And who is standing up against the IRS??
WSJ Aug. 20, 2015 7:41 p.m. ET
Nancy Pelosi famously said Congress had to pass ObamaCare so Americans could learn what was in it, but that rule applies to other regulatory monsters too. Take Fatca, the Foreign Account Tax Compliance Act, which was tucked into a 2010 jobs bill and is wreaking havoc on the finances of millions of Americans overseas. Now it faces an overdue challenge in court.
Fatca’s purpose is to combat tax evasion, but in Obama-era fashion it uses legally dubious means. Foreign banks, insurers and other financial firms must give the U.S. Internal Revenue Service details of any private or commercial account controlled by an American, or risk a 30% withholding tax on their U.S.-dollar business.
Some foreign banks and firms have spent huge sums to comply with Fatca, but others have stopped doing business with American clients. The latter is bad news for the 7.5 million Americans living overseas, most of whom are entrepreneurs, sales reps, lawyers, English teachers, retirees and the like, not billionaires on yachts trying to hide cash.
In a survey last year, the group Democrats Abroad found that 16% of American expatriates had lost bank accounts, mortgages and other basic financial services in their country of residence, while 22.5% were unable to open new savings or retirement funds. Many have lost promotions or startup opportunities because foreign companies don’t want to endure higher compliance costs and expose their books to the IRS because they have an American employee with signature authority over local accounts.
Foreign firms sometimes speak of avoiding “U.S. person pollution,” and some Americans are doing the same: A record 3,415 renounced their U.S. citizenship last year, up from 482 on average during the George W. Bush years. Many cited Fatca’s burdensome requirements and potentially ruinous penalties.
Fatca also violates Americans’ constitutional rights. That’s the claim now before a federal court in Ohio, where expatriates have sued the feds for invading their privacy and discriminating against them as non-U.S. residents.
The plaintiffs charge that by recording details of their financial holdings and transactions, rather than merely scrutinizing interest income via the standard 1099 tax form, Fatca “destroys the presumption of innocence” and without due process treats all overseas account holders as de facto criminal suspects.
Also suing is Republican Senator Rand Paul, who charges that in implementing Fatca the Obama Administration has exceeded its power and ignored Congress. His focus is the more than 70 intergovernmental agreements on Fatca-related information-sharing that the Administration has signed with other countries, none authorized by Congress.
The Justice Department says these agreements lawfully “facilitate the implementation of tax rules previously enacted by Congress.” But, as Mr. Paul’s filing notes, the agreements revise Fatca as much as they implement it, granting countries exemptions from various reporting and waiver requirements.
The Administration’s response is that the plaintiffs lack standing to sue due to insufficient injury, yet that’s hardly the case for the expatriates. Stopping tax cheats is a worthy aim, but Fatca’s guilty-until-proven-innocent approach hurts law-abiding Americans and the rule of law.