The New York Times recently published an article denouncing FATCA and the burden it places on expats and foreign financial institutions.
The law is meant to ensure Americans cannot use hidden trusts overseas to evade taxes, a goal that is widely applauded. But critics say that it amounts to gross legislative overreach, and that the $8 billion the Treasury expects to reap in taxes owed over 10 years pales next to the costs it will impose on foreign institutions. Those entities are being asked, in effect, to pay for the cost of tracking down American tax evaders.
The US still doesn’t seem to understand the problem, however. To reassure banks that compliances won’t be too burdensome, the IRS has stated that “electronic screening, not manual checks, will be acceptable for most types of accounts.” It boggles the mind to think of how this would even be possible from a data gathering standpoint, since most financial institutions around the world have had, until now, no reason to ask for all citizenship information from account holders.
Or, as Mario Frankovich, chief executive of Burgeonvest Bick Securities, puts it:
[H]is Toronto firm currently required no data from new clients that would show United States links, so any electronic search “would be showing zero U.S. passports.” He said his sense was that Fatca required companies “to prove your innocence.”
Even if the data had been collected, extensive programming and sorting of records would be needed before accounts could be properly sorted. The IRS appears to think that keeping electronic records means that searches are as easy as using Google.
But the additional costs don’t only belong to the financial institutions.
American Citizens Abroad, an advocacy group, estimates the new form will add three hours to tax preparation. Considering that the law provides harsh penalties for even unintentional errors, the organization says it is “simply not realistic for a vast swath of the normally law-abiding filer community unable to afford the expensive services of a professional tax adviser.”
And then the million dollar question:
Then there is a question of reciprocity: Would the United States accept the same demands for information from the tax authorities in other countries – say Russia or China?
Read the full article here.