Reporting of SSNs under FATCA

On 15 October 2019, the IRS amended its FATCA FAQs (aimed at Foreign Financial Institutions – FFIs) by adding Q3 to the questions on Reporting. The new Q3 outlines the procedures that FFIs subject to a Model 1 IGA will be subject to in the event that they report accounts with missing or invalid identification numbers (SSNs). This new question is clearly aimed at easing the anxiety of Accidental Americans at the expiry of Notice 2017-46, which allowed FFIs to report date of birth instead of SSN on existing accounts if the FFI was unable to obtain an SSN.

This is significant because there have been many news outlets reporting that a large number of bank accounts (especially in Europe) would be closed at the end of 2019. The problem arises because there are many US citizens who have always lived outside of the US and may not have a Social Security number. Many of these individuals don’t even identify as Americans and don’t understand why they must go through the bureaucratic hassle of obtaining an SSN (not easy if you’re an adult and living outside the US). In September, the IRS made it possible for these individuals to renounce their US citizenship and follow US tax law without obtaining an SSN. However, the cost of renouncing (USD2,350 per person) is prohibitive for many, and the cost of having US tax returns prepared professionally can also be excessive.

Continue reading “Reporting of SSNs under FATCA”

UK legal challenge against FATCA

FATCA forces banks all over the world to report their US Person account holders to the IRS either directly or indirectly through their local tax agency. As reported on this website, Australia is sending information on over 800,000 accounts to the IRS. This data transfer has been shown in a report to the European Parliament to violate GDPR in the EU. In the UK Jenny has decided to fight back. But, I’ll let Jenny tell you about it in her own words. Here’s the email she just sent out announcing the crowd-funding of her legal challenge:

Dear Karen,


I have some exciting news. For the past several months I have been working with the London law firm Mishcon de Reya to organise a challenge to HMRC’s indiscriminate, disproportionate reporting of British citizens’ private data to a foreign government under FATCA. The details are at https://www.crowdjustice.com/case/fatcahmrcprivacybreach/.  


FATCA is a domestic US law that was adopted into UK law in 2012 with no assessment by the UK government of its effects on individual rights, particularly those of ‘accidental Americans’, and it has since had a detrimental impact on me and thousands of other British citizens, as well as costing the UK economy millions (https://www.telegraph.co.uk/finance/personalfinance/tax/11050777/British-families-billed-500-to-prevent-Americans-dodging-tax.html). HMRC refuses to report to the public or Parliament what FATCA is achieving (https://ico.org.uk/media/action-weve-taken/decision-notices/2019/2614446/fs50751683.pdf). A policy that makes the people transparent to the government whilst keeping the government hidden from the people is unacceptable in the UK. Indiscriminate, disproportionate transfers of personal data also contravene the General Data Protection Regulation (GDPR), which came into effect last year and require transfers to be limited to the stated purpose. British citizens resident in Britain, working and banking locally and earning an average UK wage, do not owe US tax. Therefore there is no reason to transfer their data outside Britain. However, HMRC continues to do so, and refuses to offer individuals any details on this, or right of reply, or opportunity to check or correct their own data.  


In the UK, justice in a complex case like this is often closed to average-wage people like me, because of the requirement to pay court costs. However, Crowd Justice are working with me and my firm to facilitate crowd funding for this challenge. I would be grateful if you might consider a donation to this cause, which is crucial to protect individuals from indiscriminate transfers of sensitive information through unsafe chains highly vulnerable to data hacking and identity theft. Any donation, large or small, will be vastly appreciated, as will your efforts in spreading the word about this cause. 


As you will see on the Crowd Justice site, none of this money goes to me. It all goes directly into supporting the legal work for this cause. 


If you have any questions about the cause or about me, please do not hesitate to get in touch by email reply.


Thank you so much for your commitment to justice for ordinary citizens like me.


Kind regards
Jenny 

A glimpse into FATCA reporting….

In the post-FATCA world, Australia’s reporting financial institutions (RFIs) are required to report financial account data on Australian resident US citizens that is ultimately transmitted to the IRS.  Through past Freedom of Information (FOI) requests for aggregate FATCA reporting statistics, we learned that the IRS must be drowning in large volumes of FATCA data of questionable accuracy.   

The lack of publically accountable governance and oversight associated with a program of FATCA’s scope and huge cost[1] is mind blowing.  Furthermore, one of the most disturbing elements of FATCA is that financial reporting on Australian residents is being made to a foreign government with no statutory notification regarding the reported information back to the person being reported on.   How can one know what is being reported regarding their financial affairs and whether it is accurate and correct? 

