IRS Claims Statutory Authority for FATCA Agreements Where no Such Authority Exists


A lot of discussion has taken place recently as to what (if anything) might happen with FATCA & the IGAs given the election of Donald Trump and the positions regarding RBT etc, in the platform of the Republican Party. The nagging question seems to be that if FATCA were rescinded, the IGAs would remain, with FFI’s still on the hook. A rather bizarre situation where countries agree to something not actually rooted in law? Simply absurd and presumably, Congress would take steps (or be reminded to do so) to put the whole business to rest.

Then there is general discussion that includes the reversal of President Obama’s executive agreements. With this we would still have FATCA but no implementing IGAs. Should FFI’s pass private banking information directly to the IRS sans the IGAs, they would be in violation of the privacy laws of many countries. With (more) lawsuits certain to follow.

All of this brings to mind another nagging question, and that is, just exactly what are the IGA’s? The Canadian government claimed ithe IGA was a Treaty, and accepted it as such. The U.S. did not have it ratified by 2/3 of the Senate which is normal procedure there. Professor Allison Christians has long indicated they are actually sole executive agreements with “dubious legal status.” Other interesting perspectives are offered here.

Of course, the original overall objection to the IGA’s is that they are hardly agreements; they are documents where the U.S. inflicts its will on all 192 countries of the world; incurs no cost for doing so and while mitigated, the 30% withholding remains.

It may be very useful to review all that is involved in Professor Christians’ viewpoint so that any future action ensures complete finality to these abominable and odious “agreements.”


This appeared at the Isaac Brock Society on July 4, 2014 and was cross-posted with permission from Prof. Christians’ blog

I saw the letter referenced below on Jack Townsend’s site and included Professor Christians in a tweet questioning the validity of the IRS’arguments regarding IGA’s. I am delighted to see she has taken this further and posted the following today on her blog.


Over at federal tax crimes blog Jack Townsend has posted a letter from the IRS to Congressman Bill Posey, in response to an inquiry the Congressman apparently made about the intergovernmental agreements (“IGAs”) to implement FATCA by other governments (instead of directly by foreign financial institutions, per the law Congress enacted in 2010). Treasury says:

“Your letter also asks about statutory authority to enter into and implement the IGAs. The United States relies, among other things, on the following authorities to enter into and implement the IGAs: 22 USC Section 2656; Internal Revenue Code Sections 1471, 1474(f), 6011, and 6103(k)(4) and Subtitle F, Chapter 61, Subchapter A, Part III, Subpart B (Information Concerning Transactions with Other Persons).”

None of these sources of law contain any authorization to enter into or implement the IGAs. It is patently clear that no such authorization has been made by Congress, and that the IGAs are sole executive agreements entered into by the executive branch on its own under its “plenary executive authority”. As such the agreements are constitutionally suspect because they do not accord with the delineated treaty power set forth in Article II. As Michael Ramsey wrote in a 1998 article, the danger is that if the president seeks to reach agreements outside of his plenary constitutional powers, the agreement lacks domestic legal effect.

Just to be clear, the fact that a document signed by an individual might or might not bind the United States as a matter of constitutional law does not mean that the United States will not honor whatever commitments the individual makes under such an agreement. The contrary is likely the case especially given the predicament Treasury found itself in, coupled with the pitiable small promises undertaken by the US in these “agreements.”

But we should be clear that the analytical terrain we should be traversing is whether the scope of the plenary executive authority can suffice to support as a matter of law the promises made in some 80 or so IGAs (many of which are currently agreements in principle only). We should not be wasting anyone’s time pretending that Congress has authorized Treasury or the Secretary of State to enter into the IGAs. It has not.

So let’s take a look at what these sources actually say.

