Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:
"What Is The Future Of Citizenship-Based Taxation?" Prof. William Byrnes (Texas A&M Law), Prof. Edward Zelinsky (Cardozo Law), John Richardson (Canadian attorney who represents US-Canada dual nationals), Kat Jennings (CEO Tax Connections) https://t.co/LP63MHEFYS
— William Byrnes (Tax Monk) (@williambyrnes) May 5, 2019
You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.
Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.
Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).
This is the third of a series of four posts that reflect views and experiences of Americans abroad who are experiencing the reality of actually living as an American abroad in an FBAR and FATCA world. (The first part is here.) The second part is here. I think it’s important to hear from people who are actually impacted by this and who have the courage to speak out. The “reality on the ground” is quite different from the theory.
I hope that this series of posts will give you ideas for questions and concerns that you would like to have addressed in the May 17, 2019 Tax Connections – Citizenship Taxation discussion.
I am grateful to Laura Snyder for contributing her thoughts, writing and research to the discussion.
Now over to Ms. Snyder …
“It Hurts My Heart:”
The Case for Fairer Taxation of Non-Resident US Citizens
by Laura Snyder
Post 3 of 4
This is the third of a series of four posts to make the case for fairer taxation of non-resident US citizens and green card holders. The first post was a Case Study in the Marginalization of Americans Living Overseas. The second post recounted the origins of the situation, unique to the United States. This third post describes the destabilizing effects of recent US banking regulations and explains how the 2017 Tax Cuts and Jobs Act turned an already difficult situation for entrepreneurs and small business owners into an impossible one.
I. Banking Regulations Further Complicate the Situation
Further complicating the situation of US citizens living overseas was a law first adopted in 1970, about 100 years after the first non-resident taxation laws. That law was the Bank Secrecy Act. It created various financial reporting obligations the ostensible purpose of which was to identify and collect evidence against money laundering, tax evasion and other criminal activities. The law includes the obligation for all US residents as well as US citizens, regardless of where they reside, to report to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) all the financial accounts he/she holds with any foreign financial institutions. Referred to as “Report of Foreign Bank and Financial Accounts” or FBAR, any account held in any non-US financial institution was considered to be “foreign” and thus subject to the reporting requirement even in the case of the bank and other financial accounts US citizens residing overseas held in their country of their residence. Given that the reporting requirement is triggered if the amounts in the accounts in the aggregate exceeds just $10,000 at any time during the reporting year (an amount that has not been adjusted since 1970 and is worth $65,000 today), this means that any US citizen residing overseas of even relatively modest means is required to report all of his/her accounts, including those held in their country of residence as a normal and essential part of their everyday life. And they are required to report them to a “Crimes Enforcement Network” under the assumption that merely holding the accounts—again, accounts required for normal day-to-day life—was a crime. However, during the first three decades after the adoption of the Bank Secrecy Act very few US citizens residing overseas were aware of their FBAR obligations and, at the same time, FinCEN’s enforcement powers were limited. Accordingly, compliance by US citizens residing overseas was sparse.
In sum, for many years and indeed decades, US citizens living overseas were in a situation that, while awkward and ambiguous, was more or less tolerable: On the one hand many US citizens living overseas (and especially those who had never lived in the United State or who left when they were children) lived in blissful oblivion, subject to taxation in their countries of residence and never imagining that they might also be subject to US non-resident income taxation on their non-US income or to FBAR. As for those who did have an awareness of some kind, while some did file US income tax returns and FBARs, many did not (in both cases they did pay taxes their countries of residence). For those who did not file US income tax returns and FBARs, as long as the United States did not make any significant efforts to enforce compliance then it was best to let sleeping dogs lie. That is, it did not make sense to mobilize the huge resources needed to challenge non-resident taxation or FBAR if they were not enforced and simple non-compliance was a realistic and sensible alternative.
