A group of US citizens living abroad “lack standing” to challenge the US Treasury Department’s taxes on their foreign bank accounts, the country’s Court of Appeals for the Sixth Circuit ruled on Friday.

The taxes were established by the Foreign Account Tax Compliance Act (Fatca) in 2010 and have been described by attorneys representing several US citizens as “draconian”, reports legal news site Courthouse News Service.

Fatca requires foreign banks to report all accounts held by US citizens to the country’s Internal Revenue Service (IRS) or risk being hit with a 30% withholding tax.

Taxpayers wilfully failing to file a foreign bank account report also face a penalty of 50% of the value of the account or $100,000 (£77,674, €85,051), whichever is greater.

US senator Rand Paul was among the plaintiffs in the original lawsuit in July 2015 that accused Fatca of being a financial surveillance programme that encouraged Americans living abroad to give up their citizenship.

Along with five US citizens living overseas, Paul also claimed that foreign banks purged accounts held by Americans to avoid being taxed by the IRS.

“…no plaintiff claims to hold enough foreign assets to be subject to the individual-reporting requirement.”

The lawsuit was dismissed by US District Court judge Thomas M. Rose, who ruled that all of the plaintiffs lacked standing to bring their claims because none had been adversely affected by Fatca.

On appeal, Jim Bopp, the plaintiffs’ attorney, argued before the Sixth Circuit in January that even though Fatca has not been enforced against his clients, the US Supreme Court allows for a pre-enforcement challenge of the law under Susan B. Anthony List versus Driehaus.

But the Sixth Circuit affirmed judge Rose’s decision Friday, finding that the plaintiffs have no standing to challenge Fatca.

“First, no plaintiff has alleged any actual enforcement of Fatca such as a demand for compliance with the individual-reporting requirement, the imposition of a penalty for noncompliance, or [a foreign financial institution’s] deduction of the Passthru Penalty from a payment to or from a foreign account,” judge Danny Boggs said, writing for the three-judge panel.

“Second, no plaintiff can satisfy the Driehaus test for standing to bring a pre-enforcement challenge to Fatca because no plaintiff claims to hold enough foreign assets to be subject to the individual-reporting requirement,” the 28-page opinion continues.

A foreign bank’s refusal to accept US clients may be related to Fatca’s reporting requirements, but it is the bank’s decision and that injury cannot be imputed to the US Government, the panel ruled.

The Cincinnati-based appeals court also rejected Paul’s claim that he has been denied the opportunity to vote against the Fatca intergovernmental agreements (IGAs) negotiated by the Treasury Department and IRS.

“Any incursion upon Senator Paul’s political power is not a concrete injury like the loss of a private right, and any diminution in the Senate’s law-making power is not particularised but is rather a generalised grievance,” Boggs said.

“Senator Paul has a remedy in the legislature, which is to seek repeal or amendment of Fatca itself, under the aegis of which Treasury is executing the IGAs.”

Paul did, in fact, introduce a bill to repeal Fatca in April. It has been referred to the Senate Finance Committee.

Article compliments IFC Review.