Part 1: #FATCA is: Maloney "Overseas Americans Financial Access Act" is the wrong answer to the right question

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Introduction and purpose …


On March 18, 2010, President Obama signed FATCA (“Foreign Account Tax Compliance Act”) into law. FATCA was:
– a revenue offset provision to the HIRE Act
– a series of conforming amendments to the Internal Revenue Code that:
(a) imposed requirements on Foreign Banks (Internal Revenue Code Sections 1471 – 1474); and
(b) imposed reporting requirements on individuals (Internal Revenue Code 6038D). Those reporting requirements are expressed in Form 8938.
On September 17, 2019 Representative Maloney introduced H.R. 4362 – “Overseas Americans Financial Access Act” – which introduced changes to BOTH the FATCA requirements imposed on Foreign Banks and requirements imposed on Individuals.
This post discusses ONLY the aspect to the Maloney bill that “relaxes” the requirements on Foreign Banks. I have writen a separate post discussing how the Maloney bill would impact individuals.
(Those interested in learning more about FATCA may be interested in my “Little Red FATCA Book)“.
The Maloney Bill is NOT The Same As SCE Previously Drafted!
The Good News:
The Maloney bill appears to apply to ALL Americans abroad – without regard to whether they are compliant with their U.S. tax filing requirements. (A previous version of SCE applied ONLY to Americans abroad who were compliant with their U.S. tax filing requirements.) Interestingly, the Bill (like Internal Revenue Code 911) would NOT apply to “permanent residents (Green Card Holders) in exactly the same way.
The Bad News:
The bill as drafted gives the banks the option to either continue to report on the depository accounts of Americans abroad or not. This is an option available to the bank. I (along with many others) suggest that banks will NOT be willing to engage with individuals with respect to whether they meet the requirements of the Maloney bill. The exact language of the bill includes:

(i) IN GENERAL.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if each holder of such account is—

The Maloney bill is too narrow in application
The bill as drafted applies ONLY to “depository accounts”. This means that the bill applies only to day-to-day bank accounts. It specifically does NOT apply to “custodial accounts”. This means that it excludes investment accounts, brokerage accounts, etc.
Verdict: The Maloney bill is clearly far too narrow. There is no reason why the Maloney proposal should not extend to ALL accounts (depository, custodial or any other kind of account) held by an American living outside the United States.
The technical analysis (which will NOT be of interest to the average reader) follows. It consists of Part A to Part D.
Thoughts and Suggestion
The Maloney bill is symbolic. It is not a serious attempt to alleviate the problems of Americans abroad. Representative Maloney should – as a Democrat – support Representative Holding’s “Tax Fairness For Americans Abroad Act of 2018”.

Technical Overview Of The Maloney H.R. 4362: “Overseas Americans Financial Access Act”
Part A: H.R.4362 – Overseas Americans Financial Access Act – Introduced by Representative Maloney – September 17, 2019
https://www.congress.gov/bill/116th-congress/house-bill/4362/text?fbclid=IwAR2RrGLOoAkJZXQ6OyfKweBmZdocqk0iLTEJxIHzWhpY28UZ1gD8GWWST-o
SEC. 2. EXCEPTION TO CERTAIN REPORTING REQUIREMENTS APPLICABLE TO FOREIGN FINANCIAL INSTITUTIONS WITH RESPECT TO CERTAIN INDIVIDUALS WHO LIVE ABROAD.
(a) In General.—Section 1471(d)(1) of the Internal Revenue Code of 1986 is amended by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph:
“(C) EXCEPTION FOR CERTAIN INDIVIDUALS WHO LIVE ABROAD.—
“(i) IN GENERAL.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if each holder of such account is—
“(I) a natural person, and
“(II) a qualified individual with respect to a foreign country in which such foreign financial institution is licensed to conduct business.
“(ii) QUALIFIED INDIVIDUAL.—For purposes of this subparagraph, an individual is a qualified individual with respect to any foreign country if such individual would be a qualified individual under section 911(d) if the only foreign country taken into account under such section were such foreign country.”.
(D)Elimination of duplicative reporting requirementsSuch term shall not include any financial account in a foreign financial institution if—
(i)such account is held by another financial institution which meets the requirements of subsection (b), or
(ii)the holder of such account is otherwise subject to information reporting requirements which the Secretary determines would make the reporting required by this section with respect to United States accounts duplicative.
Part B: How Would Internal Revenue Code 1471(d)(1) Read With The Maloney Bill?
https://www.law.cornell.edu/uscode/text/26/1471

