American Citizens Abroad (ACA) submitted comments to Treasury and the IRS in June, 20120 with regard to the regulations now being drafted concerning the implementation of the Foreign Account Tax Compliance Act (FATCA) legislation that was imbedded in the HIRE legislation signed into law on March 18, 2010.
ACA pointed out how FATCA legislation will have a severe negative impact on the community of Americans residing abroad, largely denying them access to banking facilities overseas – facilities which they absolutely need to function in a modern society. Click here to see the full 13-page letter sent by ACA to Treasury.
FATCA aims to go after tax evaders by requiring massive reporting to the IRS on two fronts – first from all foreign financial institutions taken in the largest sense of the term and secondly from all U.S. persons who have a foreign bank account, foreign investments or foreign trust. This means that all U.S. citizens residing abroad, who necessarily have a foreign bank account, will have to report on their 1040 all assets held in foreign institutions. Imagine how U.S. citizens residing in the United States would react if they had to report all of their domestically held assets on their 1040. The U.S. Congress has created a reporting monster with FATCA. It will cost billions of dollars for foreign financial institutions to comply and it will significantly increase the reporting compliance costs of individual U.S. citizens residing abroad. Worst yet, as the ACA letter outlines, FATCA will create a two-tier banking system worldwide – one which is “qualified”, including those foreign financial institutions which enter into agreement with the IRS to undertake the reporting, and one which is “non-qualified”, including those foreign financial institutions which decide not to enter into agreement with the IRS. Since the legislation carries 30% withholding taxes on U.S. source income transferred to “non-qualified” foreign financial institutions, this group of “non-qualified” institutions will stop investing in the United States.
The ACA letter reports that the community of U.S. citizens residing abroad is absolutely enraged by the FATCA legislation, not only because of the compliance costs and discrimination, but also because the law de facto treats them like criminals, simply because they reside overseas, and works in conjunction with the U.S. citizenship-based taxation to subject U.S. citizens residing abroad to unfair double taxation. The United States is unique with its citizenship-based taxation which systematically penalizes U.S. citizens residing abroad. The ACA letter calls for the abolition of U.S. citizenship-based taxation as well as the exclusion of U.S. citizens who are long-term overseas residents from FATCA reporting so as to allow foreign banks to maintain banking relationships with the community of U.S. citizens abroad. .
Kenny Lau of the American Chamber of Commerce in Hong Kong has written a detailed article (pages 12-15 of the May 2010 issue of BIZ.HK) on the implications of these new FATCA reporting requirements.