President Donald Trump ran on the platform of "making America great again." Part of that platform involved moving forward with tax reform that would help achieve this goal. In an attempt to make this promise a reality, lawmakers are proposing various pieces of legislation that would impact current tax law. One such proposal deals specifically with the Foreign Account Tax Compliance Act (FATCA).
What would the proposal accomplish? If passed, the proposal would put serious limitations on the power of the FATCA. As currently written, the proposal would remove the following provisions:
- Disclosure of foreign banking institutions. Current tax law requires foreign banking institutions disclose information about account holdings and assets held by U.S. citizens.
- Disclosure of owners of foreign trusts. The FATCA also requires reporting of U.S. citizens who own foreign trusts.
The law also current proposes the repeal of certain penalty payments for violations of the FATCA.
What is the reason for the proposal? The proposal is spearheaded by Rep. Mark Meadows and Sen. Rand Paul. A press release on Rep. Meadows' website notes that the tax law has resulted in record numbers of United States citizens renouncing citizenship. The new law was presented as one that could help curb this trend.
The lawmakers also state that the current law is a violation of basic Fourth Amendment rights against unreasonable searches. This argument is based on the contention that the government is collecting information about financial records and that the collection itself is an invasion of privacy.
How will the proposal affect me? Taxpayers will be impacted in various ways if the law passes. The proposal could result in a change in compliance requirements and potential reduce required penalty payments. In addition, even those without foreign assets may reap benefits from the proposal as it could translate to reduced costs associated with overseas investments.
At this time, the potential impact is guesswork. The proposal will likely be debated and adjusted before moving forward. However, the debate is a reminder of the complexities that can arise for those who are attempting to navigate offshore tax compliance requirements. Anyone that is in this situation is wise to seek legal counsel to help better ensure that their interests are protected.