We have long warned of the unintended consequences of America’s FATCA law (the Foreign Account Tax Compliance Act). The problems inherent in the law are many while the anticipated benefits are few. Although the law will doubtless bring in more revenue, the costs to banks and the public are huge and simply increasing public awareness could generate much of that same revenue. More on that below.
For those unfamiliar with the law, FATCA requires both taxpayers and foreign financial institutions to report accounts with ties to American taxpayers. Owning a foreign account or even having signature authority over one could trigger reporting requirements.
Under the Bank Secrecy Act, taxpayers have long been required to report foreign financial assets. Reporting is done both on Schedule B of the individual income tax return and by filing an FBAR form. (FBAR is the acronym for a Report of Foreign Bank and Financial Accounts.)
FATCA was designed to supplement existing IRS foreign reporting laws by making foreign banks and hedge funds the eyes and ears of the IRS. While the concept sounds great, many have questioned the cost and paperwork required by the new law.
As we have reported many times, one of the prime unintended consequences of the new law is the mass closure of accounts belonging to Americans. Many foreign banks simply don’t want the hassle or the liability and are telling Americans to bank elsewhere.
Remember that millions of Americans live and retire overseas. Millions more are dual nationals or have business interests overseas. For those folks, a foreign account is really a “local” account and is a necessity. Faced with the looming 2014 FATCA implementation date, many foreign banks have already closed accounts belonging to Americans.
Terrorism is another concern. Americans are not well liked in all places today. Do we want wealthy Americans living in Syria identified? If you were living in Iran, would you want locals to know that you had ties to the U.S.? (See our post from March 2012 titled Does The New FATCA Law Help Foreign Dictators?
As the U.S. gears up for FATCA, many foreign governments are asking for reciprocity. They want American banks to report to them who in their country have money in the U.S. We tend to label certain countries such as Switzerland, Liechtenstein or the Cayman Islands as “tax havens” but one of the biggest tax havens worldwide is the United States! As more governments ask for reciprocity, it may soon lead to foreigners pulling capital from U.S. banks.
A recent article in the Atlantic identifies another unintended consequence of FATCA. The author of that article says that some companies have stopped hiring American managers because simply having signature authority over a foreign account triggers FATCA reporting.
The Atlantic article claims that FATCA disproportionally hurts middle class Americans. We agree.
Most of our clients are not Americans trying to evade taxes or hide money from Uncle Sam. They are dual nationals, foreign-born Americans, resident aliens (“green card” holders), American expats who have retired overseas, American business owners with offshore business locations, and adults who have done nothing more than obtain signature authority over Mom & Dad’s accounts in the “old country” to help pay the bills of their aging parents. For all these folks, compliance is simply a matter of better outreach and education.
Both the General Accounting Office and the IRS’ own National Taxpayer Advocate say the IRS has done a miserable job in educating people on the necessity of reporting their foreign accounts. If our government is serious about getting taxpayers to report offshore accounts, a little education would go a long way and result in far fewer unintended consequences.
That’s our opinion on FATCA. If you have your own stories of unintended consequences, drop us a line and we will gladly print your story (without your name, of course.)
Have an unreported account or questions about FATCA or FBARs? We can help. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in complete confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax related services available worldwide.
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Written by Brian Mahany, Esq.