Well, this is certainly exciting! In one corner, we have a US Supreme Court who seems to constantly find that the IRS has the power to do anything it wants. That includes creating laws Congress never actually got around to creating. And on the other side, we have a legal superstar — James Bopp, Jr. — who was one of the successful attorneys in Citizens United v. SEC. He's bringing FBAR/FATCA litigation, and is supported by presidential hopeful Senator Rand Paul.
From Bloomberg:
"Republican presidential candidate Rand Paul sued the Treasury Department and Internal Revenue Service over rules on how Americans abroad are taxed and what foreign banks must disclose about U.S. customers.
The Foreign Account Tax Compliance Act (FATCA) is supposed to make it harder to hide assets overseas, yet its regulations are unconstitutional and violate privacy rights of U.S. citizens, Paul said in the complaint. The suit, filed Tuesday in federal court in Dayton, Ohio, also seeks to strike down requirements for Americans to file reports on foreign accounts over $10,000."
Some of the particulars:
The lawsuit also targets the Treasury requirement that U.S. residents abroad disclose accounts through a Report of Foreign Bank and Financial Accounts, or FBAR. Americans who willfully violate the law are subject to penalties of 50 percent of the high balance of the account — a levy that can run into the millions of dollars.
Paul claims the penalties under both the FBAR provision and violates constitutional protections against excessive fines.
We hope the Plaintiffs win, and win big
I wish the Plaintiffs the best of luck. From what we've seen, one of the reasons so many US persons in absolute denial about having to use one of the Offshore Voluntary Disclosure Programs is the threat of horrific penalties. The "stick" the IRS uses — the threat of 50% FBAR penalties — to intimidate people into compliance has caused many to crawl into a hole and desperately hope that the entire FBAR/FATCA issue up and disappears.
It is my opinion that reducing or eliminating the threat of FBAR penalties or offshore penalties — and making an offshore voluntary disclosure similar to a domestic voluntary disclosure which does NOT include penalties based on account value — will entice over a million non-compliant US taxpayers to enter into compliance. FBAR penalty fears are causing a worldwide paralysis.
The reason many Americans have not reported their worldwide income is not because they are evading taxes, but rather because the IRS engages in what is known as universal tax jurisdiction. For those who don't know, universal tax jurisdiction means that the US government can tax you wherever you are in the world. Much like a gone-wrong Dr. Seuss rhyme, they can tax you here, they can tax you there, they can tax you anywhere. So for a number of people, they just don't know. If you're making money and being taxed in a foreign country, it doesn't seem the most logical progression you would also owe money to the US. But that's the universal nature of IRS jurisdiction; you can't get away. So, while most US taxpayers want to be in compliance, the lack of knowledge and threats of life-altering FBAR penalties can definitely complicate matters.
Case Caption:
Mark Crawford, Senator Rand Paul, in his official capacity as a member of the United States Senate, Roger Johnson, Daniel Kuettel, Stephen J. Kish, Donna-Lane Nelson, and L. Marc Zell, Plaintiffs v. United States Department of the Treasury, United States Internal Revenue Service, and United States Financial Crimes Enforcement Network, UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF OHIO, Case 3:15-cv-00250
