Overseas Banking Taxes Debated in Sixth Circuit

CINCINNATI (CN) – The Treasury Department defended its taxes on foreign bank accounts held by U.S. citizens in the Sixth Circuit on Tuesday, while an attorney for Americans living abroad argued they have standing to challenge the taxation.

The taxes, established by the Foreign Account Tax Compliance Act in 2010, were called “draconian” by the attorney representing several citizens that sued the federal government in July 2015.

FATCA requires foreign banks to report all accounts held by U.S. citizens to the IRS or risk being assessed a 30 percent withholding tax.

Sen. Rand Paul was among the plaintiffs in the original lawsuit, which alleged FATCA gave the IRS carte blanche to collect account information from citizens living abroad.

The plaintiffs – Paul plus five U.S. citizens who reside overseas – also claimed foreign banks purged accounts held by Americans to avoid being taxed by the IRS.

The suit was eventually dismissed by U.S. District Court Judge Thomas M. Rose, who ruled that all of the plaintiffs lacked standing to bring their claims because none had been adversely affected by FATCA.

Jim Bopp, the plaintiffs’ attorney, argued before the Sixth Circuit on Tuesday that even though FATCA has not been enforced against his clients, the U.S. Supreme Court’s ruling in Susan B. Anthony List v. Driehaus allows for a pre-enforcement challenge of the law.

Bopp said the government’s arguments have been made on a merits basis, but that “this is about standing.”

He said the overseas banks’ choice to either report or purge the accounts of U.S. citizens has been “mandated and coerced by the draconian measures [of FATCA].”

Sixth Circuit Judge Karen Nelson Moore asked Bopp if his clients would require third-party standing, given that the FATCA measures are imposed on the banks, but the attorney disagreed.

He cited the abortion case Doe v. Bolton, and compared his clients to women who were denied abortions by doctors fearful of penalties imposed by the government.

Richard Caldarone, attorney for the Department of the Treasury, defended the lower court’s decision, and said none of the plaintiffs have proven that FATCA applies to them or their overseas accounts.

Sixth Circuit Judge Danny Julian Boggs asked Caldarone about one of the plaintiff’s claims that several clients ceased doing business with him because of FATCA, but Caldarone was quick to dismiss the claim.

“This has nothing to do with the application of FATCA to accounts held by the plaintiff,” the attorney responded. “It could affect clients’ accounts, but that would require third party standing.”

Caldarone went on to say that none of the plaintiffs can “clear the first hurdle” of a pre-enforcement challenge established by Susan B. Anthony List, and therefore lack standing to bring their claims.

He also countered his opposing counsel’s use of the Bolton case, and said it does not apply because “this is not an attempt [by the plaintiffs] to vindicate their own constitutional rights.”

Judge Eugene E. Siler Jr. rounded out the Sixth Circuit panel and joined via video conference.

No timetable has been set for the panel’s decision.

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