Today Senator Paul introduced an amendment to H.R. 1, the Tax Cuts and Jobs Act, to repeal FATCA. In a press release announcing his amendment, Senator Paul stated “[a]s we work to reduce the massive tax burden Washington has placed on the American people, we should also stand up for their Fourth Amendment right to privacy by rejecting the bulk collection of the financial information of Americans who live overseas.” Senator Paul contends that FATCA “has impeded international financial transactions and investment by leading many foreign banks to simply deny services to Americans rather than navigate the burdens and costs of compliance.”
It is noteworthy that Senator Paul’s proposed amendment would not simply repeal FATCA’s annual reporting obligation imposed on foreign banks. It would also repeal related FATCA provisions that:
- require U.S. taxpayers to annually report their foreign financial assets on a new reporting form called Form 8938, Statement of Specified Foreign Financial Assets;
- impose penalties for understatements attributable to undisclosed foreign financial assets; and
- extend the statute of limitations in the case of underreporting of foreign financial assets.
The proposed amendment would also repeal or significantly amend other international, but non-FATCA, reporting provisions, including:
- reporting by U.S. persons who are shareholders of passive foreign investment companies (PFIC);
- reporting of U.S. persons who are treated as owners of a foreign trust; and
- penalties that may be assessed for failure to report information relating to certain foreign trusts.
In light of the uncertainly currently surrounding the entire tax reform debate, it is impossible to predict whether Senator Paul’s proposed amendment stands any chance of passage, especially when the issues relating to FATCA seem to pale in comparison to the larger, structural reform issues currently being debated in Washington. However, as we previously reported, the Treasury Department has included the FATCA regulations as among those it is currently reviewing as part of its larger effort to reduce regulatory burden imposed upon taxpayers.