Paperwork and Punishment: It’s Time to Fix FBAR

6 Jan

Long Arm of IRS to Expats

Paperwork and Punishment: It’s Time to Fix FBAR” is an academic paper published in Tax Notes International in October 2014 by Allison Christians, Associate Professor who holds the H. Heward Strikeman Chair in Tax Law at McGill University Faculty of Law. In it she vividly details the fallacy of FBAR as a tool to catch criminals, tax evaders, money launderers and terrorists. To wit, the responsibility for collecting the Foreign Bank Account Report has been handed over to FinCEN, Financial Crimes Enforcement Network, described by the Treasury Department as the Financial Intelligence Unit of the United States. Thus there is a criminal stigma associated with entering oneself in a crime enforcement registry. In her introduction, she states, “Unfortunately, its increasingly draconian requirements and consequences now apply to millions of innocent bystanders who are collateral damage in the ongoing battle against financial crime. Their inclusion in the FBAR regime is a massive waste of both government and taxpayer resources, effectively criminalizing activities that are wholly unconnected to financial crime, and perversely discouraging compliance. All of this is unnecessary because as the administrator of FBAR, Treasury can immediately fix the problems. The difficulty is that FBAR is still relatively obscure to those not caught in its grasp, and the extent of the damage it is doing to U.S. taxpayers and to the integrity of the tax system is thus under-appreciated. This damage is real, but it can be reversed by re-focusing FBAR where Congress intended: on likely criminal activity. In short, this Essay demonstrates that the FBAR regime is broken and it is time for Treasury to fix it.

Did you know that the FBAR came about as part of the Bank Secrecy Act of 1970? The $10,000 threshold for requiring that all foreign financial institution accounts be reported has not changed since it was first chosen as the criterion for reporting. With no inflation adjustment, its impact has significantly broadened over the years, and it now inflicts huge penalties on millions of individuals who should never have been in its sights. Had it been inflation adjusted, it would require you to list all your foreign accounts if their total reached approximately $50,000.

U.S. persons  living  permanently  in  other  countries  may  disagree  with  the  U.S. policy of taxing citizens on a global basis. A harsh regime that involves extensive and duplicative financial reporting with a criminal stigma attached is a recipe for deepening resentment. If the United States takes the sensible route in adopting residence based taxation, the extreme cost of FBAR filing, measured in dollars and time spent as well as an increasingly fragile taxpayer morale, will disappear along with millions of unnecessary annual returns showing no tax owed. This will free up scarce administrative resources, allowing the IRS to turn its focus where it belongs; on those who are determined to cheat and evade the system to the detriment of everyone. Until then, it is in the  interest of al  taxpayers, the IRS, and the  income  tax  as a whole that FBAR compliance be a  normal rather than criminal experience, and that it be no more difficult or draconian than is absolutely necessary.

Does FATCA Apply To Me?

30 Dec

Originally posted on IRS vs expats:

This letter and response to it was published in the latest ACA (American Citizens Abroad) newsletter. It provides and insight into how FATCA, a law that only affects FFIs (foreign financial institutions), can have a direct personal effect on each and every individual EXPAT.

ACA - The Voice of Americans Overseas

Dear ACA, I have been trying to keep myself updated on FATCA and how it can affect me, but until recently I thought that I only had to worry about tax compliance, that is, making sure my taxes were totally correct because my financial institutions would be reporting everything to the IRS anyway. I thought the problem of being denied financial services was a problem with other countries like Switzerland, and living in Scandinavia, that would not be a problem for me.

In the last months, however, I wanted to start saving in an Index fund for my infant son, and so I…

View original 931 more words

Are You Aware That Your Local Bank Has Started Reporting You to the IRS?

6 Oct

FATCA flag

Starting on July, 2014 the banks in most developed countries (48 and rising) have started sending information about their American clients to the U.S. government. This is commonly referred to as FATCA, Foreign Account Tax Compliant Act.

That means that the IRS knows about you. If you are not aware of these developments – start reading about the personal implications of a small amendment to the jobs legislation passed four years ago and just now starting to have an effect on all of us Expats who live, work, and bank outside of the USA.

Nothing complicated about it. Just make sure you report all your financial holdings no matter where they may be in the world. Make sure your report your FBAR each year. And when in doubt, consult a professional who is familiar with these issues of taxation of Americans overseas.


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