FATCA Webinar - The Transcript

06 October 2015
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Mateo Jarrin
Content Manager at taxlinked.net

FATCA Webinar - Transcript in pdf

MATEO: So let me first introduce our moderator. Our moderator is a Taxlinked member. He is Marc Enzi. He is an enrolled agent, a certifying acceptance agent, a certified financial planner at TaxSolutions in Houston, Texas. He’s a treasury license enrolled agent. He has—his primary focus is on tax controversy matters, international tax consulting, FATCA compliance and expatriate and rotator population tax compliance. I am going to hand it over to Marc. He’s going to introduce the panelists and then we’re going to start our discussion.

MARC ENZI: Good afternoon everyone. Thank you, Mateo. I’m Marc Enzi and our panelists today are Mr. William Blum in New York; Professor Byrnes with Texas A&M in Dallas; and Mr. Robert Ladislaw in New York; and Mr. Haydon Perryman in London. Good afternoon, good evening everyone. And with that we’ve got a set of questions here that I had listed and the first one is pros and cons of FATCA. Well, the cons it’s a bit of a controversy. Not too many people are happy about it. The pros are asking about what’s the benefit to IRS or US Treasury for FATCA. And I’ll simply say that it’ll bring in more tax money, but I’ll let our panel answer that. Mr. Blum, would you like to start?

BILL BLUM: Sure. I’m Bill Blum. I’m a partner with the law firm Solomon Blum Heymann in New York. We practice international tax law and have since we formed the firm about twenty years ago. I’ve been at it myself even longer. On the subject of FATCA, pros and cons, yeah, I think there’s little doubt that it will bring in some more revenue although if we read some of the studies, it’s not clear how much.

I think it’s important to note that in some respects at least, it’s really a deterrent for those who—I mean, if you look at the state of offshore banking for example, twenty years ago or even ten years ago when you compare it to today, especially since FATCA, people who would otherwise put their money in secret offshore accounts are certainly deterred from doing so.

I mean, we have our share of clients who have money in offshore accounts, maybe not even necessarily for secrecy but who approach us on a regular basis for advice as to how to “come clean” and comply with the law. So, there are a lot of effects. Not all of them good but not all of them bad either.

MARK ENZI: All right. Do any of our other panelists have anything to add to that?

HAYDON PERRYMAN: Yeah, sure Marc. It’s Haydon here from London in the UK. My own personal opinion is that FATCA won’t bring in any money for the IRS and I do mean any. So yeah, maybe a million or so, but in terms of real money, it won’t.

The reason I say that is if you look at when the HIRE act was passed, so FATCA has done part of the HIRE acts, it was said that 8.7 billion would come into the US treasury. But that was from withholding and the vast majority of countries that have entered into IGAs under which there would be no withholding.

So, I would say, to oversimplify, no income whatsoever for the US from FATCA directly, but they may get some more from things like Chapter 3, from people getting brought into compliance, but not from FATCA directly. The main benefit, if indeed it is the benefit, is that they’ll have more information on US account holders outside of the US. So, for me no money, not in material terms.

MARC ENZI: All right, very good. Thank you, Haydon.

PROFESSOR BYRNES: William, I’ll jump in. And I’m sorry, my video will restart in a second. I agree with Haydon. I’ve done a study, in fact, with him—and you’ll see it on my blog—where I have done empirical analysis going back two years, looking at both the number of taxpayers that we reasonably believe were non-compliant pre-,  let’s call it 2009. The number of taxpayers who were reasonably non-compliant as of today, we most recently published that empirical study on the Cayman Financial Review, I think.

And then finally the amount of revenue to about a $10 million mark that we think will be brought in, yet to come. I mean, obviously we know how much has been brought in from individual non-compliant taxpayers; the IRS has reported that to be about let’s call it $6.5 billion. But I think it’s relevant—and I think the other panelists will talk about this—that it’s relevant to discuss that most of the revenue that’s been brought in is not tax revenues.

In fact, about 80% of it is financial crimes revenue under a very different title of the US code system, money and finance and that’s the FBAR, which I’m sure that many of the listeners are going to be interested in today about the FBAR and its penalties. And then, of course, the IRS has recently addressed how to ameliorate some of these penalties going forward. These are different from the tax question of non-compliance, and that’s all I’ll say right now.

MARC ENZI: Okay, thank you Professor Blum. All right, on to the next question, we have—many foreign banks have now identified or tagged clients as US nationals. Many of these US nationals abroad have no links to the US and have no plans to return to the country. What kind of consequences can be expected for identified US nationals that have decided not to disclose or report their foreign assets and income to the IRS? Are there any agreements in place or examples of foreign authorities enforcing non-compliance?

And I’ll take that one back to the Professor. Can you talk to us about some of the penalties for non-compliance?

PROFESSOR BYRNES: Well … okay, let’s first see domestic, so for US and then let’s look at foreign and I’ll do it quickly. But for domestic we really have two types of penalties when I say tax and non-tax. Within tax there are obviously a subset of penalties also. There’s your non-compliance penalty, then there’s you super non-compliance penalty—let’s call that the 75% and above—there’s title … there’s your normal income tax penalties versus your FATCA penalties on the withholding agents. So that falls under the realm of tax penalty separately. And then there’s interest of course and so forth.

