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FATCA: Five Years Later

FATCA: Five Years Later

It’s been five years since the Foreign Account Tax Compliance Act (FATCA) became law and while the intentions were good – to crack down on those hiding money offshore and avoiding taxes, compliance comes at a price for individuals and corporations.

"The upside of FATCA is that it is forcing tax cheats out of the shadows and keeping more money in the U.S. But for those living abroad, we have yet to see a positive impact from FATCA.," says David McKeegan, founder of Greenback Expat Tax Services, which prepares U.S. federal tax returns and consulting for Americans living abroad.

The applause pretty much stops there.

"FATCA has brought many nuances to U.S. citizens, green card holders, as well as corporations," says David Hryck, a partner, specializing in taxes with the law firm of Reed Smith.

U.S. individuals who have foreign accounts have always been required by law to report them and pay tax on the income. However, some people didn’t comply and foreign banks were not required to report the accounts to the IRS. Now, the foreign banks will report accounts of U.S. persons to the IRS, forcing U.S. accountholders to report their foreign accounts or face possible prosecution, explains Warren Whittaker, a partner in the law firm of Day Pitney, who specializes in international estate planning and related income tax, corporate and personal financial planning.

ZM Ishmurzina, partner at Artio Partners, a CPA firm specializing in expat tax consulting and preparation for U.S. expats and foreign nationals, says FATCA has had a negative impact on many of the firm’s clients. "FATCA violates the privacy rights of an individual by requiring foreign financial institutions report the values of accounts owned by U.S. persons. Secondly, U.S. taxpayers might be subject to substantial fines and penalties for failure to report their foreign financial accounts. Consequently, FATCA violates several Amendments."

The landscape has changed dramatically for Americans banking overseas, especially those living abroad.

The landscape has changed dramatically for Americans banking overseas, especially those living abroad. "Expats have had their account summarily closed without warning, and those who seek to open new accounts are being turned down. The problem is more common with smaller banks that don’t have the financial resources to comply with the extensive filing requirements of FATCA. It can be a hassle for U.S. residents to find an international bank or investment broker who will work with them," says McKeegan. There are some reports that some investment options are no longer sold to Americans.

Frankly put, "It has gotten extremely difficult for American expats to operate day to day with their banking abroad. People are upset about this, because it has complicated their lives and their hands are tied in this regard," says Vincenzo Villamena, managing partner of the CPA firm Online Taxman, which specializes in tax preparation for entrepreneurs and U.S. expats.

It’s not just individuals facing burdensome challenges, but companies as well. "Corporations with accounts at foreign financial institutions will find themselves having to answer more questions about their corporate structure, and if they have ownership by U.S. persons, they will have to provide additional information, including details on individuals holding more than 10% ownership," says John Atkinson, director, Protiviti.

Some of the biggest issues for financial institutions have been around gaining sufficient understanding of the complex FATCA rules in order to structure a compliance program that meets all requirements in a cost-effective way and keeps the institution out of hot water with the IRS, he adds.

Foreign corporations have the mother of all migraines because of the recordkeeping, reporting and compliance requirements that must be in place in order to avoid withholdings on U.S. interest, dividends and gains that may be payable to the foreign financial institution.

"Foreign companies doing business in the U.S. will have to declare what type of entity they are on a complicated new form W8BEN-E. I have received many inquiries regarding this form. Sometime it’s easy to fill out, sometimes complex, depending on the type of company, but it puts companies in a compromising position where they have to wait for payments until they are ‘FATCA approved’, " says Villamena.

What’s next?

The Organization of Economic Cooperation and Development in July of last year released a Standard for Automatic Exchange of Financial Account Information in Tax Matters, including a Common Reporting Standard (CRS). The CRS seeks to establish the automatic exchange of tax information as the new global standard. The automatic exchange of information involves the systematic and periodic transmission of "bulk" taxpayer information from the country which is the source of payment to the taxpayer’s country of residence.

"This is important, because while there were some regions of the world, prior to FATCA, that exchanged information resulting in tax revenue generation, then the U.S. introduced FATCA to increase tax revenue generation. Now, the OECD’s CRS will help facilitate many countries in their journey to increasing tax revenue generation. The end result of all these tax revenue generation activities will lend itself to a more globalized tax world," points out Laurie Gentz, head of compliance, BAE Systems Applied Intelligence.

Five years into FATCA and the transition is far from over. Says Atkinson, "FATCA requirements for financial institutions go into effect over a multi-year period, and there are still additional requirements and obligations with effective dates coming up over the next few years. We haven’t yet seen the full implementation of all of the FATCA requirements."

Edit 4/6/15: Addition made to McKeegan's quote as requested.

