Vulnerable Americans Abroad: Legal Weight of IRS Pubs, Info, FAQs = ZILCH!

An article by Virginia La Torre
Jeker JD, at the
angloinfo blog

This is an excellent post. It clarifies how one can determine what the IRS really can (and can’t) do and in particular, points out how the OVDP program is NOT rooted in law. This is important for those who do not/never did belong in OVDP in the first place. OVDP is for criminals. Simply failing to file with no tax due when one is unaware of the requirements does not equate to being a criminal. And don’t forget, once OVDP is entered, there is no “reasonable cause” option available. Instead, one commits to a penalty, pretending to be guilty when likely one is not.

What’s a taxpayer to do? As if the US tax rules are not confusing enough, it’s a sad situation when taxpayers cannot rely on information supplied by the Internal Revenue Service (IRS) in the most commonly accessed and user-friendly formats – such as IRS Publications, “Frequently Asked Questions” (FAQs), news releases, videos and the like. On May 18, 2017 IRS issued a memorandum to all of its examiners reminding them that FAQs and other items posted on the IRS website www.IRS.gov that have not been published in the Internal Revenue Bulletin (IRB) are not legal authority.

The five types of guidance published in the IRB are:

Treasury Regulations
IRS Revenue Rulings
IRS Revenue Procedures
IRS Notices, and
IRS Announcements

Be Careful What You Rely On! Case in Point: OVDP

A good example of how serious the problem of “unofficial” IRS guidance can be is evidenced by the IRS “Offshore Voluntary Disclosure Program” (OVDP), which was accused of IRS “bait and switch” tactics. Taxpayers with offshore assets and those living abroad are likely very familiar with the OVDP. Even with the critical importance of the OVDP and its monumental impact on thousands of taxpayers, the OVDP is governed only by a long series of FAQs (and much agency secrecy). Taxpayers must be reminded these FAQs are not binding authority, even though the FAQs themselves do not indicate any warning to taxpayers or their advisors of this fact.

More here

The Canada U.S. tax treaty does NOT protect Canadians from U.S. tax liability but does mean that Canada will NOT assist the U.S. in collection!

cross posted from citizenship solutions

Can the common law “revenue rule” be used to stop the enforcement of U.S. “citizenship taxation” on non-U.S. residents?
What the United States calls “citizenship taxation” is actually U.S. taxation of certain citizens and residents of other countries. The U.S. claims the right to impose full U.S. taxation on the “world income” of certain people who do NOT even live in the United States
.

Prologue: In August of 2017 it was widely reported that the Canada Revenue Agency had assisted the IRS in enforcing a massive penalty ON A CANADIAN RESIDENT levied under the U.S. Internal Revenue Code. The penalty was imposed on that Canadian resident was for failing to report to the IRS, that he had been carrying on a Canadian business, through a Canadian Controlled Private Corporation. At the time of collection, the penalty was for approximately $133,000 U.S. dollars!

Q. How did this happen? A. He entered the 2009 IRS OVDP (“Offshore Voluntary Disclosure Program”). Those who entered #OVDP were basically “signing up” to pay penalties to the IRS. Those interested in reading about the horrific treatment of another Canadian resident, who tried to “do the right thing” by entering OVDP should read this.

For the rest of the story, please see here .

One Couple’s Experience

reposted from Maple Sandbox

Posted on August 14, 2012 by johnnb

We moved to Canada from the United States in 1968 and received what was then called Landed Immigrant Status.  My wife was with me and I was a draft dodger.

It became obvious to us after only a couple of years that we wanted to stay in Canada so we looked into getting Canadian citizenship.  At that time there was a mandatory five year waiting period before you could apply so we just continued to gather information.  We were told that becoming a Canadian citizen would, by US law, mean we lost out US citizenship and we were told that at the citizenship ceremony we would be required to sign a renunciation of our US citizenship. Continue reading “One Couple’s Experience”

In four years, about 1% of diaspora non-filers chose to come into compliance through Streamlined: IRS

This is cross-posted from Brock. The author, Eric is a long-time writer there who composes excellent analytical posts, particularly concerning the inaccurate numbers of expatriations.

There was a discussion today that made me think of putting this particular post up. This post clearly demonstrates that in spite of all the scares – the FBAR Fundraiser aka OVDP 2009, & the FAQ 35 Bait & Switch, OVDI 2011, OVDP 2012, , OVDP 2014 the FATCA Hunt; the endless clamoring of condors, the media and folks like Shulman and Koskinen going on about The Reed Amendment, the Expatriot Act, “Quiet” Disclosures, 877A is retroactive and last but not least, if you don’t have a CLN you haven’t lost your US citizenship – none of it has made a particularly huge dent on non-compliance of Americans abroad. It is literally making me physically ill to reference all this – a vicious cycle of fines, penalties, interest, scaremongering, & whatever else can be thought of to persecute those who are simply presumed to be guilty i.e., Americans abroad. There can be no doubt whatsoever, that this is intentional. Even with the more-or-less guarantee of no penalties via Streamlined, only a very small number are choosing to become compliant. There are likely many reasons; people have begun to see what the IRS can/cannot do in terms of collection (or even detection); people are no longer willing to enter the U.S., etc. I like to think that some of our efforts to help educate people outside the bubble of American exceptionalism, U.S. Law über alles etc has contributed to opeople making up their minds based upon reason rather than reaction. If I had thought I could avoid filing/renouncing perhaps I would have chosen that too. Yet, large numbers of people remain who were literally destroyed by this shameless persecution and there will be more people who will ruin their lives out of ignorance based upon the falsehood that filing is in their best interests. It is for them that we need to continue…….

Sora Fon The tragedy of “self assessment”, self-enforcement and draconian penalties created to enforce honesty while leaving loopholes for those with influence and wealth. It is all I can do to tell the many indigent US Persons abroad I see, who could never face enforcement or confrontation abroad by an IRS interested only in collections, that (apologies to FDR) the only thing they have to fear is fear itself.

TM Yes and should one publicly caution anyone about coming into the system, there is an immediate swooping of threatening condors always quick to claim one doesn’t know what one is speaking about, what a terrible person you are to advise breaking the law, they will find everybody and blah blah blah.

Sora Fon Just saw this quote which I have to repeat: “A nation of sheep will beget a government of wolves.” — Edward R. Murrow

TM Agreed. It is why we MUST NOT remain silent.

Some of you may be aware of the nonsense Keith Redmond has endured by emphasizing on Twitter that if one is not in the tax system, it may be best not to enter it.
Excerpted from a post on Brock:

I was very surprised to see some of the Tweets on Twitter when Keith Redmond tried to warn Accidentals not to put themselves into the US tax system. It is interesting that without any proof as to the ability of IRS able to collect via QI, he presumes it and treats Keith in a manner I found inappropriate and unprofessional. I believe the point of contention was to prove that actual Accidental Americans had been “outed” due to QI. This was not provided, nor has it been since that time. There were others that ganged up in more “attacks” that I will not put up here. Brock/Wed Rally Tweeps will remember this extremely unpleasant incident.

If there is no repeal of #FATCA and a move to RBT, it will be clear that resistance will become more and more prevalent. I personally would love to see massive, visible civil disobedience. At the very least, the government can count on seeing the low numbers discussed in the post below.
*************************
Posted on February 18, 2017

On Thursday, the IRS released their “Dirty Dozen Tax Scams” for 2017, among which they listed “unreported offshore accounts”. They go into more detail in IR-2017-35:

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.

In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

Works of the U.S. government are not objects of copyright, which is a boon for stenographers who mislabel themselves as “journalists”: they can just cut-and-paste the U.S. government’s viewpoint on the issues into their magazines without thinking about it, or attempting any analysis.

Anyway, US$450 million is an average of about US$9,400 per Streamlined participant. Not as big as the $13,000 per head they extracted from minnows with two-digit annual tax deficiencies under the 2009 OVDP, but still a sizeable sum from the perspective of the individual.

I’m sure there’s some poor deluded souls in the IRS and the Joint Committee on Taxation staff who are salivating at the thought of getting nine grand per head out of the rest of the millions of diaspora non-filers too — that might help them turn those mythical FATCA revenue estimates into reality. If that’s their aim, however, then forty-eight thousand over four years is a rather slow start.

Continue reading “In four years, about 1% of diaspora non-filers chose to come into compliance through Streamlined: IRS”

Transcript of Hearing April 26, 2017 House Committee on Oversight & Government Reform-Meadows

Courtesy of Andrew Grossmann@andygr 28th May 2017 from TwitLonger TwitLonger

This is a transcript from the FATCA Hearing held in Washington D.C on April 26, 2017.
I think it is interesting to actually read the testimonies that we heard that day. Some of the more striking aspects seem even more shocking and the mistakes stick out like sore thumbs……………..All emphases are mine – Patricia Moon

 
HOUSE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, SUBCOMMITTEE ON GOVERNMENT OPERATIONS HEARING ON THE FOREIGN ACCOUNT TAX COMPLIANCE ACT

APRIL 26, 2017
 
SPEAKERS: REP. MARK MEADOWS, R-N.C. CHAIRMAN REP. JIM JORDAN, R-OHIO REP. THOMAS MASSIE, R-KY. REP. JODY B. HICE, R-GA. REP. MARK SANFORD, R-S.C. REP. RON DESANTIS, R-FLA. REP. DENNIS A. ROSS, R-FLA. REP. ROD BLUM, R-IOWA REP. JASON CHAFFETZ, R-UTAH EX OFFICIO
 
REP. GERALD E. CONNOLLY, D-VA. RANKING MEMBER REP. CAROLYN B. MALONEY, D-N.Y. DEL. ELEANOR HOLMES NORTON, D-D.C. REP. WILLIAM LACY CLAY, D-MO. REP. BRENDA L. LAWRENCE, D-MICH. REP. BONNIE WATSON COLEMAN, D-N.J. REP. ELIJAH E. CUMMINGS, D-MD. EX OFFICIO
 

WITNESSES: SEN. RAND PAUL, R-KY.

JAMES BOPP, JR., ATTORNEY, THE BOPP LAW FIRM, PC

MARK CRAWFORD, DIRECTOR, AKSIONER INTERNATIONAL SECURITY BROKERAGE

DANIEL KUETTEL, FORMER U.S. CITIZEN LIVING IN SWITZERLAND WHO RENOUNCED HIS U.S. CITIZENSHIP DUE TO FATCA

ELISE BEAN, WASHINGTON CO-DIRECTOR, LEVIN CENTER AT WAYNE LAW WAYNE STATE UNIVERSITY
 
 
[*] MEADOWS: (OFF-MIKE) hear from our witnesses about FATCA’s effect overseas and on our treasury. However, our first witness, Senator Rand Paul, a friend, a patriot – truly someone who is willing to not only put his money where his mouth is but someone who has defended liberty and freedom each and every day, and you’re certainly welcome.

He has a briefing, as I understand it, at the White House coming up so we’re happy to have you testify first, Senator. And then the Ranking Member Connolly and I will give our statement.

So in recognition of that, I’d like to recognize the Honorable Senator Rand Paul.

PAUL: Thank you, Chairman Meadows. And thank you for inviting me to this hearing on the unintended consequences of the Foreign Account Tax Compliance Act.

And also for allowing the American people an opportunity to hear how FATCA undermines their privacy through the bulk collection of their foreign financial records. I opposed FATCA for two reasons. First, it violates our privacy rights and second, I think the compliance costs actually exceed the revenue that it brings in.

Regarding privacy, the Fourth Amendment prevents the government from seizing or searching a person’s house or papers, including their financial records, unless the warrant shows individualized suspicion and probable cause.

This protection was included in the Bill of Rights in response to general warrants that have been issued by the British.

FATCA, I think, undermines the very heart of this privacy right. It forces foreign financial institutions to hand over U.S. citizens’ personal financial records without a warrant, without a probable cause, and without naming them individually.

FATCA also violates the Fourth Amendment by demanding all data on all Americans with overseas accounts. The demand is not individualized but collected rather, in bulk, without specifying a specific suspicion or cause.

The government is using the heavy hand of the IRS to tell foreign financial institutions that they must hand over the records of all U.S. citizens and if they dare to defy the government, they will be hit with a crippling tax penalty that no business could survive.

This turns the Fourth Amendment on its head. It presumes that every American with money overseas is a criminal with no proof or even suspicion of criminal activity.

You are guilty until proven innocent. These are not the principles on which our country was founded and we should not stand for it.

This is not just my concern. In January, the IRS’s own Taxpayer Advocate raised the same concern in her annual report saying that FATCA’s operative assumption appears to be that all such taxpayers should be suspected of fraudulent activity unless proven otherwise.

Think about that. Guilty until proven innocent. No one should be deceived that the data being collected by the IRS is somehow harmless or benign.

In addition to having to report the name, address, taxpayer identification number of each account holder, the government requires financial firms to report the account number, the account balance, the value at the end of the reporting period, and all the inflows and outflows of the account.

Basically every one for whom you’ve had a financial transaction or written a check to.

Comparable information is not required to be disclosed for those who have domestic accounts. So it’s a double standard.

You have one standard for Americans living overseas and another standard for Americans here.

The government has no business asking for or knowing this information about its citizens and certainly not without a reason to believe that the person is doing something wrong.

FATCA essentially gives the IRS all your overseas financial data without going through any court to decide if the government has a right to see your documents.

FATCA seems to be also a solution in search of a problem. The Taxpayer Advocate finds also a lack of comprehensive statistical data establishing the existence of widespread, non-compliance or fraud by taxpayers with foreign accounts.

They don’t find evidence that there is excessive problems with people not paying their taxes. It’s about the same rate as people domestically.

So why will we be giving the government special powers a lower standard to look at our information?

My biggest concern about FATCA is that it treats all nine million Americans living abroad as guilty until proven innocent.

FATCA acts as if the Bill of Rights does not apply to citizens dealing with their U.S. government depending on where they live.

After FATCA was passed, some foreign banks even began to refuse to do business with Americans. Even canceling their accounts to avoid the red tape and possible draconian penalties.

Individual Americans are not the only ones bearing the burden either. Estimates of initial cost of compliance reach into the tens of billions of dollars globally.

Ongoing compliance just for U.S. companies cost more than $160 million dollars a year.

In addition, FATCA has led to foreign countries seeking information on citizens residing in the United States. Indeed, over 60 countries now have signed reciprocal Intergovernmental Agreements called IGAs.

The IGAs allow bilateral exchange of financial data meaning that the U.S. will now spy on foreigners who have accounts in our country as well, and we will aid and abet foreign countries in invading their citizens’ privacy as well.

Think about this. This may mean sending financial information to countries who are known as human rights abusers such as Saudi Arabia, China, Tunisia.

One can imagine the risks to a political dissonant who comes to our country to escape tyranny and then we find that we’re going to be sending their information back to a tyrannical government? The tyrannical government they fled? These bilateral agreements, these IGAs have not received any senate certification, no vote, no vote in the House, no congressional authority at all. They are just done by the administration with no authority.

Their constitutionality is currently being challenged in court and I think you will hear from some of those involved in that challenge.

My hope is that this hearing will shed some light on this abusive law and lead to a demand for action.

Chairman Meadows and I have sponsored a bill to correct this injustice and repeal FATCA. Congress should pass our bill this year and put an end to this madness.

Thank you very much for letting me testify.