A. An Awkward but Stable Situation Upset by the Patriot and Hire Acts
While this situation was less than ideal, it was relatively stable. The first threat to this stability came in 2001. In the wake of the terrorist attacks of September, 2001, the Patriot Act directed the Treasury Department to improve FBAR enforcement. In the years that immediately followed the Treasury Department formally acknowledged that the primary target of FBAR was tax evasion rather than money laundering or other financial crimes and the Department delegated enforcement of FBAR to the IRS. Further, the American Jobs Creation Act of 2004 significantly increased FBAR penalties, including a fine of $10,000 per violation in the event of a “non-willful” failure to report and a draconian fine in the event of a “willful” violation: the greater of $100,000 or 50% of the account balance. As a result of these measures compliance with FBAR did increase. But even so the rate of compliance remained relatively low and it seemed that most enforcement actions brought under FBAR were against persons residing inside the United States rather than outside.
The 2010 adoption of the Hiring Incentives to Restore Employment (HIRE) Act had an even more significant impact. Referred to as a “jobs bill,” the purpose of this legislation was to provide payroll tax breaks and incentives for businesses in the United States to hire unemployed workers. Subtitle A of that law—the portion of the law that is referred to as the Foreign Account Tax Compliance Act (FATCA – a purposeful allusion to “fat cats”)—purportedly sought to offset the costs of HIRE by looking to increase the collection of taxes from sources outside the United States. This was done in order to meet the requirements of the then recently adopted Statutory Pay-As-You-Go Act (or “PAYGO”), which sought to ensure that most new government spending is offset by spending cuts or added revenue elsewhere.
The principal justification offered by Congress—and notably by Senator Carl Levin of Michigan—to make up for the cost of the HIRE Act by looking outside the United States for tax revenue is this single statement and footnote in the first line in the 2008 Report from the Senate Subcommittee on Permanent Investigations:
Each year, the United States loses an estimated $100 billion in tax revenues due to offshore tax abuses.
However, when the accuracy of this statement was investigated, it turned out that the person to whom the statement is credited, an attorney named Jack Blum, could not explain any kind of statistical methodology that he applied in order to arrive at his estimate. When pressed to explain where the number came from, he responded “You just have to take a guess at it.”
B. FATCA Is Not a Tax nor Does It Organize for the Payment of Any Tax: So, What is Its Purpose?
Indeed, more cynical commentators have opined that FATCA was never intended to close any tax revenue gap in any significant manner—that this explanation was little more than a pretense. Instead, the primary purpose of FATCA was for the U.S. government to obtain otherwise private financial information and, ultimately, control of the global financial industry.
An examination of FATCA bears this out. It is not itself a tax nor does it organize for the collection of any tax. Instead, it strong-arms foreign financial institutions into disclosing private financial information to United States tax authorities. More specifically, it obliges foreign financial institutions to report to the IRS detailed information about all accounts held by “US persons.” The information includes the account holders’ names and addresses and the accounts’ balances, receipts, and withdrawals. Foreign institutions who fail to comply are severely penalized with the application of a withholding tax of 30% on all payments of the institution’s US-source income.
FATCA also imposes additional reporting obligations on taxpayers, in addition to and duplicative of those of FBAR. More specifically, it requires US citizens holding foreign financial assets with an aggregate value of more than $50,000 to include a report about those assets with their annual tax return. This obligation exists separate from and addition to FBAR reporting with respect to most of the same accounts.
C. FATCA has Not Resulted in Either Increased Tax Compliance or Increased Tax Revenue
The intention of FATCA to establish US control over the global financial industry is also borne out in the extent to which the extraterritorial law has effectively resulted in increased tax compliance and has closed any tax revenue gap. In a nutshell, it hasn’t done either:
As regards tax compliance: The IRS publishes data with respect to returns filed with an address outside the United States. These returns include not just “expats” but also US government employees and active duty military personnel stationed outside the United States. This data demonstrates that the number of such returns has declined dramatically since 2009:
Source: Karen Alpert, Fix the Tax Treaty
Interestingly, this decline appears to track closely the decline in the number of military personnel stationed outside the United States:
Source: Pew Research Center and Karen Alpert, Fix the Tax Treaty
In sum, there is no data demonstrating that FATCA has resulted in an increased rate of tax compliance by US citizens living outside the United States.