On the non-tax penalties, which are really where the focus is for individual taxpayers, that’s the FBAR—primarily the FBAR penalties. Those non-tax penalties—and the courts have upheld this to some degree—there’s a 50% per year of the assets in question that are subject to the penalty. And there’s a really interesting case—and I’d love to hear the feedback from the attorneys on the call—but a really interesting case is the IRS went for, let’s call it the six—because we all know it can go back six years.

Six times 50% is a 300% penalty and the IRS went for that and then they had settled down to a 150% penalty and the court said that is too egregious under the US constitution and the IRS settled it out for just the full value of the assets of the account. And so that’s a very recent holding in the last couple months. And … but that penalty, that 50% penalty is bringing a lot of non-compliant taxpayers and foreign banks to … what’s called compliance.

And I think somebody else can talk about it, I don’t want to take all the time so somebody else can talk about the different avenues of entering the OVDI program and how the foreign banks in Switzerland are addressing it through the Swiss non-prosecution agreement program.

MARC ENZI: Okay, thank you Professor Byrnes. Next, Mr. Ladislaw. I apologize, I didn’t get a chance to introduce you properly. Would you like to comment on the Professor’s—on that previous question and talk to us a little bit about …?

ROBERT LADISLAW: Just going back to Professor Byrnes’ point about that case where the court found the penalties excessive under the constitution, the IRS actually reacted to that as they had to by issuing a notice. And now, for the most part, on examinations, the IRS will not be imposing penalties of greater than the account value that was not reported.

In other words, prior to that case and prior to this notice, as Professor Byrnes stated, the potential penalty was 50% per year so you could be charged in penalties a multiple of the total account value that was reported. But the IRS has now said they’re going to follow that case essentially and not charge penalties for more than the entire value of the account. They, of course, reserve the right to impose a higher penalty in certain cases, but for the most part they’re going to follow that format with respect to penalties and FBAR.

And that’s in the case of a willful failure. When you’re talking about FBARs there’s willful failures and non-willful failures and this 50% penalty we’re talking about per year now is up to the value of the account. We’re talking for willful failure and that’s where the IRS actually proved that the person intentionally did not report the account pursuant to the FBAR regulations.

Now, going back to the question of how do taxpayers come into compliance before they get contacted by the IRS, there’s a couple of different avenues. The most expensive one is going through the offshore voluntary disclosure program the IRS has in place and that is appropriate for people who acted willfully to try to hide their assets and didn’t file forms and didn’t declare the income on the tax returns.

It’s appropriate for those people to enter the offshore voluntary disclosure program because in general with what they owe the penalties are higher than if they don’t go into that program and criminal prosecution is even a possibility. In that case, in the offshore voluntary disclosure program the penalty on unreported foreign assets is 27.5% of the highest balance [inaudible 00:12:47] tax returns, going back eight years of back taxes plus your 20% accuracy-related penalty plus the final penalty’s interest.

So, it’s expensive to go into that program but the idea is it’s not as expensive as if they catch up to you first and throw everything they can at you. You know, if you’re a non-willful failure to file person, meaning you basically just made a mistake or you didn’t know the law—and this type of remedy is really most appropriate for citizens, for example, who’ve lived overseas for many years and they just didn’t know that they had to continue to file US tax returns as part of citizen-based taxation.

These people didn’t necessarily know that they had to file US tax returns and these FBARs, and in fact the IRS wasn’t even enforcing the FBARs until 2008 when they started investigating UBS, which triggered everything we’re dealing with now. So for those type people, those non-willful people, the IRS has what they call a streamlined program where if you live outside of the country you can go back and file three years of tax returns and six years of FBARs and suffer no penalties. You just have to pay your back taxes and if you owe any interest on the tax, if there’s any interest applicable.

Now when you file that filing you do have to actually include a narrative statement of facts explaining why you didn’t act willfully. So, for example if somebody in the UK were to just file under the streamlined program with a one sentence statement saying, “I did not act willfully to avoid filing this form,” that’s not going to cut it and the IRS is probably going to come back to the person in that case. So it really requires a narrative statement of facts.

And the only thing I’ll say with regard to the streamline program, the only other thing I’ll say is it’s also appropriate probably for green card holders who live in the United States because green card holders are often not aware that once you have a green card—in other words, once you’re a lawful permanent resident in the United States, you’re required to declare all of your income under personal tax returns worldwide and file FBARs.

Now that’s not necessarily intuitive; we’re one of the few countries that actually has that requirement. So the streamlined program can potentially be useful for that type of taxpayer as well. The green card holder that just didn’t know they had to declare their income worldwide and all their assets on the FBAR.

BILL BLUM: And that will include green card holders that don’t live in the US.

ROBERT LADISLAW: That’s correct. Many green card holders, I’m sure, Haydon, can attest to this, who actually live in the UK and other places. Even if you live somewhere else, if you have permanent residence, you have that permanent residence card, you must file your income tax returns with the IRS and declare all your income worldwide and file FBARs.

