Are FATCA FBAR Requirements Making Life Difficult for Expats?

When Congress passed the Foreign Account Tax Compliance Act back in 2010, it had very good reasons for doing so. After all, U.S. authorities had just learned that there were foreign banks that were not only running a blind eye to U.S. tax evasion, but that were actively assisting those taxpayers in their effort to avoid their tax responsibilities. FATCA was passed to change that dynamic by aggressively imposing severe sanctions against firms that refused to cooperate in the disclosure of their account holders, and against individuals who failed to properly disclose those assets.

Fast forward to 2015 and we see the fruits of those enforcement efforts. From the Internal Revenue Service’s perspective, the effort has yielded tremendously positive results. According to the IRS, some fifty thousand individual taxpayers have taken part in the agency’s voluntary disclosure program – one that provides immunity from harsh penalties for those who come forward on their own. In addition, more than 160,000 overseas companies have agreed to assist the U.S. in this compliance effort. On the surface, the FATCA process would seem to be a huge success.

But what about those American taxpayers living overseas –and especially those who have tried to remain in compliance with U.S. laws throughout their time as expatriates? There are always unforeseen consequences whenever new laws are passed, so one would expect to see at least some sort of unexpected impact as a result of FATCA too. Sadly, that is the case.

First of all, it is important to note that there are millions of American citizens living abroad. These U.S. taxpayers are, by and large, middle income Americans who choose to live in foreign countries for reasons that typically involve business assignments. Sure, there are some wealthy Americans living overseas as well, but the bulk of those expats are what most Americans would consider to be middle class.

Here’s the problem in a nutshell: for Americans who live in the countries where their accounts are held, these FATCA FBAR reporting rules are proving to be more trouble than they’re worth. Some Expats have been complaining that these new rules have led countries such as China to close U.S. citizens’ foreign currency accounts, or to restrict banking services to only those with extremely large monthly balances – sometimes in excess of $10m. In short, the new attention placed on these accounts is causing even those with small accounts overseas considerable inconvenience.

In response, the number of expats who have simply renounced their United States citizenship has hit record numbers in each of the last two years. For many, it is a simple matter of what they perceive to be a basic lack of fairness. Since they pay the taxes they are required to pay in the countries in which they live, they find the additional U.S. taxes to be too much to bear.

Congress is reportedly looking into the issue, and a number of lawmakers have expressed interest in revising the rules for Americans who actually live in those countries where they bank. Whether the Legislature will actually move to correct some of these unforeseen FATCA side effects remains to be seen, but one thing is certain. Without correction, the number of American expatriates who simply abandon their citizenship will probably continue to rise.

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