TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

Wednesday, December 17, 2014

Why Does Uncle Sam Hate American Expats?

Wall Street Journal op-ed:  Why Does Uncle Sam Hate American Expats?, by Neil Gandal (Tel Aviv University, Department of Economics):

FATCAIt’s not easy to be an American living abroad these days, and some are even giving up U.S. citizenship. The reason is ill-considered legislation most people never heard of: the Foreign Account Tax Compliance Act.

Here’s the background: The number of Americans living abroad increased from 70,000 in 1966 to between three million and four million in 1996 and more than seven million today, according to several estimates. There are many reasons Americans have moved, including the globalization of the economy and increased cross-border migration generally.

The U.S. is the only developed country in the world that requires citizens who live abroad to file tax returns. This is so complicated that it is virtually impossible to do without an accountant, and that can cost more than $1,000 a year, even for very simple tax returns.

But that’s only the beginning. There are additional reporting requirements for Americans who live abroad. The FBAR (Foreign Bank Account Report) requires holders of foreign financial accounts to report detailed information about all such accounts each year. It can take many days to obtain and compile the information and then prepare the form.

The Foreign Account Tax Compliance Act of 2010 made matters worse. Fatca compliance costs for foreign banks are so high that many banks have closed the accounts of Americans living abroad. Joining the ranks of the “unbanked” is becoming the straw that breaks the camel’s back. The Economist has reported that approximately 3,000 expats gave up their U.S. citizenship or green cards in 2013; prior to Fatca it was only a few hundred a year. A recent survey by the deVere Group suggests that a large majority may have done so because of the law. ...

Fatca was passed without any consideration of costs or benefits. Congress’s Joint Tax Committeeestimated that it would raise approximately $8.5 billion over a 10-year period. But data from Australia and the U.K. indicate that compliance costs for foreign financial institutions world-wide could reach $200 billion. And that doesn’t take into account what it costs U.S. citizens to comply with the law.

It’s time for Congress to carefully analyze Fatca and repeal the law if the costs outweigh the benefits. In any case, Fatca should be immediately modified to ensure that Americans abroad do not face the dilemma of either giving up their U.S. citizenship or not having modern banking services.

http://taxprof.typepad.com/taxprof_blog/2014/12/why-does-uncle-sam-hate-american-expats.html

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Comments

No civilized country should require their citizens to file tax returns from abroad as if they're servants who mus report to the king. Like you mentioned, ONLY the U.S. does it. It's wrong, and congress and the POTUS need to put an end to this practice.

Posted by: American Abroad | Dec 17, 2014 6:38:52 AM

So, "more than seven million" Americans live and work abroad today, and 3,000 gave up their citizenship. That's one half of one tenth of one percent of Americans living abroad. Sounds like an epidemic! Quick, cancel all taxes!

Posted by: Unemployed Northeastern | Dec 17, 2014 6:49:04 AM

Sorry, I meant to write "less than one half of one tenth of one percent." Didn't mean to overstate the severity of this calamity.

Posted by: Unemployed Northeastern | Dec 17, 2014 6:50:49 AM

I live in El Salvador and my experience is different. The first $86,000 you make outside the US is income tax free, you just pay SS and Medicare. Also at least in a 3rd world country you probably don't want to us a local bank. If you are a victim of identity theft, you lose your money while if you use a US bank they cover the loss. It costs more in transaction fees but in the 11 years we have lived here we have had identity theft 3 times on our debit card, a total of $7,000 and Wells Fargo covered it all. So my experience hasn't been that bad.

Posted by: wally cook | Dec 17, 2014 7:03:27 AM

After all, people like "Unemployed Northeastern" deserve their share of as much tax as the Federal Government can raise, by all means possible.

Posted by: CptNerd | Dec 17, 2014 7:25:19 AM

The POTUS is not going to put an end to this practice - it was one of his major tax initiatives going back to the 2008 election. FATCA is his baby. The last chance to repeal it was to elect Romney in 2012, which he would have done not to help expats but to avoid the adverse impact on US investment. Anyway, the current POTUS is still very popular in the rest of the world, so those outside the US should not be complaining.

Posted by: Arthur | Dec 17, 2014 7:33:52 AM

"Fatca was passed without any consideration of costs or benefits."

In this respect, at least, this law was quite unremarkable.

Posted by: Vader | Dec 17, 2014 7:47:36 AM

The US is not the only nation in the world that requires its non-resident citizens to file income taxes. But it is the only nation that has no exceptions to that requirement. Other nations recognize certain circumstances, such as "absent for over 183 days" or some suich, as a dividing line between who must file and who is exempt from filing.

On the flip side, citizens of those nations who exempt themselves from filing also lose their eligibility for the Social Insurance and/or National Health program benefits that those nations offer. US citizens, on the other hand, are always eligible for Social Security, Medicare and other social benefits. (Whether you like or agree with those programs or not is a separate argument; but you do retain your eligibility for them.)