MARC ENZI:  Okay, thank you, Robert. Appreciate that. Professor Byrnes.

PROFESSOR BYRNES:         I’d like to add in some practice notes, yes. So, I think everybody who’s been involved in—remember, I’m not a practitioner. I’m an academic who talks a lot with both government and practitioners, so I’m not advising. I leave that up to my colleagues William Blum and Robert. But, from the IRS perspective with whom I do get to talk with a lot as an academic, I mean I’ve literally heard this quote, “There’s a special place in hell …” That’s the quote for people who do a soft landing or go under the radar screen and file a quiet amendment to their past returns instead of using the OVDI program.

But to counterbalance that, the OVDI program until very, very recently with this new streamlined more expanded approach has not been effective. Certainly smaller taxpayers are harmed by it and they haven’t been allowed to amend their OVDI to take advantage of the new streamlined OVDI and that’s bad for them. But under the new OVDI there is a—although obviously the IRS is reviewing each of the submissions—there is still a lack of manpower.

From what I’ve heard, scuttlebutt now, giving opinion, but what I’ve heard is that as long as the documentation is done by a lawyer, a US lawyer, not a foreign lawyer, a US attorney who has a tax background, your documents aren’t going to be the fine-toothed audit.

But if somebody doesn’t do that and they give the sloppy, where the IRS needs to come back with some kind of IDRs, you’re going to enter that “special place in hell” category and what the IRS is going to ask for—and this is going to screw most foreign people—they’re going to ask….

When you submit to your CPA to do your tax return and they give you that 80-page information document asking for everything you have—we’ve all gotten it, many of us throw it away. If you fill that in and submit it back in to your CPA or tax filing firm and you didn’t—and you marked “no” where it had the foreign assets or it said “not US connected”, you actively mark “no”, they will use that against you as evidence of your willfulness. I heard that first-hand. So, it’s an interesting perspective and why won’t you go talk to their attorneys when doing the streamlined program. 

MARC ENZI:  Okay, thank you Professor, that’s good insight. Next on the list we have, in case of—and this one is going to go to Mr. Haydon Perryman. In the case of US nationals who haven’t lived in the US for over ten years, for how long are they under obligation to report their income to US authorities under FATCA regulations?

So, Mr. Perryman, I imagine you probably have more than a few UK folks who’ve either got a US passport, but lived their entire life in the UK or maybe have a green card but they left the US years ago and have been living in the UK continuously. Can you talk a little bit about that?

HAYDON PERRYMAN:        Okay, so to answer your question or the question is: indefinitely. And people often look at me askance like I’ve stolen from church when I say that, but it’s an issue here of US citizenship. And as long as you are a US citizen, whether you have to pay taxes depending on your situation or not, is not really the issue. You have to file a tax return even if you don’t have to pay taxes to the US, even if you didn’t have to pay taxes in the US and you are paying taxes wherever you’re a resident just because you are a US citizen.

And it doesn’t matter if you’ve not been there ten years, it doesn’t matter if you’re just a US citizen because you’re a green card holder. Once you’re a US citizen you pick up certain obligations and they’re there with you for as long as you remain a US citizen or you’re dead.

MARC ENZI:  All right, thank you Mr. Perryman. That’s—we’ve run into quite a bit of that as well. All right. And next on the list we have, in cases of—in which US nationals own shares in private companies, are corporate service providers under any obligation to report such holdings under FATCA regulations? And we’ll take that one to Mr. Blum.

BILL BLUM:   The FATCA regulations in most IGAs do require accounts of broader companies that are controlled by US nationals to be reported. But there are dollar, aggregate dollar balances that have to be exceeded, threshold for that must be exceeded for that instance or case. Also corporate service providers, we who function as officers or directors are required to certify for our financial institutions with respect to the identity of beneficial owners. So, yes, there’s certainly additional reporting requirements under FATCA that didn’t exist prior to the law.

MARC ENZI: Okay, thank you Mr. Blum.

PROFESSOR BYRNES:  I think it’s worth mentioning, Marc, that on the—I think it’s worth mentioning that on the W-8BEN-E when you go down the—yeah. When you go down to the bottom of the FATCA reporting forms there is that substantial shareholder—I don’t remember the exact term right now on the treasury form, but I think it says US substantial shareholder. There is that question on the form for when you tick up top and then you go down to the very last, right before you get to the perjury page.

And since you said CSP, the CSP knows from their AML information, or should know, who the beneficial owner of the entities that they are serving as directors for are. And so if they have a bad W-8BEN or BEN-E, or old BEN or new BEN-E, they know that. Again, in the future there’s a special place in hell for them.

MARC ENZI:  That’s interesting. We’ve run into several audits and compliance and I’m a practitioner so I’m actually meeting the IRS face to face doing these. And yeah, the special place in hell, I get that. That’s—that might be from some of the policy folks. And down in the trenches what I’ve been finding is that a lot of the IRS folks that I deal with, this has been foisted upon them. And they may not know the first things about international or FATCA and now they’re going to look at the manual and say, “Here’s what we’re going to do.”

