A challenge to sweeping legislation against US expats has been rejected by a US court.

US expats lack the standing to challenge the Treasury Department’s ability to impose taxes via extra-territorial powers under the Foreign Tax Account Compliance Act.

The ruling was issued by the Sixth Circuit late last week, according to Courthouse News Service. 

Under FATCA, which was signed into law and is now in force, requires foreign financial institutions – not just banks - to report all accounts held by US citizens to the IRS or risk being hit with a 30 per cent withholding tax. The compliance burden has encouraged a number of foreign banks, such as Deutsche Bank and HSBC, to turn away American clients living outside the US. Ironically, the US is not - yet - a signatory to a global pact on exchange of information for tax purposes, known as Common Reporting Standard.

Among the plaintiffs contesting FATCA in the original lawsuit, which had claimed FATCA gave the IRS draconian powers to collect information from expats, was US Senator Rand Paul (R), of Kentucky. 

The suit was eventually 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, the report on the matter said. 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’s ruling in Susan B Anthony List vs Driehaus allows for a pre-enforcement challenge of the law.