Saturday, August 19, 2017
The Sixth Circuit ruled yesterday that a group of plaintiffs, including taxpayers with overseas accounts and Senator Rand Paul, lacked standing to challenge the reporting and penalty provisions under the Foreign Account Tax Compliance Act. The ruling ends this challenge.
The FATCA imposes certain reporting requirements, and provides for penalties for noncompliance, on individual taxpayers and foreign financial institutions ("FFIs") with overseas accounts. It also requires FFIs to withhold 30% of every payment made by the FFI to a noncompliant account holder.
In order to implement the FATCA and facilitate the FFIs' disclosure of financial-account information to the IRS, the IRS has entered into a number of intergovernmental agreements ("IGAs").
Separately, the Bank Secrecy Act imposes a foreign account reporting requirement on U.S. citizens living abroad who have aggregate foreign-account balances over $10,000. The Act also imposes a penalty of 50% of the value of the reportable accounts, or $100,000, whichever is greater.
Several individuals with foreign accounts and U.S. Senator Rand Paul sued, arguing that the provisions violate equal protection (by treating citizens living overseas differently than citizens living in the U.S.); that the penalties constitute excessive fines; that the reporting requirements violate the plaintiffs' right to privacy; and that the IRS lacked authority to enter into the IGAs without Senate advice and consent.
The Sixth Circuit didn't touch the merits, however, and instead ruled that the plaintiffs lacked standing. As to most of the plaintiffs, the court said that they weren't actually harmed, because "no Plaintiff has alleged any actual enforcement of FATCA such as a demand for compliance with the individual-reporting requirement, the imposition of a penalty for noncompliance, or an FFI's deduction of the Passthru Penalty from a payment to or from a foreign account."
Moreover, the court said that no plaintiff could satisfy the standard for a preenforcement challenge, because "no Plaintiff claims to hold enough foreign assets to be subject to the individual-reporting, and, as a result, no Plaintiff can claim that there is a 'credible threat' of" enforcement against them.
The court rejected some plaintiffs' claims of harms that arose apart from FATCA's reporting requirements and penalties, because those harms weren't fairly traceable to the FATCA. Finally, the court said that Senator Paul lacked standing under the no-legislator-standing rule. "Rather, Senator Paul has a remedy in the legislature, which is to seek repeal or amendment of FATCA itself, under the aegis of which Treasury is executing the IGAs.