As regards tax revenue: To begin, even at the time FATCA was adopted no one believed that it would generate anything close to Blum’s and Levin’s estimate of $100 billion. Instead, the Congressional Joint Committee on Taxation estimated that FATCA would generate $8.7 billion in tax revenue between 2010 and 2020, and that just by the end of 2016 it would generate $4.8 billion.
But there is no evidence that FATCA has generated even that much tax revenue, or even evidence that it has generated any significant tax revenue at all. The only information the Treasury Department has offered is a 2016 announcement that it had collected about $10.5 billion in taxes, interest and penalties pursuant to a series of Offshore Voluntary Disclosure Programs (OVDPs) and other streamlined filing procedures. While the Department’s announcement mentioned FATCA, the reality is that very little if any of the amounts collected can be attributed to FATCA: The OVDPs and other procedures in question were implemented prior to the adoption of FATCA and the disclosures and payments they engendered were driven not by FATCA but by the erosion of Swiss bank secrecy. Further, as the Treasury Department noted, the amounts collected included not just tax revenue but also interest and penalties. These penalties were, for the most part, those resulting from failures to comply with FBAR; as mentioned above, the bulk of those penalties were assessed against persons residing inside the United States rather than outside.
Indeed, the fact that FATCA has not generated significant tax revenue is implicit in a July 2018 report issued by the Treasury Inspector General for Tax Administration (TIGTA) subsequent to its audit of the IRS. The purpose of the audit was to evaluate the IRS’s efforts to ensure compliance with FATCA by taxpayers and foreign financial institutions. The audit concluded that, despite spending nearly $380 million, the IRS “is still not prepared to enforce compliance” with FATCA. Of course, if the IRS cannot demonstrate compliance with FATCA then neither can it credibly attribute any increased tax revenue to it.
D. FATCA Places Heavy Burdens on Foreign Financial Institutions and Turns US Citizens Living Overseas into Pariahs
So, if FATCA hasn’t offset the costs of HIRE or indeed demonstrably led to any increase in tax revenue, what has it done? As noted above, FATCA places obligations on both foreign financial institutions as well as individuals. For each, compliance has come at a considerable price.
As regards the costs placed on foreign financial institutions (FFIs): FATCA requires FFIs to apply processes enabling the FFIs firstly to identify among all account holders those who are “suspected US persons” and attempt to verify their status. For each such person, the FFI must collect and report a host of information: name, address, birthdate, account number(s), account balance(s) and taxpayer identification number. Again, the failure to comply is subject to draconian penalties—a withholding tax of 30 percent on all payments of the FFI’s US-source income.
Not surprisingly, FFIs have incurred substantial costs in developing and implementing the required processes: consulting fees, software development, dedicated personnel, etc. While no one has performed a comprehensive study of the total costs incurred by FFIs in order to comply with FATCA, there is some information available: the Spanish bank Banco Bilbao Vizcaya Argentaria estimated in 2014 that compliance costs could range from $8.5 million for a local entity to $850 million for a global one. The British government estimated the aggregate initial costs to UK financial institutions at $1.1 billion to $1.9 billion, with a continuing cost of $60 million to $100 million a year. More globally, KPMG and Deloitte have estimated that more than 250,000 foreign financial institutions are affected by FATCA, with costs for some of the larger ones reaching more than $200 million.
