TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, July 10, 2014

FATCA: American Expats' Tax Nightmare

Wall Street Journal op-ed:  American Expats' Tax Nightmare, by David Kuenzi (Thun Financial Advisors, Madison, WI): 

FATCAU.S. Treasury officials are trumpeting the fact that more than 77,000 financial institutions have registered with the Internal Revenue Service, as required by the Foreign Account Tax Compliance Act (Fatca), ahead of a July 1 deadline. Fatca requires these institutions to report on the financial holdings of their U.S. clients with the aim of reducing the incidence of off-shore tax evasion by wealthy Americans. Yet officials are less willing to discuss how Fatca worsens the already profoundly unjust tax treatment of millions of middle-class Americans living abroad.

The vast majority of U.S. expatriates living abroad harbor a strong sense of patriotism that includes a willingness shoulder their fair share of the nation's tax burden. Deep resentment arises, however, when they confront the byzantine complexity of preparing a tax return that includes non-U.S. income and non-U.S. financial accounts. Fatca demands rigorous compliance with arcane rules that the IRS has until now never even attempted to enforced on a widespread basis. For Americans abroad, desperately trying to comply, the outcome to family finances is often disastrous. ...

One of the many ironies embedded in this Orwellian tax nightmare is that the complex foreign asset and foreign income reporting rules were not written with Americans abroad in mind. Their original purpose was to discouraging Americans living in the U.S. from using off-shore tax shelters. As originally intended, the rules were a reasonable legislative response to a gaping tax loophole. Applied to Americans living abroad, however, they are absurd.

When a wealthy American living in Chicago moves money to an account in the Cayman Islands or Switzerland the IRS has good reason to be suspicious. Yet there is nothing at all suspicious about an American living in Switzerland opening an account at a Swiss bank to invest in mutual funds. Unfortunately, the U.S. tax code makes no distinction between these two very different scenarios. Both taxpayers are treated by U.S. rules as if their actions indicate an intention to evade U.S. taxation.

When Americans go abroad as businesspersons, scholars or trailing spouses, they typically become highly effective ambassadors of American values. We should accord these Americans the same due process and rights that we accord other Americans and stop implicitly treating them as tax cheats.

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Where's the beef? According to Wikipedia

"U.S. persons owning these foreign accounts or other specified financial assets must report them on a new Form 8938 which is filed with the person's U.S. tax returns if the accounts are generally worth more than US$ 50,000; a higher reporting threshold applies to US persons who are overseas residents and others."

70 Senators voted for this. It is another minor annoyance, like taking off your shoes and charging your tablet before returning to the US. I have elderly clients who are paranoid about the "sky is falling" claims by those who are trying to profit from this kind of shoddy analysis.

Posted by: Bob Kamman | Jul 10, 2014 10:33:10 PM

What that tells me about those 70 senators is that they have absolutely no understanding on how the world operates. It isn't "minor" when an American abroad struggles to find a bank that will accept their money lest they have to worry about the IRS knocking on their doors. That reduces our competitiveness, freedom of movement (which we as Americans value) and frankly, is just ridiculous.

See: or

Posted by: Michael | Jul 11, 2014 5:31:19 AM

Well, no, I won't see that opinion piece from the Murdoch propaganda machine that you offer as support for the latest FATCA opinion piece from the Murdoch propaganda machine because I choose not to support the perversion of a once great newspaper. As for the article that reports a German bank in Belgium is playing hardball -- apparently there are a number of other banking choices for expatriates there because nothing else has appeared on this development. Perhaps there is enough journalistic integrity remaining at the WSJ that we will eventually read an example of an American expatriate there who has been seriously inconvenienced -- at least as much as Americans in their own country who have to jump through Patriot Act hoops and the banking industry's own blacklist when opening an account. (Reuters did a story about an American with two Belgian accounts who still has one after Deutsche closed the other.)

Posted by: Bob Kamman | Jul 11, 2014 2:22:24 PM

From the current Deutsche Bank website:

Deutsche Bank is proactively implementing changes to its current business practices in order to comply with FATCA while best serving its clients and counterparties.

Posted by: Bob Kamman | Jul 11, 2014 2:32:42 PM