Financial Problems for US Expats from FATCA Implementation 

In the rush to implement and follow through with its plans to increase its tax nets, the United States government is on an all out war against instances of tax evasion. In the process, US expats around the world are grinding their teeth in frustration as their banks keep calling them over and over again asking them to file their taxes. The group most affected by this new trend in the IRS to hound out people who aren’t paying taxes is accidental Americans.

As an American, you’re expected to pay all your taxes irrespective of whether you live in the United States or not. This is a direct application of the US government’s policy to tax US citizens wherever they may live and not just the residents. This means that if you’re born to parents in the US or were born in the US and left—you need to pay taxes even if you haven’t lived in the US for the past twenty-five years. 

These tax problems weren’t a huge deal back in the day but, since 2019, hundreds of thousands of American citizens are renouncing their citizenship just to be rid of the IRS. This problem finds its roots in FATCA and laws where you have to file an accounting report that clarifies your foreign financial assets call FBAR. Every day I hear new stories and more clients come to me saying that their banks have sent them notices asking them for social security numbers and telling them to file their taxes—it’s seems like the US is not taking any prisoners this time around. 

The Foreign Account and Tax Compliance Act (FATCA) is an overreaching and downright oppressive law that’s affecting foreign financial institutions and US citizens living abroad. According to FATCA, all US expats are required to declare their financial assets and the taxes paid on these assets to the US government and the IRS. This requires you to file the FBAR, a form where you can declare all of your foreign assets and a bunch of other forms that if you’re running a business in an offshore location. 

If you don’t comply with FATCA regulations, the IRS can fine you hundreds of thousands of dollars or amounts equivalent to all the funds in the account. While that’s a pain in itself, the FATCA also forces all foreign banks and financial institutions to tell the US government if they are serving US citizens. If the bank doesn’t disclose this information, the IRS reserves the right to withhold up to 30% of all the transactions originating from the United States through the bank. 

Banks aren’t willing to stand up to these problems and are asking all Americans for their social security numbers and sending them notices to file their taxes. Any American, whether they’ve lived in the US ever or not, are supposed to submit their social security numbers to the banks or the bank will not serve them. This is great and all, except someone who’s never lived in the US can’t have a social security number— but the banks don’t care, they just look at the documentation and straight up as for one.

Current estimates of the number of US expats are around 2.2 million–6.8 million people. Many of them have never even lived in the United States and are American citizens only because one or both their parents were US citizens. Naturally, a lot of them have no idea of their tax obligations and even fewer have tax attorneys who could tell them of these obligations. Assuming they even want to keep up with their tax liabilities—none of them probably know how to file taxes in the US. 

This brings me to some very interesting stories that I came across the other day. It’s another case of accidental Americans caught between the crossfire as the US tightens its tax nets. 

When people started noticing the number of expats renouncing their US citizenship, many news outlets began to investigate. This one report describes two different incidents about the financial problems faced by accidental Americans, where neither one had ever lived in the US. 

Kevin Earl of Manchester, England has lived in the UK for the past 53-years. He was born to UK nationals in the Nashville, Tennessee and has an American birth certificate. He’d moved to the UK with his parents when he was just a year old and has lived there ever since then. Things were going smoothly for him, until one day his bank asked him for his social security number. Now imagine Kevin’s surprise, why would he even need an American social security number and how would he even get one if he’s lived in the United Kingdom for virtually all his life? 

The answer to that question can only be found down a very difficult and tedious path. He needs to submit tons of documentation to get his social security number and then file his taxes. There’s no telling how much legal trouble he might be in if he doesn’t file his taxes and returns to the US for whichever reason—he could face up to five years in jail. 

The other story is of this guy named Xavier who had to travel to the American embassy in Paris, 300-miles away from his home to get a social security number. The guy moved to France back in 1965 and is still waiting around to get his number—which is a pain because they keep asking him for more proof of identity than he can provide at the moment. Imagine this, the IRS says you’re American, but the embassy denies it. 

For this reason, all US expats must hire a tax attorney who can inform them of their tax liabilities and help out with any other documentation. These people know the tax system back to front and can even help minimize your tax liabilities. Trust me, you don’t want to try filing your taxes yourselves nor do you want to be caught by the IRS when they come knocking because they can effectively block you out from the entire global financial system through FATCA.

Source: https://www.escapeartist.com/blog/financial-problems-for-us-expats-from-fatca-implementation