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US Court Dismisses Case Against FATCA Disclosures

by Mike Godfrey,, Washington

03 May 2016

The US District Court for the Southern District of Ohio has dismissed a case brought by Senator Rand Paul (R – Kentucky) and a group of individuals, who attempted to make several challenges to the Foreign Account Tax Compliance Act (FATCA) and the Report of Foreign Bank and Financial Accounts (FBAR).

The case, Mark Crawford, et al vs. United States Department of the Treasury, et al (No. 3:15-CV-00250), sought to stop the enforcement of both the intergovernmental agreements (IGAs) negotiated by the US Treasury Department and the Internal Revenue Service (IRS) with other foreign jurisdictions to enforce FATCA, and also the account reporting requirements of both FATCA and FBAR.

FATCA, enacted by the US Congress in 2010, requires all financial institutions (FIs) outside of the United States to submit regular information to the IRS on financial accounts held by US persons with a value of at least USD50,000. Otherwise, certain payments of US-sourced income face a 30 percent withholding tax.

An FBAR must be filed with the Financial Crimes Enforcement Network (FinCEN) by American taxpayers who have one or more bank or financial account located outside the United States, or signature authority over such accounts, whose aggregate value exceeds USD10,000 at any time.

In their introduction to the case, the plaintiffs stated that the FATCA and FBAR "laws and agreements impose unique and discriminatory burdens on US citizens living and working abroad," and that "the challenged provisions are unconstitutional and the defendants [Treasury, IRS and FinCEN] should be enjoined from enforcing them."

The plaintiffs called IGAs unconstitutional, as they had not been submitted to the US Senate for its advice, consent or approval, while they also "nullify the right of individuals to refuse to waive foreign privacy laws that would otherwise prohibit their banks from disclosing their account information to the IRS."

Furthermore, it was noted that the FATCA and FBAR reporting requirements "require US citizens living abroad to report more detailed information about their local bank accounts than US citizens living in the United States."

Finally, it was claimed that the 30 percent "tax" imposed by FATCA on payments to foreign FIs when they "choose not to help the IRS pry into the bank accounts of their US customers … is not a tax at all but rather a penalty designed to accomplish indirectly through financial coercion what the US government cannot mandate directly through regulation."

However, the court decided that all of the plaintiffs lacked standing to sue in various ways. In particular, they had failed to establish that they had suffered an injury caused directly by the Treasury, IRS or FinCEN.

"No individual plaintiff has suffered an invasion of a legally protected interest, which is concrete and particularized, and actual or imminent, not conjectural or hypothetical," the court stated. "Moreover, no alleged injury is fairly traceable to the actions of the defendants, but rather, the actions of an independent third party. Finally, there are no allegations that it is likely that the alleged injury will be redressed by a favorable decision."

The court therefore granted the defendants' motion to dismiss the case, and none of the substantive matters in the case were deliberated.

TAGS: individuals | expatriates | court | compliance | Foreign Account Tax Compliance Act (FATCA) | tax | tax information exchange agreement (TIEA) | tax compliance | FATCA | law | Internal Revenue Service (IRS) | ministry of finance | tax authority | agreements | legislation | United States | regulation | penalties | Compliance | Tax

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