MEADOWS: Thank you, Senator. And you’re very complimentary in terms of my involvement but it’s basically been your leadership, Senator, that not only has highlighted this but that continues to stand as a — a vigilant sentinel to protect our Fourth Amendment privacy.

And — and I just want to say thank you and it’s — it’s an honor to have you articulate this. You brought this issue to light when no one was paying attention, and yet I found that universally you’re being applauded for your protection of those constitutional rights that our founding fathers so wisely enshrined.

PAUL: This is a big, big deal to the nine million Americans who live overseas. And you know, we’re getting ready to come up on tax reform. While this may be a small issue to many other Americans, it’s a big deal to them.

My hope is that the bill we have worked on maybe we could try to get into the tax reform package because it’s an — it’s an issue I think that should bring right and left together because, you know, sometimes the right is more concerned with financial affairs and the left more concerned with privacy and with civil liberties.

But really I think right and left could come together to say, “You know what? We should protect everybody’s Fourth Amendment rights.”

Thank you for letting me attend.

MEADOWS: Well, thank you. I know you’ve got to go to the White House so you’re hereby dismissed. Thank you for your testimony. Your entire written testimony will be made part of the record.

I thank the ranking member for allowing you to come in and testify early. The Chair now recognizes himself for his opening statement.

We’re certainly pleased to hold this hearing to examine the Foreign Account Tax Compliance Act, also known as FATCA.

FATCA requires foreign financial institutions to investigate their own account for suspected ties to the United States. Now hear that again: investigate their own accounts for suspected ties to the United States and then report those accounts to the IRS for further investigation.

Now that doesn’t sound crazy in its face, but as it turns out, FATCA is a failure at a number of different levels.

By its drafters own estimate, of whom we’re going to hear expert testimony today, and certainly the work that has been done in some of those investigative modes is to be applauded.

I’ve looked at the record and — and — so I look forward to seeing that.

But even by those — those own estimates of the drafters, it was seeking to reduce tax evasion overseas and it only does that by less than one percent.

The senator mentioned this, you know. So less than one billion out of an estimated $100 billion in lost revenue overseas.

Commissioner Koskinen, who has testified before this committee a number of times, has given sworn testimony regarding the high rate of return on investment for spending on the IRS with normal enforcement activities.

In fact, his public statements indicate a return of up to $20 for every $1 that is invested on enforcement.

So a $20 return in revenue for $1 invested in enforcement. By contrast, FATCA brings in well under, by any estimations, half of that amount on a per dollar basis that is invested.

So the IRS has asked for about $200 million to implement FATCA in FY 2017 budget. So by the commissioner’s own estimates – not by mine, not by any think tank – by the commissioner’s own estimates of enforcement returns, just shifting the money from FATCA to the general enforcement areas would increase our tax revenues by over a billion dollars.

And so if we’re looking at proper allocation — and this is without spending one more penny on the overall budget for the IRS — it’s just shifting it. And so when we look at that, that’s a significant return.

FATCA also unfairly and unilaterally burdens our biggest trading partners and strongest allies.

I found out about this really by some of the people that we’ll hear from today when I was in Israel And with — with some of the issue that they started referring to this thing called FATCA that I had no idea what it was. And — and so, you know, as a good politician I was saying, “Well, I’ll get back to you on that.” And so I went very quickly and googled it to figure out exactly what we were talking about.

And so as I — I look at this, we are looking at unbelievable implications here. When we look at the compliance cost on foreign banks and international — on the international economy, we’re looking at up to $200 million dollars per bank to comply and potentially hundreds of billions of dollars overall.

Other countries are understandably upset that we’re hurting their economies and are doubly upset that we have not yet offered them access to our own taxpayer data.

So we — we basically said, “You have to comply.” There was this reciprocal agreement and we’ve said, “Well, you have to comply but we’re not going to comply.”

It was a double standard that we see. And so many of the foreign financial institutions have tried to avoid these FATCA compliance costs by refusing to take U.S. citizens. That’s what highlighted it for me.

And I said, “You’ve got to be kidding me?” They’re saying, “Well, if you’re a U.S. citizen they don’t want to touch you in some of these foreign financial institutions just because of the compliance costs.”

So expatriates have had to make the tragic choice between keeping their citizenship and preserving their financial stability.

And to illustrate that point, I want to share a video that has been shared with the subcommittee, to this committee. And so if we pause and maybe take a look at this video.

It’s approximately three minutes in length.

VIDEO: I’m Donna Lay (sic) Nelson (ph). I come from proud New England Yankee stock. In fact, my ancestors came over on The Blessing in 1635 to the Massachusetts Bay Colony.

I’m a life long Democrat and an activist. I’ve often written Congress, I’ve called Congress members on issues I care about, and I have always voted.

My career was working with credit unions, often helping middle class and lower class people with their finances.

Because of FATCA, I am no longer a U.S. citizen. I had to choose between a normal financial life in Switzerland and my birth country. That decision was so painful that after I renounced, I thought I died (ph). It still hurts today.

I’ve always paid my U.S. taxes and in many ways, I was double taxed. I needed a specialized accountant to keep me in compliance even though my income was low. It cost me about $1,200 a year to pay about $700 in taxes, which does show my income was limited.

After FATCA was passed my Swiss bank called me and in the meeting they told me if I did anything wrong my account would be closed and I could not get another. The reason: I was American.

About the same time, I began my first of two battles with breast cancer. It was a very difficult period.

I started to research FATCA and its implications. At that point, many American expats were talking about being denied financial services as well as having job problems because of FATCA.

I realized if I wanted to continue living in Switzerland, I would have to renounce my U.S. citizenship.

Once inside the embassy, a woman explained to me that I could never, ever get my passport back. I was shaking. Would I be able to visit my daughter and my beloved stepmother in the states? I was crying. I took the oath, separating me forever from my birth country.

As I walked back toward the bakery, I threw up. On behalf of myself and millions of Americans living overseas: please, please, please repeal FATCA.

MEADOWS: Donna is not alone. FATCA has led to a number of U.S. expatriates renouncing their citizenship. And so hopefully today we’ll hear from some of our witnesses on how we can address this particular issue in a meaningful way and hopefully return the accountability that we’re all for to the proper balance of protecting our — our personal Fourth Amendment rights and yet still making sure that we hold our — our government accountable.

And with that, I’d like to recognize the ranking member for his opening statement.

CONNOLLY: Thank you, Mr. Chairman. And thank you for having a hearing and — and maybe this slightly different point of view about the issue.

While acknowledging there are problems with the act and with its implementation, the United States taxes the foreign income of its citizens.

And we’re not alone. Most countries with income taxes do the same. Citizens pay taxes on all the income they earn regardless of where they earned it.

There are benefits to the system. Americans are the most productive in the world and the system ensures that the wealthiest among us cannot avoid paying taxes simply by moving money abroad.

It’s quite simple. If you receive benefits by being an American, you should pay your fair share.

And I say that, but no American ought to have to forswear his or her citizenship in turn to comply with the law.

We obviously are very sympathetic to the woman we just saw on that video.

This tax system assumes everyone plays by the rules and pays their taxes according to the law.

We know, unfortunately, in the past not everyone did play the game fairly. While the law has, for decades, required offshore account holders to file reports with the Treasury Department, not everyone did.

Extremely wealthy tax cheats, not the woman we just saw on that video, hired expensive lawyers who knew how to evade the system.

Whistleblower leaks changed things. Congress learned of thousands of Americans who were willfully avoiding paying their taxes in overseas income without disclosing that information to the IRS.

These weren’t simply inadvertent mistakes, they were willful efforts to avoid taxes.

Congress chose to take some action. That action came in the form of this act: FATCA – the Foreign Account Tax Compliance Act.

Under that act, foreign financial institutions are required to disclose to the IRS the accounts of U.S. taxpayers.

The Wall Street Journal reported that an IRS limited-amnesty program pursuant to this act brought in $9.9 billion dollars in taxes, interest, and penalties from 55,000 taxpayers who hadn’t paid their taxes on income earned abroad.

FATCA is an incremental step in terms of tax collection. U.S. companies and financial institutions already provide taxpayer information to the U.S. government through 1099 forms.

And taxpayers with assets abroad file with the IRS the same information FATCA collects.

Now that information is also coming from foreign financial institutions since many taxpayers previously had not been filing.

Despite the new law, banks are still lending and it is possible for Americans to get accounts. Citigroup, for example, operates in more than 160 countries and will give Americans abroad bank accounts and mortgages.

Because of this act, international tax collection has changed. Countries around the world are adopting the common reporting standard which is based on FATCA.

Under the common reporting standard, countries collect identifying information from account holders.

They then share that information with the foreign account holders’ country of citizenship and receive information on the accounts of their own citizens.

The information collected under the common reporting standard is broader than that required by FATCA.

Common reporting standard countries collect information on all account holders, not just U.S. citizens.

With a hundred such nations committing to implementing the standard by 2018, efforts to evade taxes are expected to diminish.

I certainly don’t mean to suggest there haven’t been problems with FATCA, we just saw one.

Although it’s important, the law does not require anyone to give up their citizenship.

The advice came, as I understand it, from a Swiss bank. But nonetheless, we have a victim here.

Nobody ever should feel they have to give up their U.S. citizenship. So there are kinks clearly to work out and I think that’s why this hearing can be very helpful.

And we want to make sure that people like Ms. Nelson and Mr. Kuettel are protected.

Repealing FATCA, however, entirely would not restore their citizenship and could harm our government’s ability to collect the taxes owed.

We’ve had hearings in this committee about the fact that hundreds of billions of dollars, not overseas, but hundreds of billions of dollars go — are left on the table uncollected because the IRS doesn’t have the staffing or resources or mechanisms, frankly, to collect taxes owed but not collected.

And so, you know, as we wrestle with the fairness of this act and its implementation problems, and certainly the injustice that individuals such as the one we just saw in that video have experienced, so we want to — we certainly want to address that.

But we also want to make sure that the United States government is — is being fair to all of its citizens by making sure everybody pays their fair share.

So I look forward to the hearing. I look forward to hearing testimony from our witnesses. And with that I yield back, Mr. Chairman.

MEADOWS: I thank the gentleman for his thoughtful opening statement. And we’ll now go ahead and allow the witnesses — if you’ll make your — your way forward. And I appreciate your flexibility with regards to allowing Senator Rand Paul to go first.

And so we would love to welcome — and we’re going to keep these introductions brief. I understand we may have votes coming up here at 2:45 to 2:50 range and — and so we’re going to try to push a little bit quicker here. But I’ll hold the record open for five legislative days for any member who would like to submit a — a written statement.

So in recognizing our panel of witnesses, I’m pleased to welcome Mr. James Bopp, Jr., welcome. Mr. Mark Crawford, welcome. Mr. Daniel Kuettel, welcome. And Ms. Elise Bean – welcome to you all.

Pursuant to committee rules, witnesses will be sworn in before they testify. So if you will please rise and raise your right hand.

Do you solemnly swear or affirm that the testimony you’re about to give will be the truth, the whole truth, and nothing but the truth?

BOPP: (OFF-MIKE)

CRAWFORD: (OFF-MIKE)

KUETTEL: (OFF-MIKE)

BEAN: (OFF-MIKE)

Thank you. You may be seated. And please let the record reflect that the witnesses all answered in the affirmative.

In order to allow time for discussion, I’d ask that you limit your oral testimony to five minutes, but your entire written statement will be made part of the record.

And so we’ll now recognize you, Mr. Bopp, for five minutes. You need to hit your — your little button right there.

BOPP: Thank you. Thank you, Chairman Meadows, and thank you for the opportunity to testify.

In my oral presentation, I will summarize the key points of my written testimony.

Republicans overseas, for which I serve as treasurer and general counsel, advocates for the rights of interests of overseas Americans.

As this hearing will demonstrate, our overseas Americans are the victims of a draconian system of tax laws that disrupts their lives, deprives them of living, and strips them of their basic constitutional rights as U.S. citizens.

At the heart of this is the fact that U.S. — the United States is only one of two countries in the entire world that tax its citizens based upon their citizenship, not their residence.

So the long arm of the IRS reaches out to the nine million U.S. citizens overseas and taxes them on — on — and taxes them.

For the same reason that President Donald Trump has advocated for territorial taxation on corporations, U.S. citizens should also be taxed where they reside. The 2016 Republican National Platform calls for this.

But it is worse than this. The Bank Secrecy Act resulted in U.S. citizens being required to file a FBAR report which applies to U.S. citizens and requires them to report to the IRS for any account which they have in a foreign bank or foreign asset and if the value is greater than $10,000 dollars.

Willful violation of this law results in a 50 percent penalty on the highest value of that account.

On top of this, in 2010, the Democrat Congress passed FATCA, which requires more reporting of personal and financial information by individuals and by foreign financial institutions.

Individuals are required to file a FATCA report annually if they have $50,000 dollars in foreign accounts or foreign assets, whether they are in the United States — living in the United States or living abroad.

That report includes the name, account balance, maximum value of the account – and there’s a $10,000 dollar penalty.

In addition, foreign financial institutions have one of three choices. One is to report to the IRS on every single U.S. citizen account holder the account information, the value, and then the gross receipts and gross withdrawals of that account or two, purge themselves of all U.S. account holders and certify that to the IRS or three, suffer a penalty of 30 percent of all transfers of all funds for all purposes from the United States to that bank.

In addition, the Obama administration has negotiated illegal Intergovernmental Agreements which provide, in most cases, that the banks, instead of reporting to the IRS, report to the foreign government — require the foreign banks to report to the foreign government of information about U.S. citizens which is then reported by the government to the IRS.

These agreements have not been approved and are unconstitutional. Thus, FATCA is a sweeping financial surveillance program of unprecedented scope that allows the IRS to peer into the financial affairs of any U.S. citizen with a foreign bank account.

In so doing, FATCA has imposed enormous costs on individual Americans abroad, as this hearing will demonstrate.

And as the Democrats abroad found out in a survey of Americans overseas, these survey results show the intense impact FATCA is having on overseas Americans.

Their financial accounts are being closed. Their relationships with non-American spouses are under strain. Some Americans are being denied promotion or partnership in business because of FATCA reporting. And some are planning to — contemplating renunciation of their own U.S. citizenship.

A decade ago, about 200 renounced. Now the number is up to 6,000 last year. These Americans are in many ways ordinary, middle class Americans being affected in extraordinary ways.

FATCA has also imposed an enormous financial cost on foreign financial institutions, and through the IGAs, has converted foreign governments and foreign banks into IRS agents who are surveilling U.S. citizens and reporting to the IRS.

FATCA has furthermore denied U.S. citizens basic constitutional rights: equal protection, due process, Fourteenth Amendment protection against unlawful search and seizure, Eighth Amendment protection against excessive finds.(sic)

I’m lead attorney in Crawford v. United States Department of Treasury that is making these claims.

At the bottom — the bottom line about all of this is that the Americans abroad are U.S. citizens who should enjoy the individual right and freedom to reside overseas if they choose without penalty.

And American — America benefits when they do. They are ambassadors for America who promote this — this country and its values and often are directly involved in promoting American business and products overseas.

However, the U.S. government has placed a scarlet letter on the forehead of every American and it is stamped U.S.A. And as a result, they are treated as pariahs by foreign banks and employers. This is wrong and it needs to stop.

MEADOWS: Thank you, Mr. Bopp. Mr. Crawford, you’re recognized for five minutes.