The burdens FATCA imposes on FFIs are borne not only by the institutions themselves but also by their clients and prospective clients, and most especially by those individuals who are “suspected US persons.” These burdens certainly include higher fees charged to clients. But those fees are just the beginning. In their efforts to avoid FATCA-related costs and liabilities, FFIs around the world are:
– Refusing to open new bank, investment, retirement and other financial accounts for “suspected US persons,”
– Closing existing bank, investment, retirement and other financial accounts held by “suspected US persons,”
– Pressuring non-US persons holding joint accounts with “suspected US persons” to remove the US person as an account holder,
– Refusing to grant mortgages to US persons or imposing higher rates on US citizens.
These are not the only costs of FATCA borne by individuals. Americans living outside the United States are also being refused:
– Employment opportunities that require the American to have signature authority for the non-US employer’s bank accounts,
– Investment and entrepreneurial opportunities with non-US investors/partners,
– The ability to serve as trustee or hold power of attorney in relation to an elderly or disabled family member’s financial affairs,
– Opportunities to serve as an executive officer with signature authority for a non-US not-for-profit (and even to serve as treasurer for a PTA equivalent!).
In each of these cases, the American living overseas is treated as a pariah—as someone to be avoided because their involvement will result in the need to report the underlying accounts—accounts that have nothing to do with the United States—to US tax authorities.
E. Some Especially Insidious Consequences of FATCA
Many US citizens living overseas are married to persons who are not US citizens. Many of these US citizens are prevented from holding joint accounts and other assets (such as real estate) with their spouses. This occurs either because the financial institution holding the accounts rejects the US citizen as an account holder and obliges the non-US citizen spouse to remove the US citizen from the account, or because the non-US citizen spouse understandably objects to having his/her account or other information submitted to US authorities or to have the asset be subject to US taxation and so refuses to hold the account or other asset jointly with their US-citizen spouse. In either case, this presents the US citizen with the problem of lack of access to the household’s assets. While this is less than ideal for all such US citizens, it is disastrous for those who are financially dependent upon their non-citizen spouse, such as stay-at-home parents without incomes of their own (the majority of whom, of course, are women). They are especially vulnerable because in the event of divorce or the death of their spouse their access to the funds in those accounts will be restricted.
Another especially insidious consequence of FATCA concerns persons referred to as “Accidental Americans.” As described above, these are persons who have never lived in the United States or who have lived there only for a short time when they were children. Since leaving the United States they have had little to do with the country: they never obtained social security numbers, they never asked for a US passport, some did not even realize that they are considered to be US citizens. So, imagine their surprise when they have trouble banking in their home country for the simple reason that they were born in the United States. In some cases, banks have simply closed their accounts, refusing as clients any “suspected US person.” In other cases, banks have required that they provide their social security number in order to keep their accounts open, but they do not have one and obtaining one is a lengthy and in some cases impossible process. Some have attempted to come into compliance with US tax obligations via an amnesty program, but in many cases this has proven impossible due to the exceptionally high professional fees they would need to pay simply to complete the complex paperwork. In order to address these problems many have sought to renounce their US citizenship, but this also involves a complex and costly process that many persons are not able to pursue. The result is that “Accidental Americans” find themselves in an impossible situation: unable to comply with the “obligations” of their unwanted US citizenship and unable to renounce. So, either they are forced to live underground or they live in constant fear that the bank and other financial accounts they’ve managed to hold on to will be closed and they will face other forms of discrimination for the simple reason that they are “suspected US persons.” Indeed, in a recent survey to Americans living abroad, several of whom self-identified as Accidentals, several participants testified to foreign financial institutions disrupting their lives because of costly IRS-reporting requirements.
II. The Tax Cuts and Jobs Act Further Penalizes US Citizens Operating Small and Medium-Sized Businesses Outside the United States
The international provisions in the Tax Cuts and Jobs Act adopted in December 2017 were intended to target large multinational companies like Google and Apple. However, those provisions are having devastating effect upon US citizens who live outside the US and who own small or medium-sized businesses in their countries of residence. These provisions are referred to as the “Repatriation Tax” or “Transition Tax,” on one hand and “GILTI,” on the other.