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Anonymous   |     |   Comment #1
If there hadn't been so much tax cheating then there would not have been a need for such laws and policies.  I hate paying taxes but we all have to pay our fair share--if someone can cheat and not pay their's then that makes me pay more.  Tough problem---
Realist   |     |   Comment #7
Sounds logical, until you realize that those you call 'cheaters' neither live nor earn in your country, while paying full taxes in the country where they actually live and earn.

The cheese (USA) stands alone.  It is time to get with international norms - tax people who LIVE IN THE USA, not those who do not. Seriously it is that easy - the rest of the world gets this. What is wrong with the USA?
Anonymous   |     |   Comment #37
We have to pay to support all the illegal criminals. What is wrong with the USA is OBAMA!!
Anonymous   |     |   Comment #38
America has required its expatriate citizens to pay taxes on overseas income for decades now. This was, in fact, the law before Obama was even born.
Anonymous   |     |   Comment #28
The problem with FATCA is it does NOTHING to recover back taxes.  NOTHING, ZIP, NADA. I would support it 100% if it recovered back taxes... it doesn't do that at all.  All it does is establish a tax compliance trap that authorizes the IRS to seize your assets regardless of whether you paid your taxes or not. 
Anonymous   |     |   Comment #2
We all have to pay more taxes to make up for the loss when others cheat and don't pay their fair share of taxes.  On the other hand we all pay more regardless.  The more the government collects in in taxes, the more they spend.  This applies to both political parties.  Pork barrel projects and lavish lifestyles of our politicians is outrages. 
Loser   |     |   Comment #9
Actually, people like me, who neither live nor earn in the USA, have to make up for the cheaters that live in YOUR country.
Anonymous   |     |   Comment #3
Boo Hoo. The law is to prevent tax cheats from hiding wealth. Read the facts about what's required. This only affects the truly wealthy who act deliberately to deceive.
Dreamer   |     |   Comment #4
 BOO HOO USA cannot figure out how to finance its debts for itself without pillaging from those it thinks it should have some property rights in who LIVE AND EARN OUTSIIDE USA!.   

 Most of those hit by FATCA, do not even live in the USA.  They are predominantly middle income, and are citizens of the countries they live in and earn in and pay taxes to already.

FATCA simply put is mob enforcement of immoral "citizenship based" taxation, where "citizenship" is a polite way of saying, "I own your butt!".
Anonymous   |     |   Comment #24
If you don't like it, renounce you USA citizenship and you won't be bound by the USA Federal Tax Code.  Just another whiner that wants the benefits of a USA citizenship without the tax burden.
Anonymous   |     |   Comment #29
I haven't lived in the USA for 20 years.  Aside from the passport (which in many countries results in me having a bullseye on my back), can you explain what benefits of citizenship that I get?  
Dreamer   |     |   Comment #30
USA won't let me go without it costing  an arm and leg, otherwise I would happily rip off the shackles.
Anonymous   |     |   Comment #21
Complete nonsense! The biggest tax cheats are US citizens who live IN the US and have placed their wealth in overseas accounts to avoid taxation. FATCA and citizenship-based taxation treats all non-compliant taxpayers as criminals, those who don't live in the US, don't get anything from the US, don't cost the US anything and don't ask the US for anything. The US should tax its taxpayers on the basis of residence not citizenship. You obviously have no idea of the implications and consequences FATCA has on overseas Amnericans. It is you who needs to get straight with the facts, come down from your ivory tower and face the facts.
Dreamer   |     |   Comment #5
FATCA goes after people like me, who do not live in the USA, nor earn nor receive any benefits from the USA.

FATCA has revealed USA's dirty little secret that most Americans have never heard of called...ssshhhhh, 'CITIZENSHIP BASED TAXATION', where the word citizen can mean anything USA wants it to mean.  Apparently I am one, even though my parents are both Canadian born, and I left USA before I could speak.  

Although I am an egregious case, many others left USA as adults, and had no clue that they were still considered US taxpayers regardless that they had no US sourced income - why would they? It is counter-intuitive. No other countries treat those who leave as eternal slaves - the cheese (USA stands truly alone!).
Anonymous   |     |   Comment #8
When my husband was offered a job on the Saudi pipeline in the late 60's or early 70's, $60,000 was tax free. I am not sure of the year, only know it was before 1973 because of the house we lived in at the time. 
Anonymous   |     |   Comment #6
USA, keep your stinking citizenship (really should be called tax slavery) away from my children. I say this as one who was so stupid (retrospect) as to have married a US citizen (who will vehemently deny this "citizenship" today) who passed that infection along to my kids (according to US law).
Worry about your own residents, and leave us alone. Sheesh!
JC Double Taxed
JC Double Taxed   |     |   Comment #10
America is a Big FATCA LiarAmerica is, at best, a hypocrite — asking for information on their citizens without informing in return—and at worst, a bully, forcing others to do what they have no intention of doing themselves.

