Rand Paul and Five Expats Sue the Feds Over FATCA

Challenge asserts that the IRS can't rifle through the bank information of Americans just because they live abroad


Prepare … to … COMPLY. ||| IRScompliance.org

As has been noted frequently in this space, the odious 2010 Foreign Account Tax Compliance Act (FATCA), which requires foreign banks in U.S.-friendly countries to cough up information about and sometimes money from their American customers, has led to the predictable result of said financial instituions treating Americans like radioactive lepers. It's not much fun to live in a country where you can't open a bank account, and so record numbers of U.S. citizens—more than 14 per day, at last count—are simply turning in their passports.

Renouncing one's citizenship can be a "gut wrenching experience," so even though many of the estimated 7.6 million Americans living abroad have thought about permanently alienating themselves from the motherland, others are looking for ways to fight back.

In mid-July, Sen. Rand Paul (R-Ky.) joined five American expatriates (who between them live in Canada, the Czech Republic, Israel, and Switzerland) in a lawsuit [PDF] against the Treasury Department, the Internal Revenue Service, and the U.S. Financial Crimes Enforcement Network. The suit challenges FATCA, among other reasons, on grounds of unconstitutional executive-branch overreach (having to do with post-FATCA bilateral agreements about bank-info-sharing between the feds and foreign governments), and for violating the Fourth and Fifth Amendment rights of citizens living abroad. From the complaint:

These provisions permit the federal government to conduct wide-ranging, indiscriminate searches of the private financial records of American citizens held by foreign financial institutions without providing any opportunity for judicial oversight. Such unbridled discretion to pry into the private financial information of American citizens violates the Fourth Amendment […]

These reporting requirements are unconstitutional to the extent that they require U.S. citizens living abroad to report more detailed information about their local bank accounts than U.S. citizens living in the United States. While the local bank accounts of citizens in the United States are only subject to reporting of the amount of interest paid to the accounts, the local bank accounts of citizens living abroad are subject to reporting of a much broader and more intrusive set of information. Citizens holding local bank accounts in foreign countries must report, or allow their bank to report, not only the amount of interest paid to their accounts but also the amount of any income, gain, loss, deduction, or credit recognized on the account; whether the account was opened or closed during the year; and the balance of the account. This violates the core principle of equal protection guaranteed by the Fifth Amendment. The fact that the accounts of U.S. citizens living abroad are maintained at foreign financial institutions is not sufficient to justify the greater intrusion into their private financial affairs.

Good on Rand Paul. For more on the suit, see Bloomberg and Power Line. Thanks to Advice Goddess Amy Alkon for the tip.