How much “Myth” versus “Reality” is in the Treasury’s claim – Myth vs. FATCA: The Truth About Treasury’s Effort To Combat Offshore Tax Evasion? Is it a Myth? ?- ? [Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.] ?
It is worth reading “Myth vs. FATCA” by Robert Stack, Deputy Assistant Secretary (International Tax Affairs) at Treasury; to obtain a better understanding of the U.S. Treasury’s views of how it will impact Americans living outside the U.S. “Myth No. 3” is particularly relevant here: Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.
The argument made by Mr. Stack is that it is a myth that FATCA imposes no new obligations on U.S. citizens living abroad. This is indeed correct in a technical sense of how the tax law works; Title 26 applies to U.S. citizens who have spent most all of their lives in a country other than the U.S. This has been the law since the time of the U.S. Civil War in the 1800s. However, what is not mentioned, is that there are a host of international tax penalties that will apply to these individuals, even if no income taxes are owing. These information reporting requirements in the law are typically not understood among most U.S. tax professionals (U.S. tax lawyers, CPAs and enrolled agents) let alone the layperson taxpayer.
For instance, the “FBAR law” from the Bank Secrecy Act has been around since 1970, yet virtually no one in the private sector or the government had much of any understanding of that law until the last few years. Plus, Congress adopted various information reporting requirements in the 1980s, the 1990s and now during the last decade that are still not well understood.
The civil penalties for each failure by the U.S. citizen living abroad for these information reporting requirements is consistently US$10,000 per violation. If an individual inadvertently failed to file 3 information returns over a period of 5 years (e.g., regarding their accounts or companies in their home country of residence, e.g., they could be facing US$150,000 of civil penalties – 3x5xUS$10,000!). For a more detailed discussion of these penalties see pages 8 and 9 – http://www.procopio.com/userfiles/file/assets/files1/docs-1738595-v2-accidental-americans-and-the-push-to-renounce-us-citizenship-2448.pdf
Mr. Stack goes on to say “U.S. taxpayers, including U.S. citizens living abroad, are required to comply with U.S. tax laws. Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.”
This statement assumes that U.S. citizens residing overseas have somehow been using their normal individual, business or other investment accounts in their home country of residence to “evade tax obligations”! This is where there is a big disconnect in the understanding (or lack of understanding) of the U.S. Treasury Department and IRS of those millions of U.S. citizens who reside overseas. Undoubtedly, there are some U.S. citizens residing overseas who are taking steps to evade tax and not comply with the law. However, this author’s experience is that far far far more of the U.S. citizens residing overseas, simply do not have a complete understanding of a very complex U.S. tax law and bank secrecy reporting.
The “Myths” identified by the Treasury Department are set out below and can be read in their entirety at (Are they really “Myths”?)-
Myth vs. FATCA: The Truth About Treasury’s Effort To Combat Offshore Tax Evasion,
http://www.treasury.gov/connect/blog/pages/myth-vs-fatca.aspx
Myth No. 1: Some claim it’s overly costly and burdensome due to complex
regulations and difficult to meet reporting requirements.
Myth No. 2: Some claim that U.S. citizens living overseas will become
outcasts in the international financial world.
Myth No. 3: Some claim that Americans living abroad will give up their U.S.
citizenship because of liabilities and burdens created by FATCA.
Myth No. 4: Some claim that countries are opposed to FATCA, in part because
the legislation could force foreign banks to violate laws in their own
countries.
Myth No. 5: Some claim that FATCA will generate a backlash from foreign
governments who view this as an overreach of U.S. law.
Myth No. 6: Some claim that FATCA will unfairly expose FFIs to heavy
penalties before they have the necessary mechanisms in place to comply.
Myth No. 7: Some claim that FATCA aims to use foreign banks as an extension
of the IRS.
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January 25, 2014 at 8:45 am
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February 23, 2014 at 6:36 pm
Interesting and technically accurate comment about U.S. citzenship and FATCA as an information collecting law, not tax law, from NPR – worth posting here –
http://www.npr.org/blogs/parallels/2014/02/20/275937138/why-more-americans-are-renouncing-u-s-citizenship
This new law that is driving US citizens to give up their citizenship, FATCA, is not about tax collection – that is the biggest misunderstanding about FATCA.
FATCA is about data collection. Foreign banks and financial institutions around the world are required to collect and transmit bank account details on any US person on their books. The information that will be collected is name, account number, joint account holders, account balances, transfers in and out, etc Banks who do not comply with FATCA will have a 30% punishment fee attached to every single transaction that goes through the US (i.e. most transactions).
A US person is anyone who was born in the US, anyone who was born to a US parent but never lived in the US, non-US spouses of US persons, non US joint account holders of US person, and the list goes on and on.
At the moment, the IRS has created a huge database where every financial institution in the world has to sign up and get a registration number (called a GIIN) to prove that they will compile and forward all US data to the IRS. The portal is open for business and can be found by googling FATCA portal registration IRS. Any financial institution that does not have a GIIN by 1 July 2014 will have the 30% punishment fee applied to all US payments.
And this applies to ALL countries – friendly or not. So every country in the world will be compiling databases of US persons and their financial information to send to the IRS … and possibly anyone else who is willing to pay for the information.
For what it’s worth, 95% of overseas US tax filers owe no taxes anyway. So this is not about tax collection. This is a massive data collection exercise on an Edward Snowden level.
January 25, 2014 at 2:01 pm
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January 25, 2014 at 3:04 pm
http://we-are-not-a-myth.tumblr.com/
The damage being done is not a Myth.
February 8, 2014 at 2:15 am
Would the U.S. government be better served by eliminating U.S. citizenship taxation?
January 26, 2014 at 5:47 pm
These are not myths. They are happening. I see it regularly. Put a group of expat dual citizens together and the question “Have you your appointment yet to renounce” is guaranteed to come up as is “My bank wants to close my account.”
February 8, 2014 at 12:35 am
U.S. citizens have different reasons to keep (or not) their U.S. citizenship. Everyone should consider the “pros” and “cons”!
March 1, 2014 at 8:20 pm
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April 1, 2014 at 10:06 am
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June 26, 2014 at 10:17 am
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