Thursday, July 10, 2014
Wall Street Journal op-ed: American Expats' Tax Nightmare, by David Kuenzi (Thun Financial Advisors, Madison, WI):
U.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.