Last week, Rand Paul said he wanted to blow up the tax code. Next week, he could be suing the tax man.
The Kentucky senator is expected to be one of the plaintiffs in a lawsuit against the Internal Revenue Service and the Treasury Department, challenging the government's rules on how Americans abroad are taxed and what foreign banks have to disclose about U.S. citizens who are their customers. Being on the wrong side of the IRS is, of course, a great place for a Republican presidential contender to be.
The focus of the lawsuit is the 2010 Foreign Account Tax Compliance Act—FATCA to the initiated—which has made it much harder for Americans to have foreign bank accounts hidden from the IRS. It's also been a logistical nightmare for the millions of Americans who live outside the country and are still required to file U.S. taxes. The law has also prompted some foreign banks to refuse U.S. customers rather than deal with the hassles.
The Washington Times first reported Paul's involvement in the suit on Thursday. Solomon Yue, vice chairman of Republicans Overseas, and James Bopp, the lead lawyer on the suit, both said Paul will be one of the plaintiffs, which will be filed in federal court in southern Ohio. Sergio Gor, a Paul spokesman, wouldn't confirm the Kentucky senator's involvement.
Paul's portion of the suit will question the administration's ability to negotiate agreements with other countries for sharing tax data without going through the formal treaty process that requires Senate approval. To implement FATCA, the Treasury Department has signed cross-border agreements that are easier for governments and banks to use than the strict rules in the law itself.
“The president can only rely upon his authority and he has no authority in the Constitution for this,” Bopp said in an interview on Thursday.
Labeling those intergovernmental agreements as treaties would let Paul block them—something he's not shy about doing. He's already halting a deal with Switzerland that was signed in 2009, and Treasury Department officials have complained that other countries have become less willing to negotiate tax treaties with the U.S. because they have little confidence that the Senate will ever ratify them.
Bopp, a longtime conservative activist, said the other plaintiffs are Americans who live abroad and they'll be challenging other portions of FATCA and related bank-disclosure requirements. It could be a tough case. Courts—remember the Supreme Court's Obamacare ruling in 2012—are typically very deferential to the government's authority to tax. Bopp said the problem is the requirement to disclose confidential information without a warrant.
“We don't think this has to do with taxes,” Bopp said. “This has to do with disclosing private, personal information. The existence of a bank account in a foreign country has nothing to do with what taxes are imposed.”