JC Double Taxed
JC Double Taxed   |     |   Comment #11
FATCA is unconstitutional, so says www.FATCALegalAction.com

If you live overseas, you get $0 in US services yet the US wants to tax you and report all your everyday accounts as if you are a US person with accounts in the Cayman Islands with intent of tax evasion.  A principal of taxation is services in exchange for the tax. In regards to US persons living overseas, America has forgot the principals upon which is was founded.

Double Taxation without Representation, with Excessive Compliance, with Excessive Compliance Penalties, and with $0 in US government services in exchange for all the above is TYRANNY!

Any US persons living overseas caught up in the US taxation and compliance discrimination must visit the message boards of The Isaac Brock Society: http://isaacbrocksociety.ca/
Anonymous   |     |   Comment #12
If I hear the phrase "fair share" one more time I think I will scream. Nothing is fair about that is happening to expats worldwide. And these are millions of people.
moneysaver   |     |   Comment #13
I'm not sure about everyone else offering comments here, but I personally have lived overseas for almost the past decade. And, as an American, I can still open bank accounts in the Asian country where I live, with little more complication than when I first moved abroad. And I keep up with these issues, not just for the country where I live, but affecting expats in general.

Overall, I think some of the stories/reports in the article/post about Americans having their foreign bank accounts summarily closed abroad, because of FATCA, are somewhat overblown and certainly not widespread. It has happened, to some folks in some European countries from everything I've been able to read on the subject, but certainly not broadly to U.S. expats around the world.

Something that isn't mentioned at all in the OP post here is that alot of foreign countries, including the one where I live, have reached tax info sharing agreements with the U.S. that pretty much eliminates the closed accounts issue. Instead now, unlike before, when an American wants to open a new bank account in my foreign country, the banks require them to fill out a W-9 tax form, provide a SS#, and some other paperwork. But, the bottom line is, foreign bank accounts still get opened and existing ones remain open.

If anything, from my experience, it's been MORE of a problem with U.S.-based banks and brokerages, many of whom have gotten very antsy because of FATCA, the Patriot Act and similar measures about maintaining existing accounts for American citizens living abroad. Try changing your official U.S.-based account address to a foreign one, instead of a U.S. one, and see how your bank, credit card issuer or brokerage will respond. That's as much or more of a problem for American expats than the foreign banks issue is, IMHO.
Anonymous   |     |   Comment #22
Foreign banks have had to bear the huge costs of getting into compliance with FATCA. Many institutions have simply decided not to deal with Americans. They are too expensive and viewed as potentially risky. You have to understand that FATCA was imposed on the rest of the world. The world did not come to the US asking for FATCA to be implemented. Foreign banks have been threatened with exclusion from US capital markets in case of non-compliance as well as hefty withholding taxes. Personally, I have had a bank account closed, been kicked out of my transitional pension plan account (with an insurance group) and been denied two important job opportunities, all this because I'm American. I cannot established life insurance policies or get a new mortgage for the same reasons. I am not an exception. The point really is; why should US citizens living abroad be taxed when no other jurisidction in the world does this? 242 out of 244 tax-raising jurisidctions in the world use residence or territorial-based taxation. Only the US and UN-Security-Council-condemned Eritrea use another system namely citizenship-based taxation.
Anonymous   |     |   Comment #14
Are there actual figures on this statement? 'The upside of FATCA is that it is forcing tax cheats out of the shadows and keeping more money in the U.S.' The effect we are seeing are our banking and financial services greatly curtailed or shut down completely, both in the countries we legally live and work in as well as in the United States. The law has certainly had an effect on law-abiding citizens resulting in increased renunciations of citizenship and higher costs for filling in forms to show that we are compliant, whether it has had an effect on those who have not been paying their taxes remains to be see.
John Hanson
John Hanson   |     |   Comment #15
You call me a tax cheat but of course nobody here has problems with America pirating billions of dollars rightfully belonging to foreign economies. I live and work in Canada. All my assets are Canadian. Logically America has zero rights to this money. Because I am a citizen, you say. Be patriotic. Do your duty. Well, you try balancing two tax systems. It is impossible. You tell Canadian citizens that the money you stole from me to pay down your debt and raise theirs was justifiably taken. Then don't complain when the rest of the world adopts citizen-based taxation policies and pirates money from over 40 million Americans. I'll laugh silly if it ever happens. But t won't, because taxing citizens abroad is stupid. Every other country but Eritrea (which America condemns it for) only taxes its residents. Thank you from the 7.7 million every day Americans abroad and their (foreign) families for your friendly consideration.