And so, if you’ve got a well-put together case, we’ve found that that 50% penalty comes down really quickly and we’ve been able to ameliorate that down to generally $10,000 per year fairly quickly.

PROFESSOR BYRNES:  It’s fair. It’s fair. I’m talking about the counsel’s office and you’ve made an important distinction. There’s a big difference between the line item audit folk and the prosecution office. There is a big distinction there, should be.

MARC ENZI: I do see it filtering down, so you know, in the beginning they didn’t know what to do with it and now they as they get more guidance. And so I understand that the IRS doesn’t like that at all, and so it’s good to know that they really are that upset about it up at the top because it eventually will filter down.

Okay, next. What if the countries do not enter into an intergovernmental agreement or an IGA with the United States? What are the consequences for countries and institutions for non-compliance? And who would like to pick that one up with a show of hands. Anyone? Okay, Mr. Haydon Perryman’s first up. Go ahead, sir. Everyone, when you you’re not speaking, if you have the ability to do it, if you could, mute your mics because it’s coming across on the speaker and we’re getting some feedback.

HAYDON PERRYMAN: Sure.

MARC ENZI:  Okay, go ahead Mr. Perryman.

HAYDON PERRYMAN: So there are a 112 tax jurisdictions, which the US Treasury allows to be considered as IGA countries. There are only 73 IGAs that have currently been signed. There are 112 jurisdictions that the treasury allows to be treated as having an IGA in place. If you look at that in terms of world GDP, you would be about 90%. So, there is something like 132 tax jurisdiction that the IRS recognizes that are still non-IGA, but in terms of world GDP, it’s a very small minority. That’s just to put things in context.

What are the consequences? Well, the IGAs for the most part negate withholding entirely, okay. There are one or two exceptions to that, but for the most part, they negate withholding entirely. So, they take out a large part of the burden and I would say that’s the major consequence in I would say withholding. I know William will—Professor Byrnes will have additional things to say on this because he often does when we talk about IGAs, so on that note I will hand over, Marc, to Professor Byrnes. I know he’s got an opinion.

MARC ENZI:  Okay, Professor—

PROFESSOR BYRNES: Haydon and I have been debating this and it’s a very interesting debate because he’s, obviously coming from this UK continental perspective, European perspective, and it’s not that I am, you know, pro-Treasury by any means, but on the other hand I do see it in the shoes of my colleagues who work at US Treasury and from US withholding agents’ perspective, being that I am in the US and live here.

So, the—from their perspective, Treasury, speaking of—Treasury doesn’t withhold, right, anything. Withholding agents withhold. Treasury is just trying to enforce some code provisions that inevitably feed back into these revenue things. And so they make these regulations and practice notes, as Haydon might call them, in the UK. They send them down to the withholding agent and now we’ve come up with this FATCA and this is going to help enforce the whole withholding regime, which has had holes on it. We, you know, acknowledge that. It’s just a question of is the hole big or small.

Let’s bring it down to the specific question. If the holes were large as US Treasury thought—and I don’t blame it on Treasury because this has been congressionally driven, and I do have several friends, colleagues, even alumni at Treasury who did not want FATCA. In fact thought it was a bad idea, it’s going to overload the system with information they can’t use, same as the credit card scenario did back a decade ago on those John Doe summonses. So, regardless, let’s pretend it was Treasury’s fault.

And so Treasury—if Treasury was correct that there was this, let’s call it $100 billion hole, whether it was non-compliant individuals or non-compliant corporations, withholding whatever, what you would have is a major decline by example in US Treasury note purchases from the countries that did not have IGAs or—well, right now, right now withholding of interest on US bank accounts now falls under Title Four, right? Not Title Four, Chapter Four.

And because of that, anybody who has that US bank account who has the interest being paid over pre-last June 30th—or was it December 1st? Yeah, pre-January 1st did not have that withholding and then all of a sudden FATCA kicks in and they have that withholding. So you figure that the 140 non-IGA countries, which includes still some significant countries, would investors in US Treasury bills or investors in US bank accounts and so forth, like Middle Eastern countries, that they would have all withdrawn their funds. But that hasn’t happened and how do we know that hasn’t happened? Because we can look at the bank of international settlements and we see that there has not been this massive outflow of capital from the US.

Which leads me to believe either number one, there wasn’t all this non-compliance; number two, that the people are still unaware and they haven’t gotten a 1042 yet with a 30% withholdings. So they haven’t realized that the withholding’s kicked in and they’re going to get an ugly, you know, experience about 30 to 90 days from now when they finally get their withholding. Or number three, people aren’t complying on the US withholding agents’ side.

Now, which of those three is accurate? I don’t know, but it has to be one of those three. And so I’d like to hear what the practitioners think or they think I’m totally off base and I’ve missed the mark. Because sometimes—I’m an academic.

