Taxpayer Advocate Recommends Merging FATCA and FBAR Reporting Rules

The National Taxpayer Advocate has recommended that the reporting rules under the Foreign Account Tax Compliance Act and for foreign bank account reports in effect be merged to simplify the duplicative disclosure requirements that make it difficult for American expatriates to have bank accounts in the foreign countries where they live.

The expatriate advocacy group Americans Living Abroad has been pushing for relief from the onerous requirements of FATCA, which was included as part of the HIRE Act of 2010. FATCA requires foreign financial institutions to report on the holdings of U.S. taxpayers to the Internal Revenue Service, or else face stiff penalties of up to 30 percent on their U.S. source income. The older rules for foreign bank account reports, or FBARs, require taxpayers themselves to report on their holdings in overseas bank accounts. Both sets of requirements are aimed at discouraging taxpayers from hiding their assets in secret bank accounts abroad, but have also led many U.S-born expatriates to face difficulties in maintaining bank accounts, even if they haven’t lived in the U.S. for years.

A set of recommendations by the IRS’s Taxpayer Advocate Service, which is headed by National Taxpayer Advocate Nina Olson, was posted online by the group Monday. “Organizations representing U.S. taxpayers abroad and the press have voiced concerns about unintended consequences of new FATCA rules for foreign financial institutions, which make it harder for U.S. taxpayers living abroad to open and maintain legitimate bank accounts overseas,” the Taxpayer Advocate noted. “Some foreign financial institutions (FFIs), such as Deutsche Bank, HSBC, and ING have reportedly been closing out foreign accounts of U.S. citizens in response to FATCA. During recent meetings with TAS, organizations of U.S. citizens abroad reiterated their concerns and proposed several changes to IRS regulations.

The recommendations would amend the regulations to eliminate duplicative reporting of assets on Form 8938 if the asset is reported or reflected on a timely-filed FinCEN Report 114; and to specifically exclude from the definition of financial account subject to reporting by foreign financial institutions those financial accounts maintained by a financial institution organized under the laws of the country of which the U.S. person is a bona fide resident.

Another regulation would be changed to exclude from the specified foreign financial assets required to be reported on the Form 8938 financial accounts maintained by a financial institution organized under the laws of the country of which the U.S. person is a bona fide resident.

American Citizens Abroad said it was one of the groups that recently met with the Treasury Department to push for the change and outlined how such an exemption might work in a position paper this month.

“We are very happy to see progress made on these subjects,” said ACA executive director Marylouise Serrato in a statement Monday. “But we cannot rest in our efforts to get these changes actually made. For sure, the Same Country Exemption could be put in place almost immediately; it does not require Congressional action. It is a change that everyone, including Treasury Department and the IRS, should be enthusiastic about.”

1 Comment

Combining FBAR and 8938 is a step toward simplification of the onerous reporting required of US persons living overseas. One set of nonfiling/inaccurate penalties would be eliminated and that is a good step.

TAS did not go far enough to reduce the unconstitutional FBAR fines(excessive fines – unconstitutional so says www.fatcalegalaction.com). Accounts in those countries are not foreign and should not be treated by such with “foreign account” penalties).

While one may hope that relieving FFI of their reporting obligations for bona fide tax residents, will be a relief for US persons living overseas – the notion is hypothetical. All FFI under FATCA (unconstitutional so says www.fatcalegalaction.com) must vet through their account lists and hunt down US persons among existing accounts, for any new accounts, and periodically AND this still must be done if the US persons are bona fide tax residents or not. So will this be any help? It will add an extra layer of bureaucracy and questions imposed on the banks at their expense to ask the extra questions.

There is no mention of the foreign nationals in the US getting their accounts shut in their home countries as a result of FATCA regulations.

Also, no mention of US persons with a “foreign address” getting financial accounts closed or services limited on US based accounts. It is Unamerican!

Clearly with FATCA,FBAR, and Citizenship Based Taxation the US has treated overseas US persons with an expectation that they are to serve the US government, instead of the US government having the prime responsibility to serve them.

Double taxation, without representation, with excessive compliance, and with excessive compliance penalties, and with $0 in US government services in exchange is TYRANNY!