22 USC 2656 is about the power of the secretary of state. It says:

The Secretary of State shall perform such duties as shall from time to time be enjoined on or intrusted to him by the President relative to correspondences, commissions, or instructions to or with public ministers or consuls from the United States, or to negotiations with public ministers from foreign states or princes, or to memorials or other applications from foreign public ministers or other foreigners, or to such other matters respecting foreign affairs as the President of the United States shall assign to the Department, and he shall conduct the business of the Department in such manner as the President shall direct.
If that is an authorization for the IGAs, it is a vague one at best. Does an IGA constitute “correspondences, commissions, or instructions,” “negotiations”, “memorials or other applications,” or “such other matters respecting foreign affairs”? Under what interpretation of such relevant provisions? Also there is nothing here about the content or scope of the treaty power hereby implicitly authorized. Is IRS saying that with this power the Secretary of State can bind the nation at will on any matter, without the need for the President to seek advice and consent from the Senate prior to ratification? If so this is an extraordinary claim that does not scan with either historical practice or constitutional theory.

26 U.S. Code § 1471 is, of course, part of FATCA. It is entitled “Withholdable payments to foreign financial institutions”. It sets out the reporting obligations imposed on foreign financial institutions and states that the Secretary is authorized to treat a foreign financial institution as “meeting the requirements” of 1471 if the institutions complies with procedures or requirements set forth by the Secretary or is “a member of a class of institutions” identified by the Secretary.

There is explicit authorization in 1471 for the Secretary to engage in agreements with FFIs to implement FATCA. However where is the authorization in 1471 for the Secretary to engage in agreements with other countries to implement FATCA? It is not in the text, certainly.

Therefore to what specific provision of 1471 could IRS possibly refer when it suggests this statute authorizes individuals to sign agreements altering the reach of FATCA on behalf of the United States? There is clearly no explicit authority. Is it implied? If so, by what?

Moreover, many or most of the IGAs have been signed by officers of the Secretary of State, ambassadors, consulates general and others, and not by Treasury. Does s1471 also impliedly delegate its implied treaty power authority to those outside of Treasury who have signed on behalf of the United States? Certainly there is no explicit delegation here.

26 U.S. Code §1474(f), also part of FATCA, is the statutory authorization for the Secretary of the Treasury to
“prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of, and prevent the avoidance of, this chapter.”
There is no authority expressed in this provision for the Secretary to enter into agreements with other governments. Does IRS suggest that an IGA constitutes “regulations” or “other guidance”? Under what interpretation of that characterization does the Treasury interpret the promulgation of either regulations or other guidance as an authorization to negotiate an agreement with a foreign government?

26 U.S. Code § 6011 is entitled “General requirement of return, statement, or list,” and it states the parameters under which a person must make a return “[w]hen required by regulations prescribed by the Secretary.” There is authorization in 6011 for the Secretary to require taxpayers to fulfill various reporting requirements, including electronic reporting. There is no authorization in 6011 for the Secretary to engage in agreements with other countries to implement 6011.

What provision of 6011 is IRS suggesting confers the authority to negotiate agreements with other governments without Senate advice and consent? Does IRS mean to imply that each and every authorization that Congress gives Treasury for the prescription of regulations is an implicit authorization for Treasury (or its implied designees in other departments) to conclude agreements with other governments? If so, this is a surprising claim of executive power that is inconsistent with the treaty power described in Article II of the constitution. I would think Congress would like to know under what interpretation of Congressional direction to the Secretary to issue guidance, IRS or Treasury would conclude that it now holds the power to make treaties on behalf of the United States.

In other words, if IRS stands by this authorization it is suggesting that any tax code section that authorizes Treasury to regulate implicitly contains both a treaty making power as well as the power to delegate authority to departments other than that specifically charged with implementing the statute. That is not a plausible claim.

26 U.S. Code § 6103 is entitled “Confidentiality and disclosure of returns and return information” and it provides that “returns and return information shall be confidential,” with exceptions provided by statute. There is authorization in 6103 for the Secretary to engage in agreements with taxpayers to implement 6103 (for example in the case of advance pricing agreements). There is no authorization in 6103 for the Secretary to engage in agreements with other countries to implement 6103. Therefore, as with 1471 and 6011, to what specific provision of 6103 does IRS refer, and under what interpretation of the authority given by Congress in 6103 to enter into agreements with taxpayers does IRS find the authority for anyone to enter into agreements with other countries?