CRAWFORD: Thank you very much for allowing me to be here today to share my firsthand experience regarding the consequences of FATCA from the perspective of an international businessman.

My name is Mark Crawford. I’m an American citizen and I do not hold any other citizenship.

But various times I’ve been a resident of the United Kingdom, Albania, Montenegro, and Greece.

The politics that divide Americans at home don’t often divide those of us abroad. Most of the nine million Americans living overseas are ordinary citizens who are living their lives, raising families, studying, and working.

We are just Americans, and though we’re often far from home, America is still our home and the U.S. Constitution is still our Constitution.

In my written submission, I outline in more detail about my personal background having lived and worked across three continents over a 25-year period as a teacher in China, a missionary in Albania, a graduate student in England, a venture capitalist in the Balkans, a banker in Montenegro and Serbia, and now as an entrepreneur involved in finance, natural resources, and film production. I’ve employed hundreds of people and increased economic (ph) activity between the United States and its friends around the world.

Throughout my work abroad, I’ve remained active assisting U.S. interests whenever called upon, regardless of which party controlled the Congress or the White House, including having worked for appointees of the Clinton administration, supported USAID financial inclusion projects, voluntarily chairing Chamber of Commerce affiliates, advising leaders of several American allied governments, and more recently volunteering to assist the Treasury Department in Kosovo.

Having worked in finance around the world, I returned to Albania in 2010 to pursue a business opportunity and I ran into the consequences of FATCA.

In smaller developing markets, there often isn’t enough volume to support stand-alone financial products so it’s important for such markets to leverage off larger ones.

Albania’s domestic capital market is still developing and in order to connect Albania to international capital markets, I’ve founded an Albanian introductory brokerage firm that would work with Saxo in Denmark offering basic brokerage services to Albanian residents.

When I sent the first 10 applications to Saxo Bank, they responded approving only nine.

I reached out to Saxo Bank to see who was rejected and they responded to say that I was rejected.

I own the company. I was told that though I was an Albanian resident at that time, I was rejected solely because I was an American citizen, because of fears because of the FATCA law.

I realized that due to FATCA I could not serve U.S. persons in my Albanian brokerage firm because of the carry-on impact of the Saxo decision.

The introductory brokerage vision that I had was alive but the idea of working with Americans and American persons was dead.

I’m the pro-bono Chairman of the American Chamber of Commerce in Albania and I work closely with our U.S. Embassy there in a private sector capacity trying to promote American business.

A brokerage firm owned by myself that markets itself as an American lead by the American Chamber chairman that does not accept American citizens is a logical anomaly to most in Albania and understandably so.

The introductory brokerage products became sidelined and Saxo Bank eventually grew so unhappy with me that they dropped my firm altogether. The obstacle to my brokerage business created by FATCA was a deal breaker. Proposals to address the unintended consequences of FATCA have been considered by both parties and candidates on both sides of the aisle in the most recent presidential election.

In recognizing the problems of FATCA, some have suggested implementing a safe harbor exception that would help Americans solely within the country of their residency.

Such a safe harbor exception would not have solved the negative impact that FATCA had on my situation.

I have never been a resident of Denmark. Thus, an exception would not have alleviated Saxo Bank’s relationship with me or other potential clients that I was bringing through my introductory brokerage firm from Albania.

In conclusion, my experience is that the American entrepreneurial mentality sets our culture apart.

Americans do not restrict their investments based on their personal residency. Rather, they pursue opportunity according to the market. Access to international financial services is critical for all such projects and FATCA’s impact has already harmed some of my businesses and if left unrepealed, will risk others.

It is ironic that after spending much of my career helping advance U.S. interests by expanding financial inclusion, through FATCA the United States has inadvertently restricted inclusion for its own citizens.

The fact that an increasing number of banks and financial institutions reject working with United States citizens outright harms our interests.

It is my belief that the best way to improve the current situation is not to make the situation more complex by creating carve- outs or safe harbor exceptions or other partial fixes. Therefore, I do support a full repeal of FATCA and I look forward to your comments and questions in the future.

MEADOWS: Thank you, Mr. Crawford. Mr. Kuettel, you are recognized for five minutes.

KUETTEL: Thank you, Mr. Chairman, for allowing me to speak on the negative consequences of FATCA.

I’m here — my name is Daniel Kuettel. I live in Switzerland and I am here to tell you why FATCA forced me to renounce U.S. citizenship.

As you see here, I brought my army — U.S. army jacket. I served in the army, I served in the army reserves, and then I got married in the Philippines I asked my wife to come join me in America but that was during the dot-com crisis. I lost my job, couldn’t find work. I sent my resume around the nation but had no luck so I took my chances in Europe. I did not leave the U.S. to evade taxes. I paid my taxes. I enjoyed paying taxes.

I’m an economic refugee. I don’t have a lot of money, I’m not wealthy.

In Switzerland, we saved up to be able to finance a small condo. And then in 2012, I needed to investigate refinancing that condo. In — in Switzerland, every few years, you have to refinance.

But when I went to a bank to ask them if they would allow me to refinance my mortgage, when they heard that I was a U.S. citizen, they denied it.

I went to another bank, I was denied again, and another. I called them. I was denied – rejected, rejected. It was horrible, terrible. I mean, if you’ve ever lived anything like this, this type of discrimination, it’s — it’s unacceptable.

I was worried that I would not be able to refinance my home. And so I called HUD, I called the VA, but they told me that they only support — they only help Americans residing in America. They don’t help expats.

I called the Department of Justice to inquire why this law prohibiting national origin discrimination is not being applied and they refered me to some statute that I could never find which was supposed to state that also the law only applies to U.S. residents.

So I had to renounce and it was a difficult decision to make. I went to a small village in Switzerland that I went to the first time that I came to Switzerland at the age of 10, where I was able to gather the strength to — to renounce.

And afterwards, I was able to refinance my mortgage. But today I’m here because I’m having a problem again because of FATCA and that is with my children.

My daughter is still a U.S. citizen. My son, on the other hand, he is not a U.S. citizen.

So my son, he can have a bank account with any bank in Switzerland. My daughter – about 310 out of 320 banks reject her.

And this is going to become a problem later on when she is 16. In Switzerland, it’s a common practice to get an apprenticeship where she would go to work, earn money, she’ll need a bank account.

But having a bank account means she would have to file FBAR. She would have to be subject to FATCA.

And — I mean, assuming that she even can get a bank account. And this is just a problem which rolls over. She is going to have to relive what I relived. Go through what I went through. She is going to have to decide if she wants to have U.S. citizenship or if she wants to have a normal life in Switzerland with a normal bank account.

Thank you, Mr. Chairman.

MEADOWS: Thank you for your testimony. Thank you for your service to our country and you are in a minority. You’re the only witness, I think, that I’ve ever heard who says they enjoy paying taxes.

(LAUGHTER)

So — but Ms. Bean, you’re recognized. And before I recognize you, I want to just say that this hearing, where it’s highlighting some of the difficulties with FATCA, I want to recognize, as I did in my opening statement, the — the great work that you did with UBS and the investigation.

And so nothing in this is meant to be disparaging of the — of the consequences of what I believe are unintended consequences of — of really your fine work. And so I recognize you for five minutes.

CONNOLLY: Mr. Chairman?

MEADOWS: Yes?

CONNOLLY: Could I just ask unanimous consent request before we hear from Ms. Bean — I meant to do this in my opening statement. I — I have a — a statement from the FACT (ph) Coalition opposing H.R.2054 I’d ask be entered in the record?

MEADOWS: Without objection.

CONNOLLY: And I would also comment on the chairman’s comment to Mr. Kuettel. Actually there are only two kinds of people who oppose taxes: men and women.

(LAUGHTER)

MEADOWS: We’ll now recognize the — the — Ms. Bean for five minutes.

BEAN: Well, thank you, Chairman Meadows, Ranking Member Connolly, and the members of the subcommittee for inviting me here today to present another view of FATCA.

I was asked to testify because for many years I worked for Senator Carl Levin on the Senate Permanent Subcommittee on Investigations and we held a number of hearings looking at how foreign banks were helping U.S. clients hide assets and evade U.S. taxes.

To give you a couple of examples, we had a gentleman named John Mathewson who testified in front of us. He set up a bank in the Cayman Islands called Guardian Bank & Trust. Had about 2,000 clients, $150 million dollars in assets, and he said, in his opinion, virtually all of his clients were engaged in tax evasion.

He said the standard practice to handle them was he would set up a shell company in the Cayman Islands, open up an account in the name of the shell company, the client would supply the money, and then he would give the client a credit card in the name of the shell company, and he would advise them to sign it illegibly on the back.

That way they could use the credit card in the United States to withdraw funds from their Cayman account without anybody linking their name to their shell company.

We looked at two banks in Switzerland: UBS – the largest bank in Switzerland and the second largest, Credit Suisse.

UBS was shown that they had 52,000 undeclared accounts – meaning accounts opened by U.S. clients that had never been disclosed to the IRS with about $18 billion dollars in assets.

They were sending Swiss bankers to U.S. soil. It wasn’t a case of us going there but sending their Swiss bankers here to yachting races, art shows, tennis tournaments, quietly handing around their business card and trying to convince people to put their money abroad.

They were very successful. They had tens of thousands of clients through those methods.

They eventually pleaded guilty. They paid a fine of $780 million dollars and they eventually disclosed about 4,500 names to the U.S. But 4,500 is nowhere close to the 52,000 undeclared clients.

Credit Suisse had at their peak about 22,000 undeclared accounts with about $10 billion dollars in assets.

They too pleaded guilty. They paid a fine of about $2.6 billion dollars. But guess what? They never disclosed any of those 22,000 accounts to the U.S. The U.S. had to find those people on their own and they haven’t found very many of them.

We did identify two clients. One told us about an occasion where his Credit Suisse banker met him at a luxury hotel here in the U.S. over breakfast. Slipped him a Sports Illustrated magazine and in between the pages was his bank statement so that he could know what was going on in his Swiss account.

Another gentleman told us about how he went to the bank’s headquarters in Zurich. He was ushered into an elevator with no buttons, it was remotely controlled. He was taken up to a floor and shown to a room with all white walls. The whole point being how the bank was so secret and actually told him they did not file the forms that required disclosure of his account to the IRS.

In short, our investigations — and by the way, we also looked at a bank in Liechtenstein and there we were able to get very detailed records on about 150 U.S. clients who had accounts there.

And we gave examples at our hearing. Just to give you one. A Florida contractor in the construction business set up four Liechtenstein foundations, opened up accounts in the name of those foundations, and stashed about $49 million dollars in those accounts that had not been disclosed to the U.S. until a whistleblower turned over the documents to the agency.

In short, our investigation showed that opening up offshore bank accounts for U.S. clients was big business. Billions of dollars, tens of thousands of clients.

Additional evidence of the scope of the problem is the IRS Offshore Volunteer Disclosure Program.

The latest statement from the IRS says that they have now had word from 100,000 Americans – 100,000 Americans who have admitted to having an undeclared offshore account – and in order to get it right with the government, they have now, as Mr. Connolly said earlier, paid a total of about $9.9 billion dollars to get — to satisfy the back taxes that they owed.

That’s the backdrop for FATCA. That’s why FATCA was enacted on a bipartisan basis.

The first thing to understand about FATCA is that it does not impose a tax on anyone here or abroad. It does not impose a tax, it is simply a transparency measure.

And it matches what every American citizen has been doing for decades. All of us get 1099s that are turned into the IRS about our domestic bank accounts. All of us do. It simply institutes the same program so that Americans living here who open up a U.S. bank account is treated the same way as any American living here or abroad opens up a foreign bank account.

Recent research has shown that FATCA and other offshore account disclosure programs are working.

Preliminary results from this 2017 study says that since 2009, the number of individuals reporting offshore accounts to the IRS has increased by 19 percent. And they have disclosed additional account assets of over $75 billion dollars.*

*NB It is difficult to understand how FATCA “is beginning to work” given reporting began in 2015 and there have been no reports of the IRS actually contacting anyone, much less, actually collected any money. Ms. Bean must be referring to OVDP/OVDI. see ** where Ms. Bean indicates she does not know how much FATCA brings in

It’s starting to work. We’re starting to change and end these offshore abuses.

Now how has FATCA helped? Well, first of all it leveled the playing field between Americans who open accounts here and Americans who open accounts abroad. It treats them the same way.

It also leveled the playing field between U.S. banks and foreign banks. U.S. banks no longer see their wealthiest best clients leaving the U.S. bank and going to a foreign bank because they can open up a secret account.

U.S. banks first. This restored a level playing field between U.S. banks and foreign banks.

At the same time, everybody is correct that FATCA did not have a smooth implementation. It had a very rough beginning. There were a lot of banks that were furious at this U.S. attack on their secrecy and on — on their business model to open up these accounts, particularly in Switzerland.

We went after UBS, Credit Suisse, and we had — we had a program to go after another hundred banks. Switzerland is very unhappy with the U.S. But you know what? Those banks have adapted. Those banks have said that they will comply with FATCA.

And in fact today, seven years later, there are over 274,000 foreign financial institutions have signed up to FATCA and agreed to comply with it.

In addition, that’s 100 countries have adopted a similar FATCA program under the leadership of the OECD to do the exact same thing that we’re doing.

So disclosing foreign account information is becoming the global norm. So while it was a very rough beginning, people were very angry, particularly in Switzerland – that’s not the case seven years later, today. Now many banks have agreed to comply with FATCA.

Ms Bean seems to be suggesting that the banks are no longer angry or unhappy about complying. One could surmise it is not due to agreement but rather, the desire to survive financially, given the penalties etc imposed upon UBS, Credit Suisse etc.

Now we have heard today about how some American citizens are saying that FATCA is forcing them or leading them to give up their citizenship.

But I have to also point out that that’s affecting a very small number of people. In 2015, about 4,300 people gave up their citizenship. That same year, we got new citizens of 730,000 people willing to pay U.S. taxes.

And when you compare that 4,300 figure to the nine million Americans living abroad, you’re talking about a rate of less than one- tenth of one percent.

To conclude, I wanted to say that repealing FATCA today would be a mistake. It would hurt honest taxpayers who have to disclose their account information on a bulk (ph) basis every year to the IRS. That’s what honest taxpayers do and whether you’re honest or not, that’s how the banks treat your bank accounts here in the U.S.

But it would hurt honest taxpayers here, living in the United States, to allow people who have the wherewithal to go abroad to not play by the same rules.

It would encourage Americans to move more of their money offshore to get some of that secrecy. It would disadvantage U.S. banks who would, again, have to compete against foreign bank secrecy.

It would also waste all of the investments made by those foreign banks to comply with FATCA. They have all done it. They’re complying.

We began disclosures in 2015. All of that money would be wasted. And finally, it would return us to an era where it was much easier to have an offshore account hide your assets and evade your taxes.

So that’s why I think repealing FATCA would be a tragic mistake. Thank you.

MEADOWS: Thank you, Ms. Bean. The Chair recognizes himself for a series of questions.

So Ms. Bean, let me — let me go because you made some very profound statements there that I’m not sure you — you want to carry them out.

Are you suggesting that the whole reason to do this is that U.S. banks want us to do it?

BEAN: Well, it’s my understanding that when FATCA passed the first time around . . .

