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October 2, 2015


Rand Paul and Expats Suffer Setback in Suit to Overturn FATCA

Senator Rand Paul and a group of American expatriates suffered a huge setback in their attempt to overturn the Foreign Account Tax Compliance Act (FATCA), as the judge denied their motion for preliminary injunction, saying that they lack standing for the suit and are unlikely to succeed on the merits.

Enacted in 2010, FATCA is a federal law requiring foreign financial institutions to provide information about U.S. account-holders to the United States government on an annual basis. Since the law was enacted, the US government has negotiated intergovernmental agreements (IGAs) with more than 100 countries to implement the law, including most of the world’s prominent tax havens.

Sen. Paul and his co-plaintiffs, a group of Americans living abroad, are suing to overturn the law, primarily on privacy grounds. Paul also claims that the IGAs should be considered treaties, subject to review by the United States Senate. According to the judge, Paul has not alleged a particularized, legally cognizable injury to himself, which is a requirement for legal standing.

Since the US started its ongoing crackdown against offshore tax evasion, Americans living abroad have encountered a great deal of difficulty in opening or maintaining foreign bank accounts. Many foreign banks are hesitant to deal with American clients at all. Additionally, the various reporting requirements for US taxpayers living abroad can be so onerous and intimidating that many dual citizens have chosen to relinquish their US citizenship altogether.

The court’s refusal to grant a preliminary injunction to the plaintiffs does not come as a surprise, as the lawsuit is very unlikely to succeed. Whether we like it or not, FATCA is probably here to stay. For those who still have not disclosed their foreign accounts to the IRS, time is running out. Once the US government discovers your foreign accounts, you are no longer eligible to participate in the ongoing voluntary disclosure initiatives, including the Offshore Voluntary Disclosure Program (OVDP) and the more recently announced Streamlined Filing Compliance Procedures. Those who fail to voluntarily disclose their accounts will likely face severe civil penalties, as well as the risk of criminal prosecution.

Offshore Accounts/International Tax Disputes