those with smaller accounts of less than US$100,000, are seeing a broader brush stroke closing these accounts.
For good practical advice about maintaining or opening foreign accounts, I recommend you read:
I can say that what I have seen in practice is a widespread plan by individuals to close foreign financial accounts and relocate the assets to a U.S. financial institution. This is not the decision of the financial institution, but rather the individual. The reason is not FATCA, per se, but a desire to reduce the compliance costs of filing and reporting on these foreign accounts. See, Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.
Multiple tiers of reporting of foreign assets is now required and it can cost a small fortune to have a good international tax adviser who is aware of these reporting requirements. See, USCs and LPRs residing outside the U.S. – and IRS Form 8938 [Specified Foreign Financial Assets]
For those with significant assets and numerous accounts, the professional fees and costs of reporting accurately these accounts can become exorbitant (especially when the risks of potentially devastating civil penalties are weighed into the mix). See, Why the Zwerner FBAR Case is Probably a Pyrrhic Victory for the Government – for USCs and LPRs Living Outside the U.S. (Part II)
At the end of the day, the practical affect I have seen (anecdotally) is a widespread desire to close foreign accounts and move them to the U.S.; not because of FATCA, but because of the costs and compliance and risk (more than just perceived – considering the IRS now regularly threatens large multiple year 50% willfulness penalties for those who did not file an FBAR) of being penalized by the IRS.
I find this ironic, since there is no legal restriction for a USC to hold foreign accounts and indeed a USC or LPR residing outside the U.S., will generally find it easier from a lifestyle and personal financial management perspective to have an account in their home country. The affect, however, is that U.S. financial institutions are receiving these assets and investments.
I will post a survey this week to ask individuals if they have had their non-U.S. bank accounts closed.