I decided to find out!  I made use of our FOI regime to request copies of all information being reported to the IRS regarding my personal Australian domiciled accounts so that I could determine if the data is complete and accurate. 

Before I get into my experience, note that we’ve attempted this in the past.  In 2016, Karen made an FOI request seeking disclosure of all reported FATCA data specific to her accounts and learned that for her specific case no records were available, presumably as her financial institutions had yet to identify her as a US citizen.   In early 2017, “Sam” made a similar request and the ATO came back and said that they could not make a decision on whether to release the information without first consulting with the IRS which included providing the IRS with Sam’s personal details.    Sam was understandably unwilling to draw attention to himself given the complexity of taxation of foreign assets and promptly withdrew his request.

In my case, I was pleased to discover that the ATO now seems to be past the “consult with the IRS” nonsense and dealt with my FOI information request within the prescribed period.  Interestingly, they stated they only had reported FATCA information on me for calendar year 2017 with nothing reported in prior years.  This is not surprising as I am still, to this date, receiving requests from Financial Institutions to verify our tax residency as required by FATCA and CRS.

For those interested in the specifics, my report was in the form of a table (presumably from a relational database) that contains the following fields:

  • msg_bet_id: unknown field
  • atchd_doc_ref_id:  a long alphanumeric code that includes the name of the financial institution and perhaps an RFI identifier number?
  • FirstName:  my first name and, sometimes, my middle name
  • LastName: Last name
  • Address:  my address of record
  • Account Type:  listed as NULL on my reports
  • AccountNumber:  “CAPAU#########” where ######### is the account number
  • Amount Balance Cur:  Currency, AUD in my case
  • Amount Balance:  balance (in AUD as above)
  • Account Number Closed Indicator:  NULL in my case as no accounts closed
  • Account Number Type:  unknown but listed as NULL in my reports
  • Payment Amount:  a dollars.cents number
  • Payment_type:  listed in all my accounts as “Interest”
  • TIN:  Taxpayer Identification Number, in this case my social security number
  • TIN Country:  Listed as “US”
  • RFI Name:  name of the RFI

I maintain detailed and accurate financial records using financial personal accounting software.  Cross-checking the reported information against my records suggests that the reported information is reasonable but not precise.  Reported year-end account balances were spot-on, perfectly matching my financial records.  Account numbers and my TIN were also correct.  The reported calendar year interest was generally correct or within reason.  Where our numbers did not perfectly match, I was unable to discover a reason why (for example dropping or adding shoulder interest payments made in the first or last days of the calendar year), however the reported numbers were within 10% and therefore considered acceptable.

I also made a few interesting observations:

  1. All account figures in the report are clearly Australian dollar denominated while the FATCA IGA calls for reporting in US dollars using published spot rates.   The report also provides calendar year-end balances not maximum account balances.  This is interesting as both IRS Form 8938 and FINCEN FBAR reporting require reporting of the maximum account balance during the year in US dollars which no doubt will make automated matching and exception identification more challenging.
  2. In my case, the Australian RFIs have reported all accounts, even when the YE account balance of one account is well below the FATCA reporting threshold and there is no interest income.  For example, one RFI reported the YE balance of a transactional banking account that had a year-end well under $1,000 and no interest income.  Presumably this is due to the rules requiring RFIs to aggregate accounts when testing against the US$50k reporting threshold.   
  3. One of my reported account is a brokerage account yet only the cash account and related interest earnings were reported.  Calendar year dividend income or aggregated share values were not reported in my case, despite the FATCA IGA requiring the custodial account to report total gross dividends, amongst other reporting obligations.

Overall, I was pleased that I was able to obtain this information from the ATO with minimal fuss.  I plan to seek updates on an annual basis and I encourage you to do likewise so that you also understand what personal financial information about you is being reported to the IRS.  Although I presume that government bureaucracies will strive to improve FATCA and CRS reporting systems, it is also apparent that in terms of identifying compliance exceptions, these systems currently have significant deficiencies and are unlikely to trigger widespread enforcement activities for years to come.    


[1] Australia is estimated to spend A$482 million over ten years on FATCA implementation and maintenance; sourcehttp://ris.pmc.gov.au/sites/default/files/posts/2014/05/08_RIS_accessible.pdf

Part 2: Our FOI Journey – Learnings & Next Steps

In Part 1 of this two-part blog, we reviewed our lengthy and largely unsuccessful journey in exercising our Freedom of Information (FOI) rights to better understand the context behind the current 2001 tax treaty and to use this information to better frame our initiatives to improve this important agreement.

