TREASURY DEPARTMENT SLAMS THE DOOR ON SAME COUNTRY EXEMPTION FOR AMERICANS ABROAD
ACA is disappointed that Treasury Department did not adopt ACA’s approach to correcting the problem of foreign financial account lock-out by adopting Same Country Exemption (SCE) for FATCA reporting. ACA worked on its proposal for over two years. It gathered support from a number of other groups. It met with and otherwise communicated with the Treasury Department on several occasions, most recently a little over two months ago.
In denying the request for SCE, the Treasury Department’s final FATCA regulations focused solely on the risk of US tax avoidance. “The Treasury Department and the IRS have also decided that the risk of U.S. tax avoidance by a U.S. taxpayer holding an account with an FFI exists regardless of whether the U.S. taxpayer holds an account in his or her foreign country of residence or another foreign country.” The regulations say nothing about the problem of lock-out. They fix only on the unquantified and un-weighted risk that what must be a relatively small population of US taxpayers residing in a foreign country and banking at their local bank might evade US tax. The regulations do not say whether, and, if so, to what extent, Treasury Department took into consideration the widely-admitted fact that FATCA continues to put the community of 8 million Americans overseas at risk of lock-out from access to financial accounts needed for the management of basic living expenses (paying bills, paying rent, receiving paychecks).
The problem of foreign financial account lock-out exists, and it has been proven that the FATCA rules are one of the root causes. The Congressional Americans Abroad Caucus, the National Taxpayer Advocate, and ACA, as well as other overseas organizations, have testified to the existence of the problem and have asked for redress by the adoption of SCE. ACA believes that Treasury Department either missed the point or failed reasonably to balance the considerations.
ACA will continue to advocate for insertion of SCE in the FATCA regulations with the Treasury Department, as new assignments are made with the in-coming Administration and the regulations are revisited. ACA will also work with the new Congress and, in particular, the Americans Abroad Caucus to address the problem, recommending that a legislative proposal be enacted. Lastly, the absence of a lock-out "fix", ACA believes, should strongly favor enactment of Residency-Based Taxation as part of the first wave of tax reform. Shortly ACA will be posting their response to the Treasury Department’s refusal to include SCE in final regulations. Please check the ACA website, www.americansabroad.org, for updates on this and other ACA communications.