MEADOWS: I’m just asking for your sworn testimony. Are you suggesting that U.S. banks are — are really supportive of — of this law?

BEAN: Yes. I think banks do not want to compete against foreign banks . . .

(CROSSTALK)

MEADOWS: So — so if I get the banking institutions to say that they don’t have a problem with us repealing that, you would change your opinion?

BEAN: Well, many of those banking institutions have foreign banks as members.

MEADOWS: No, I know — I know that. That’s why I’m saying — so at this point, if they change their position, would you change yours?

BEAN: I think U.S. banks do not want to compete against foreign banks that can take their wealth . . .

MEADOWS: That’s not the question I asked. That’s not what — I said if they changed it, would you change your opinion?

BEAN: If they — you mean, if U.S. banks . . .

(CROSSTALK)

MEADOWS: Yes.

BEAN: . . . not their — not their trade associations, which have foreign banks in them. But if you could get U.S. banks alone to say, “We don’t want FATCA anymore.” They’d still have to comply, by the way, with all of the other . . .

MEADOWS: Well, they’re about to have to comply. See, we haven’t forced them to comply on this side, you know? And . . .

BEAN: They do.

MEADOWS: And — in — in a different way. We — we do not require them to comply with foreign entities at this particular point. So if France . . .

BEAN: Yes, we do.

MEADOWS: We’re not forcing them to do that unless there’s a reciprocal agreement. I’ve — I’ve looked at it, Ms. Bean. And so we can argue the point. So let — so let me go to one other side of this.

So you’re saying it’s the investment that we made. Even if it’s bad policy, we shouldn’t go the other direction because we made a substantial investment and everybody is getting used to it. Is that your testimony?

BEAN: It is. Foreign banks — by the way, these weren’t U.S. banks but these are foreign . . .

MEADOWS: OK. I’ve got five minutes. So yes or no answers are the best for me. But you can explain, that’s fine.

So — so GAO did a study in 2013, and they suggested that really it’s the voluntary disclosure that has most of this. It’s not the IRS coming in, it’s the voluntary disclosure that comes up with this.

In fact, they said in that study 80 percent — now these are the high income people, so the lower income people like Mr. Kuettel would not be actually in this study — but they said 80 percent of the high income individuals, the income that we recovered actually came from fees and — penalties and fees, not actually income tax.

Does that strike you as surprising? So of the $800 million that we actually got last year, 80 percent of that were fees and penalties, it wasn’t really taxes.

BEAN: When people don’t pay their taxes and they’re caught by the IRS, they do impose penalties.

MEADOWS: Listen, this isn’t my first rodeo. I get that. What I’m saying, does that surprise you that 80 percent of the money we have coming in is actually fees and penalties is not tax avoidance, it’s a penalty or a fee that goes with that.

So the number we’re — we’re collecting — the vast majority of it is just a — a fee and a penalty for voluntary disclosure. Does that surprise you?

BEAN: It did not surprise me but it also includes interest, I believe. Not just penalties but also interest.

MEADOWS: Well, when we — when we look at this, when we look at . . .

BEAN: I think it’s the biggest part of it.

MEADOWS: It was 80 percent. I mean, I’ve — I’ve got the study right here. I’ll be glad to share it with you. It’s 80 percent where basically “come from penalties and fees”, quote.

And so when — when we look at that, you know, then what you’re doing is you’re taking this number down and so we’re investing $200 million to try to go over and we’re assuming that they’re not doing legal activity.

I think most people actually agree with Mr. Kuettel. They may not be happy about they’re (ph) paying taxes, but they agree that it is their civic duty to do so.

BEAN: I would agree with that.

MEADOWS: And so when — when we see that, we’re making an assumption that activity is illegal, just like Senator Rand Paul was talking about.

So what you’re saying is that it’s OK for us to go in and get details on their private accounts, and making sure that we understand that in case there is illegal activity. Is that your premise today?

BEAN: I don’t like getting a 1099 on my bank account. I’m an honest taxpayer.

MEADOWS: That’s not what I asked. Is it your sworn testimony . . .

(CROSSTALK)

MEADOWS: . . . that’s it’s OK for us to go look at the private individual account with the suspicion that there may be illegal activity and that’s OK?

BEAN: I treat all Americans the same. 1099s or 1042s, I treat them all the same.

NB: Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding – It is not clear how a 1042s would apply to an American given it is designed for a foreign person

MEADOWS: Ms. Bean, you’re — this isn’t your first rodeo either. You’re not answering my question.

Is it your sworn testimony that it’s OK to go into the private individual accounts under the suspicion that there may be illegal activity and look at that as FATCA does?

BEAN: As FATCA and American law does, yes. I think that . . .

MEADOWS: Alright. So let’s look at it a little bit differently. So I am assuming you’re a law abiding citizen. Would it be OK, under that same premise then, for me to go look at all of your e-mails and all your private correspondence – which some would argue is not as intimate as your financial details. Would it be OK for me to go in there looking for suspicious activity? Would — would you think that that would be appropriate?

BEAN: No.

MEADOWS: OK. I agree with you. And so . . .

(CROSSTALK)

MEADOWS: But what we’ve done . . .

BEAN: . . . the other one is about private communications. There’s a difference there. All of us . . .

MEADOWS: Listen, my son is — is graduating from law school. His specialty is Fourth Amendment. So — I mean, we’ve had these arguments at the dinner table.

And so when we look at that, I understand the difference. But as we start to see this, Ms. Bean, here’s what I’m saying.

We’re investing money which forces a compliance nature that is making people where they can’t bank or where actually being a U.S. citizen is a detriment internationally for any financial whether you’re in a single household or whether you’re a financial corporation.

Do you think that that was the intended purpose of this bill?

BEAN: ,The Supreme Court . . .

MEADOWS: Was that the intended purpose of the bill? Yes or no.

BEAN: Was the intended purpose to denigrate Americans? Absolutely not.

MEADOWS: Alright. Thank you. I will recognize the ranking member.

CONNOLLY: Thank you. I — I do want to, you know, one — one — one wants to caution about only looking at extremes.

So we can ask about, you know, intrusion into Americans financial information as if all of it’s extreme.

So I’ll pose the opposite question to you, Ms. Bean. Would it be OK if we completely repeal FATCA and while we’re at it, say that anybody is free, as an American citizen, to have a secret bank account in Switzerland and should never have to report on it and should never have to pay taxes on it unless they feel like it?

What’s wrong with that?

BEAN: Well, what’s wrong with that is we have tens of thousands of people who are cheating on their taxes . . .

CONNOLLY: Correct.

BEAN: . . . honest taxpayers . . .

CONNOLLY: Right. FATCA — FATCA didn’t just come out of, you know, a busy bodies who love putting their nose in private business and there was no problem to solve and it was just another perverse liberal thing to do in Congress. Right?

BEAN: Correct.

CONNOLLY: I mean, there was actually a problem identified which was rather substantial tax evasion in the billions of dollars. Hard working Americans pay their fair taxes and none of us like to see anyone cheating. Right?

BEAN: Correct.

CONNOLLY: OK. Now, here’s my question. Having said all of that, the testimony we’ve heard from your three colleagues at the table would suggest that sometimes, though, we’ve gone too far.

That maybe the intention was good but it’s disrupted people’s lives. We’ve had testimony from two — two Americans that they had to renounce their citizenship because a bank in Switzerland told them they had to, if I got the testimony right.

And — and surely you would agree that’s not an intended consequence of FATCA.

BEAN: No, it is not.

CONNOLLY: So would you consider — you said something about the roll-out, you admitted was rocky. So is the implementation still rocky? Are there still unintended consequences that maybe Congress needs to address? Or — or someone implementing needs to address?

BEAN: FATCA still is not — is far from a perfect law. There are things that could be improved.

CONNOLLY: Well, no, no — nothing’s a perfect law. I hate that expression. I mean, that implies something could be perfect – nothing is perfect. I wish there were, but there isn’t. So we’ll put that aside.

It — it has problems in its implementation still?

BEAN: Yes.

CONNOLLY: OK. And — and listening to the testimony of the three gentlemen to your left — left? Right.

BEAN: My right.

CONNOLLY: Right, sorry. Do they have a point? I mean, can — do you recognize what you’re hearing here as a fair critique? Maybe not a comprehensive critique – you and I would stipulate that.

The purpose of FATCA is a good one. And it has done some good, clearly, in promoting an international standard and then collecting taxes that otherwise would have been foregone.

But in doing that, either in the zeal (ph) or in the reach, it’s hurt people unintentionally. That’s really what we’re hearing here. And I’m concerned about that as a member of Congress. I – I don’t want to see fellow citizens hurt. I — I want to see tax cheats brought in. I want to see everybody pay their fair taxes. And maybe not everyone up here shares that philosophy. I do.

But I don’t want to be hurting people in the process who are innocent victims of, you know, a well-intentioned piece of legislation that’s overly broad or is badly implemented.

And that’s — that’s what I’m asking you to comment on.

BEAN: I really think their concern is misplaced.

CONNOLLY: Who’s?

BEAN: The — the people to my right.

CONNOLLY: OK.

BEAN: I think what they’re concerned about is they feel, in some cases, it’s unfair to tax them because they don’t live in the United States . . .

CONNOLLY: Can I just say, I’ve seen this, Mr. Chairman, if I can interrupt one second.

I would ask everybody to forebear civility and acceptance. This is not a hearing where you shaking your head because you don’t like what somebody says.

We’re going to hear everybody and we’re going to try to be fair. But you’re — you’re not free to be, you know, commenting through body language on whether you approve or disapprove of somebody’s right to express themselves.

You know, if you’re at the table, you get to express yourself. If you’re not, please be forbearing and polite.

Ms. Bean?

BEAN: I was just going to point out that even if FATCA were completely repealed, you’d still have all of the same problems about people saying we’re getting taxed when we shouldn’t be or getting taxed too much or the process for renouncing citizenship is too complicated or too expensive.

All of those things would still be true because FATCA itself does not impose any tax and it does not, of course, require anybody to renounce their citizenship.

I think Switzerland was a particularly tough place to be that the banks there were particularly upset because FATCA was aimed, in part, at Swiss bank secrecy.

I think that a lot of those Swiss banks now have changed their practice. UBS and Credit Suisse now agree to open up accounts for American citizens and report them to the IRS . . .

CONNOLLY: Ms. Bean — OK. Thank you. Unfortunately most have been called. Mr. Chairman, just one — I would like, if it’s alright to have Mr. Bopp just comment on that, if he — if he would like to.

I’d like to hear the other point of view.

MEADOWS: Yeah. Very quickly . . .

CONNOLLY: Very quickly.

MEADOWS: We only have a couple of minutes left and we’re going to need to — to recess and reconvene. So very quickly.

BOPP: Thank you. I — I would just make a couple of points. First, this is not an unusual or rare problem that is affecting Americans overseas.

The Democrats abroad survey of Americans overseas found that 65 percent of married Americans overseas have lost bank accounts because of FATCA.

Secondly, this does not level the playing field. U.S. banks have to file, you know, 1099s regarding interest income. Under FATCA, foreign banks have to not only identify income but also gains and losses, et cetera. Also gross receipts, gross withdrawals, account information, value of it – no — no taxpayer in the United States reports that information to the — to the IRS.

And finally, regarding the penalty point that you made. The $9.7 billion that she’s talking about of taxes, interest and penalties – most of those penalties we know anecdotally were not because these people needed to pay any taxes and failed to do it, but because they failed to file this form. This one lousy form that generates a 50 percent penalty of the highest value in the account.

If you do it the second year, failed to file your form, you’re now at 100 percent. That’s the penalty. And — and you know, that is something that this committee should force the IRS to explain to the American people about how FATCA is working.

MEADOWS: Alright. We’re going to reconvene probably for planning purposes no sooner than 3:35. So you can go get coffee, do whatever you want and so this committee stands in recess.

MEADOWS: Alright. If you guys can make your way back to your seats. I think the ranking member is probably on his way and we’re going to go ahead and get reconvened at this point.

Seeing a nod from actually the people that do the work – the staff – we’ll — we’ll go ahead and the Subcommittee on Government Operations hereby reconvenes.

Chair recognizes the gentleman from Georgia, Mr. Hice, for five minutes.

HICE: Thank you, Mr. Chairman. Ms. Bean, I want to pick up with you, if we can continue here.

Any idea how much revenue is lost to offshore tax evasion each year?

BEAN: Estimates have been between $100 and $150 billion dollars per year is lost to offshore tax evasion.

HICE: Alright. Between . . .

(CROSSTALK)

HICE: . . . $100 and $150 billion. And you’re — you’re satisfied with that estimate?

BEAN: Yes.

HICE: OK. And how much is — revenue is brought in because of FATCA?

BEAN: **I don’t know. It’s such a new law. They just started the reporting in 2015. I don’t know if they have any statistics yet.

HICE: OK. Well, the Joint Committee on Taxation estimated $870 million. Are you familiar with that estimate?

BEAN: That is being brought in per year? I wasn’t familiar but OK.

HICE: OK. Based on that, assuming that the Joint Committee on Taxation is accurate, at least in the ballpark, it is very poor math.

We’ve got a loss of $100 to $150 billion, we’re only bringing in $870 million. And that’s just part of the problem.

I mean, we’re spending — figures have been going out today – $200 billion spent on this. The estimates on that range from a little less than that.

The $200 billion is kind of a middle-of-the-road estimate. I’ve seen as high as a trillion, as low as eight billion. But the middle- of-the-road guess – $200 billion.

And besides all that — just — I mean, I listen to these witnesses and read your testimonies and the harm that is being caused individuals around the world and the harm that has come about to some of our allies.

You even mentioned yourself how — you know, you said that in your opinion things are changing. How many of our allies have been hurt because of this?

Obviously, it’s not a very efficient use of IRS resources and quite frankly, I have questions as to just whether or not this thing’s even constitutional or not.

There are tremendous constitutional questions that come up with this. The fact that Americans living overseas are forced to provide financial information that would normally require a warrant – it is just amazing to me. There’s obviously an issue, at least, with the Fourth Amendment there.

We have heightened reporting requirements that treat Americans living overseas more harshly than those living here. And that, obviously, is a Fifth Amendment concern. You just wonder even how constitutional this thing is at its very foundation.

And then the fact that this was instituted without congressional authority. President Obama — the — the agreements were made — I mean, you’ve got to — separation of powers is — I guess my point is it’s over and over and over.

There’s just questions on this thing as to even how effectively it’s working. If we’re bringing in $870 million, but the cost is some $200 billion, it doesn’t take a whole lot of math to figure out this is not a very efficient thing.

And you add to it the harm that’s being caused and the constitutional issues that are being raised. It — it appears to me that although this may have been implemented with good intentions, as has been mentioned here today, there’s enough information that’s come forth here about FATCA that frankly, I find this thing not only to be disastrous as a law but dangerous potentially, constitutionally.

And it just seems to me in every way this ought to be repealed, if not majorly modified.

Just a quick yes, no, would — would you all agree or disagree that this needs to be either repealed or modified?

Mr. Bopp?

BOPP: I definitely agree it needs to be repealed. We — we have thought about, you know, fixes — alleged fixes being proposed by various people and the problem is it leaves all the essential elements of the FATCA regime in place.

The burden’s on most individuals. The burden’s on financial institutions don’t change, but — in any of the proposals that we are aware of. And — and — and the constitutional issues remain.