BILL BLUM:   I think that—my guess is that a lot of them just don’t know yet because they haven’t paid attention or haven’t gotten the 1042S yet. I’m wondering though how dynamic the enforcement mechanism is at the service and whether people who discover that they have this problem would be in a position to set up an offshore entity or a domestic entity for that matter. Maybe the W-8 forms would require them to provide their identity and the fact that they are in a country that doesn’t have an IGA, but I’m not sure about that. So it would be something that I’d certainly think about looking into if a client approached me with an issue from a non-IGA country.

MARC ENZI:  I can tell you that I’ve had several other practitioners call me here, with this latest deadline coming up, and asking me about, “What do we do with sending money offshore? We have clients that have been doing it.” And you know, we asked them, “Have you filed the 1042s or the 1042 and they ask me, “What is a 1042?” That’s not a good conversation to have. And they want you to explain that it’s similar to the 941, failure to pay, failure to deposit, failure to report. And the penalties can very, very quickly earn up north of 50%. They were a little bit surprised about that. Go ahead professor.

PROFESSOR BYRNES: I can tell you that there’s some model two FFIs and some South American—and I’m not going to name the country, but there’s some South American non-IGA FFIs who want to be compliant and they’re trying to use—okay, I don’t mean there’s two of them off hand, but I know that these two institutions were trying to meet the deadline to translate their data into the XMS sheet that the IRS needs it in from foreign languages, mind you, because they’re not English mother tongue institutions.

So they’re translating it. I think they’d gotten that far although there might have been some, you know, bad data in that conversion but they were trying to upload it to the new IRS IDF system. The, you know, the FATCA input system? And they were unable to do it. They were unable to get the—I’m not a software engineer like Haydon is, but they could—it wasn’t … the upload on the IRS side wasn’t taking the information. I don’t know what you call that in software engineering language, but it wasn’t validating or whatever—Haydon can better explain it, but I know that as a fact was happening at least about a month ago and people were calling me asking about like, “What’s going on?” I’m like I don’t know. Call Haydon.”

HAYDON PERRYMAN: Well, I’ll keep it brief, but there have been some jurisdictions where is has been very tough to register in if you’ve got the very best of intentions to comply. Keeping it very brief right, one of those jurisdictions would be Luxembourg, because the Luxembourg government doesn’t have its own portal that’s free like other jurisdictions. You have to—it’s a paid service. You have to go with Fundsquare or SOFiE. And that takes funds off contract so and so forth.

Another example was South Africa where there was a problem with the data conversions with their instructions. If you followed their instructions to the letter, then you couldn’t submit, it was invalid and it got sent back to you. You didn’t know why. So, Professor Byrnes is right, there have been a lot of jurisdictions that have made it next to but not quite impossible to submit on time, even if you’ve got the very best intentions.

MARC ENZI:  Thank you, Mr. Perryman, we really appreciate that. Okay, moving on to next on our list here. FATCA is a US Federal law. Are there any amendments to this law, for example, to make it stricter? I know we’ve had this streamlined, one of the latest amendments to the streamlined. I don’t know about this becoming stricter. I do know they’ve gone to automated reporting now by a lot of the countries online. Do any of our panelists have anything to add to that?

ROBERT LADISLAW:  This is Robert Ladislaw. I understand that there are measures being proposed in Congress that—it would make FATCA actually stricter, require more reporting. They’re generally proposed by Democrats who are outnumbered in both the Senate and the House, so those amendments haven’t gotten anywhere for the past two years. After the next election cycle in 2016, who knows? I don’t think anything would pass to make FATCA stricter, but in the political environment it’s harder to predict, you know, if revenue is needed somewhere, if some measure is perceived as a revenue raiser, it’s something that voters don’t object to. They do sweep by lobbyists. You don’t know when something might be passed to make it stricter.

BILL BLUM:   And then I would add on the flipside, you know, the streamlined program is basically a regulation IRS pronounced. So if the questionnaire was including that within its question, I think perhaps just the opposite. I mean, I think the IRS does consider this a work in progress. And it’s probably looking at the numbers and the compliance issues and if they’re seeing that some of their efforts are not really producing any results and maybe it’s wishful thinking, therefore it’s a burden similar to a streamlined program. But you know, maybe they’ll back off and make the regs a little bit easier to comply with.

HAYDON PERRYMAN:  I think the American legislators often forget that it isn’t America that’s implementing FATCA and that FATCA can’t be implemented at all without other jurisdictions doing it for them. They also forget that there’s virtually no money coming to them from FATCA, nothing like even a fraction of the $8.7 billion they promised when they passed the HIRE acts. The US, all the IGAs negotiated, with the exception of three or four, were all predicated on reciprocity that the US shows absolutely no sign of meeting. 

Far be it for me to say the IGAs were negotiated in good faith and I don’t think anybody else thinks differently, but I’ve seen absolutely no evidence of the US trying to make a reciprocal report for—to the IGA countries. And the other thing is that the US is the only member of the OECD that hasn’t signed up for the Common Reporting Standard.  And the IGAs also committed those nations to pursue the Common Reporting Standard.

So, US doesn’t make any money from FATCA, won’t even make it stricter. If they make it stricter to try and raise more money, they can’t do that without engaging other countries and they haven’t kept any of the commitments they made either to—on reciprocity and they haven’t entered the Common Reporting Standards. So, forgive me I don’t want to get to emotional about it, but it’s not exactly Americans implementing FATCA, it’s the rest of the world.

