U.S. Banks File Long-Shot Litigation to Block FATCA Reciprocal Requirements (11/13/13)

Reuters has this article on a suit filed by Texas and Florida bankers to block reciprocal implementation information gathering on foreigners holding deposits in U.S. banks.  Kevin Drawbaugh, Dena Aubin and Patrick Temple-West, Bankers' lawsuit jeopardizes U.S. tax dodger crackdown -lawyers (Reuters 11/12/13), here.  Key exceprts:

A court challenge by Texas and Florida bankers threatens to undermine a broad U.S. government crackdown on offshore tax avoidance and jeopardize a web of carefully crafted international agreements, tax lawyers said on Tuesday. 

The Texas Bankers Association and the Florida Bankers Association, both industry groups, have filed a lawsuit attempting to block a new U.S. Treasury Department rule governing accounts held by foreigners in U.S. banks. 

The rule, written last year and set to take effect in March 2014, will require U.S. banks to disclose information to the Internal Revenue Service about any account held by a non-resident alien that earns at least $10 of interest per year. 

Failure to comply would cost a bank $100 per violation, while information provided by banks to the IRS under the rule would be made available to about 70 foreign governments. 

It was written to give those governments more incentive to comply with another law, the Foreign Account Tax Compliance Act (FATCA), that requires non-U.S. banks to tell the IRS about offshore accounts held by Americans worth $50,000 or more. 

Approved by Congress in 2010, FATCA is driving the rapid worldwide expansion of a network of bilateral tax information-sharing agreements, negotiated by the U.S. Treasury and its overseas counterparts amid heightened global concern about tax dodging. FATCA is set to take effect in July 2014. 

Many of these agreements depend, at least in part, on reciprocal information sharing of the sort made possible by FATCA and the 2012 Treasury rule that supplements it. 

The Texas and Florida bankers' claims face an uphill challenge in court on procedural grounds, lawyers said. But if they are upheld and the 2012 rule voided, it would damage U.S. credibility and "irreparably harm its reputation in the international community as a reliable partner in tax cooperation," federal lawyers said in U.S. District Court for the District of Columbia filings. 

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Congress drafted FATCA, which was signed into law in 2010 by President Barack Obama. As Treasury and the IRS moved to implement the law, many non-U.S. banks and other financial institutions and their home government resisted. Some demanded reciprocal information sharing by the United States. 

To accommodate these requests and encourage foreign banks' compliance with FATCA, the Obama administration wrote the rules last year to require U.S. banks to report to the IRS on interest-earning U.S. accounts held by non-resident aliens.