And we — we just should not be treating people that are U.S. citizens, because they’re residing abroad, stripping them of their rights as if they were second class citizens.

HICE: OK. My time has expired. Mr. Crawford and Mr. Kuettel, yes or no – repeal it, modified?

CRAWFORD(?): Yes, I’m support of repeal.

KUETTEL(?): Yes, I support repeal.

BEAN: No, I don’t. And just so you know, the courts that have looked at these types of issues have . . .

HICE: Nor — nor do you believe that it should be modified? You like it just as it is?

BEAN: I think there’s some modifications that would be appropriate.

HICE: OK. Thank you, Mr. Chairman.

MEADOWS: I thank the gentleman. The Chair recognizes the gentlewoman from New York, Ms. Maloney, for five minutes.

MALONEY: Thank you, Mr. Chairman. I want to thank you very, very much for your focus on this issue. It’s an extremely important one as we move into more of a global world with many Americans living abroad.

And of course, thank Ranking Member Connolly. And thank you to all the witnesses who’ve come from all over the corners of the globe to testify about the future of this important law.

I — I represent a district that has many Americans that live abroad that have expressed the concerns of Mrs. Nelson, although I have never had a first family who came over on the first ships testify to me.

But many people have told me the excruciating experience of renouncing their American citizenship and their inability to open up bank accounts or being forced off the bank account of their spouse.

But likewise, I’m very sympathetic to the points that Ms. Bean has raised about the need to crack down on terrorism financing, drug financing, human trafficking financing, and just plain crooks.

But I — I — I do think that we could reach some type of agreement in — in going forward.

I personally do not think FATCA should be abolished. But certainly the reporting procedures should not subject ordinary Americans, in my opinion, to the same scrutiny as criminal tax evaders, money launderers.

And coming from New York, which is constantly a — a terrorist target, the extreme concern that law enforcement has in — in New York and I’d say around the country of terrorism financing.

I’ve been particularly interested in this issue for some time now. As co-chair and founder of the Americans Abroad Caucus, I have heard reports from constituents overseas detailing how FATCA’s expensive and risky reporting requirements have had a negative impact on access to banking services for Americans living abroad.

FATCA was passed to fight overseas tax havens and make sure that American money could not be hidden from tax obligations, which is something I strongly support and I’m sure most members do as well.

It does this by requiring foreign financial institutions to disclose certain information to the IRS about American-held accounts or the institution will be subject to a 30 percent withholding tax on all of its income from U.S. sources.

Unfortunately, in order to minimize their exposure to FATCA reporting requirements and avoid any withholding fees and potential penalties, some foreign financial institutions have decided to simply close accounts for U.S. citizens or refuse to open new ones for them or have asked them to get off the account of their spouse.

As a result, many law abiding American citizens living overseas have lost access to everyday financial tools such as mortgages, bank accounts, insurance policies, and pension funds, all of which are critical services in a modern economy regardless of your place of residence.

Now I believe it is essential that the Treasury Department has the tools it needs to fight overseas tax havens and make sure that any American money around the world remains compliant with the U.S. tax code.

But the current FATCA reporting procedures subject ordinary Americans to the same scrutiny as criminal tax evaders.

It’s gotten so bad that some Americans have resorted to renouncing their American citizenship in response and that’s unacceptable.

Of whether it’s one or two or 2,000, we should not live in a world where people feel they have to renounce their — their citizenship in order to comply with — with basically transparency laws.

Recognizing the consequences that the reporting requirements have had on Americans living abroad, the IRS Taxpayer Advocate Service 2015 annual midyear report to Congress recommended that the IRS exclude from FATCA reporting financial accounts maintained by a financial institution in the country in which the U.S. citizen is a bona fide resident.

And I — I have here a — a letter that — about 20 members of Congress joined me in — in signing and sent to — to — to Treasury and IRS supporting this idea – this — this narrow, narrow exemption for American taxpayers.

The report details how this proposal would mitigate concerns about unintended consequences raised by overseas Americans, reduce the reporting burden on FFIs (ph), and allow the IRS to focus its enforcement efforts on identifying and addressing willful attempts at tax evasion or money laundering or money hiding through foreign accounts.

The IRS would retain access to foreign financial account information as citizens would still be required to submit the report of foreign bank and financial accounts.

Additionally, the Financial Crimes Enforcement Network, or FinCEN, the (inaudible) system ensures IRS employees direct access to FBAR data.

The Treasury Department has not yet implemented this recommendation and I wrote this letter on September 15th of 2015, which I’d like to submit to the record, Mr. Chairman . . .

MEADOWS: Without objection.

MALONEY: . . . to the IRS and Treasury Departments urging adoption of this reform, but still nothing has happened.

So today I — as we hold this hearing, they haven’t taken any — been taken to institute a policy to alleviate the burden on overseas Americans as a result of FATCA.

That is why last night I introduced the Overseas Americans Financial Access Act, which would implement the recommendation and exempt Americans from FATCA reporting if their accounts are held in the same country where they are bona fide residents.

It is a narrowly tailored change that could drastically improve the financial conditions for Americans living abroad. I — I hope my colleagues will join me in this good faith effort to make FATCA more effective in its intention and yet less burdensome on law abiding Americans living and working abroad.

And I — I request permission to place in this record, I think, an excellent document that was prepared by the Foreign Account Reporting on the issue in ways that could be improved which included the recommendation that I legislated last night. And — and I have the bill here and I’d also like to put that in the record.

I feel that this narrowly tailored approach would relieve the burden on American residents, members of — Americans yet keep the benefit of cracking down on terrorism financing, drug financing, human trafficking financing, and just plain criminal behavior.

My time is long over expired. I thank the gracious chairman for — for allowing me this time to speak and I — I — I look forward to a second round where I can participate in asking questions. Thank you.

MEADOWS: I thank the gentlewoman. Her two unanimous consents without objection so ordered.

And the chair recognizes the gentlewoman from the District of Columbia, my good friend, Eleanor Holmes Norton.

NORTON: And let me thank you, Mr. Chairman, for this really interesting and important and revealing hearing.

I was pleased to hear my good friend, Ms. Maloney, take a stab at how we could, in fact, go at the probable unintended consequences of going after bad guys and getting good guys while at the same time not opening the gates altogether to the bank.

Indeed I was a little surprised to hear some of your responses to the question that was asked by my colleague on the other side whether repeal or modification was appropriate.

Let me remind you what it takes in this Congress and what it took in the Congress that passed this to get legislation through, to recoup taxes, or to tax anyone.

The evidence was overwhelming of human trafficking, of — of — of drugs smuggling, of — of tax cheats. So overwhelming that in a Congress which is not known as passing a lot of bills.

And in a Congress which has caught the IRS more than it has caught any other part of the government, this legislation, FATCA was passed.

So I have to ask you, when you say you would like repeal, do you really mean you want no law on the books that went after the bad guys so that we could make sure that the good guys weren’t, in fact, caught?

I’m going to ask you to think about that. Because this is the kind of modification that is going to take bipartisan support and you just heard a member offer at least one version of modification.

But if you come to the Congress of the United States who passed a law like this after being overwhelmed by evidence and say, “The only thing we want is a wide open gate.” And ask you to throw all of that away, then you’re not really helping us.

So I’m asking you whether you would consider the notion of — of modifications that would, in fact, help us deal with what moved all of us during your testimony?

Mr. Bopp, let me hear all down the line on that.

BOPP: Thank you. And — and of course, we have considered the possibility of changes such as proposed and other proposals. And the problem is is we do not find that they will be effective in — in relieving the burden . . .

NORTON: Alright. Mr. Bopp and — and my time is . . .

BOPP: And I can tell you why.

NORTON: You know, you may not have seen any yet, but you see what you give us: an all or nothing kind of resolution. And that, of course, it tells us – who don’t do much in the first place – nothing.

I just want to ask — maybe the chairman would grant me some time as well, because I — I — I want to — I want to see whether any of you would be open to modification going back to where we were.

The fact that you haven’t seen one there . . .

MEADOWS: The chair will give that.

NORTON: . . . doesn’t mean that there isn’t one in existence. And there haven’t been hearings like this doesn’t mean that working with people couldn’t help us.

But I do have to ask Ms. Bean about this — this what looks like the — the — the rest of the country moving toward us with this common reporting standard.

Does that, in fact, share much of what we’ve been talking about in FATCA, Ms. Bean? This common reporting standard? This OECD effort to collect and share information about foreign held accounts?

BEAN: It’s modeled on FATCA. It’s very similar to it. It’s not identical. Buy yes, over a hundred countries have now signed up to that system.

NORTON: So if anything, it looks like the rest of the world is moving toward what FATCA — because of hearings which opened up this matter up, in fact, found.

So could they work together to stop the kind of tax evasion we’ve been talking about? The common core — common reporting standard in FATCA, Ms. Bean?

BEAN: That’s the hope that with the — most banks around the world starting to report account information to governments that this whole problem of secret bank accounts that, as you said, are used not only by tax evaders but terrorists and criminals, sex traffickers, drug lords. That that whole problem would be much more manageable because of the transparency.

NORTON: Would — would the information of U.S. account holders still be collected if Congress repealed FATCA but the common reporting standard continued and existed?

BEAN: I don’t know the answer to that. I believe it would be but I’d have to look at it more detail.

NORTON: I wish you would get that answer back to our chairman. I have to tell all of you sitting at the table, I was a tenure professor of law before I came to Congress.

And essentially I taught one of the — one of the — in addition to the hard letter (ph) courses I taught, one was negotiation. So I came kind of with the frame of mind as every lawyers can be most helpful if they understand that we live in a world where each side can’t get what he wants but can, in fact, be satisfied.

And it’s that kind of problem solving approach I’ve tried to bring to the Congress as well. So I must tell you, when somebody tells me to take back a piece of legislation that could have passed only if we were deluged (ph) with information that made it irresistible, if you tell me that that is the only answer, I have to tell my friends at the table that you’re asking for the status quo.

And I would ask you to work with Ms. Maloney, with me, with the chairman to find a way out of this dilemma so that in trying to help the good guys, and you represent them, we do not go back to opening the gate to all the bad guys we were after in the first place. I thank the chairman for his indulgence.

MEADOWS: I thank the gentlewoman. I would like to make note that the chair did give the additional two minutes to the gentlewoman from D.C.

NORTON: That’s why I love him so much.

(LAUGHTER)

MEADOWS: We’re going to go ahead — since the gentlewoman from New York wanted a second round — we’re going to go ahead and do a — a brief second round. So I’m going to recognize myself for a series of questions.

But let me clear up, I guess, some testimony. I’ve got sworn testimony that Ms. Bean says that we’re not asking financial institutions abroad to do anything that the United States banks do.

And Mr. Bopp, your sworn testimony seems to be at odds with Ms. Bean’s. So help me clear up. Mr. Bopp, I think you said that more than just a 1099, they are required to have all kinds of other — other information. I want to give you a chance to correct the record if you are not correct in your sworn testimony.

BOPP: The 1099 that American banks are required to send in to the IRS and to the taxpayer, of course, reports the interest income on the account.

It does not report gross receipts. It does not record gross withdrawals. It does not report the value of the account. These are things that FATCA requires foreign banks to provide to the IRS.

MEADOWS: Alright. So you’re saying that foreign banks have to do that and U.S. banks don’t. OK.

I think we will get a different opinion here, but Ms. Bean, go ahead. Are you saying that his testimony is not correct?

BEAN: Mr. Bopp is correct. There is additional information under FATCA from foreign banks than there is in the U.S. banks.

MEADOWS: Why — Why is that?

BEAN: I think that’s just the way the law was written but one reason . . .

MEADOWS: What — do you not see that as problematic?

BEAN: Well, I think one reason is that U.S. banks are subject to subpoena from U.S. law enforcement in the way that foreign banks aren’t. So U.S. law enforcement . . .

MEADOWS: Whoa So you’re saying . . .

(CROSSTALK) MEADOWS: FATCA’s intent — from someone who should know — FATCA’s intent was to allow a way to access information without a subpoena? Is that what you just said?

BEAN: Yes. Just like 1099s. There’s no subpoena for 1099 either.

MEADOWS: Right. But you’re saying that because we did FATCA, we’re going to have our constitutional protections violated because of a law? Is that your sworn testimony here today?

BEAN: The courts have said it is not unconstitutional. The Supreme Court has said you can get . . .

MEADOWS: Well, but you’re saying that getting around a subpoena is you’re saying they’re subject to a subpoena and somebody else is not subject to a subpoena.

BEAN: I think you were asking me why would FATCA require more information . . .

MEADOWS: No. I was asking you if it was different because your sworn testimony from my first round of questions is you said that we weren’t asking them to do anything that a U.S. bank was asked to do.

That was your sworn testimony and I can get them to read back the transcript. But I assume that you’re saying now you want to change that to say that, “Yes, we are asking foreign banks to do something that a U.S. bank doesn’t have to do.” Is that correct?

BEAN: What I meant in my testimony is that we’re requiring foreign banks to file a form on all accounts opened by U.S. clients. And we have U.S. banks that have to file a form on all accounts opened by U.S. banks.

But Mr. Bopp is correct. There are a couple of additional items of information primarily . . .

MEADOWS: So you would be OK with waiving those couple of additional items and amending the law because obviously that’s — we’re not treating people the same in the United States as we do abroad?

BEAN: I would not because from a foreign bank, U.S. law enforcement . . .

MEADOWS: I’m going to go back to what the gentlewoman from the District of Columbia says. You can’t have it the other way either. I mean, they may not be able to give full repeal, but you can’t keep the full law and — and sit here and negotiate in good faith and assume that everything with FATCA is correct.

BEAN: In fact, the rest of the world has noticed the same difference . . .

MEADOWS: They’re being forced to notice the world because of what we’re doing.

(CROSSTALK)

BEAN: . . . by that additional information.

MEADOWS: Would you not agree with that? They’re being forced to do it because of what we’re doing from — from our law and forcing them to do it?

BEAN: We are forcing them through the 30 percent excise tax.

MEADOWS: And do you not see that some of these side effects – that we’ve had expert testimony from Mr. Kuettel and Mr. Crawford – that those side effects of our forcing financial institutions to do it are having repercussions that were not intended in the original law?

BEAN: My entire adult life, I’ve had to file a 1099 on every bank account I’ve ever opened.

MEADOWS: So you were OK — so you’d be OK . . .

BEAN: I’m OK with that.

MEADOWS: Alright. So let’s — let’s go there. And maybe that’s a reasonable compromise.

We repeal FATCA in that we require foreign institutions to have to file a 1099 to the IRS on interest income. Would you be OK with that?

BEAN: I’d prefer that the 1099 to be expanded to what FATCA requires.

MEADOWS: Therein is a deeper problem, but we won’t go there.

(CROSSTALK)

MEADOWS: Ms. Bean, we’re not going to ever agree on that.

BEAN: OK.

MEADOWS: So let’s — let’s go ahead with this. Are you OK, yes or no, with us just repealing back and saying that a foreign account has to do a 1099 on interest income as a U.S. bank would do, as Mr. Bopp (ph)? And that’s — that’s all they have to do. Are you OK with that?

BEAN: No, I’m not.

MEADOWS: OK. You know, I — I find it challenging that — because apparently — so what are the problems that you see with FATCA, Ms. Bean?