Although our FOI requests were largely unsuccessful, we did gain some knowledge and insights along the way.  The purpose of Part 2 is to discuss these learnings and suggest further activities we might consider.

Learnings

So what did we learn?

Continue reading “Part 2: Our FOI Journey – Learnings & Next Steps”

Information Session – Renounce or Retain US Citizenship?

What: Since the passage of FATCA in 2010 and Australia’s acquiescence in the form of the FATCA IGA (signed in 2014), an increasing number of US citizens resident in Australia have become aware of their US tax obligations. For many the solution has been to renounce US citizenship. This will be an informal and interactive presentation covering questions such as:

  • My bank asked for my US SSN? Does that mean I must file US tax returns?
  • What does filing US tax returns mean for my super? My Australian investments? Will I be double taxed?
  • Does filing both US and Australian taxes defeat the objectives of financial and retirement planning in Australia?
  • What is the transition tax? GILTI? Is it still viable for a US expat to own a small business in Australia?
  • Will the US ever fix these problems by joining the rest of the world in taxing based on residence rather than citizenship? What is this new “TTFI” that I have heard about?
  • How do I renounce/relinquish US citizenship? Do I have to pay an exit tax on my Australian assets?
  • How do I determine whether renunciation is right for me?
  • If I renounce what happens to my Social Security? My IRA or 401(k)?
  • How does renouncing US citizenship affect my ability to travel to the United States?

Who: This is a joint presentation by Karen Alpert and John Richardson.

Karen Alpert founded the website Let’s Fix the Australia/US Tax Treaty and its associated Facebook group. The purpose of the group is to lobby and educate the Australian government regarding the impact of extraterritorial US laws on Australian citizens and residents and the cost to Australia of surrendering its sovereignty in these matters. Karen has a Ph.D. (UQ, Finance) and lectures in Finance at the University of Queensland.

John Richardson is a Toronto citizenship lawyer, the co-chairman of The Alliance for the Defence of Canadian Sovereignty as well as the Alliance for the Defeat of Citizenship Taxation. He is a member of the ACA Taxation Advisory Panel. He holds the degrees of B.A., LL.B., and J.D. He is a member of the Massachusetts, New York and Ontario bars. His law practice focuses on “Solving the problems of U.S. citizenship” including relinquishing and the “Exit Tax”. He gives programs for expats (and Green Card holders) all across Canada and Europe. He writes extensively at citizenshipsolutions.ca.

Where/When: 7pm – 9:00 pm Thursday 25 October, 12 Payne St., Auchenflower QLD (Fibrecraft House)
Google Maps Link: https://goo.gl/maps/8vJKgfD1x5t

THIS SESSION IS OF A GENERAL NATURE. IT IS NOT INTENDED TO AND SHOULD NOT BE UNDERSTOOD TO OFFER LEGAL ADVICE OF ANY KIND.

Additional Sessions (John Richardson only)
  • October 31 – Auckland, New Zealand
  • November 1 – Sydney, Australia

For information see:

http://www.citizenshipsolutions.ca/2018/10/14/considering-renouncing-us-citizenship-expatriationlaw-information-sessions-fall-2018/

Brisbane Session:

pdf of Slides

video on Facebook

FATCA Developments (part 2)

In my last post I summarised a report prepared for the Petitions Committee of the European Parliament about the application of FATCA in Europe including the effect of the new General Data Protection Regulation (GDPR). In this follow up post I discuss the context of this report and other recent developments and the implications of these European actions on those of us who live outside the EU.

Accidental Americans

By now most Americans Abroad will be familiar with the wide-reaching effects of FATCA. These effects vary widely. Those in countries with banks that were badly hit by the DOJ Swiss Bank prosecutions, are finding it very difficult to open more than the most basic non-interest bearing bank account. Long term expats who were unaware of their US filing obligations or the more esoteric “foreign” provisions in the US tax code are finding that they have structured their financial life in ways that are toxic when US tax rules are applied. And with the recent tax reform, it has only gotten worse. Perhaps the worst situation is that faced by “Accidental Americans” whose connection to the US is tenuous at best.

In the past year, one of the more active fronts in the FATCA “wars” has been in France with the formation of L’Association des Américains Accidentels (AAA). This group has been generating media attention and actively lobbying the French government to come to their aid, culminating in the unanimous passage of a resolution by the French Senate inviting the government to take action to support French citizens caught up in the FATCA nightmare. This latest development hasn’t been picked up by the English-language media, but has been covered in French. (Anglophones, Google Translate is your friend!)

