Identity theft in a #FATCA and #CRS World: The Role Of the U.S. Social Security Number

Introduction


Her thoughtful post includes:

FATCA Security Risks with Sensitive Data
The Foreign Account Tax Compliance Act, commonly called “FATCA” has caused Americans abroad to be fearful of security risks when their personal financial information is reported by non-US financial institutions or foreign government agencies to the IRS. FATCA reporting will include the name, address and taxpayer identification number of each US account holder at the financial institution; the account number; account balance and value; the account’s gross receipts and gross withdrawals or payments; and other account related information requested by the Internal Revenue Service (IRS). The Treasury Inspector General for Tax Administration has expressed concerns with the security of data transmission as mandated by FATCA.  In September of 2014 the IRS issued a fraud alert to all international financial institutions that are complying with FATCA. Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identities as well as financial account information.  Financial institutions directly registered to comply with FATCA, and those in jurisdictions that are treated as having an IGA in effect to implement the FATCA provisions through their home governments, have already been approached by parties impersonating themselves as the IRS. The IRS now has reports of incidents from various countries and continents.

The most significant piece of information that a U.S. citizen discloses to a “Foreign Financial Institution” under the FATCA IGAs is his/her TIN (“Taxpayer Identification Number”) AKA his “Social Security Number”.

U.S. Social Security Numbers (“SSN”) and U.S. Tax Compliance
One of my most consistently read is the post about “How to obtain a U.S. Social Security Number“. People seek a U.S. Social Security number if they wish to file U.S. tax returns. (Interestingly, the biggest barrier to filing U.S. tax returns is because a Social Security number is required for a U.S. citizen to enter the U.S. tax system and file U.S. taxes. This is often sought in conjunction with coming into compliance with  the U.S. tax system via the “Streamlined Compliance Program”.  Many Americans abroad come into compliance with the U.S. tax system so that they can renounce U.S. citizenship, avoid being a “covered expatriate” by certifying five years of U.S. tax compliance and avoid having to pay the Sec. 877A U.S. Exit Tax. Note that the “Streamlined Compliance Program is NOT available to Green Card holders who us the residence “Tax Treaty Tie Breaker“.)
Identity theft, and Social Security Numbers in a CRS and FATCA World
This morning I received a fascinating message from a third party who writes:

IDENTITY THEFT, SSI & CRS
With the creation of Social Security in the US after World War II, Americans were issued individual social security numbers for retirement contribution tracking and disbursement purposes. Over time, by convenience and not by design, these social security numbers morphed into national tax ID numbers and the only identification number used in all aspects of Americans’ lives — from getting a driver’s license, buying a car, enrolling in university, opening a bank account, buying health insurance and soon. The list is endless.
The IRS and the Social Security Administration regularly entreat Americans to be careful about to whom, why, and how they reveal their precious SSI. Indeed, identity theft is the fastest growing industry in the US and rarely a day goes by without yet another data breach making headline news (need a list??) or a warning of fake IRS forms (such as the W8-Ben) enticing people to provide private data never asked on those forms.
Europe, on the other hand, provides its nationals with distinct tax ID numbers. No single identifying number can provide access to and take control of all aspects of an individual’s life.
In comes FATCA and CRS.
And what does the IRS and USG compell us to do? Fork over our SSI to FFI and foreign governments — and their myriad service providers, data bases and servers.
Aside from this requirement’s dubious legality under GDPR, having to fork over one’s SSI is akin to leaving your front door open with a big “Welcome” sign while you go off on holiday.
Americans get to choose between the risk of privacy violations and identity theft and the ability to bank. If they can find a bank that accepts them that is — not one online European bank will accept a client with the slightest whiff of “American-ness”, even if said
cllient is a dual national. Discrimination anyone?
It’s not as if there were no other options and the USG had no CHOICE but to put its citizens at risk. The IRS could issue TIN numbers separate from SSI. Americans abroad could prove their identity with a passport number and show their compliance with redacted FBARs and
8938s. Most FFI in Europe are not even aware that our SSI is the unique number that controls our lives and understand the Solomon’s dilemma once it is explained to them. Yet they cannot do anything about it, they too are victims of the IRS’ extra-territorial reach.
While we wait for various efforts to reform or repeal FATCA to bear fruit, solving this dangerous conundrum should be simple and SSI numbers must no longer be used.

Conclusion
The U.S. tax compliance industry regards FATCA as “The Gift That Keeps On Giving!
For Americans Abroad, FATCA is “The Nightmare That Just Keeps Happening!
John Richardson
 
 

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