BILL BLUM:  I’m not going to disagree with you.

PROFESSOR BYRNES: I would state that the IRS is doing something but it’s going—I posted something in the last 30 days, that the IRS believes that FATCA has already failed. And the reason—not the IRS, the Treasury—the reason I say that is because criminal investigative departments, CID of Treasury, their Chief Counsel announced—and I rolled my eyes because like, “Why do you need this because FATCA is working,” but they announced they’re going to do another John Doe summons.

And I—so it seems that this is really going to happen in the next 60 days. They’re going to John Doe summons the—using the correspondent account in the US as the nexus to John Doe the foreign institutions or intermediaries to get the equivalent of W-9s from them. Because you have a W-8, who cares.

So the W9s from them, what do you need that if FATCA is working? But they’re going to do this and so, just like the credit card dump from a decade ago, the John Doe summonses against Master Card, American Express, Visa and so forth, they’re going to get another big—or at least they’re going to request another big data dump. And so it’s not an amendment to FATCA, but it is a—it’s like another tool in their tool kit that they shouldn’t need to use that’s going to be very inconvenient considering that in theory that information should be provided anyway under—under the reporting dates that are coming forward.

MARC ENZI: All right, very good. Thank you all, gentlemen, for those comments. I’ve got comments from my clients’ in some Central America countries who have told me that banks are turning them away. They just don’t want—they don’t want the expense, they don’t want to deal with it, so if you have a US passport please close your account. If you don’t have an account, please go away.

BILL BLUM: I can second that and say that many, many clients come to us with that problem, that is their banks don’t want them anymore, can you recommend other ones. We cannot.

HAYDON PERRYMAN: What’s interesting about that as well is that—I don’t know whether you gentlemen on the call see it differently—I’ve read these regulations a number of times, as I’m sure most of you have. I didn’t find anywhere where it says you have to off-board Americans. I did find with the Treasury regulations where you have to close accounts if they remain recalcitrant and don’t give you documentation. There was nothing about closing accounts to Americans.

I think countries such as my own have misinterpreted the regulations and they’re off-boarding Americans when that’s not a regulatory requirement. It’s not the wisest thing to do and with the forthcoming Common Reporting Standard, everybody has to report all jurisdictions, not just America. The corollary would be that you cover all of your customers. So all I can say is, from somebody who’s working outside of the US, I apologize for, above all the advisors who’ve done that because that is not what the regulations demanded, it has made a lot of Americans lives a nightmare and I think it was an unintended consequence of the regulation.

BILL BLUM: I think to some degree it’s payback. I mean, Switzerland is probably a great example. A lot our initial efforts were in Switzerland, the government there basically said, “Oh, that’s fine, no Americans here. That’s what you want.”

ROBERT LADISLAW:  I’m not convinced it was unintended. I think maybe when FATCA was passed certainly none of the prime movers of that legislation was concerned or wouldn’t mind having US persons being forced to close their offshore account. And in general focusing specifically on citizens who reside abroad, we find here that politicians just don’t care about that particular demographic. So if they’re caught in their crossfire of this, so to speak, they’re collateral damage, they’re not—they haven’t been too worried about that up till now.

MARC ENZI:  Thank you gentlemen. And to keep us on schedule here I’ve got to move on. Okay, FATCA and your business. What questions seem to be most important to your clients about FATCA? Do they just seek your help in compliance or are they also able to use their need for FATCA advice as a means to promote other services that you offer? And we’ll go to Mr. Blum in New York.

BILL BLUM:   From a legal business perspective, FATCA has been a nice thing. People approach you because of a particular reason. Often it’s a bank outside the US that suggests that they’re going to have to close their account. But when they get here we find that they’ve got other problems. Many of them—particularly those who’ve been outside the United States a long time haven’t filed tax returns, so you know, we are certainly in a position to help them go back, you know, usually six years to file tax returns.

So, I guess the least, from an individual perspective, the type of person or taxpayers affected by FATCA also have some corollary issues. So we are able to provide additional services to them.

MARC ENZI:  Okay, very good. Thank you. Anyone else? Anything to add to that?

HAYDON PERRYMAN: Believe it or not, I get a lot of “What is FATCA?” and “How does it relate to or differ from the IGAs?” “What is the delta between FATCA and the Common Reporting Standard?” “How can we navigate that?” “Or what’s this thing they have in the UK that’s the equivalent?” We do have what we called CDOT for Crowd Dependencies and Overseas Territories. They’re trying to work out what the heck kind of mess they’re in with FATCA and its related regulations and how to navigate them. And I tell you what, it’s, you know, it’s a mind-boggling dizzying array of regulation. And I often get questions about what it is it and how to navigate this?

MARC ENZI:  Okay. We found similar in our practice. Okay, next we’ve got—based on your experience, if FATCA regulations are causing banks to be biased against holding accounts for US persons, and I think we’ve already discussed that. The answer is yes. Under technical issues.

