FATCA – The view from outside the Homeland
Canadians of U.S. origin have been understandably very concerned about the possible coming of FATCA. They are watching as the banks are encouraging the various governments to “throw them under the bus”. Why? Because of their past connection to the United States. Those Canadians of U.S. origin – who may also be U.S. citizens – are in the untenable position of:
1. Being presumed to be criminals by the the U.S. government;
2. Being a threat to the Canadian economy where they reside.
Bottom line: Nobody likes Americans abroad. They are under siege.
Many Americans were unaware of their obligations to report income and assets abroad, are fearful of heavy fines, which can reach $10,000 for failing to fill out an “FBAR” form for a foreign bank account. Sorting out the mess can take up to 18 months and cost upwards of $20,000 in legal fees, even in the IRS’ voluntary disclosure program.
With the small, despotic nation of Eritrea, the United States is one of two countries that has a citizenship-based tax system. Contrary to a residency-based system, in which you pay taxes to the country’s government in which you reside, this means that American citizens are subject to tax and reporting requirements regardless of where they live, even if their income was not earned in and has no connection to their native land.
In Eritrea, citizens are shot if they try and leave the country and, if they make it out alive, local embassies extort expats for every dime they have to fill the coffers of the bankrupt regime. Luckily, things are a little bit easier for U.S. taxpayers overseas. As an American business-owner abroad, I only have 65 pages of IRS forms to fill out every year on top of taxes in my country of residency.
FATCA – The view from inside the homeland
The blogs never discuss how FATCA creates collection and bookkeeping obligations for those inside the Homeland. What about those poor Homeland banks who are forced to consider whether the confiscation of 30% of payments is in order? This is clearly extra work, extra responsibility, and extra potential liability! I am ashamed to say that I had never considered how onerous and stressful this would be for the Homeland banks. That is – until I saw the blog post referenced in the following tweet:
FATCA, which was passed as part of the 2010 Hiring Incentives to Restore Employment (HIRE) Act, has come under increased scrutiny as a result of its complicated set of rules and new reporting requirements. The IRS has offered a bit of a reprieve by recently announcing that the enforcement of the withholding under FATCA will begin on July 1, 2014 rather than Jan. 1, 2014. These additional six months provide some breathing room for individuals and businesses, but they must begin acting now to prepare for the FATCA regulations.
Another reason that businesses, individuals, and financial institutions must begin preparing is that the government is using that six month extension to sign more intergovernmental agreements with other countries. These agreements make it easier for foreign financial institutions to report information on their account holders directly with the IRS. According to the Treasury Department, agreements have been reached with nine countries and negotiations are underway with more than 75 other jurisdictions around the globe.
Despite the potential steep penalties, many businesses and individuals remain unaware of FATCA’s looming presence. A number of recent surveys have shown that the majority of respondents — including banks, companies and individuals — have not begun preparing for FATCA compliance. Delaying FATCA compliance is a risky proposition and one that should not be taken lightly. Although the IRS is still issuing some FATCA guidelines and rules, basic preparation should be well underway. To its credit, the IRS has been providing more details on FATCA enforcement and in September released a set of frequently asked questions related to FATCA registration.
In summary, if a Virginia business makes payments to foreign entities or foreign financial institutions, they need to determine if a 30 percent withholding applies. Furthermore, individuals need to make sure they are compliant for reporting foreign accounts and financial assets under the FBAR rules as well as the FATCA laws.
Americans abroad are creating difficulties for Homelanders, Homeland banks, foreign banks, the IRS, foreign governments, aliens spouses (who must endure the FBAR Marriage), employers (who must endure IRS bureaucracy), adoption agencies (who must warn of the dangers of adopting U.S. born babies), and more! The time has come to get rid of them. No civilized society deserves this kind of contamination. But there is one exception …
The cross border professionals – (through OVDP, OVDI and Streamlined compliance) – have benefited from the Obama offshore tax attack on Americans abroad. In fact the retirement plan of many a U.S. citizen abroad, will become the retirement plan of many a cross border professional.
But, at the end of the day:
Homelanders presume that “We are all Americans” – as demonstrated by the fact that we all celebrate American thanksgiving – no matter how far from the homeland we may be.
For the millions of Americans living abroad, being far away from home and family on Thanksgiving can be tough.
In some countries, where turkey is hard to find, Americans hosting dinners at home have to specially order the turkey weeks in advance. Without a public holiday, those hosting Thanksgiving at their houses have to rush home from work to throw turkeys into their ovens and wait for them to roast.
Still, Americans all over the world are finding ways to celebrate what they’re thankful for, whether they are alone on a far-flung island, living in an unfamiliar city or stationed at a diplomatic post or an army base.
At the end of the day, Americans abroad are a problem for everybody – all because they left the Homeland. Of course, it won’t be long before U.S. Citizenship abroad ceases to exist!
Epilogue – Added December 3, 2013
Some Americans are more deserving of punishment than others!
Hat tip to Petros at The Isaac Brock Society for his brilliant “Saccharine Bullying” post about the promise by the TD Bank to make the FATCA experience comfortable (to which IRS Compliant responds with an open letter about FATCA to the TD Bank). Petros shows a video demonstrating how popular culture, corrupt authority figures, self-interested groups and by extension “Homelanders” abuse their power.
The bottom line for U.S. Citizens Abroad – see the video at the 2:19 mark
“You know deep down you deserve to be punished don’t you …”
You did after all leave the homeland!
Finally, an answer to the question of:
- #FATCA Alert posted at Democratic Underground (renounceuscitizenship.wordpress.com)
- #FATCA and human freedom – 2011 and 2013 perspectives from @WendyMcElroy1 (renounceuscitizenship.wordpress.com)
- #FATCA – Interesting perspective from New Zealand (renounceuscitizenship.wordpress.com)
- @KiwiV and @Royberg1 explain how Cdn snowbirds can be subject to Cdn Departure Tax and #IRS taxes #FBAR AND #FATCA (renounceuscitizenship.wordpress.com)
- Good interview about #Americansabroad renouncing U.S. citizenship – Linked to #FATCA (renounceuscitizenship.wordpress.com)
- #FATCA – Because the world should support Homelanders (renounceuscitizenship.wordpress.com)
- The #FATCA IGA aka #OVDP for countries (renounceuscitizenship.wordpress.com)
- #Americansabroad Beware of Global #IRS Reach – And Very Long Memory (renounceuscitizenship.wordpress.com)
- #FATCA update from Germany from todundsteuer (renounceuscitizenship.wordpress.com)