(d) Definitions For purposes of this section—
(1) United States account
(A)In general
The term “United States account” means any financial account which is held by one or more specified United States persons or United States owned foreign entities.
(B)Exception for certain accounts held by individuals Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if—
(i)each holder of such account is a natural person, and
(ii)with respect to each holder of such account, the aggregate value of all depository accounts held (in whole or in part) by such holder and maintained by the same financial institution which maintains such account does not exceed $50,000.
To the extent provided by the Secretary, financial institutions which are members of the same expanded affiliated group shall be treated for purposes of clause (ii) as a single financial institution.
“(C) EXCEPTION FOR CERTAIN INDIVIDUALS WHO LIVE ABROAD.—
“(i) IN GENERAL.—Unless the foreign financial institution elects to not have this subparagraph apply, such term shall not include any depository account maintained by such financial institution if each holder of such account is—
“(I) a natural person, and
“(II) a qualified individual with respect to a foreign country in which such foreign financial institution is licensed to conduct business.
“(ii) QUALIFIED INDIVIDUAL.—For purposes of this subparagraph, an individual is a qualified individual with respect to any foreign country if such individual would be a qualified individual under section 911(d) if the only foreign country taken into account under such section were such foreign country.”.

Part C: Because “Custodial” and “Depository” Accounts Are Not The Same!
Distinction between Depository and Custodial accounts in Internal Revenue Code and Treasury Regulations
Treasury Regulations: Definitions of: Depository account, Custodial account and Financial institution
https://www.law.cornell.edu/cfr/text/26/1.1471-1

(24)Custodial account. The term custodial account has the meaning set forth in § 1.1471-5(b)(3)(ii).
(29)Depository account. The term depository account has the meaning set forth in § 1.1471-5(b)(3)(i).
(50)Financial institution. The term financial institution has the meaning set forth in § 1.1471-5(e) and includes a financial institution as defined in an applicable Model 1 or Model 2 IGA.

Distinction between “Custodial Account” and “Financial Account” maintained/reflected in FATCA IGAs – The US Canada FATCA IGA provides an example:
https://www.fin.gc.ca/treaties-conventions/pdf/FATCA-eng.pdf

t) The term “Depository Account” includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a Financial Institution in the ordinary course of a banking or similar business. A Depository Account also includes an amount held by an insurance company pursuant to a guaranteed investment contract or
similar agreement to pay or credit interest thereon.
u) The term “Custodial Account” means an account (other than an Insurance Contract or Annuity Contract) for the benefit of another person that holds any financial instrument or contract held for investment (including, but not limited to, a share or stock in a corporation, a note, bond, debenture, or other evidence of
indebtedness, a currency or commodity transaction, a credit default swap, a swap
based upon a nonfinancial index, a notional principal contract, an Insurance
Contract or Annuity Contract, and any option or other derivative instrument).
g) The term “Financial Institution” means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company.

Part D: Like The Holding Bill This Legislation Makes Use Of The Section 911 Foreign Earned Income Exclusion – Specifically Section 911(d)
https://www.law.cornell.edu/uscode/text/26/911

(d)Definitions and special rules For purposes of this section—
(1)Qualified individualThe term “qualified individual” means an individual whose tax home is in a foreign country and who is—
(A)a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
(B)a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.

(Discussion of Representative Holding’s “Tax Fairness For Americans Abroad Act” is here. The actual bill (which is tied to Internal Revenue Code 911) is here.)
John Richardson – Follow me on Twitter @ExpatriationLaw

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