PROFESSOR BYRNES: Just I think that, so what’s the business right now? I think, so what I’ve been reading and Haydon just sent me an article like today. And I literally heard this issue last week from a tier one to an intermediary. And it’s the Chapter Three versus Chapter Four issue. And maybe you’re going to bring it up so maybe I shouldn’t talk about it now.

It’s just that there’s a conflict between definitions. And a lot of financial institutions that have been accepting or even on their own behalf, filing W-8s—because that’s all there was, right, before FATCA—had continued to do that even though they’re intermediaries or they’ve avoided signing up for QI—because we know there’s only 5,500, 6,500 QIs, something like that. But now, with FATCA, all of a sudden it’s like, “Oh, maybe there were people who should have been filing for QI who haven’t been …” like, “maybe it’s in the …” I mean, you all tell me the estimate but I just—just today I read on this column that Haydon sent me it was 40,000 maybe be that should have signed up for QI, and that’s a big difference.

That’s a lot of institutions. I mean, people have problems but institutions have big problems. And I’m not talking about Switzerland, which everyone’s focused on. I’m talking about some OECD member nations that are not on the radar screen for being non-tax compliance jurisdictions by any means, but their institutions for ignorance or cost or whatever, they’ve been sending the wrong forms at least for the last 12 months. At least for the last 12 months, I can’t speak for before that.

Maybe they should have done a W-8IMY, I don’t know. Who knows? But I think that’s going to be a relevant area for the attorneys who are here on the webinar in the future. I think institutions have to go back in time a couple years to kind of fix that or at least file for new QI, because QIs still in place right? So I think that’s an interesting issue.

MARC ENZI:  All right, very good. Thank you Professor Byrnes. I can say that in practice with 1042S, year over year from 13 to 14, you know, we’ve got a number of boxes and it takes hours to, you know, understand how you’re going to fit your clients into which box and to comply with it. And year over year one of my assistants said, “You’re checking all the wrong boxes.” “No, no, no. This is how we did it last.” “Oh yeah, they re-sequenced all the boxes and don’t tell anybody.” I’m in the business and it’s good that she caught it, but if they could keep them consistent year over year, that would help.

Okay, moving on. There’s an interesting actual compliance at the institutional level, the practical realities versus FATCA regulations by example. Are US compliance officers following the language of the IGAs and filing alternative forms with the W-8 series. I think Professor Byrnes talked about that. I see him shaking his head already. Would you like to add anymore to that Professor?

PREOFESSOR BRYRNES: Well, as Haydon said, he’s living with this problem, but him and I debate this all the time. I know for fact that the US withholding agents aren’t accepting—they’ll accept a form that doesn’t have IRS on the top of it, but other than that, no way. And, you know, I’m talking about the exact form. I’m not talking about you put the UK domicile residence questions on it. It doesn’t fit in their software and it doesn’t fit in their mindset. Okay, now that’s just my experience and I’m talking to a lot of people. And Haydon and I have debated this and I’m curious to hear what everyone else has to say.

HAYDON PERRYMAN: I’ll comment briefly, if I may, Marc. So, Professor Byrnes and I talk about this a lot. So we have spirited debates and we respect each other’s points of view, which are, on this particular issue, completely opposed. So I’m seeing my clients not using at all any W-8 series for onboarding because they’re looking at the UK version of FATCA, they’re looking at CRS. They’re saying, “Well if I can’t send out W-8 BEN, for a let’s say, a fee, because I need to establish, not the US beneficial ownership but the controlling person because I’m in an IGA country therefore I can’t use the W-8 BEN as it is because I have to exclusively go the beneficial ownership route.”

They’re also saying, “Well, but the CRS tells—and UK CDOT—tells me that I have to catch all the tax residences, which by the way only addresses the US citizenship. Also the W-8s are written in American English. And I’ve got no issue with American English, but its counterintuitive to our customer.

So, if for example you look at W-8 BENE, Section 1.5 it says, “Check the appropriate box.” Well, in the UK, you check all the boxes but you tick or select the right one. And also it says things like, “Chapter Four.” Chapter Four of what? You can’t say “Chapter Four” of the US tax code in the UK. You can’t check anywhere outside of the US. So it really chases customers off. They’re not tax experts and you simply cannot use W-8s in the real world outside of the US.

Now, don’t get me wrong. The US is the biggest country in the world and Professor Byrnes makes an excellent point. All I would say is that those institutions up the chain that use to get W-8s from their corporate upstream will continue to get those from us. What we’re using them for in IGA countries is with our retail customers, our smaller corporate customers. The whole infrastructure can work, but I don’t mean to be rude to anybody but the US tax code is the US tax code, explicable in the US, you can apply it where F-5s had to sign had to sign an F-5 agreement, as non-IGA countries, model two countries. But you’ve got no jurisdiction.

In one IGA country we look to the IGA and to the statutory instruments that are promulgated as a result of those IGAs. And those tell us that a W-8 is one form of classification that’s acceptable. It doesn’t force us down any particular route. So, I respect Professor Byrnes enormously, but on this one I profoundly disagree with him.

