Taxpayer Advocate Recommends Merging FATCA and FBAR Reporting Rules

The National Taxpayer Advocate has recommended that the reporting rules under the Foreign Account Tax Compliance Act and for foreign bank account reports in effect be merged to simplify the duplicative disclosure requirements that make it difficult for American expatriates to have bank accounts in the foreign countries where they live.

The expatriate advocacy group Americans Living Abroad has been pushing for relief from the onerous requirements of FATCA, which was included as part of the HIRE Act of 2010. FATCA requires foreign financial institutions to report on the holdings of U.S. taxpayers to the Internal Revenue Service, or else face stiff penalties of up to 30 percent on their U.S. source income. The older rules for foreign bank account reports, or FBARs, require taxpayers themselves to report on their holdings in overseas bank accounts. Both sets of requirements are aimed at discouraging taxpayers from hiding their assets in secret bank accounts abroad, but have also led many U.S-born expatriates to face difficulties in maintaining bank accounts, even if they haven't lived in the U.S. for years.

A set of recommendations by the IRS's Taxpayer Advocate Service, which is headed by National Taxpayer Advocate Nina Olson, was posted online by the group Monday. “Organizations representing U.S. taxpayers abroad and the press have voiced concerns about unintended consequences of new FATCA rules for foreign financial institutions, which make it harder for U.S. taxpayers living abroad to open and maintain legitimate bank accounts overseas,” the Taxpayer Advocate noted. “Some foreign financial institutions (FFIs), such as Deutsche Bank, HSBC, and ING have reportedly been closing out foreign accounts of U.S. citizens in response to FATCA. During recent meetings with TAS, organizations of U.S. citizens abroad reiterated their concerns and proposed several changes to IRS regulations."

The recommendations would amend the regulations to eliminate duplicative reporting of assets on Form 8938 if the asset is reported or reflected on a timely-filed FinCEN Report 114; and to specifically exclude from the definition of financial account subject to reporting by foreign financial institutions those financial accounts maintained by a financial institution organized under the laws of the country of which the U.S. person is a bona fide resident.

Another regulation would be changed to exclude from the specified foreign financial assets required to be reported on the Form 8938 financial accounts maintained by a financial institution organized under the laws of the country of which the U.S. person is a bona fide resident.

American Citizens Abroad said it was one of the groups that recently met with the Treasury Department to push for the change and outlined how such an exemption might work in a position paper this month.

“We are very happy to see progress made on these subjects,” said ACA executive director Marylouise Serrato in a statement Monday. “But we cannot rest in our efforts to get these changes actually made. For sure, the Same Country Exemption could be put in place almost immediately; it does not require Congressional action. It is a change that everyone, including Treasury Department and the IRS, should be enthusiastic about.”