26 U.S. Code Part III, Subpart B is entitled “Information Concerning Transactions With Other Persons” and it contains 26 US Code §§ 6041 through 6050W—a very broad set of statutes involving information reporting, none of which explicitly grant anyone the power to bind the nation to anything. Certainly nowhere in the subpart appears any express authorization for Treasury to enter into agreements with other governments in respect of s1471 or otherwise. Therefore the same questions I have raised with respect to 1471, 1474, 6011, and 6103 would seem to arise here.

In short I see no express authorization anywhere in any of these authorities for the Treasury to enter into the intergovernmental agreements. Moreover there is no precedent for such agreements, and they are being signed by US officials who are not members of the Treasury. Does it not seem at least noteworthy that an enormous network of bilateral tax agreements has been established, a network that dwarfs the existing tax treaty network in size and scope, all without any explicit Congressional authorization, and without any regard to the Treaty power clearly laid out in Article II of the Constitution?

And why not cite the TIEA power?

I would add that is not at all clear why any list of authorizations for an individual to enter into agreements with other governments on behalf of the United States would not include 26 US Code § 274(h)(6)(C)(f), which has long been relied upon to by Treasury to find the authority to enter into tax information exchange agreements (“TIEAs”) that were not expressly authorized by the statute (because they are not listed in Section 274 as beneficiary Caribbean Basin countries). This statute has clearly been abused by Treasury in extending it way beyond what Congress intended. However, the fact that Congress has not complained suggests that it has acquiesced to the overreach.

That makes the TIEAs good precedent for those who want to defend the IGAs as a matter of law. In omitting this, the only plausible source of support for the authority to bind the nation without the advice and consent of Senate, does IRS suggest that Treasury now backs away from this authority? If so, why would they do that? The answer is of course that IRS believes that if necessary the TIEAs can also be considered sole executive agreements, and as such a TIEA “does not need Senate or other congressional approval.” This is an official claim that the IRS doesn’t think Treasury or anyone needs even s.274 as a cover: the executive can simply act alone to achieve its tax goals through international agreements.

At the end of the day, it is clear that Treasury saw a real and serious need to work with other governments to make FATCA work. There is no disputing that fact, and indeed it is a step toward multilateral cooperation which should be celebrated if only it weren’t so lopsided, and if only it weren’t being accomplished via the threat of economic sanctions for all the world’s tax havens except the United States itself. But no amount of need or want can sidestep the constitutional delegation of powers among the branches, and the treaty power is no exception: nor should it be. At least one Treasury official has already conceded that the explanation for the IGAs is that they are “executive agreements”, not Article II treaties.

IRS and Treasury should therefore just admit that the IGAs are simply “sole” executive agreements—not authorized by Congress but entered into by the executive branch under its sole discretion.

This is a tenuous position and it ought to fail constitutional scrutiny but for the fact that in the past, Congress has acquiesced to this exercise of power by the executive and it is likely to do so again, especially given how little has been undertaken by the United States in these IGAs. As Lee Sheppard pointed out in a Tax Notes article two years ago, “An executive agreement depends on the good will of the parties to enforce it.” And as Susie Morse also pointed out in Tax Notes last year, Treasury is very likely to try to enforce their part of the IGAs.

Since the US side of the IGAs is to deliver very modest undertakings that Treasury also believes can be done without congressional approval (namely, extending the longstanding s. 6049-based information exchange with Canada to other countries), this is probably true; all IGA promises to alter the law in the future should be seen as what they are, unenforceable promises that are beyond Treasury’s control and so won’t be delivered.

Therefore honesty is still the best policy for Treasury. Instead of citing non-existent statutory authority that is easily refuted by simple reading, Treasury should own what it is doing outright. These are sole executive agreements, they lack statutory approval, they undertake very little on the part of the United States, but they are an effective way of pretending to be cooperative so that other countries can save face as they submit to the threat of economic sanctions that is FATCA. There isn’t really any reason why Treasury shouldn’t acknowledge this reality, since it is, strictly speaking, of Congress’ own making.
Posted by Allison Christians at 8:34 PM

One thought on “IRS Claims Statutory Authority for FATCA Agreements Where no Such Authority Exists”


    John Richardson says:
    26 November 2016 at 8:35 pm

    One cannot predict the future. But some thoughts on the FATCA IGAs and the incoming administration:

    1. Unless the IGAs attract the attention of the new administration nothing will happen. Remember that only people outside the USA care about FATCA. Furthermore, the IGAs have been written to impose no obligations on the United States. So, it may be a long time before FATCA even gets the attention of the administration.