The Repatriation Tax requires individual US-citizen shareholders of a non-US company to pay a one-time tax of at least 17.54% of the post-1986 retained earnings of the company. Given that the tax applies to retained earnings, by definition it is due in the absence of any distribution by the company or any other realization event. This tax imposes an especially serious burden on small and medium-sized business owners who live in countries where such companies are used as retirement vehicles: the tax means that they will lose a large percentage of the funds they had counted on for retirement. It is for these reasons that the Repatriation Tax has been described not as a tax but as confiscation, and in particular as confiscation of pensions. To add insult to injury, the distribution of these retained earnings to the shareholder enabling him/her to pay the Repatriation Tax will trigger distribution and income taxes in their country of residence and limited credit for these taxes will be allowed. Further, individual US-citizen shareholders of foreign companies will not be able to benefit from the shift to territorial taxation in the manner that US-based corporate shareholders of foreign companies will.
Global Intangible Low Taxed Income (“GILTI”) requires that, on an ongoing basis, US-citizen shareholders of foreign companies include in their personal tax base a share of certain types of the company’s earnings. In a manner similar to the Repatriation Tax, this tax must be paid regardless of whether or not the company actually pays out such amounts to the shareholder in dividends. And, if the company does indeed pay out any amounts in order to enable the US citizen to pay the GILTI tax, those dividends will, of course, also be subject to local taxes for which only limited US tax credits will be allowed.
The next and last of this series of three posts will expose continuing prejudices, misconceptions and misunderstandings and how they serve to perpetuate and aggravate the situation for so many US citizens who seek simply to lead normal lives in the places where they live.
* Laura Snyder was raised in the United States and has lived in Europe (mostly in France) since 1995. She holds a JD from the University of Illinois, a DEA in droit privé from the University of Paris 1 (Panthéon-Sorbonne) and she completed the TRIUM Executive MBA program (an alliance of New York University, London School of Economics and HEC School of Management). She is a doctoral candidate at the University of Westminster. She is the author of the books Democratizing Legal Services: Obstacles and Opportunities and Modernizing Legal Services in Common Law Countries: Will the US Be Left Behind? She is a member of the bars of New, York, Illinois and Paris.
Note: The original version of Ms. Snyders post contains a number of footnotes that provide a rich source of further research and discussion. She has graciously allowed me to include the following pdf of this post that contains those footnotes. Here it is:
“Nando, that term you used, sanctions, seems exaggerated. Surely the US isn’t sanctioning its own citizens that live overseas.”
Well let me tell you a story then.
Some years back, the US threatened to completely cut off Swiss access to international financial markets unless Switzerland agreed to turn over all bank data of US persons. Well that was quite a problem because Swiss law strictly protects the privacy of all financial data.
You see, as a direct democracy, Swiss individuals are the ultimate sovereign, not the president, not the elected government. So if it happened that more than 50% of the Swiss populace wanted the government to have access to their financial data, wanted to abolish Swiss bank secrecy laws, then they would be abolished.
Well, the fact is that hardly any Swiss person wants their government to have access to their financial information. Hence, Switzerland has the most rigorous financial secrecy laws in the world. ( Do you want your government to have relatively free access to your financial data? If the answer is no, then you understand the foundation of Swiss banking privacy law. )
Where was I? Oh right. Some years back, the US threatened to completely cut off Swiss access to international financial markets unless Switzerland agreed to turn over all financial data of US persons. As I said, that was quite a problem. There was a vigorous debate here. Some legislators were emphatic that Switzerland must preserve and defend its sovereignty, and the rights of any American who lives or banks here under Swiss law.
Others were equally emphatic that they could not allow the US to destroy the country’s banking sector. It would have a very severe impact on all Swiss citizens. The US had already seized millions of dollars from Swiss correspondent accounts in the US because Swiss bank directors had refused to violate their own country’s laws and turn over the financial data of US persons holding accounts. If they had, they would have been imprisoned for a number of years and heavily fined under Swiss law. So it’s not like they had an easy choice.
