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Treasury Offers Little Wiggle Room on Foreign Bank Reporting (1)

March 30, 2020, 4:33 PMUpdated: March 30, 2020, 6:16 PM

The Treasury Department doesn’t have any near-term plans to relax foreign banks’ obligation to report information about U.S. account holders, despite European Union leaders’ concern about hardships that result for some Americans.

The Foreign Account Tax Compliance Act was enacted to help the U.S. government enforce laws requiring U.S. citizens to disclose and pay taxes on foreign assets. The requirement for overseas banks to report U.S. taxpayer identification numbers, or TINs, such as Social Security numbers, for all of their American clients is an essential component of FATCA, Lafayette G. “Chip” Harter said in a mid-March letter to the EU obtained by Bloomberg Tax.

The letter from Harter, deputy assistant Treasury secretary for international tax affairs, responded to concerns raised in December by the Council of the EU.

FATCA was enacted in 2010 but the TIN reporting requirement took effect this year after a previous extension, creating renewed anxiety for foreign banks.

Treasury is concerned about information it’s received from European banks indicating there is a substantial number of EU-based U.S. citizens who lack U.S. TINs and presumably aren’t filing U.S. tax returns, Harter said.

The Internal Revenue Service offered some flexibility to the reporting requirement in an FAQ updated in October that said the agency “will not automatically conclude that the absence of a TIN leads to a determination of significant non-compliance.” But the Council of the EU asked the IRS and Treasury in December to put that relief in formal guidance so that banks don’t feel pressure to close accounts of U.S. citizens who don’t have the required identification number.

Harter’s letter didn’t acknowledge the request for formal guidance, instead urging banks to rely on the FAQ.

Treasury didn’t respond to a request for comment.

‘Accidental Americans’ Concern

For the most part, Harter’s letter reiterated ways the U.S. has already tried to ease the transition to FATCA for foreign banks and U.S. citizens living overseas. However, he did say Treasury is willing to discuss and collaborate further to address situations where EU residents were not aware until recently that they were U.S. citizens and face a number of obstacles obtaining SSNs.

These individuals, sometimes called “accidental Americans,” typically acquired U.S. citizenship because they were born in the U.S. or abroad to a U.S. parent but have no ties to the country.

Harter diverted the Council of the EU’s request to make it easier for these types of individuals to relinquish their U.S. citizenship, including by lowering the cost of the current $2,350 renunciation fee.

That fee is administered by the U.S. State Department, not Treasury, Harter said. He also emphasized that the department and the IRS issued new procedures in the fall to let some expatriates who have relinquished, or intend to relinquish, their U.S. citizenship comply with U.S. tax obligations while also getting relief from back taxes, penalties, and interest.

But that doesn’t go far enough, according to the Accidental Americans Association, an advocacy group based in Paris.

“The latest IRS measure ignores the high cost to Accidentals of hiring experts to find out whether they qualify for the new tax break, to help them file their tax declarations and the procedure for renouncing American citizenship,” the group said in a March letter to the State Department, requesting a lower renunciation fee.

The State Department increased the fee to renounce U.S. citizenship by 422% in 2014 from its earlier level of $450. In 2015 it expanded that higher fee to cover relinquishment, too.

(Updates with additional comment from Harter letter in fifth paragraph. Earlier version corrected date in final paragraph.)

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com