Since I have been closely following the unfolding – and somewhat constantly shifting – tax policy of the Trump administration and the 115th Congress, I get asked often what will happen, if anything, to FATCA, the U.S. Foreign Account Tax Compliance Act.
Recall FATCA has turned virtually every foreign country and bank into an agent of the IRS, reporting back to the U.S. Treasury on the holdings of U.S. “persons.” Along with a bunch of additional requirements, like the odious Foreign Bank Account Report, it presents a truly formidable fiscal challenge even for the “normal” expat.
Most countries folded and signed agreements with the United States where they agree to share financial information of U.S. persons, under clear threat of punishing withholding taxes of U.S. sourced payments to people in those countries. Even Vatican City signed up.
Some countries have taken their time, and there has been more or less some pushback. The interesting thing is that there was a promise in the Republican party platform to repeal FATCA.
I have been a delegate to National Conventions, so I can tell you the language in these much fought over platforms has often ended up in the dustbin. But the Trump administration is anything but normal. Could they try to repeal FATCA?
The first hurdle is that FATCA may not be as high as we could wish on the administration’s tax priorities. Well ahead is Obamacare repeal (remember it has plenty of tax components) plus the Trump “big border tax” (in whatever way it ends up taking shape). FATCA, for all the headaches it causes, is seen by some in the Congress, and Treasury and Justice departments, as a mechanism to detect and prevent offshore tax evasion. It seems a difficult sell, even in Republican circles, to justify dismantling the very thing that was decried earlier. Plus, the concept was immediately borrowed “off the shelf” by about 90 other countries which have adopted their own form of mandatory financial info exchange, the Common Reporting System, CRS.
We shall see.
Even if FATCA as we know it were repealed, there are plenty of other instruments the U.S. Treasury is deploying effectively to detect whatever it wants to. Foreign Bank Account reports are tops on my list. Easy to “fail to file,” it joins many other requirements imposed on U.S. persons, designed to trap the unwary. Just recently I wrote about mandatory reporting of ownership or control of foreign corporations. None would go away with a FATCA repeal. We are in this for the long haul.