Where was I? Oh right, the debate over whether or not to provide the financial data of US persons holding Swiss accounts …
The pragmatists, in the end, won. Switzerland signed the FATCA agreement. Banking secrecy for all Swiss citizens remains intact, but now there is a carve out for Americans whereby the government allows the banks to treat them differently – very differently.
Shortly thereafter I received a letter from my bank. I’d been a permanent resident here for some 10 years at the time, the same sort of status as a green card holder in the US. The letter said I was required to sign a release giving the bank permission to a) turn over any and all of my banking data to the US authorities and b) allow the US to confiscate any amount of money from my account without notifying me in advance. If I did not agree to these terms, the bank would immediately close my account.
Well this was troubling. I went to the bank and spoke with the manager. She of course knew me, almost as a friend, and I told her that I didn’t want to agree to these demands. She leaned in toward me and said in a very concerned voice, “You have to sign this. No other bank will open an account for you. Please. You must sign it.”
We discussed the situation for a few minutes, and I told her I would think about it.
Then I drove some kilometers to a neighboring village and walked into another branch of the same bank. I explained to the woman behind the counter that I was an American citizen with permanent Swiss residency and wanted to open an account. I had taken out my Swiss residency ID and was gesturing to show it to her.
She brusquely said. “We do not provide any services to Americans,” lifted one arm to indicate with her open hand the exit, and said “Per favore”, indicating please leave now. I raised my hands to indicate surrender, and said “Va bene. Parto subito.” Fine. I will leave immediately. I didn’t want her to call security, or the police, to escort me out, if that’s where she was headed. It certainly seemed like it.
Well, that was a deep shock. Suddenly it seemed I could be completely locked out of the banking system, and I felt a certain panic standing out there on the sidewalk in the bright sun. No wonder my bank manager friend was so insistent that I needed to sign the release.
So I drove back to my branch, debating how to proceed inside of me, and reluctantly signed it. I also signed the subsequent release that arrived a few days later from my other bank.
After that, I wanted to know the conditions under which either of my banks would allow the American authorities to confiscate funds from my account, as if I was a convicted criminal or under sanctions. I wanted to know if my bank would do anything to protect my account since I was a Swiss resident. So I called each of them in turn and asked. The eventual response from each, after I was passed up the chain, was the following: We cannot discuss potential cases of account confiscation. “OK. But what about my Swiss company account? The company is Swiss.” Sorry, but again, we cannot discuss potential cases of account confiscation.
“So the bank will not protect my accounts from confiscation? Does the bank require that the US authorities demonstrate … umm … ”
It was here that I reached the limit of my international legal expertise. A search warrant, no not that. It’s not extradition. Damn it, I’m not a lawyer!
Sorry. We cannot discuss these topics.
The real lawyer on the other end of the line seemed to assume I had committed a crime and so that was the reason I feared confiscation. Otherwise why would I have called to ask such a question?
Why am I worried? I’m not a criminal. I have hardly any money, living essentially month to month at best. Well, the complex tax forms I’m obligated to fill out, particularly because I operate a small business in Switzerland, come with very high financial penalties. You see, I am under the exact same US tax obligations as massive multinational corporations. A slap on the wrist from a law and order IRS employee reviewing my return who thinks “This guy lives in Switzerland. He deserves it.” would be more than enough to send me reeling if that fine is confiscated directly from my account. I need that money to pay the rent, food, electricity and health insurance for my family.
So a few weeks ago a friend stopped me on the street. “I have to tell you something.”
She’s as Swiss as they come, born in Lucerne of Swiss parents. She speaks fluent German, Swiss German, French, Italian, English, and can read both ancient Greek and Latin.
She told me that she was just at the bank to open an account. She showed them her Swiss citizen ID, of course, and the bank started interrogating her. She said it really shook her up – because, well, Swiss people are very used to their privacy being respected. Banks don’t ask probing questions. At least they haven’t until now.
