One of the benefits of writing a popular tax blog is the mail that one receives. Because of confidentiality concerns, we no longer post comments but we do appreciate emails from readers and comments from those blogs that still allow them (e.g. TaxConnections). For example, last week we wrote two pieces about the impact of FATCA in Canada. That prompted 72 responses and several tragic or ridiculous stories that I categorize as FATCA’s “unintended consequences.”
The tax code and all its supporting regulations and forms is over 70,000 pages. (Even the IRS can’t say exactly how many pages there are.) In the last decade, Forbes magazine says there have been almost 5000 changes to the tax code.
Even with tens of thousands of pages of regulations, forms and instructions, Congress and the IRS can’t conceive of every hardship and unintended consequence that may result from just one new regulation or law.
The comments from last week’s Tax Connections stories are what prompted this post.
Case study one. Elderly woman. Holocaust survivor. Although living in the United States, she still maintains an account in Israel. She relies on her Israeli pension and Holocaust compensation payments to live. Those monies are direct deposited into her offshore account. Her bank won’t let her withdraw any money, however, until she can prove that she has complied with all US foreign reporting laws. (Ironically, she is total compliance but can’t get a compliance letter from the IRS.)
Case study two. (This was sent to us by a reader and originally appeared on Geneva Lunch, a Swiss weekly news service.)
“My husband and I are Swiss citizens who own a small rental apartment in near Geneva, and always had bank accounts in Switzerland which are declared with the US tax authorities. We only have one savings account and one [inidividual retirement] account which we had forever. We happen to live for the moment in Houston Texas. We are not US citizens but have green cards.
“I was informed today by Raiffeisen that they would have to cancel my mortgage and my bank account. They give me 6 months. When I went back to them asking where in the world I can get CHF75,000 – the balance on my mortgage – to repay the mortgage and from what account I should be paying my tax bills in Switzerland, and where should my renter send the rent payment?
“The answer was: we don’t really know. Why don’t you borrow money from a private person as no other bank probably will take your mortgage.
“This is so humiliating and frustrating after having never paid late! Nobody seems to care. I have made calls to the consulate in the US. They are telling me they cannot do anything”.
Whether you blame the bank, FATCA or Congress, the result is the same. On its mission statement page, the IRS claims that it is one of the world’s most efficient tax administrators. Yet a Holocaust survivor in her 80’s has to borrow money because she can’t access her account and a couple may lose their home in Switzerland simply because they happen to hold an American green card.
Unfortunately, we hear or read about stories like this daily. Offshore banks are reluctant to open accounts for Americans. Some are afraid to maintain existing ones while others are afraid to close them. None of it makes much sense. But if you are one of the people affected, it becomes a nightmare.
Part of the uncertainty facing the banks is the lack of answers from the IRS. As we previously reported, the IRS’ own watch dog, the Treasury Inspector General for Tax Administration, says the IRS is not yet equipped for FATCA. Obviously many banks are in the same position.
First, don’t wait until trouble is at your door step. If you are not in IRS compliance, keeping an existing foreign account or opening a new one may be difficult. (It is difficult but not impossible for people who are already in compliance.)
Know your rights and responsibilities if your bank asks you about your IRS compliance history. We know of some Swiss banks that have accepted a letter from a CPA or attorney certifying the depositor is in IRS compliance. Unfortunately, getting proof from the IRS is more complicated.
Think twice before an elderly relative adds you to their foreign account. (There may be other ways to be able to assist aging relatives through a power of attorney instead of creating a “joint” account.)
Finally, explore doing business with banks that have ironed out the FATCA kinks and are working with dual nationals, green card holders and expats.
Unfortunately, stories like these two will continue unto all the kinks are worked out. If you are not already in compliance, seeking a good IRS tax attorney is a great way to start. Going forward, a good expat tax service or CPA should be able to perform any necessary filings but missing FBARs and unreported foreign income warrants hiring a tax lawyer.
With a good attorney, you may be able to avoid most or all of the civil penalties meted out by the IRS for offshore reporting violations. There is an amnesty program presently offered by the IRS and sometimes even better options. Your lawyer might carry more weight with your foreign bank or be able to help secure necessary compliance documentation.
Need more information? Call us. We gladly provide confidential, no-fee initial consultations to help answer your questions and explain your responsibilities. Thereafter, most services can be provided on a reasonable flat fee. We also help foreign financial institutions comply with the new law.
For a free consultation, contact one of our experienced FBAR lawyers today: Attorney Bethany Canfield at or by phone at (414) 223-0464. The author, Brian Mahany, can also be contacted at or (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and will be answered within 1 business day. (We also have hundreds of text searchable posts on our Due Diligence blog.)
Mahany & Ertl – America’s FBAR and Foreign Reporting Attorneys. Services provided worldwide.