BEAN: Well, one of the — there are a number of problems. One of the problems is . . .

MEADOWS: How many problems would you say there are with FATCA?

BEAN: Well, I haven’t counted them up but let me give you two of them.

MEADOWS: OK.

BEAN: One is that when the IRS started to penalize people for violating the law, their penalties — they had a range of penalties they could do. They were very unreasonable and the penalties they apply . . .

MEADOWS: So what would a reasonable penalty be?

BEAN: Well, one of the things that the IRS did at the insistence of the Taxpayer Advocate is they came up with a system that if you had an inadvertent violation of the law . . .

MEADOWS: Inadvertent by who?

(CROSSTALK)

MEADOWS: Now I will sometimes tell my wife that I forgot to take the trash out inadvertently.

Is that — I mean, inadvertent by who’s standard?

BEAN: I think they require a certificate from the taxpayer and if the taxpayer will certify that they — it was inadvertent, they didn’t realize they were violating the law, they would then be . . .

MEADOWS: I would think that would happen 100 percent of the time. Wouldn’t you?

BEAN: About that. And they then are qualified for much lower penalties. So that’s a system that’s been . . .

MEADOWS: So what should the penalty be, Ms. Bean?

BEAN: That’s a very complicated question because there are a lot . . .

(CROSSTALK)

MEADOWS: But you’re an expert witness. You’re here — you are here at the request of the minority as an expert witness. I would assume you have an opinion on that since you were involved in part of this.

What would be an appropriate penalty?

BEAN: Well, I’ll give you an example. There was a gentleman that they found at a bank in Israel.

He had hidden $21 million dollars in those accounts – never been reported to the IRS. The IRS then ended up hitting him with a fine of $8.3 million dollars for the many years that he hid those accounts. And he went through a lot of machination (ph) to hide them from the IRS in Egypt.

MEADOWS: But that’s criminal. That’s criminal. I mean — so here’s what we’re talking about is — is — is when we are looking at that, if indeed he went through all kinds of issues — I mean, we’ve got laws that say we have to disclose those accounts.

I know every year my accountant would — would ask that. But what — what you’re saying is — is that — so a big penalty if he’s got a lot of money is OK but a big penalty if they don’t have a lot of money is not OK. Is that what you’re saying?

I’m trying to figure out what — I’m trying to answer the question for you since you don’t seem like you want to answer the question. What’s an appropriate penalty?

BEAN: Well, the penalties currently are gauged to how much money is in the account. So that’s one thing they do take into account. And another thing they take into account is whether it was inadvertent or not.

MEADOWS: So are you going to answer the question or not? What’s the appropriate penalty?

BEAN: Sometimes the appropriate penalty is zero. If you didn’t know you were violating the law, the penalty could be zero.

MEADOWS: Alright. So if you — so you’re — you’re OK if we say you didn’t know that you were violating a law, that the penalty would be zero?

BEAN: In some cases, yes.

MEADOWS: OK. We’re not getting much of anywhere. What would be the other example? So penalties being outrageous is one. What’s the other problem? You said there was two.

BEAN: The other one I would mention is that we’ve had the FBAR for many years where people have to identify their foreign accounts.

MEADOWS: Right.

BEAN: But now under FATCA, we created another form that seems to be very duplicative of the first form . . .

MEADOWS: Right.

BEAN: . . . and I’m not sure that we need that second form. And as people have said, there are a lot of trips and traps to complying with FATCA and that seems to me to be one of them, to have that extra form.

MEADOWS: Alright. So — so let me understand. Your best recommendation on improving FATCA is we get rid of one form and we may adjust the — the penalty? Those — those are your two best attempts at trying to fix FATCA?

BEAN: Yes. Because as I said, live my life under that regime, I . . .

(CROSSTALK)

MEADOWS: So if you’ve lived your life under that regime, knowing that there is a return, knowing that — that the IRS — the gentlewoman from the District of Columbia talked about — knowing — knowing that there are financial resources, knowing that the Commissioner Koskinen says that he can get a 20 percent return sometimes.

Or even lets take conservative. Under sworn testimony he said an 8:1 return. Wouldn’t we be better off taking the $71 million that we spent last year and using it for some other type of enforcement that provided a better return?

Because aren’t we only getting one percent of what — your sworn testimony said there’s a hundred billion out there. We’re only — we’re only collecting one percent of those — those taxes.

And actually, it’s not even that. It’s taxes and fees and penalties and interest. So we’re spending all this money to address one percent of the problem.

BEAN: Well, $150 billion includes all of the corporate tax avoidance. So that’s — that’s a whole different issue.

But when you’re looking at individuals, the numbers that are usually used are $35 to $70 billion dollars a year just for individuals.

I’ve been asked earlier about offshore tax avoidance and evasion altogether. But for individuals it’s $35 to $70 billion dollars.

MEADOWS: Alright. I’m way beyond my time. So here’s what I would ask you to do – each one of you to do – is come up with three recommendations. Your two that you gave me under sworn testimony don’t count.

I need three recommendations on what you would do with FATCA. I need you to look at — in the spirit of trying to find, if we do not fully repeal — what are the three most erroneous (ph) situations that affect gentlemen like Mr. Crawford and gentlemen like Mr. Kuettel? What are those — those areas?

Are all of you willing to either give me your recommendations back to the committee to do that?

BEAN: (OFF-MIKE)

KUETTEL: (OFF-MIKE)

CRAWFORD: (OFF-MIKE)

BOPP: (OFF-MIKE)

MEADOWS: OK? Thank you. I recognize the gentlewoman from New York, Ms. Maloney.

MALONEY: I — I thank the gentleman for his concern and trying to get an answer.

But — but to me it’s not a monetary thing. It — it really is human life because terrorism financing has become a way of life in this world.

MEADOWS: Well, would the gentlewoman yield for one point of . . .

MALONEY: No, because I have — I have a phone call with Justice Ginsburg in about five minutes so I can’t yield right now. Excuse me, Mr. — I just have to ask one question and that’s it.

Listen, so — I disrupt my train of thought. Let me think. So — so just to — just recently, this month, Chairman Hensarling of the Financial Services Committee created a whole new committee on terrorism financing because it’s such a huge issue.

Bombs went off in my district several months ago. The police caught the guy but the question is where did he get his money from?

So cracking down on terrorism financing is a real concern. And I would say why are people hiding money?

A lot of times it’s not just to save on taxes. It’s because they’re selling guns, they’re selling human bodies, or they’re involved in drugs or all kinds of things that basically hurt people.

So I’m trying to — and I join you with your question: find a solution — and I look forward to working with you on it — that allows us and law enforcement to go after the bad guys but protects people like Mr. Kuettel.

So my question is to Mr. Kuettel: would the exemption, that was really put forward by the Taxpayer Advocate Service that basically recommended that the IRS exclude from FATCA reporting financial accounts maintained by a financial institution and the country in which the U.S. citizen is a bona fide resident — that would have taken care of Mrs. Nelson’s situation which she explains so clearly — but as a bona fide citizen of — of — of Switzerland, this particular change would have excluded you from this burden. Is that correct?

KUETTEL: (OFF-MIKE)

MALONEY: Pardon me?

KUETTEL: I fear not.

MALONEY: Why not? Because you’re a bona fide citizen in a company — in a country, you would no longer have to do the FATCA. That’s what this recommendation says.

KUETTEL: From my experience, the damage of FATCA has already been done. The banks are already terrified of America. If you just exclude local residents from FATCA, they still have the reporting requirements for the taxation.

When I take my daughter here to a bank, practically any bank, the first question is, “Are you taxed by America?” They don’t ask, “Are you reportable by America?” They ask, “Are you taxed?” Meaning she’s a tax threat.

(CROSSTALK)

MALONEY: And that’s the current law now. But if the law changed so that if you’re a bona fide citizen, you could just say back to them, “I am a bona fide resident of this country, therefore” — or you could get a form from our government that says therefore if you’re going to a financial institution in your country . . .

I — I — I would like to get legal counsel to look at it because I believe you would be exempt under these types of recommendations.

In any event, something needs to be done on it. And I thank the chairman for his attention to it and his personal involvement in it.

And absolutely all of — all of the panelists. But I do believe cracking down on — on terrorism financing, which is one of the major reasons of this, is a critically important concern, unfortunately, in the world now.

So thank you and I yield back and I thank you and I’m sorry I couldn’t yield but I’m in trouble right now.

MEADOWS: That’s alright. I’ve got a very long memory. So that’s . . .

(LAUGHTER)

We’ll go from there. I thank — I thank the gentlewoman for . . .

MALONEY: (OFF-MIKE)

MEADOWS: No. I understand justice — a Supreme Court Justice or a member from Congress or North Carolina – I would have made the same choice you did.

So — no, I thank the gentlewoman for her interest. So let me — let me — the — in the interest of clarity, let’s talk about what this is and what it is not.

This is really not about the terrorist organizations that — that go and deal with that.

I — I have a little bit of expertise there. The Hezbollah sanctioning bill was a bill that I actually started in the first Congress. I understand the aspects. It is now law. It is affecting behavior because we’re going after money for terrorists.

But we use totally different vehicles than this particular vehicle. And so to suggest that they’re one in the same would not be accurate. I mean — and when you look at Central Bank activity and the moving of funds and all of that, it is a very different issue.

It is very complex, but it’s very different. I have real problems with us treating citizens of the United States who happen to live abroad differently than citizens of the United States that happen to live in the contiguous 48 or whether it’s Puerto Rico or anywhere else.

When we start to look at this, it is critically important that we understand the constitutional foundations of who we are as a nation.

And in the interest of everything that we know, we can go after all kinds of things where we start violating the civil liberties of individuals in the interest of compliance.

And that’s why we have — our founding fathers set it up — that’s why we have a Fourth Amendment. And we’ve got other areas where the Fourth Amendment is being challenged.

And so Ms. Bean, I would ask you to have an open mind and try to figure out those areas where the side effects and the testimonies that we’ve heard from these individuals and others, thousands of others, are being affected.

So I’d ask you to keep an open mind and look at that. Mr. Bopp, I’d ask you to look at it from a different perspective.

In assuming that we can’t get enough bipartisan support, which I believe we can, but if we can’t get enough bipartisan support to repeal this and actually replace it with something else — and I hate to use the word repeal and replace in the context of — of anything these days.

(LAUGHTER)

But as I look at this, if we can look at repealing and replacing it with something, I would ask you to — to take the thoughtful suggestions here.

Here is my closing remark. Senator Rand Paul recognized an issue that was brought to him not only from his concern for freedom loving individuals and the Constitution, but it was something that was highlighted over and over again. And if you travel abroad, we have U.S. citizens who love the United States.

Who truly — some of them are more patriotic than some who live in my state of North Carolina.

And yet they’re being forced with a decision of do they renounce the country they love so that they can continue to transact even a normal bank account? And — and that’s a choice that we shouldn’t be forcing people to make.

I think there are ways that we can figure this out and tailor this so that we truly go after those who have a problem with tax — not only avoidance but criminal activity. We — we know that indeed that it is our obligation to pay taxes, and to avoid that in an improper manner is certainly not anything that a Republican or a Democrat would condone.

And so it is in that spirit that I would ask you to report back here the three recommendations.

Get as many — we won’t limit it to three but if — if you don’t give me three you’ll hear from us. How about that? Is that — is that a deal?

I want to thank all of you for the discussion and — and truly for your testimony. It’s been very illuminating. If there is no further business before the committee, this committee stands adjourned.

END

Hands Down this is the Worst Academic Piece About FATCA ever Written

 

 

Profesor Paul Caron, on his TaxProfBlog posted the following article:
CONSIDERING “CITIZENSHIP TAXATION”:
IN DEFENSE OF FATCA
20 Fla. Tax Rev. 335 (2017):
by Young Ran (Christine) Kim

 

If any description could possibly be demonstrated over & over in this piece it would be the term “offensive.”  I confess to a hard-edged bias against academia, likely for the same reasons as most people; i.e., the rather noticeable and consistent lack of everyday common sense. Even in my own field (piano performance, where a doctorate is called a DMA not a Phd) there is a prevalence of people who may be perfectly schooled in the accuracy of Baroque ornaments, precise methods of articulation in Classic-period pieces or any number of other tedious accomplishments yet their actual playing (which is the whole point of a performance degree vs an academic one) is so devoid of vitality and inspiration it is enough to make one weep. I don’t know if the same exists in all disciplines but one thing that does apply here is a complete (and I mean complete) lack of awareness on the part of the author, of the harshness of how these theories play out on the lives of REAL people. What would make much more sense would be to address these problems head-on rather than justify “concepts” through a lot of theoretical jargon.

 

The following comment says it well:

 

The people affected by “citizenship-based taxation” are U.S. citizens and Green Card holders who live outside the USA and are “tax residents” (and often citizens) of other nations. The paper discusses (sort of) “citizenship-based taxation” as an abstract concept without considering the brutal effects that it has on the people subjected to it. The acknowledgement of the difficulties with pensions, retirement planning, foreign spouses, mutual funds, CFC rules, etc. (the reality of citizenship taxation) is most notable in its absence. And no, FBAR and Form 8938 (as obnoxious as they may be) are reporting requirements and not the specific tax rules (PFIC, etc.) that affect Americans abroad. I suspect that this paper will be subjected to the criticism that it so richly deserves.

Posted by: John Richardson | May 26, 2017 1:14:02 PM

While this criticism can be equally leveled at the members of Congress who passed FATCA, the Treasury Department personnel who wrote the regulations and last but not least, the heartlessness of many tax compliance practitioners, there is something especially repugnant about those pontificating from their ivory towers, proclaiming that FATCA, citizenship-based taxation, global transparency and all the rest of it, are worth the grief being caused.

Ms Kim indicates her paper finds its origins in Ruth Mason’s recent article, Citizenship Taxation, [89 S. Cal. L. Rev. 169 (2016),

A major difference between the two is that Ms Mason basically sees citizenship taxation in a negative light while Ms. Kim attempts to find it as a natural basis to support FATCA.

She addresses three main arguments; the fairness argument, the efficiency argument and the administrative argument.
 

I.) THE FAIRNESS ARGUMENT

 

Individual taxpayers’ obligations to file Foreign Bank Account Reports (FBAR) or report under the Foreign Account Tax Compliance Act (FATCA) are not seriously onerous. The fact that citizenship taxation along with FBAR and FATCA enhances global transparency further supports the case for citizenship taxation……..because the rules have been improved through various exceptions and substantially high reporting threshold amounts.

Ms. Kim asserts that the obligation to file FBARS is not “seriously onerous.” The very real threat of a non-willful penalty of $10,000 per account per year (or worse for “willful) is certainly enough to strike the fear of God in even the most reticent individual. The idea that this reality is not considered when evaluating FBAR is beyond reasonable. Articles about FATCA often cover only the reporting done by the FFI’s. However, the other component is the requirement to file 8938’s which duplicate information from the FBAR and can incur serious penalties. The average person is not able to complete an 8938 and will have to pay to have a professional do it. Nowhere in this article does the author address the issue of compliance costs for individuals which can easily be $2500 a year for someone owing no tax and involve 50 or more pages of returns. Not onerous? Furthermore, there are simply NO FIGURES yet, to make any claim that FATCA “enhances global transparency.” Professor William Byrnes describes
the oft-quoted figure of $10 billion. This amount has absolutely NOTHING to do with FATCA; it is largely comprised of penalties and interest collected through the OVDI programs (and does not even represent actual tax recovered). While the FATCA thresholds are higher, please, the threshold for FBAR remains at $10,000, the same figure when the Act was created in 1970 – 47 YEARS AGO!
 