They asked her if she had ever been to America. No. Has she ever owned shares in an American company in any form? No. Have you ever been employed by an American company? No. Are you in a relationship with an American? No. Married to an American? No. Do you have any American friends?
She said, “Sorry Nando, but I lied. I was just so shaken to be questioned like this. It felt like a police criminal interrogation. I thought they might not open the account if I told them I had a friend who is American. Sorry.”
I told her it was no problem, don’t worry. It’s fine.
“They apologized for asking such intrusive questions. They said they were obligated to do so because of American sanctions.”
Did they open your account?
“Yes, of course. But I’ve never experienced anything like this before. I’m sorry. I’m so sorry.”
Hey, don’t worry about it. It’s not a problem for me. Really. I’ve had to deal with this for years now. I can’t get a mortgage or a loan. UBS closed my account without notifying me. I had to sign an agreement relinquishing any right to privacy under Swiss law …
“Really? That’s horrible.”
… and the agreement also says the Americans are free to confiscate money directly from my account.
“I’m so sorry Nando. I shouldn’t have lied to them.”
It’s fine, really. Don’t worry about it.
Banks here certainly have policies to deal with all the various financial sanctions that occur, many of them vigorously pursued by the US. And they will carefully train their employees to implement those policies. Why? Because if a Swiss bank violates such a sanction, they will be exposed to hefty fines, like they are if they do not comply with FATCA.
I’ve reflected on my own encounter at the bank that refused to open an account for me. When a sanctioned individual walks into a bank and asks to open an account, is the bank employee trained to discuss it with them at length, explain the reasons, apologize for the inconvenience, get them worked up? I think not.
I think it is more likely they are trained to firmly tell the sanctioned individual that the bank does not provide services to them and ask them to leave – and call security if they do not. Why?
Because if someone is trying to avoid financial sanctions, some of them will get very upset and disruptive when they are told the bank will not open an account for them. I’m sure this has happened in the past. So the woman at the bank treated me just like any other sanctioned individual, from Russia or Iran or Africa or North Korea. “We don’t provide services to you. Please leave now.”
I’ve also thought about why the bank asked my friend if she had any American friends? I think they were trying to gauge if there was any possibility that she might open an account in her name for an American, which could lead to the bank being fined under FATCA sanctions if it was revealed that an American was actually controlling the account.
You see, when my friend was a young girl, she would sit with her mother and father every Sunday listening to a radio program that lasted for hours. The announcers would read the names of displaced Jewish people searching for their relatives throughout Europe, and provide some identifying family history with each name. My friend eventually came to accept that she, with her mother and father, were the only surviving members of their extended family.
Perhaps this is why she felt she needed to apologize.
“I don’t know any Americans.”
“No. I’ve never had any American friends.”
Filing requirements for FATCA are particularly onerous: costly, time consuming and generally stressful. Regardless, we have diligently done our part for numerous years. The passage of TCJA in December 2017 was the straw that broke the camels back. My husband had just abandoned his Green Card, which normally should have simplified our filings. The exact opposite ensued : he is a self-employed consultant, his business is structured as a type of LLC in our country of residence, which was never a problem before. Suddenly, in the eyes of the USA, he had become a Controlled Foreign Corporation! And I, as his American spouse, would be required to file Form 5471 as the US government maintained I had constructive ownership of his “Foreign Corporation”. To add insult to injury, we had paid our Transition Tax when we filed our 2017 returns (yes, the amount was so small that we were able to pay it in full. The cost for compliance was in excess of the Transition Tax paid). To this day, the IRS has not processed our returns. I suspect they haven’t a clue as to how to process them. We are currently trying to sort out our 2018 Returns: Total Cost for Preparation will exceed $6000 this year. I have given the government until the end of 2019 to come up with a solution for what I hope is just oversight on their part. If no solution is forthcoming, renunciation will be the only option.