    2. The legal status of the IGAs is not clear. The administration could simply take the position that they are not treaties. If they are not treaties then they are not subject to the usual “with the advice of the Senate” kind of stuff. On the other hand, the administration could argue that they are (in most cases) extensions to existing lawfully approved treaties. The fact that other countries regard the IGAs as treaties is probably irrelevant.

    3. The most that Congress could do (I think) is to amend Chapter 4 (the FATCA section 1471 – 1474) of the Internal Revenue Code to restrict the ability of the administration to do FATCA related things. But, the authority for the IGAs didn’t come from Chapter 4 anyway. If the authority exists, it comes from some general power to do what the administration wants. For this reason, I believe that a repeal of FATCA would leave the IGAs intact.

    4. The best thing that could happen (for the long run) would be for the USA to attempt to enforce the 30% FATCA withholding provisions. Then the rest of the world would see what the USA is really about and would be forced to fight back. I doubt that Treasury/IRS would attempt this. But, if they do, the world will have to figure out how to make an immediate move away from the U.S. dollar which will hurt the USA and benefit the rest of the world. The reality is that the USA has an adversarial relationship with most of the world. Sure, it will be turbulent for a while. But, when the storm subsides, the USA will be the clear loser in any attempt to impose FATCA withholding. To be clear: I am not wishing for this.I simply recognize that if it were to happen the long run outcome is positive.

    Some thoughts on the CBT problem:

    The simple reality is that it is not possible to live (in the sense of normal financial and retirement planning opportunities) as a “U.S. Tax Compliant” person outside the USA. This is the reason/motivation for your blog. Any person with a U.S. place of birth, who lives outside the United States is under siege. In fact, the problems of tax compliance are so difficult that the only Americans abroad who can keep U.S.
    citizenship are those who do NOT enter the U.S. tax system. Your comment
    includes: “Once they enter the US tax system, they will be caught there until they renounce.” Yes, that’s right.For those who doubt this, I offer this post that I wrote some time ago:

    Some thoughts on the Resolution of The CBT Problem:

    This can be resolved through a combination of 4 different ways:

    1. Congress can change the Internal Revenue Code so that Americans abroad are treated the same as non-resident aliens.

    2. The Administration can correct virtually ALL of these problems through its regulatory authority. If one were to actually read the Internal Revenue Code, one would see that Congress has delegated enormous regulatory authority to Treasury. I will leave the details for a separate comment, but almost every problem burdening Americans abroad can be fixed with the stroke of a pen. Obama could do this before he leaves office. But, he won’t. Why not? The answer is that through CBT the USA has found a way to impose a capital tax on other nations. The fact that the CBT problems have NOT been fixed strongly suggests that the USA does NOT want to fix the CBT problem.

    3. Countries could stand up for their citizens who are being attacked by U.S. tax laws. For example Australia should interpret the U.S. Australia tax treaty as NOT allowing the USA to impose rules on Australian citizens that prevent them from living normal lives. Ditto for all other countries. It’s hard to understand why they have not done so. My theory is that they don’t understand how disruptive U.S. CBT is to their sovereignty and economies.

    4. Americans abroad are simply going to have to decide the extent to which they are willing to put up with this. Once upon a time, in a very far off land, a group of people decided that they would no longer allow their lives to be controlled by the Government of another distant land.
    They simply said no. They made a difference. They spawned the Empire that is oppressing you today. I am inclined to think that Americans abroad (as did their ancestors) can make the biggest difference here.
    But, I am also inclined to think that few of them will make the effort to save themselves.

    Was it Mark Twain when writing his thoughts on patriotism who said:

    “Loyalty to country always. Loyalty to the government when it deserves it.”

    If Mark Twain were observing the situation today he might say:

    “Renounce your citizenship. It doesn’t make you any less American and it might make you more American.”

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