MARC ENZI:  All right, thank you Haydon. All right. And we’re running short on time, but we’re going to finish up here with a bit of politics. I’m sure there’s a hotbed item that could take several hours. Does anyone have any comments on Senator Rand Paul’s FATCA lawsuit that’s planned?  Basically, what he’s doing is that he’s arguing that under the constitution article section two that this FATCA agreement with foreign countries amounts to a treaty that was never ratified by the senate.

And it also, in addition to that question is, in response to FATCA, last year we saw over 3,400 Americans give up their US citizenship, that’s 15 times more than happened back in 2008 and I think we’re only going to see that continuing to grow. Any comments on any one of those items form the panel?

BILL BLUM:  It’s interesting that he brought that lawsuit, Rand Paul, but when the IGA started to be promulgated by the service the exact same thought occurred to me: What makes this different from a treaty? I think from a legal basis, although I haven’t studied it heavily, that a very good argument could be made that these are treaties and they are subject to ratification, but I’m wondering whether that makes all that much difference. Fine, so the Senate’s not happy that they didn’t ratify the IGAs but as long as the IRS is happy with them and the foreign countries have agreed to them, I’m not sure that it will have a practical effect, but I think technically he may be right.

MARC ENZI:  Okay, and from a practitioner’s standpoint, I’ve got a question for the panel. This wasn’t on the list of questions, but we’ve had clients who have been caught up with this and you know, they’ve settled with the IRS, not through OVDI, but they have their penalties, we argued it and we had them down to about $10,000 a year for a number of years. And what we’ve seen is that the IRS has been delegated collection enforcement authority but has no enforced collection.

They’ve been delegated collection, they’ve been delegated—I’m sorry. They’ve been delegated the administration of the FATCA project, or program but they have not been delegated enforced collection authority. So IRS can collect and seize your assets under Title 26 of the US code but under Title 31, which is what covers these foreign account reporting rules, they cannot. And so the statute, I’m a little bit surprised, for collection from the time they assessed the debt is two years.

Have you all seen anything where clients are trying to slow walk this and run out the clock on the collection statute? You all run into this? Go ahead, Professor Byrnes.

PROFESSOR BYRNES: Sorry, I’m not a practitioner, so I can’t talk about my client base as William Blum can, and he’s a very respected one. But what I heard two weeks ago at IFA, the International Fiscal Association Congress in Switzerland, when you had the Swiss Treasury and all these people together, was that on the collection side which you just mentioned, you’ re correct. The IRS are having a very difficult time on the actual levying on the foreign assets.

So, yeah, I mean you can always—of course, I’m not talking about Swiss banks and all that. I’m talking about individual taxpayers here. But yeah, you can pay somebody a trillion dollars and solve the US debt problem—well, at least 1/17th of it, but you can’t, you know, you can’t get blood from a stone or water from a stone or however the saying goes. So, yeah I think it’s relevant but I haven’t seen it practiced yet, the whole run out issue. And I think that’s interesting. I’d love to hear more about it.

MARC ENZI:  Okay, our time’s up now. Any last comments by anyone in our panel? Okay. With that I’ll hand it back over to Mateo. Go ahead, sir.

MATEO: Okay, thank you very much for your participation, gentlemen. Marc, especially for deciding to join us the last minute to moderate. You did an excellent job. And you actually covered all the questions, or most of them, which I’m quite impressed because there were a handful. Thank you William, thank you Robert, thank you Haydon. Thanks Professor Byrnes. I hope this was useful to you guys, hope you enjoyed it.

To the audience members, thanks for being with us. Again, we’re going to send out an email tomorrow with the handouts. Professor Byrnes has a pretty big handout for all of you. We’ll also send bios for the people who assisted. All of the info will be online on Taxlinked. We are going to have the recording ready probably within the next two days and loaded, and you know, feel free to share it in your network. So, with that said, any last comments, any final remarks? Go ahead.

BILL BLUM: From our firm, thank you, Mateo, thanks for inviting us. We are honored to participate.

MATEO: Excellent.

PROFESSOR BYRNES:  I’d like to thank Deloitte because they’re letting me use their offices. So thank you for their wireless. And obviously, I’m an academic, not their employees, number two, I just remembered a statistic. So, the statistic is on the collections for these types of penalties, which is actually less than 45% and that statistic is published in the Treasury’s TITTA, you’ll see a post of it on my blog. It’s the report in the last 30 days. And the reports reference to how they’re collecting it against federal employees, against non-federal employees, but it applies to the situation. And against foreign assets, it’s on the zero collection. So, again I don’t know about the run-out issue, but I do know the challenges for the Treasury on collecting in general.

HAYDON PERRYMAN: Okay. From my part, just to tell you, in the UK FATCA often is seen standing for Eff All Tax Colossal Administrations.

MARC ENZI: I like that.

MATEO: Excellent.

ROBERT LADISLAW: Okay, well thank you everybody. Look forward to our next webinar all together. Good debate.

MATEO:  We will plan that and we hope to have you all again on one of our webinars. So, have a good weekend or end of the week and we’ll be in touch.