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FATCA challenge dismissed by federal appeals court

On Behalf of | Aug 23, 2017 | FBAR & FATCA (Foreign Accounts)

A group of several Americans living abroad – who call themselves “Republicans Overseas” – have vowed to continue their fight against the Foreign Account Tax Compliance Act (FATCA) in spite of a recent dismissal of their claims by the Sixth Circuit Court of Appeals.

The plaintiffs, originally joined in their suit by Senator Rand Paul (R-KY), initially filed suit to stop enforcement of FATCA as concerning their overseas accounts. Their suit argued, among other things, on allegations that compliance with the “draconian” FATCA infringes upon their privacy rights.

How plaintiffs lost standing

In lieu of having their foreign income and holdings disclosed to the IRS, the five named plaintiffs withdrew funds from banking institutions so that they would no longer meet the reporting requirements.

It was that very action, the draining of non-domestic accounts, which negatively impacted their claims, however. The lower court and the appellate panel both found that, since the plaintiffs aren’t subject to FATCA enforcement any longer, they lack standing to bring suit.

According to the Sixth Circuit’s verdict:

     “No plaintiff has alleged any actual enforcement of FATCA [against them] such as a          demand for compliance…the imposition of a penalty for non-compliance or deduction        of the Passthru Penalty.”

Furthermore, the court reasoned that even though some banks had chosen to no longer accept U.S. citizens (or to force those citizens to relocate their accounts to another institution), the decision was theirs alone, and the government was not accountable for the procedures of a private business.

FATCA itself

FATCA, as we all know, requires foreign banking institutions to report accounts with assets of more than $10,000 held by American citizens to the IRS. Banks that willfully withhold this information could face a penalty equivalent to 30 percent of the total assets not disclosed. Individuals who fail to declare their foreign-held finances face even steeper consequences: they could lose as much as $100,000 or 50 percent of the value of non-domestic accounts (whichever of those two is greater).

Initial pleadings also argued that Senator Paul’s rights were violated by agreements between the IRS and the Treasury Department concerning FATCA. Since Paul has a legislative remedy (getting the law changed by proposing new statutes and regulations), he also lacked standing to challenge FATCA in court.

Though the plaintiffs in this case vow to continue their fight as far as the Supreme Court of the United States, for now FATCA remains in place. If you are unsure about complying with FATCA or filing an FBAR, or you have other concerns related to foreign financial accounts and assets, speak with a qualified tax attorney who handles these difficult assets for more information about how to avoid potential consequences for non-compliance.


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