From shipping to staffing, the Chamber and its partners have the tools to save your business money and the solutions to help you run it more efficiently. Join the U.S. Chamber of Commerce today to start saving.
Here’s a hot tip for accountants and tax attorneys: now is a good time to develop specialized expertise in advising clients who may be seeking to expatriate from the United States. That demographic looks more and more like a real growth opportunity.
That’s one potential lesson we can draw from recent years’ explosion of U.S. citizens living and working overseas who are now renouncing their citizenship. In the first six months of 2014, 1,577 Americans decided to expatriate; last year, nearly 3,000 called it quits, a record high number. In the last five years, a total of about 9,000 Americans surrendered their citizenship, according to a survey of federal data compiled by Bloomberg.
Why are so many Americans heading for the exits? Blame it on the Foreign Account Tax Compliance Act (FATCA), a new law targeting Americans who conceal financial holdings in offshore accounts. By requiring foreign financial institutions to provide to the Internal Revenue Service (IRS) detailed information on accounts held by U.S. citizens, FATCA was ostensibly intended to curtail tax evasion.
But in reality, the law has been rife with unintended consequences, as foreign banks and financial institutions have begun to decline doing business with American citizens, for fear of falling afoul of U.S. tax authorities. Some U.S. citizens have received notice that their long-standing accounts with overseas financial institutions are being summarily closed.
Unable to open up basic checking and savings accounts, while at the same time facing onerous reporting requirements and penalties, many are making the difficult decision to hand over their U.S. passports.
“It’s not just the super-rich doing it,” David McKeegan of Hong Kong-based Greenback Expat Tax Services says in Forbes. “We’re talking average, middle-class people, people teaching English as a second language and doing freelance jobs making $30,000–50,000 a year, simply because of the fact that they can’t open locked bank accounts.”
Investment advisor David Kuensi of Thun Financial Advisors laid out a detailed brief against FATCA in a July 10 Wall Street Journal op-ed. He describes the law as “an Orwellian tax nightmare” for U.S. citizens living and working overseas.
“The vast majority of U.S. expatriates living abroad harbor a strong sense of patriotism that includes a willingness to shoulder their fair share of the nation’s tax burden,” Kuenzi writes. “Deep resentment arises, however, when they confront the byzantine complexity of preparing a tax return that includes non-U.S. income and non-U.S. financial accounts. FATCA demands rigorous compliance with arcane rules that the IRS has until now never even attempted to enforce on a widespread basis. For Americans abroad, desperately trying to comply, the outcome to family finances is often disastrous.”
A Case Study in Poor Tax Policy
FATCA, passed in 2010 but only taking effect on July 1 after numerous launch delays, has emerged as a case study in poor tax policy. As is par for the course in today’s Washington, the law was enacted with little debate or attention to detail, and with little thought given to how it would work.
As a result, the implementation has been shoddy, marked by serial delays, technological glitches and changes of course. And FATCA’s targets haven’t been wealthy scofflaws, as promised, so much as Americans living and working overseas, who are now caught up in a global dragnet of arbitrary enforcement, onerous reporting requirements and endless complexity.
This year alone, the IRS has announced it would delay enforcement for financial institutions that make a “good faith effort” to comply and relaxed some penalties against individual taxpayers. But these ad hoc revisions, apparently intended to provide financial institutions and taxpayers some breathing room, seem to only be fueling further uncertainty and anxiety, since they make enforcement increasingly subjective.
It’s not as if the Treasury Department has only suddenly become aware of the troubles the law poses for ordinary taxpayers. In a report issued at the beginning of the year, the IRS Office of the Taxpayer Advocate listed FATCA implementation among the agency’s “Most Serious Problems.” They noted that poor design and implementation mean the law has the “potential to be burdensome, overly broad and detrimental to taxpayer rights.”
Sparking a Revolt
Meanwhile, the revolt against FATCA’s intrusions continues to grow. Members of Congress and legal experts raise critical questions about the IRS’s authority to forge and implement intergovernmental agreements for the law’s enforcement. North of the border, a group of Canadian citizens affected by the law have filed suit in federal court charging that their country’s agreement with the IRS to hand over FATCA information is unconstitutional.
And according to a recent poll by the financial advisory firm De Vere International, nearly 80% of Americans living and working overseas are considering giving up their U.S. citizenship, thanks to the climate of mistrust engendered by FATCA.
"Some told us that they felt they were now under suspicion by the IRS, even though there was no question of any wrongdoing or having any taxes owing,” De Vere CEO Nigel Green says.