While all of this action has been building up in France, J.R., a French citizen and Accidental American, submitted his petition to the European Parliament, resulting in the report described in my last post, and a new oral question to the European Commission from the Petitions Committee.

Possible EU Action

The Petitions Committee will be voting at their June meeting on a resolution to be put to a Plenary session of European Parliament in July. The original draft of the resolution can be found here, with proposed amendments here. Many of the recommendations of Prof. Garbarino’s report have found their way into this resolution.  The first action paragraph added by the amendments to the resolution says it all:

-1. Calls on Member States and the Commission to ensure that the fundamental rights of all Citizens, in particular the Accidental Americans, are ensured, especially the right to a private and family life, the right to privacy and the principle of non-discrimination, as laid down in the Charter of fundamental rights of the European Union and in the European Convention of Human Rights

Additional paragraphs ask the Commission and Member States to

  • ensure that legal residents are not discriminated against when it comes to financial services;
  • ensure that EU data protection laws are followed and amend IGAs if necessary to ensure compliance with GDPR;
  • prepare a full impact statement on the impact of FATCA and CBT on EU residents and citizens;
  • noting the lack of reciprocity in the FATCA IGAs, calls on Member states to suspend the IGAs (or at least reporting on all but US citizens residing in the US) until reciprocity is achieved.

IF this resolution passes (the vote in the Petitions Committee is scheduled for 19 June, with a vote in the Plenary session in July), that doesn’t mean immediate action. Expect some foot-dragging by the Commission and Member States. However, due to the new GDPR, something will need to be done before the next data transmission in September.

Effect on FATCA worldwide

It is my hope that these developments will cause the IRS and Congress to consider the impact of FATCA on Americans abroad relative to the (minimal) potential revenue stream from tax residents of other countries who can offset most, if not all of their potential US tax liability with a credit for taxes paid to their home country. These are not the tax evaders FATCA was aimed at, but they are the main victims of a global stop and frisk program to locate, tax and penalise non-resident US citizens. Of course, expats have been hoping along these lines since 2010.

However, with GDPR there is at least some hope that EU member states (or the EU collectively) will be able to re-negotiate the FATCA IGAs. Any concession that EU member states are able to win from the IRS will be welcome, and can be used by other countries to win similar concessions. While Article 7 of the Model 1A IGA calls for consistency, its applicability in this instance will depend on exactly how the EU member states negotiate and draft any concessions. Article 7 says that IGA partners will receive the benefit of any more favourable terms with regard to potential penalties on local financial institutions and due diligence requirements, but not with regard to the actual reporting requirements. But, if EU Member States gain the concession that they no longer have to report on their own legal residents, I would expect other G-20 nations to ask for the same. Then there’s the matter of Article 10, which calls for the parties to revisit the agreement by the end of 2016 with regard to reciprocity. I have yet to find evidence that any partner jurisdiction has requested such a review.

Of course, any change in FATCA reporting requirements will not override US law. In the absence of an adoption of residence based taxation by the US, those with US assets or who plan on returning to the US will be exposed to US tax on non-resident citizens. However, CBT was unenforceable with respect to US citizens without any US assets prior to FATCA (and is still largely unenforceable) because the IRS has very limited power to collect from assets held outside the US. FATCA is really a data privacy/protection issue because under FATCA the IRS has a better idea of who might have a filing obligation (not who owes tax), and some non-US banks are assisting the IRS by insisting on proof of US tax compliance. Here’s hoping that the current push for greater data protection, as exemplified by GDPR, will have global effects when it comes to sending sensitive financial data on a country’s own citizens and residents across international borders.

FATCA Developments in Europe

With the release of a report to the European Parliament and unanimous passage of a resolution in the French Senate, it appears that some governments are finally starting to stand up to US bullying of their own citizens through FATCA and CBT.

This post will summarise the academic report, written by Professor Garbarino of Bocconi University. A follow up post will discuss the context of the report and other recent developments and the implications for those of us who live outside of the EU. Continue reading “FATCA Developments in Europe”

Does FATCA stop tax evasion?

