Opposition to Foreign Account Tax Compliance Act (FATCA) is not dead even though the first deadline for financial institutions to pass information about US taxpayers to the Internal Revenue Service (IRS) has passed.
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April 1, 2015 was the key deadline and tens of thousands of financial institutions in countries without an agreement between Washington and their governments have already despatched their reports about accounts and investments controlled by US taxpayers or will do so within 90 days.
Those that have failed to do so by June 30, 2015, could face sanctions, such as imposition of a 30% withholding tax on their transactions through the US dollar system.
All the reports are due through the IRS online FATCA portal, which will be stepped up to high capacity for the first time.
Many banks are reporting that their customers are wary of giving consent to pass their financial information to the IRS, but the sting in the tail is if the customer does not comply with FATCA, the financial institution still has to report this to the IRS.
Legal challenge
Many US expats are pinning their hopes of beating FATCA non-compliance on US Republican Senator Rand Paul.
Paul is a leading anti-FATCA campaigner and wants to set his stall out as a candidate for the 2016 Presidential Elections.
He has put draft legislation before the Senate aimed at stopping FATCA, claiming the law backed by President Obama violates privacy, puts obstacles in the way of US expats opening overseas bank accounts and is forcing others to renounce US citizenship to keep their financial affairs private.
“FATCA is a threat to the financial status of US taxpayers living and working overseas,” he said.
“I want to see this law removed because it serves no good purpose and is unnecessarily complicating the lives of thousands of people.”
Hidden cash offshore
He also argues the law is unconstitutional and costs banks millions of dollars to implement without showing a return for the US government.
Obama disagrees and sees the law revealing billions of dollars of undeclared income hidden offshore and expects the IRS to rake in extra tax every year.
FATCA is so controversial because unlike almost every other nation, US citizens have to report their worldwide income to the IRS regardless of whether they live in America or abroad.
The reporting limits are accounts or investments worth $50,000 a year for US residents and $200,000 a year for expats.
Taxpayers have to take no action under FATCA. The law makes the financial institutions outside the US holding their accounts responsible for reporting financial data about their customers to the IRS.