FOCUSING ON THE ABILITY TO PAY PRINCIPLE

First, consent theory argues that taxing nonresident citizens is justified because retaining citizenship represents consent to such taxation.

 
One cannot consent to something one doesn’t even know about. Is the author completely unaware of the history underlying the persecution of expats once Treasury/Justice went after the Swiss banks in 2008? There are still likely more Americans abroad who remain unaware of the obligation to file taxes and worse yet, the oppressive information returns with penalties simply for not filing a piece of paper (i.e. no tax due). For those who do know and who retain citizenship, keeping it is much a matter of confusion and fear and could hardly be described as “consenting to taxation.”

 

Second, benefit theory attempts to justify citizenship taxation as an obligation of nonresident citizens in return for the benefits they receive from the government.

This argument is so ridiculous at this point it is hard to believe it remains part of the discussion. Cook v Tait is nearly 100 years old and does not address the large changes globalization has produced. There is the endless  nonsense of hearing how “The Marines will come to rescue you,” after which you receive a full bill. How many living in first-world countries have any need for “rescue?” And last but not least we “owe” the U.S. for consular services (for which we pay, dearly in the case of renouncing – $2350 or $50 USD to notarize a single page). All tiresome and nowhere near justifiable for being taxed “the same” as Homelanders.

 

Third, social obligation theory

the underlying assumption of this theory is that people have an obligation to pay taxes to support the members of the society to which they belong in accordance with their ability to pay taxes, which should be measured by their worldwide income.

I remember my reaction to Prof Michael Kirsch’s comments (at the ACA Program in Toronto, May 2014, “CBT vs RBT”)regarding polity and such. It seemed ridiculous to me to consider those of us living outside the United States as being a member of that society in any meaningful way. In my own life, now 35 years outside the U.S.(over half my life), the only times I identified as a “member ” of U.S. society was when defending against strong anti-American sentiment (the first few years away) and national tragedies such as 911. I cannot see any way that those infrequent occurrences defined me as being an American more than being a Canadian.  I would say a more meaningful and valid way to apply the social obligation theory is whether or not I support policies that promote the social welfare of those around me, whether or not I give the homeless guy I see everytime I go to the bank, a bit of money so he can buy some lunch. IOW, except in an idealistic or nostalgic way, one can really only measure his/her “social obligation” based upon what they come face-to-face with, i.e., where they live.

 

Due to the different factors affecting the ability to pay, such as difference in the standard of living or amenities between places, “it would be fairer to calculate a person’s ability to pay by reference to the place where she lives rather than to the place where she holds her citizenship.”

“actually tax them alike,” which would require the repeal of the foreign-earned income exclusion and the allowance of unlimited foreign tax credits, including foreign consumption taxes, as well as the implicit taxes and subsidies to compensate the differences.

 

While all expats readily understand the reality that they are NOT “taxed the same” as Homelanders, the idea of being able to adjust all these factors to the number of foreign countries with all the differences in structure etc., absolutely discourages any realistic notion that this could ever be accomplished. Current retirement-oriented plans such as the Australian Super; the lack of recognition of tax-deferred vehicles registered by governments being treated the same as their US equivalents; requiring capital gains tax on the sale of principle residences which are tax-free in the countries where they are located ; and above all else, the obscene “savings clause,” all speak to the built-in bias the US has for anything “foreign” and its pronounced tendency to punish people for making use of non-US instruments. Add the effect of the Patriot Act, which makes it impossible to even open a US account with a foreign address and a non-resident American understandably lacks the will to try and weave one’s way through all these complicated, impossible-to-delineate requirements and procedures. The fact that the IRS does not clarify ambivalent sections such as §877A as well as the fact that no two compliance professionals can be counted on to give the same opinion is proof positive that disparate tax systems simply cannot be adjusted “fairly.”
 

when its critics condemned the new obligations to file FBARs and FATCA as an excessive compliance burden for nonresident citizens created by the Bank Secrecy Act.

There are no “new” obligations to file FBARs; they have been required (and unenforced) since 1970 and are part of Title 31. FATCA was NOT created by the Bank Secrecy Act. It comprises part of the H.I.R.E. Act (2010) and is part of 26 U.S.C. § 1471–1474, § 6038D.

II.) THE EFFICIENCY ARGUMENT

citizenship taxation may distort both Americans’ and non-Americans’ citizenship decisions, is not convincing

American citizenship renunciation rate is not particularly serious compared to other countries

residence-based taxation confronts an additional hurdle on top of enforcement difficulties: determining the residence of the individuals. Determining residence by considering all facts and circumstances creates problems beyond enforcement difficulties. The facts-and-circumstances test itself contains inherent problems when compared to a bright-line test

….and to what extent renunciation is treated as immoral and/or illegal, and so on.

The idea that citizenship taxation does not affect the decisions of Americans abroad concerning their citizenship is patently absurd. Without question, citizenship taxation IS THE MAIN REASON anyone renounces. Not because of tax per sé (don’t even think of trying to scare with the Reed Amendment) but rather, due to all the complications of trying to match two different tax systems. Add the non-financial issues such as the stress on marriages (to “aliens”), passing U.S. citizenship on one’s children, etc. etc. It has become a nightmare not worth living and something to escape if one can.

Ms. Kim devotes a long section to establishing the idea that the renunciation rate of U.S. citizens is “not particularly serious.” Again, we have someone indicating that unless the numbers are large, whether compared to that of other countries, the proportion of renunciations to the numbers of those abroad or to the number of entering immigrants, there is nothing being lost here. If that is the case, then the U.S. has virtually nothing to lose by simply letting these people go without all the forms, swearing under penalty of perjury and so on. One might occasionally consider that Americans abroad were once the best ambassadors the country could have. Now those tables are turned and some are more anti-American than any “alien” could ever be. Nothing like betrayal to warm the heart.

Regarding determination of residency, it is interesting that all 191 other countries of the world are able to surmount this difficult obstacle, which will be even more pronounced once CRS is operative. The “bright line test” which I presume means using citizenship rather than residency to base reporting on, is not truly useful given the fact that only the U.S. (Eritrea does not count) does this. When a U.S. citizen is living abroad with dual citizenship, with no determinant indicia, ask any bank how easy it is to establish whether or not one is a U.S. citizen. If it were clear, one would not see so many institutions refusing to serve Americans.

The Expatriation Act of 1868 gives all Americans the right to give up their citizenship if they so desire. It is not an issue of illegality. When a country treats its own citizens in the manner we have experienced from 2009 onwards (particularly the Accidental Americans who are not American in any normal understanding of the term), who is there to even suggest renunciation is immoral?

III.) THE ADMINISTRATIVE ARGUMENT

ENFORCEMENT DIFFICULTIES

Citizenship taxation has been criticized as difficult to enforce on nonresident citizens abroad….Determining residence by considering all facts and circumstances creates problems beyond enforcement difficulties

Next to failing to point out the outrageous 30% withholding “sanction” inflicted on every other country of the world, this has to be the weakest argument in this paper. The fact that the U.S. cannot effectively collect anything outside of the country is the number one reason people feel safe in remaining “under the radar.” After the initial scare of 2009/2011 seeing that the people hurt the worst were those who tried to do the right thing, people started considering the reality that being identified (“caught”) may amount to virtually nothing for a number of reasons. First of all, the majority of expats who are not compliant are NOT wealthy tax cheats with foreign accounts in order to deprive the U.S. of tax revenue. They are first of all, compliant where they live, which speaks volumes. Secondly, they have these “foreign” accounts in order to live their lives. This is in no way comparable to Homelanders who are guilty of tax evasion when they stash money in tax havens (and let’s not forget Delaware, Nevada, South Dakota and Wyoming, shall we?). The Revenue Rule still stands; even the 5 countries with Mutual Collection Agreements (Canada, Denmark, Sweden, France and the Netherlands)WILL NOT collect on those who were citizens of their countries at the time the tax was incurred. Canada WILL NOT collect FBAR penalties. With regard to fear about crossing the border, if one is not in the U.S. system, there is nothing for the IRS to report to DHS or CBP etc. All these things may change over time but as it stands now, the most IRS can do to most people, is send them a letter asking them to pay. EXACTLY WHAT IS THE POINT OF HOLDING ON TO CBT IF THERE IS NO WAY TO COLLECT?

Is the Compliance Burden Actually Onerous?

the IRS has provided the OVDI that a U.S. taxpayer can utilize to avoid criminal sanctions for the failure to report the existence of, and income earned on, a foreign account on tax returns as well as for the non-filing of the FBAR. In exchange for avoiding criminal sanctions, taxpayers will generally be subject to a 27.5% penalty on the highest aggregate value of their undisclosed offshore assets.86 In addition, for non-willful violators, IRS provides Streamlined Filing Compliance Procedures (SFCP), a program that was expanded in 2014 to cover a broader spectrum of U.S. taxpayers residing abroad and to provide penalty relief. Therefore, nonresident citizens who no longer have a strong economic and social connection with the United States or happenstance Americans are no longer likely to be subject to the severe FBAR penalties.

To suggest that OVDI and Streamlined “make everything alright” is to avoid the real issue altogether which is that citizenship taxation is simply wrong. No other country on earth “claims” its citizens for life. (Eritrea does not count). No other country on earth taxes its citizens after they abandon residence. No other country on earth applies an Exit Tax on assets that were acquired prior to obtaining residence in that country. There are reasons why no other countries do any of the things associated with citizenship taxation. It’s high time the United States stop this appalling abuse of human rights.

THIS ARTICLE FURTHER AIMS TO DEFEND the administrability of citizenship taxation in conjunction with the Foreign Bank Account Reports (FBARs) and the Foreign Account Tax Compliance Act (FATCA).

FBAR-absolutely not the way it is being conceived of now. FBAR, created in 1970 was aimed at uncovering money being laundered in smuggling, the drug trade and terrorism. It also was not originally conceived of being applied to those outside the U.S. Once the DOJ/Treasury departments went after the Swiss banks, they realized they could stretch the intent of FBAR to apply to non-resident Americans and the penalty regime thickened.

The criticism… has continued even after the U.S. government committed to enter into Intergovernmental Agreements (IGAs) in an attempt to address those concerns

A huge oversight on the part of the author. FATCA was without question an extraterritorial imposition on other countries. Only the United States would be as uncivil as to suggest imposing a 30% withholding charge on their allies and trading partners. The U.S. appeared not to understand that other countries could not comply even if they wanted to as privacy laws prevented the level of reporting required by FATCA. Banks would be sued were they to comply. To suggest that the US committing to the IGAs was a gracious act is revolting. Under the guise of being rooted in tax treaties, the IGAs simply bypassed what should have been required; that Congress ratify such agreements and implement legislation to do so. There is nothing in FATCA that warrants the creation of the IGAs. The U.S. downloaded ALL of the costs of compliance to the other countries. There is no mention of any penalties for the U.S. failing to comply. The U.S. made only the vaguest promises of reciprocity. It is simply unbelievable that the immorality of taking capital out of other nations is considered acceptable by the United States.

IV>) FATCA:MERITS AND CONCERNS

The OECD’s AEOI and the U.S. FATCA are two important developments, but FATCA plays a more important role.
First, FATCA provided critical momentum
Second, FATCA facilitates multilateral implementation of AEOI by creating an extensive network with more than 100 countries in the world, at the center of which is the United States.

This is unsubstantiated nonsense. First of all, it is bizarre to say FATCA “plays a more important role” Who gains from FATCA other than the United States? So far, nobody. The United States is at the Center of AEOI/CRS? The US has not even signed on to CRS. There are huge differences that matter greatly. The OECD AEOI/CRS agreements are determined by the countries involved; the terms of residency are established by those exchanging the information. FATCA is vastly different in that the United States alone determines who is/is not a “US Person” “US Citizen” irrespective of the status of such a person to the other country. And so far, the U.S. is not “paying its fair share” by requiring its banks to implement the same systems and legislation required (imposed) by FATCA. The IGAs do not constitute “acceptance” by other countries. To think otherwise is ridiculous. One could not possibly view such stipulations as reasonable.

criticism that…. FATCA exposes taxpayers’ private information to potential abusive use by foreign tax authorities.

This is a matter of real concern to Americans abroad living in some of the more troubled areas of the world-or those living Colombia in South America and particularly in some of the Middle East countries. Ironically enough, the U.S. has had some of the worst breaches of security and leakage of private information; certainly this is disturbing and worrisome.

Ms. Kim’s discussion of the Bopp FATCA lawsuit I will leave to someone else.

Second, opponents of FATCA and EOI argue that an EOI system removes a country’s unilateral control over its own tax policy, resulting in the forfeiture of sovereign autonomy. Although such argument has withered since the U.S. government entered into IGAs with other countries, it was strongly asserted by Canadian opponents of FATCA when the IGA Implementation Act included in Bill-31 was debated in Canadian Parliament.

How outrageous to suggest a foreign country does not have the right to have unilateral control over its own tax policy. The proof is in the pudding. The U.S. would never allow the equivalent. The IGA’s are the proof.
I have watched the video of the Canadian FINA hearings on FATCA many, many times. It is not possible to convey the absolute disgust we have for the majority Conservative government which minimized completely, the capitulation that occurred with the implementation of the IGA. It was nothing more than protecting the banks, without any regard to the effect it would have on Canadian citizens resident in Canada.

However, a government’s control over its tax policy is more severely harmed when a country segregates itself from the global community and loses the ability to enforce effectively its own tax laws against its taxpayers with interests in foreign jurisdictions

More unsubstantiated nonsense. This is an opinion completely unsupported up by any facts.

A Case for American Exceptionalism

conclusion, if FATCA makes the world better off by enhancing global transparency on tax information, then this may serve as another support for citizenship taxation, as well as an example of constructive exceptionalism.

While all of us raised in America understand unconsciously what exceptionalism is, it truly takes living outside the country to appreciate how incredibly arrogant and offensive it is. It is questionable whether FATCA “makes the world better off….” that a questionable tenet should “serve as a support for the imposition of citizenship taxation.” It is nothing short of reprehensible that the author should suggest what the U.S. has done is “constructive” or in any way justifies the gross aberration of power demonstrated by the creation of FATCA.

What do you Think of the Penalties in These Three Cases of Unreported FBARs ?

 
Ty Warner

Ty Warner
Ty Warner, founder/owner of the Beanie Babies line, was sentenced in July 2015 for tax evasion.The panel of three U.S. District Court judges gave him 2 years of probation and 500 hours of community service. The sentencing guidelines ranged from 46 months up to a maximum of 57 months. He agreed to pay back taxes and interest of $16 million as well as a $53.5 million penalty (the full FBAR penalty of 50% of the balance of the highest account-$107,000,000). According to Melissa Harris (author of this article that appeared in the Chicago Tribune, July 15, 2015) Warner’s sentence was “a punishment that reduces evading millions in taxes to a speeding ticket,” and that the sentence “flies in the face of both reason and justice”.

