Sen. Rand Paul to sue IRS, U.S. Treasury

Rand Paul is poised to become the first major presidential candidate in memory to sue the government he seeks to lead as president.

The Kentucky senator will take legal action against the U.S. Treasury and the Internal Revenue Service for what he says is the denial of his constitutional right to vote on more than 100 tax-information treaties that the Obama administration unilaterally negotiated with foreign governments, The Washington Times has learned.

In what the suit says is a violation of Article II, Section 2 of the Constitution, President Obama has not consulted the U.S. Senate about the treaties nor given the Senate an opportunity to approve or disapprove of the treaties. The administration calls them “intergovernmental agreements.” They require foreign banks to gather and share private financial information about millions of Americans living and working outside the U.S. — information they would not have to disclose to the U.S. government if they lived and worked in the U.S.

The treaties or agreements are the enforcement mechanisms of the Obama administration’s Foreign Account Tax Compliance Act (FATCA), enacted by a Democratic-controlled Congress in 2010.

The act is despised by many of the estimated 8.7 million Americans living overseas, a record number of whom have — with great anger and reluctance, according to those who have spoken to the foreign and U.S. press — renounced their U.S. citizenship rather than attempt to comply with FATCA.

What percentage of them simply want to evade paying taxes to the U.S. government and to the foreign governments in whose countries they work and/or reside is unknown. The U.S. is one of the few countries that taxes its citizens on income earned and property held both at home and abroad.

President Obama pushed for the passage of FATCA as a means of capturing hundreds of millions of dollars in income and property taxes owed to the Treasury by those Americans living and working outside the U.S. But many Americans living abroad say the Treasury and the IRS are treating them as guilty of tax evasion until proven innocent.

“Obama owns this,” said Indiana-based GOP superlawyer Jim Bopp, the lead attorney for Mr. Paul and other plaintiffs in the case. “FATCA passed Congress right after Obama was elected, when the Democrats had majorities in both houses” of Congress.

“The issue is inescapably partisan for that reason and for the fact that no Republican [in the U.S. House] supported the passage of FATCA,” Mr. Bopp said. “The U.S. government didn’t start enforcing it until Obama started to target U.S. citizens overseas in the belief that they had a lot of money but not a lot of political clout sufficient to fight back.”

Nations that have approved these bilateral agreements or treaties with the U.S. include such major economic powers as China, Britain, India, Israel, Ireland, Canada, Australia, Japan, Germany, France, Spain and Switzerland, as well smaller states once considered as tax havens such as Bermuda, the British Virgin Islands, Lichtenstein and Luxembourg. So far, 112 nations have agreed to collect or receive private financial information about Americans in those countries and to turn the information over to the U.S. government.

Constitutional clash

Mr. Paul, a Republican who announced his presidential bid in early April, will join six other plaintiffs in the suit that a new organization called “Republicans Overseas Action” expects to file in a southern Ohio federal district court the week of June 29. The court’s Republican makeup is considered at least open to the constitutional arguments that the plaintiffs lay out.

The other plaintiffs base their claim of legal standing to sue the Treasury and the IRS on FATCA’s requirement that they surrender personal information in violation of the Fourth Amendment’s ban on unreasonable search and seizure and on the Eighth Amendment ban on cruel and unusual punishments — in this case, unusually large financial penalties for late filings, however innocent, or for noncooperation.

FATCA requires foreign banks to violate the privacy of their American customers by disclosing bank balances and all financial transactions. The U.S. law levies a hefty 30 percent fine on foreign financial institutions that don’t cooperate with the Treasury’s requests. The fine is actually levied against the American customer of the foreign bank, but critics say no bank can keep its customer base with fines of that magnitude.

The law also directly fines the American holder of a foreign account as much as 50 percent of the highest balance that was in that account at any time during a 12-month period as penalty for not reporting.