Repeal of the Foreign Account Tax Compliance Act (FATCA) reduces taxes by approximately $150 million per year AND reduces compliance costs by $200 million per year, according to estimates by William Byrnes of Texas A&M University School of Law.
This means that repeal of FATCA simultaneously offers relief to taxpayers and saves the government money by reducing outlays and reducing revenues.
FATCA was signed into law in 2010 with the goal of stopping tax evaders that were using offshore bank accounts. However, it was designed as a blunt instrument that targets any American with a bank account overseas. Most who are forced to comply are expatriate Americans who have, little if any U.S. presence.
As a result, compliance costs far outstrip any effectiveness in curbing tax evasion. American citizens overseas have become locked out of financial institutions including banks, stockbrokers, hedge funds, and insurance. Often, it is easier for these businesses to deny US citizens service.
Under FATCA, any overseas account held by U.S. citizens must be reported to the IRS. This means that millions of Americans must give up personal information and comply with burdensome IRS regulations and reporting requirements. The law requires financial institutions to collect and disclose this information. If they fail to do so, the IRS can impose a 30 percent withholding penalty on an institution’s U.S. investments.
FATCA also requires American citizens to comply with tax filing forms if they have assets overseas that meet or exceed $50,000. For overseas Americans, this means they must comply with the tax compliance laws in their country of residence in addition to IRS laws.
Given that this law increases taxes and increases compliance costs for the government, it should be repealed. Doing so will offer relief to millions of Americans living overseas and reduce the size and scope of the IRS.