Rep. Bill Posey, R-Fla., has written a letter to Treasury Secretary Jack Lew questioning regulations that would require U.S. banks and credit unions to collect and report information on nonresident aliens, urging him to cease enforcement of the Foreign Accounting Tax Compliance Act, or FATCA, and stop negotiating intergovernmental agreements with other countries for FATCA enforcement.
Posey, who is a member of the House Financial Services Committee, wrote to Lew on Monday to express his concerns about the intergovernmental agreements, which the Treasury has been negotiating with other countries as part of its efforts to implement FATCA.
FATCA was included as part of the HIRE Act of 2010 and requires foreign financial institutions to report to the Internal Revenue Service on the assets held by U.S. taxpayers in their accounts, or face heavy penalties. As part of the effort to induce other countries to share information about bank accounts with U.S. authorities, the Treasury has been negotiating and signing intergovernmental agreements in which it agrees to share similar information with their tax authorities (see Tax Strategy: FATCA Update: Expansion of a Worldwide IRS Information Network).
However, Posey questioned the Treasury’s authority to negotiate such agreements and contended that FATCA does not provide for them. In his letter, he noted that legislation to repeal FATCA was recently introduced in the Senate, and he expects a companion bill will soon be introduced in the House (see Rand Paul Introduces Bill to Repeal Parts of FATCA).
He contended that the Treasury’s promulgation of regulations to require U.S. banks and credit unions to collect and report information on interest paid to nonresident aliens “would not themselves bring one penny into the U.S. Treasury,” but instead “would discourage investment in the United States. They would further impose costly compliance costs on American banks and credit unions, and their depositors and members.”
Posey added that he has recently introduced bipartisan legislation, H.R. 2299, to abolish such rules and prohibit the Treasury Department from issuing similar interest income reporting rules involving nonresident aliens.
He said his concerns were compounded by the reciprocal intergovernmental agreements, or IGAs, that the Treasury Department has been negotiating and signing with other countries such as the United Kingdom and Mexico committing the U.S. to reciprocal automatic information exchange with their tax authorities.
He cited the IGA signed with the U.K., which states, “The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic exchange.”
Posey noted that the Obama administration’s fiscal 2014 budget plan called for legislation requiring reciprocal reporting of information by U.S. financial institutions to the IRS of the account balances and payments made to the accounts of nonresident aliens and entities that are not U.S. individuals, which could then be shared with “cooperative foreign governments to support their efforts to address tax evasion by their residents.”
Posey said he had shared his concerns with other members of the House Financial Services Committee and added that “it is difficult to conceive of any circumstance that would justify imposing such an expensive and counterproductive domestic mandate.”
He contended that the IGAs that are being entered into by the Treasury are not authorized or even mentioned in the FATCA legislation, and that Congress was being bypassed.
“Despite the absence of any specific legislative authorization, these IGAs are not being submitted to the Senate as treaties or treaty amendments for its advice and consent, nor—apart from the enhanced reporting authority described above—is any request being made to the full Congress for statutory authority to implement the IGA.”
Posey called for repeal and replacement of FATCA by Congress and urged Lew to delay FATCA enforcement and impose a moratorium on further negotiation and signing of IGAs. “It is difficult to avoid the conclusion that the flaws evident in the IGAs being negotiated to implement FATCA are reflective of flaws in the law itself,” he wrote. “It is clear that substantial modification of FATCA is in order or, more likely, its outright repeal and possible replacement with a cooperative scheme that pursues actual tax evasion without harming the innocent. I note that legislation to repeal FATCA was recently introduced in the Senate, and I would expect a companion bill to be introduced in the House of Representatives shortly. I expect these broader questions to be more fully aired by the Committee in its examination of the anticipated request for enhanced legislative authority. In the meantime, I suggest a further delay in FATCA enforcement and a moratorium on negotiating and signing additional IGAs is in order.”