Warner had an estimated net worth of $2.5 billion, and was the 209th richest American.   According to Janet Novak of Forbes:

He admitted that around Jan. 31, 1996, he flew to Zurich and deposited about $80 million at UBS AG, instructing that no account statements be sent to him in the U.S., and that he kept the account secret until November 2007. During that period he failed to report at least $24.4 million in interest income on the account to the Internal Revenue Service, evading at least $5.6 million in taxes. He also failed to file with the Treasury the required annual “FBAR” report on his foreign accounts

What beggars belief is that Mr. Warner never provided any explanation for:

  • why he opened the account
  • the origin of the funds
  • audits of his books & records show the funds did not come from his company
  • his personal domestic accounts showed no signs of the origin of the funds

In fact the evidence suggested that the funds may have been pre-tax payments of some sort. To this day, the extent of his willful tax evasion is in reality, unknown.

So why did Mr. Warner get off so lightly? Was it because his lawyer Mark Matthews used the Olenicoff Defense?
Was it because his creation, the Beanie Babies line of stuffed toys, was just too cute for anyone to believe he was guilty of such evasion?

Peter Henning a Wayne State University Law School Professor and co-author of ‘Securities Crimes ”said in an interview, “I don’t want to say anything goes,….Clearly you can’t consider race or wealth. But you are looking at character. That is something judges can take into account. The question is how much should it weigh into the decision?”

This is where Mr. Warner hit the jackpot. He received 70 letters of support from friends, employees and recipients of his charity, actions which had nothing to do with the charges and only someone with money could do.

U.S. District Judge Charles Kocoras (of the panel) based his sentence on:

…..a reading of 70 letters, Kocoras found that “Mr. Warner’s private acts of kindness, generosity and benevolence” were “overwhelming,” with many occurring before he was under investigation and, in Kocoras’ words, motivated by “the purest of intentions.” Most were done “quietly and privately.” The judge concluded: “Never have I had a defendant in any case — white-collar crime or otherwise — demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner.”

So a man guilty of many years of tax evasion, who did not even account for the origin of the account nor any records of it, received an incredibly light sentence based upon support from his family, friends and beneficiaries of his kindness. Where is the law here?
 

*******

Dan Horsky
horskyThe second case is that of retired university business professor Dan Horsky. He amassed a $220 million dollar fortune, hidden in secret foreign accounts. He was a citizen of the United States as well as Israel and the United Kingdom. He spent thirty years teaching at the University of Rochester in Rochester, New York.

According to the Justice Department report:

One investment in a business referred to as Company A, however, succeeded spectacularly. In 2000, Horsky transferred his investments into a nominee account in the name of “Horsky Holdings” at an offshore bank in Zurich, Switzerland (the “Swiss Bank”) to conceal his financial transactions and accounts from the IRS and the U.S. Treasury Department.

In 2008, Horsky received approximately $80 million in proceeds from selling Company A’s stock. Horsky filed a fraudulent 2008 tax return that underreported his income by more than $40 million and disclosed only approximately $7 million of his gain from the sale. The Swiss Bank opened multiple accounts for Horsky to assist him in concealing his assets: including one small account for which Horsky admitted that he was a U.S. citizen and resident and another much larger account for which he claimed he was an Israeli citizen and resident. Horsky took some of his gains from selling Company A’s stock and invested in Company B’s stock. By 2015, Horsky’s offshore holdings hidden from the IRS exceeded $220 million.

Horsky willfully filed fraudulent federal income tax returns that failed to report his income from, and beneficial interest in and control over, his foreign financial accounts. In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed fraudulent 2012 and 2013 FBARs. In total, in a 15-year tax evasion scheme, Horsky evaded more than $18 million in income and gift tax liabilities.

Professor Horsky’s willfulness was more involved than simply failing to report income. In 2011, He had another individual gain signature authority over the Zurich accounts. Horsky provided instructions to this individual. Then this individual was to relinquish his U.S. citizenship. In 2014, this operson filed a false 8854, did not disclose his net worth or his foreign assets and he falsely certified five years of compliance with all tax obligations.

Mr. Horskey’s sentence consisted of:

  • seven months in prison
  • one year of supervised release
  • fine of $250,000
  • $100 million penalty
  • over $13 million in taxes owed
  •  
    Again, the prison sentence was far below the maximum of five years. I guess committing an intensely willful crime which included outright fraud (and no letters attesting to his character), Professor Horsky failed to even receive one year of prison.

    An interesting observation of Eric Rasmussen at thetaxprof site : (Scroll down to “comments”)

    Interesting settlement. He’s paying just $13 million of the $18 million in taxes he owes, but $100 million more in penalties? Is this a whistleblower case? The IRS used to say the whistleblower gets a percentage only of the taxes recovered not the criminal violation penalties. They lost a big case on that in Tax Court. Is the idea going to reappear here?

    *******

    Milo & Lois Kentera

    NB: all printscreens in the Kentera account are from the Complaint filed August 13, 2016

    A more complete account of the Kentera’s situation is here
     
    The third case is that of Milo and Lois Kentera. This is much closer to the “minnow” level of FBAR “violation.” Even though this is not an expat case as the Kenteras live in the US, I am sure we all can identify with them.

    Milo Kentera was a pharmacist and inherited a Swiss bank account when his father died in 1984. At this time, the account was under $10,000 USD and remained so for twenty years. During that time, Milo added his wife Lois (a homemaker) to the account. Starting in 1984, he always advised his tax advisors/accountants of the account and he reported it on 1040 Schedule B. So far so good.

    In 2005, the account gained enough to be over the FBAR filing threshold. However, the accountant did not prepare or file an FBAR. In 2007, Milo received $257,112 (a portion of the sale of his parents’ property in Montenegro; his siblings received the other $371,536). He put this money into the Swiss account. A second accountant did not ask if any interest was earned on the account so that was omitted and again, no FBAR was filed. In 2010, yet another accountant failed to prepare or file an FBAR even though he/she included the interest and the account on Schedule B.

     
    balance of Kentera account
     
    Mr. Kentera came forward on his own, having heard of the OVDI on the radio.
     
    come forward on own Kentera
     
    By then the “2011 IRS Reign of FBAR Terror was going full throttle. Toward the deadline of the program, the Kenteras entered the 2011 OVDI program. They filed six years of FBARs for 2005-2010 (inclusive) and amended their returns to include the interest income from the account. The following printscreens show the amounts of money involved in terms of omitted tax income, balance of the account etc.
     
    changes income fbar kentera
     
    Nearly two years later, in August 2013, the IRS assessed a miscellaneous penalty of $90,092. The Kenteras then chose to opt out of OVDI. The agent who had their case then advised that they should receive non-willful FBAR penalties, which were as follows:

      Lois Kentera:

    • $500 for 2006;
    • $2,500 per year for 2007, 2008, 2009, and 2010,
    • for a total penalty of $10,500;

     

      Milo Kentera:

    • $500 for 2006;
    • $10,000 per year for 2007, 2008, 2009, and 2010,
    • for a total penalty of $40,500.

     
    The Kenteras were understandably upset and did not want to accept this fine of $60,000 either as they felt they had reasonable cause. Virginia la Torre Jeker defines what is involved in establishing reasonable cause when one has relied upon a tax adviser:

    “…various cases have noted that the taxpayer must prove three elements. First, the adviser must be a competent professional with sufficient expertise (for example, you cannot rely on an insurance agent for tax advice); second, the taxpayer must provide necessary and accurate information to the adviser; and finally, the taxpayer must rely in good faith on the adviser’s judgment.

    The Kenteras then filed a complaint in District Court alleging that the IRS had incorrectly calculated their penalties.
    The end result was unchanged; they still had to pay the penalties.

    It would appear obvious from the get go that the Kenteras did not belong in the OVDI program. However, “quiet disclosures”* were discouraged and Streamlined was not yet available (began Sept 1, 2012); the FactStatement 2011-13 came out during the first week of December. The Kenteras were put in a program they did not belong in; they clearly satisfied the three conditions for “reasonable cause” and most of all, they are an example of “those that are hurt the worst are the ones who try to come into compliance.”

    **it was not entirely clear at that time whether a “quiet disclosure” was simply filing going forward OR filing amended returns (presumably changed by FBAR accounts’ earnings). In any event, while the IRS insisted people enter the programs, there is no law that indicates one must do so.

    *******

    These three cases present some interesting observations about the treatment of those who had not filed FBARs.

    First of all, the first and second cases are Homelanders who had very large offshore accounts. Both took very deliberate steps to conceal the accounts. Mr. Holsky even went so far as to include fraudulent attempts as to ownership and citizenship of the person with signing authority for the account. Neither of them came forward on their own. Neither were able to enter the “amnesty” program, yet Mr. Warner received no jail time and Mr. Horsky received less than a year. The amounts of money involved for both are staggering to those of us who will never have anywhere near that kind of money.I can’t really evaluate their impact but I’d be willing to bet, that in proportion to their total wealth, both were able to absorb the loss without a major change in their style of living.

    In contrast, the Kenteras, also Homelanders, had a very modest account which they inherited. They always advised their accountants of its existence. Three professionals in the tax compliance community failed to prepare or file FBAR even though two of them did report the interest and existence of the account on Schedule B. They received very bad (I would say criminal) advice and went into OVDI coming out with an original penalty assessment of $90,092. So they opt out and the IRS agent then gives then a non-willful penalty totalling $60,000.

    Was it really necessary for Mr. Kentera to receive the maximum non-willful penalty for 4 years? It seems their honesty in pointing out the existence of the account counted for nothing. The fact remains that their situation clearly QUALIFIES FOR REASONABLE CAUSE. Yet the intent of Mr. Warner and even more so for Mr. Holsky, was clearly to conceal yet neither of them received anywhere near the maximum penalty; they did not come forward on their own and could not take part in the amnesty program.

    In the past (scroll down to “Statistics on Minnows in the OVDP”) we have seen demonstrations that the least wealthy pay the highest percentage of penalties, the comparison of the three cases cannot fail to boil your blood and make the average person seriously consider not becoming compliant due to obvious treatment of “minnows” as nothing short of appalling. Why does the IRS continually fail to see this? Is it really a surprise that 7 out of 8 million #Americansabroad have yet to become compliant in spite of Streamlined?
     
    Comparison Chart
     




     

Never Forget What Happened in 2011

reblogged from the Isaac Brock Society

 
A Series of Posts to Explain the Anger and Vehemence Fueling the anti-FATCA, anti-IGA & anti-CBT Movement
 

 

Perspective:

This post was written approximately 3 months after the mass hysteria (there simply is no other word for it) of late Fall 2011. Brock was less than a month old. We had only just started to gather information, starting at the ExpatForum. Renunciation was a very scary topic only slightly less than the terror of imagining losing everything due to FBAR penalties. IMHO, FBAR will prove to be the number one issue that fueled the expat movement, hands-down.
 

An excerpt from January 5, 2012 post from the renounceuscitizenship WordPress Blog
 
PART I: The Players
 
RenounceUSCitizenship writes:

 

The IRS assault on U.S. citizens living outside the United States has been a frightening interplay among three groups:

1. The Taxpayers

2. The Cross Border Professionals

3. The IRS

Let’s imagine the perspective of each.

The Perspective of the Taxpayers

I suspect that few U.S. expats will forget the events of 2011. It was a year where they realized how quickly life could change. For the most part U.S. citizens living abroad are hard working honest people who are paying higher income and value added taxes than they would be in the U.S. The U.S. uses citizenship-based taxation. Many of them have been filing U.S. tax returns. But, virtually none of them (except those who always had the benefit of specialized and expensive legal and tax advice) knew about FBAR. When they heard about FBAR, OVDI and the rest they were:

– scared out of their minds; and

– wanted to be compliant

It’s just that they didn’t know how. Hence, they did what anybody would do. They sought professional help.

Furthermore, professional help did not come easily. It did not come inexpensively. It was typically like this: “Yes, I will meet with you. But, bring in a money order for $2000 (or more) and we will start the conversation. The conversation usually focused on whether to enter OVDI. Entering OVDI was a logical option, an expensive option, but I believe for most people a bad option. It was also (because it was a new kind of program) something not well understood by the so called “cross border professionals”.

The Decision To Enter OVDI

For many there was no “decision” to enter OVDI. The entry into OVDI was an “emotional reaction” based on fear.

What happened was something like this:

1. Media publishes articles written by journalists who don’t have a clue what they are talking about. Yes, the IRS is going after U.S. taxpayers who don’t reside in the U.S. Yes, there is OVDI and you must get in the program by August 31, 2011. No, OVDI is not amnesty – but let’s pretend that it is and enter it. I have said before and I will say again that some people entered the OVDI program, without a consideration of their individual circumstances, following the advice of the so called “cross border professionals”. They will regret this.

It is interesting that the advice from a number of lawyers was something like:

“You must enter OVDI” – the IRS frowns on quiet disclosures, etc. These lawyers either did not think that “reasonable cause” was available or that the IRS would not consider arguments based on “reasonable cause”. The important point is that there were “cross border professionals” who did NOT inform their clients that:

A. OVDI was an optional program

B. Filing of FBARs was mandatory

C. The FBAR statute recognizes that “reasonable cause” was and continues to be a defense

(It is interesting that the effect of this advice was to deter people from doing what was mandatory (just file the damm FBARs) and encourage people to do what was voluntary (enter OVDI).

The purpose of OVDI was to go after people who were using foreign banks and other entities to evade U.S. taxes. There is nothing illegal about having a foreign bank account. Most U.S. citizens living outside the United States had local bank accounts for the purpose of living their lives. On the other hand, the IRS has publicized the cases of U.S. citizens living inside the U.S. who used foreign bank accounts for tax evasion. Those of you who are aware of (outside of OVDI) anybody paying FBAR penalties based on willfulness, please leave a comment.

Anybody could have entered OVDI – why would the IRS stop you? By entering OVDI you are simply agreeing to pay them penalties. Furthermore, the range of assets subjected to penalties in the OVDI program is greater than what is required to be disclosed on an FBAR (something not explained by some lawyers). Hence, it is clearly to the advantage of the IRS that people enter OVDI (plus the IRS doesn’t have to waste time on “reasonable cause” arguments).

It is important to note that OVDI is a program which is designed for criminals and removes “reasonable cause” from the discussion. The only way to get “reasonable cause” into the discussion is to “opt out” and subject yourself to a full audit along with all the risks and high costs associated with it.

“Reasonable cause” has always been a defense to FBAR penalties. S. 5314 of the FBAR statute bars the imposition of FBAR penalties if two conditions are met:

1. Failure to file FBARs was due to “reasonable cause”; and

2. The FBAR is filed

Now, I understand that there is no clear definition of “reasonable cause”. I also understand that this is a determination made by the IRS. My point is that the same “reasonable cause” arguments must be made either inside OVDI (after an opt out) or outside OVDI.

While OVDI was going on, few “cross border professionals” talked about “reasonable cause”. Maybe, they thought that the IRS wouldn’t recognize or apply the law. Who knows? I invite a lawyer who encouraged clients to enter OVDI to comment on this.

 
Now, if you came to the “expat movement” in say, 2013 or so, you might not think there is so much new info here. But in early 2012, this was very unusual. To find a concise and correct assessment that did not favour the completely chaotic viewpoint of the media and tax compliance community was not only life-saving (literally) but became the base for what we have become today: those who would dare fight back when the U.S. government came knocking, coming after you, your families and your hard-earned, non-U.S. money.
 
Next: stories of expats in the 2009 OVDP/2011 OVDI