"Leading to 'capital flight' by nonresident aliens from U.S. banks to banks abroad..."
A federal judge appointed by Barack Obama recently ruled in favor of the Department of the Treasury and the Internal Revenue Service against American-based banks, dictating that US banks must answer to foreign governments regarding the holdings of certain individuals, as reported by Accounting Today on Jan. 16, 2014.
Named to the US District Court for the District of Columbia by Obama in 2010, Judge James E. Boasberg coincidentally happens to be the very same member of the judiciary who ruled in 2013 that the IRS had "exceeded its statutory authority in imposing testing and continuing education requirements on tax preparers."
In his latest ruling from the bench, the San Francisco native ruled that US banks have no choice but to report to foreign governments of the holdings of nonresident alien account holders.
As cited, "under the intergovernmental agreements that the Treasury Department has signed with other countries’ tax authorities in an effort to implement the Foreign Account Tax Compliance Act (FATCA)."
As part of Obama's HIRE Act of 2010, FATCA was eventually incorporated into the HIRE Act to combat offshore tax evasion.
FATCA requires foreign financial institutions to report on their holdings of American citizens and residents to the IRS or else face stiff penalties.
Boasberg's ruling requires US banks to reciprocate in kind, despite no treaty binding them liable per the US Constitution.
Fighting a losing battle in the court system, "the Florida Bankers Association and the Texas Bankers Association challenged those reporting requirements in a lawsuit last year against the Treasury Department, alleging that the regulations violated the Administrative Procedure Act and the Regulatory Flexibility Act."
Accounting Today also noted that as part of their argument before Judge Boasberg, "they argued that the IRS regulations would cause far more harm to the banks than anticipated, leading to 'capital flight' by nonresident aliens from U.S. banks to banks abroad."