Sen. Rand Paul, R-Ken., has introduced legislation to repeal provisions of the Foreign Account Tax Compliance Act that he contends undermine the privacy of U.S. citizens.
FATCA was included as part of the HIRE Act of 2010 and would require foreign financial institutions to report on the account holdings and assets of U.S. taxpayers to the Internal Revenue Service.
The law has provoked controversy abroad from U.S.-born expatriates and dual citizens, as well as foreign governments that argue the law violates their own privacy and banking secrecy laws. In response, the Treasury Department has been signing and negotiating intergovernmental agreements with other countries, including Switzerland, to implement the FATCA provisions.
A prominent anti-tax politician, Paul has put a hold on Senate approval of all tax treaties since his election in 2010, including with Switzerland, Luxembourg and Hungary. He has recently been blamed for trying to block FATCA by placing holds on the treaties, whose provisions allow for information exchange with other countries (see Rand Paul Blamed for Blocking FATCA). Until recently the treaties have traditionally won routine Senate approval as a way for taxpayers to avoid double taxation. Paul has said he is concerned the treaties give foreign governments too much tax information about U.S. citizens, according to Reuters, but he has not responded to questions about his holds on treaties.
In a letter to his Senate colleagues on Tuesday, however, Paul argued against FATCA as a legitimate tool to combat tax evasion. I intend to offer a bill to repeal certain provisions of the Foreign Account Tax Compliance Act, or FATCA (P.L. 111-147). The intent of this law was to prevent tax evasion by increasing access to overseas bank accounts held by U.S. citizens. However, any law enforcement benefits have been vastly outweighed by the deleterious effects of FATCA on economic growth and the financial privacy of Americans.
FATCA requires the financial institutions of foreign countries to register directly with the IRS, and to provide financial information on the accounts of U.S. citizensregardless of whether or not these U.S. citizens are suspected of tax evasion, he added. A failure to comply with these requirements subjects that foreign financial institution (FFI) to a 30% withholding of U.S.-derived revenues. This has had the practical effect of forcing FFIs to relinquish any association with American customers, and to avoid direct investment in the United States. It goes without saying that overseas investment in the U.S. is an important engine of our economic growth and prosperity. FATCA endangers an estimated $25 trillion in foreign capital currently invested in the U.S.
Perhaps even more troubling, the implementation of FATCA has allowed the Treasury Department to make independent decisions with respect to the sovereignty of foreign nations and the privacy of United States citizens. In order to implement this law, Treasury has initiated intergovernmental agreements (IGAs), citing the intent to engage in reciprocal information sharing with other nations, said Paul. The Treasury Department, without the consent and authority of Congress, will force U.S. financial institutions to provide the bank account information of private customers to foreign nations. Such a requirement not only diminishes U.S. privacy protections, but also imposes billions of dollars in compliance costs here at home, which will be passed onto customers and the American public.
My bill is drafted with the intention of removing only FATCA provisions that undermine Americans constitutional privacy protections and add burdensome regulations with a negative economic impact on the United States, Pauls letter continued. Other provisions enacted at the same time, such as those pertaining to clarification of foreign trusts and treatment of dividends that do not have those negative impacts, have been left alone. The intent of this bill is not to disrupt legitimate tax enforcement, only to repeal counterproductive and constitutionally suspect mandates.
A companion version of Pauls bill is expected to be introduced shortly in the House, according to the advocacy group RepealFATCA.com. In addition, measures to block the Treasury Department from carrying out the intergovernmental agreements, which have not been authorized by Congress, are expected to be introduced as well.
The Texas Bankers Association and Florida Bankers Association recently filed a federal lawsuit against the Treasury Department and the IRS claiming they will lose billions of dollars in business over recent regulations requiring them to report on foreign residents deposits in U.S. banks to foreign governments. The reporting is a key feature in the reciprocal version of the FATCA intergovernmental agreements that the Treasury is negotiating with foreign governments to sign, for which the Treasury Department recently requested additional authority from Congress.
Conservative groups have issued statements in support of Senator Pauls bill.
"Sen. Paul is offering real leadership, working to defend individual rights and promoting common sense tax policy," said Center for Freedom & Prosperity president Andrew Quinlan. "FATCA has caused significant harm for many Americans. This legislation is a critical and necessary first step toward cleaning up a colossal mess."
The U.S. federal income tax system already imposes 6.7 billion hours of paperwork on individuals and businesses, said National Taxpayers Union executive vice president Pete Sepp. FATCA would not only worsen this burden here at home, it would also impose onerous new liabilities abroad. The last thing America should be exporting is its complex tax laws. Senator Paul deserves a round of applause from taxpayers in our nation and around the world for recognizing the dangers FATCA poses to our economy and our civil liberties.