It’s beyond the scope of this blog to go into all the intricate details of the new tax legislation passed by Congress that is reeking havoc around the world for Americans living abroad. Besides, the idea of going into all the tax law details just gives me a headache, how about you Dear Reader?
However, for those of us that are living overseas already or who ponder and daydream about living in a foreign land with beautiful vistas, fresh fruit to be picked off the trees, and a cheaper cost of living (especially medical and dental care) … and I suppose for every fan of House Hunters International, there’s big stuff happening now that’s hurting American expats.
It began as an attempt to collect unpaid taxes by the federal government, where officials were concerned with fighting tax evasion. Laws were passed. Yes, they are already on the books. Now, the IRS is implementing those laws through IRS regulations and there’s the rub.
What’s going on with FATCA, FBAR, and the American Expatriate?
Okay first there are two laws involved here: the Foreign Accounts Tax Compliance Act (FATCA) and the Bank Secrecy Act. The Bank Secrecy Act requires American citizens living overseas to report their overseas bank account details each year to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
FATCA requires foreign banks to report account information to the U.S. government on all their American customers and if the banks don’t do this, then the federal government imposes huge fees upon these foreign banks for failing to comply. Nevermind that they aren’t American institutions and have their own set of privacy laws, financial regulations, etc.
The banks are reacting by doing things like ditching their American customers rather than mess with the whole FATCA deal. Some countries are insulted and are ignoring FATCA (like China).
Meanwhile, FBAR requirements are causing nightmare situations for expats all over the place. One good article with lots of real life stories appeared this week in The Atlantic. Entitled, “The FATCA Chronicles: Tales from China, Canada and Estonia,” this is the third in a series of articles by James Fallows discussing the expat situation and the new laws trying to thwart perceived tax evasion by the feds.
Problems include American expats who are signatories on foreign business accounts that have no American income following through them; same thing with foreign accounts held by foreign-citizen spouses; and those with dual citizenship.
For details on what this means to expats, check out GlobalTaxHelp’s FATCA and FBAR summary and follow the blog posts at US Expatriate, written by a CPA whose practice focuses on expatriate tax issues.