Posted by: Steve S. | Dec 17, 2014 7:49:11 AM

so now the cost of a return is the driving force behind the need to change the evil US taxing all its citizens. we then should also decry the fees H&R Block charge to regular citizens that file simple w2's returns. I have prepared a number of international returns; I did not find them particularly onerous, but I clearly should have charged more. The FBAR is a straight-forward form as well. These people moaning about filling in account numbers, addresses, and balances must run screaming when it comes to balancing a checkbook. I am going to rank these complaints up there with the HLS students complaining about injustices and exam schedules. Living abroad does not just happen to you. If your work is transferring you to an international location, factor the cost of US tax compliance into your salary negotiations. I am sure most international companies will easily up your pay by $1k to cover the expense.

Posted by: Daniel | Dec 17, 2014 8:17:11 AM

FATCA - passed by a Democratic Congress and signed into law by President Obama. For all you expats out there - and you do have my full sympathy about this BS law - elections have consequences.

Posted by: Kevin P. | Dec 17, 2014 8:35:30 AM

Maybe El Salvador is different, but employers in other countries want to pay in local currency to a local bank. And the bills you pay, too.

Exclusion already means not as much tax is paid. Unemployed Northeasterner of course doesn't spend 10 seconds of thought on why that is so.

Its because other countries also have taxation. So the ex-pat is double taxed. Thus the exclusion.

Posted by: Harun | Dec 17, 2014 8:43:33 AM


Back in the 80's the foreign earned income exclusion was over $90,000. It seems that we are going backward in encouraging U.S. citizens to engage the world outside our borders. The drug war and the war on terror combined with the insatiable statist desire to milk the serfs for all that they are worth has resuled in this outrageous loss of financial freedom. Even folks like unemployed northeastern, assuming they had marketable skills, could have enriched their lives and their net worth by finding employement opportunities overseas. But these opportunities are being shutdown by our elites who firmly believe, "All within the state, nothing outside the state, nothing against the state - (Benito Obama)"

PS the auto ad refresh wipes out any post in progress. So construct lengthy messages in an external editor.

Posted by: ExExpat | Dec 17, 2014 10:41:03 AM

The 3,000 number only represents people subject to the U.S. exit tax which is any individual who had a net worth of $2 million or an average income tax liability of $139,000 for the five previous years.

The actual number is much higher and most are just trying to drop off the radar.

Posted by: Stateless | Dec 17, 2014 11:23:49 AM

National Socialist Germany had an exit tax for wealthy Jews, too. National Socialist America is marching back to the 1930s.

Posted by: Micha Elyi | Dec 17, 2014 12:16:18 PM

" Even folks like unemployed northeastern, assuming they had marketable skills"

Nope, I'm just an attorney.

Posted by: Unemployed Northeastern | Dec 17, 2014 12:37:00 PM

Some of the commentators do not get the point that FATCA is requiring every bank in the world to report to the IRS, either directly or indirectly through the local tax authority, as to whether it has US citizens as account holders. Many foreign banks are just saying, "no Americans" in order to avoid the incredible costs of compliance. If one lives in a foreign country, just as in the US, it is rather hard to have a normal life without a bank account.

Posted by: TexEcon | Dec 17, 2014 1:07:25 PM

This is also a problem for temporary resident or permanent resident immigrants inside the US (they too must file dual tax returns which is extremely difficult and they too have bank accounts outside the USA), and all residents of the US (including citizens) with foreign bank accounts (such as people with vacation homes outside the country), they too must comply with the onerous requirements of FATCA.

Posted by: scf | Dec 17, 2014 1:32:10 PM

One consequence of FATCA is that an individual who is assigned by his company to work in the US temporarily, even for just a week, is required to disclose all of his financial assets to the US government.

Or any individual who immigrates to the US must disclose all of his financial assets to the US government.

Not exactly a welcome mat.

On the other hand, if you're an illegal, then you have no worries.

Posted by: scf | Dec 17, 2014 1:43:19 PM

As an Expat who spends half his time outside the U.S. I can understand and sympathize with those that desire to use bank accounts located in the country in which they are residing. However, to complain about how unfair and illogical this rule is misses the point that the whole U.S. tax system is a disastrous Frankenstein monster of a system. How many pages composes this mess. Even the IRS will not take responsibility for interpreting it and Americans are forced to support a entire industry of bookkeepers and accountants just to file their annual income taxes. The entire system needs an overhaul and I'm sure we can look forward to that in the near future....you bet.

Posted by: Walt Kisner | Dec 17, 2014 11:26:59 PM

It was Reagan who said that if someone was evading taxes -- that increased the taxes that you and I were paying. That is the whole point of FATCA – to levy taxes on those who would evade taxes by having offshore accounts. It is not targeted towards the middle class workers who have jobs abroad; there are exemptions. It is targeted at the rich who have offshore accounts that are not being reported to the IRS. Also, in my experience, expatriates are sophisticated enough to handle the additional paperwork required by FATCA and, by and large, foreign financial institutions (FFIs in FATCA parlance) are stepping up their compliance departments, hiring people with FATCA experience, so as to comply with these requirements. But the application of FATCA needs to be fine tuned – there appears to be no need to target those with tenuous connection to the United States although legally American citizens. Finally, those who throw the word “statist” and “serfs” already have a significantly dated (and tenuous) connection with modern life. If anything, we are developing into serfs of the one percent. From what I understand of the Koch ideology, they’re perfectly happy with that. I am not and I think Washington and Jefferson would not, either.

Posted by: Uxorius | Dec 18, 2014 5:48:00 AM