Tax world, meet Jenny. As we shall see, she’s a global trendsetter in more ways than one.
We don’t know her last name. In fact, we don’t know whether Jenny is really her first name, either. But none of that matters; in the world of crowdsourcing, it’s the concept that draws your attention — and possibly your dollars as well. That’s the whole idea behind crowdfunding. A total stranger describes her pet project (or “campaign,” as they’re known), and members of the public at large decide whether it’s a cause they want to financially support.
Most of the crowdfunding campaigns on GoFundMe.com, the best-known platform for crowdfunding efforts, are driven by commercial instincts. Somewhere there’s a bright-minded entrepreneur with an awesome idea, but insufficient cash to make it happen. Rather than obtain funding the old fashion way — by sucking up to banks — the entrepreneur turns to the vast audience that the internet makes possible. Note that, at least in most cases, the financial contributors aren’t making charitable donations — they expect something in return for their money. The economic consideration can take various forms, such as discounted price or first dibs when the entrepreneur’s product finally becomes available.
CrowdJustice is much more specific. It focuses on crowdfunding legal fees and related costs. Jenny’s CrowdJustice campaign is certainly different from the typical crowdfunding plea, as the full name of the campaign — “FATCA and HMRC: Breaching my Human Rights to Data Protection and Privacy” — might suggest. It’s not about funding a start-up business; the focus is her effort to achieve justice through the British court system, with possible spillover to the EU courts (Brexit notwithstanding). More specifically, Jenny’s online contributors are helping her challenge the extraterritorial effects of a U.S. financial disclosure statute, the Foreign Account Tax Compliance Act, better known by the acronym FATCA.
In case you’re not a tax geek, a bit of background: Congress enacted FATCA in 2010 in response to a series of banking scandals, when it became clear than some wealthy U.S. taxpayers were concealing money in offshore bank accounts. The income from those hidden accounts was (in theory) fully taxable under U.S. law, but the IRS never knew about it because the taxpayers failed to disclose the income on their tax returns.
Such is life when your tax system relies heavily on self-assessment and self-disclosure. Regrettably, you’re always going to have a few cheaters. The solution involves mandatory third-party reporting, which generally works fine for U.S. bank accounts. The purpose of FATCA is to compel foreign banks to adopt the same kind of reporting practices for their U.S. clients.
So what exactly is Jenny’s beef with HMRC?
Jenny was born in the United States and relocated to the United Kingdom about 20 years ago, when she was in her early 20s. She married a British fellow and chose to live in the United Kingdom, acquiring British citizenship along the way. Technically, Jenny has dual citizenship since she never formally relinquished her U.S. citizenship. (Spoiler alert: That’s why she now has a FATCA issue.)
Jenny has a job working with deaf students at a local university. She receives a salary, on which she pays British taxes. She has a British bank account, but no U.S. bank account. Her economic ties with the United States dried up two decades ago, when she moved (permanently) overseas.
Jenny is not an “accidental American,” a category widely discussed in the context of FATCA. She’s just an expat. But FATCA still adds unwanted complexity to her life. In fact, she claims that she hadn’t heard of FATCA until she received a form letter from her local bank advising that she may have U.S. tax obligations despite being fully compliant regarding her U.K. taxes.
As it turns out, Jenny doesn’t owe any U.S. income tax because she earns too little income. Her salary is under the statutory exemption threshold for Americans living abroad (IRC section 911), around $104,000.
Even though Jenny owes no U.S. tax, British banks are required to share her account information with the IRS through an exchange mechanism with HM Revenue & Customs. The way FATCA is designed, there is no exception to the banks’ (and HMRC’s) reporting obligations simply because the account holder owes nothing to Uncle Sam.
As Jenny sees it, that’s a violation of the EU’s General Data Protection Regulation (GDPR), which took effect during 2018. To paraphrase her argument, “My financial information is irrelevant to the objective of FATCA, which is to collect tax from those evading it, but I am not liable for U.S. tax.” As she interprets the GDPR, FATCA must include a safe harbor for U.S. expats who don’t owe the IRS money.
Jenny’s CrowdJustice campaign indicates that she has no complaint with FATCA’s stated purpose of curbing offshore tax evasion. Her beef is with the regime’s “disproportionate nature.” She’s represented by attorney Filippo Noseda of the London firm Mishcon de Reya. As we all know, lawsuits are expensive — Jenny hopes to raise £50,000 to help defray the cost of advancing her claim. Thus far she’s raised about £22,000.
Someone who pledged £50 to Jenny’s campaign left the following note: “U.S. citizens abroad now have to be the most persecuted and discriminated against nationality on earth and have been made toxic by US tax code. Don’t marry one, employ one, go into business with one.”
That anonymous comment sounds harsh, but it shows how some people around the world view FATCA. The regime strikes many as a one-sided assertion of taxing and regulatory authority. The counterargument is that FATCA isn’t a tax provision at all: It is merely a call for information reporting. In fact, foreign banks don’t need to comply with FATCA if they don’t want to; they just need to understand that noncompliance will expose them to heavy withholding taxes on U.S. income streams. Legally speaking, there’s no question that Congress has discretion to impose that type of withholding tax if it so chooses. At the end of the day, a regime like FATCA is only possible because foreign banks require access to the U.S. financial system. It comes down to leverage.
Whether Jenny’s lawsuit will ultimately prevail is anyone’s guess. Personally, I find it intriguing that two far-reaching statutory schemes – FATCA and GDPR – are now pitted against each other. A secondary issue is whether the United Kingdom’s pending withdrawal from the EU will flavor how it interprets the GDPR, which was Brussels’s creation.
Regardless of the outcome, you can imagine efforts like Jenny’s taking off in a variety of situations that go well beyond tax litigation.
Editor’s Note: An earlier version of this piece incorrectly referenced GoFundMe as the crowdfunding platform for Jenny’s campaign.