So, is FATCA responsible for stopping tax evasion? On twitter yesterday someone (not worth naming, he has no followers) claimed that FATCA was the root cause for the enforcement action announced by Kelly O’Dwyer, Minister for Financial Services last week . This was also reported by Bloomberg . The headline number in the press release was A$900 million of transactions – these transactions are not necessarily unreported income, and even the part that is unreported income will be taxed at a rate less than 100%. In fact, of 578 taxpayers listed in the original investigation, the vast majority were found to be compliant and only 106 are the subject of the ongoing enforcement action.

The claim in yesterday’s tweet was that FATCA broke Swiss banking secrecy and was therefore responsible for this potential tax revenue. However, Swiss banking secrecy was broken by the US Department of Justice which sued UBS (and subsequently other banks) for violating their Qualified Intermediary agreements. The results of these lawsuits were the justification for FATCA (and FATCA, in turn, was the justification for CRS).

I will not defend tax evaders. These 106 Australian taxpayers deserve the full force of whatever enforcement action the ATO can bring to bear. However, the resulting tax revenue will be the result of old-fashioned investigation based on information provided by an informant. None of the very costly Automatic Exchange of Information (AEoI) schemes has had any impact in this case.

Many government officials around the world believe that AEoI has generated BILLIONS of dollars in tax revenue from assets hidden in “offshore” accounts. Last week an official of the Chilean revenue office told me that she thought AEoI had generated $85 Billion of tax revenue world-wide. When you try to get to the bottom of these numbers, however, you find news stories like this one. Revenue that has been generated by data leaks and informants, not income that has been reported by FATCA (or CRS, which had its first data exchange last September). While I believe there are some who have (or will) “come clean” in fear of FATCA/CRS before they are identified by their local revenue authority, it is quite possible that the net revenue impact will be less than the considerable global compliance costs that AEoI has imposed on the financial services industry. For details on the costs and estimated revenue from FATCA, see section 1.02 of Prof. William Byrnes’ paper on Background and Current Status of FATCA and CRS.

I have been looking to see whether compliance among US expats has increased post-FATCA. While the anecdotal evidence appears to be that many “minnows” have been scared into compliance by the fear-mongering of tax professionals, the effect is not yet apparent in the data. The IRS publishes data on returns filed with an overseas address – these include returns filed by active duty military stationed overseas as well as residents of Puerto Rico, US government employees stationed overseas, and expats. The number of returns in this category has declined sharply since 2009.


The number of returns appears to be highly correlated with the number of US military personnel stationed overseas, which is currently at the lowest level in decades.
U.S. military overseas presence is at a 60-year-low
Once you remove military personnel, the compliance rate for other expats in 2015 appears to be between 15-20%, which is the same rate that has been quoted since before FATCA.

The effectiveness of FATCA, and AEoI generally, in increasing compliance rates is still unclear. The cost of compliance in Australia alone was estimated at over A$200 million. It’s time someone did a comprehensive, rigorous cost-benefit analysis of these schemes.

What did we learn from our ATO FOI request?

While the 2014 FATCA information transfer to the IRS was widely reported, since then we have had no idea how much data has been flowing from the ATO to the IRS. To get a better idea of the scope of the data exchange, Carl sent an FOI request to the ATO for a summary of the data sent to the IRS under FATCA for all three reporting years that have now been completed (2014, 2015, and 2016). The ATO complied with this request in a timely manner, sending us a pdf file of a printout of an excel worksheet that spans several pages both vertically and horizontally. [1]

FATCA requires Australian financial institutions (very broadly defined) to report account holder details as well as account balance, dividends, interest and other income paid, and gross proceeds from sale or redemption to the ATO for transmittal to the IRS. It is evident from the graphs below that the amount of data going to the IRS has exploded since the initial data transfer of 2014 data (transferred 30 Sept 2015).

Continue reading “What did we learn from our ATO FOI request?”

Behind the Curtain – FOI Requests

 

 

 

 

 

One of the terrific things about living in a parliamentary democracy like Australia is that there are safeguards in place to facilitate transparency of the Australian Government and public services.  One powerful tool is the Freedom of Information Act, or FOI, which provides individuals or organisations with the right of access to documents held by many government agencies.  By law, most public authorities have to respond to an FOI request within 30 days. Their response will either contain the information requested, or give a valid legal reason why it must be kept confidential.  Note that the government agencies may levy charges for locating and making the information available, based on prescribed rates.

Here at Fix the Tax Treaty!, we’ve often wondered whether the Australian Government adequately considered the impacts on Individuals (vs businesses) when negotiating and entering into the Australia – US tax treaty agreements and the FATCA Intergovernmental Agreement (IGA).

We decided to find out!

Continue reading “Behind the Curtain – FOI Requests”