Give your ignorant heads a shake.
dpandslemmen   |     |   Comment #17
If you do not want to pay taxes to the USA government, then stop having US citizenship.  If you work outside the USA, all your assets are out of the USA, and you have no plans to ever return to the USA, then go through the process to renounce your USA citizenship and stop paying the taxes.
Anonymous   |     |   Comment #19
Wow, you're a caricature of everything wrong with FATCA and the ignorance that begat this ill conceived law.  I've lived overseas most of my life, but I am a proud American and I love my country, I defend and argue for it every day of my life.  My father fought WWII-Vietnam, his father WWI, his grandfather fought in the union and his great grandfather fought in the Continental Army.  Yes, direct line ancestors all the way.

Yet according to your grand sweep of your hand, I should just walk away and accept that I get treated like a second class citizen and live under the legalized threat of financial ruin because of FATCA?
People often wonder how Fascism came to be in democratic countries such as Germany and Italy... well now we have our answer... FATCA is a form of financial Fascism.  And just because I live overseas, why do I have to report my bank account information when you, living in the USA, don't? 
JC Double Taxed
JC Double Taxed   |     |   Comment #20
I am more comfortable with the US label of communist rather than a financial fascist, in regards to its treatment of its citizens overseas with its Citizenship Based Taxation, FBAR, and FATCA to back it up.  Now lets go over how much in US services US persons get overseas for the double taxation and excessive compliance.  Answer is $0.  

There is no representation either, as in representatives only representing US persons overseas, as France has for its overseas citizens.

Plus the US does not care about US persons overseas, they don't care about double taxing them, they don't care that they get no US government services.  So it is double taxation without representation, with $0 in services, without caring for wellbeing.  This should sound similar to grievances of the American colonists in regards to foreign British rule.  The American revolution was a war against citizenship based taxation.

By some estimates FATCA will cost the financial institutions of the world $200 billion to implement, all for an expected return of $8.7 billion to the US IRS.  So it is clear here that the US does not care about the FATCA implementation costs on the banks of the world.

Through FATCA the US forced the countries of the world to ignore their discrimination and privacy laws, so then they may discriminate against persons who are US persons.  Similar laws would be illegal in the US.  FATCA is based on a lie of reciprocation, while we see the banks of the US (think Delaware) are not asking their account holders their nationality. According to FATCA expert Haydon Perryman the FATCA IGA agreements are up for renewal in 2016 and this renewal is based on reciprocity.

FATCA is unconstitutional, so says www.FATCALegalAction.com
Anonymous   |     |   Comment #23
It's none of your business where and how we live our lives as free citizens. As a free citizen it is my right to enter the US if and when I want, irrespective of what you think, thank God for that. It is the same for any other country in the world, totalitarian countries included! Why should it be different for the US? Why should we renounce our citizenship because we are being persecuted by a derelict US taxation system and by the mentality that supports the existence of such a system? To make people like you happy? Why should we pay taxes when we don't live in the US, don't partake in US society in any way, don't earn anything from any activity or investments in the US, don't have the rights and access to the services that come with living in the US, don't cost anything to the US and don't ask anything from the US? Are you truly that narrow-minded?   
Think about It
Think about It   |     |   Comment #33
Your simplistic comment implies a lack of understanding of the law. One problem with your suggestion is that all ex-residents (ie green card holders whom return to their country of citizenship) and US citizens whom renounce their US citizenship are bound to FACTA for 10 years after renouncing residency or citizenship. Do you really believe this if fair? 10 years more taxation? You also do not seem to understand that  spouses of US citizens whom may never have even set foot in the US, and have no relationship with the US are also bound by these laws if they hold joint accounts or joint property with their spouses. (think capital gains taxation, estate taxation). You are also not considering that many countries do not have capital gains and estate taxation, but gain their revenues thru other kinds of taxation. Yet someone living in those countries whom is either a US citizen, an ex US citizen or married to an US citizen is required to declare and pay these taxes to the US government.
Idiot   |     |   Comment #35
It's not so simple to renounce.  First they've made it expensive, over $2,000 per person.  Then, courtesy of the H.E.A.R.T. act, if you have assets worth more than $600,000 (including homes), you are forced to pay an "exit" tax of 40% of the value of any gains on the assets.  Cash up front please.
Anon33   |     |   Comment #25
I guess greenback taxes will now lose clients, they deserve to close.  I cannot believe a company which frowned on FATCA is now supporting it, yet still asking for business from overseas Americans.  I guess this is the only way you can maintain your business is by biting the hand that feeds you. 
Anonymous   |     |   Comment #34
Please take a look at the updated article above. Mr. McKeegan's full original quote is now included, which clarifies his thoughts on FATCA. He does not support FATCA because of it's impact on US expats and certainly didn't mean to imply that. 
Anonymous   |     |   Comment #26
Except in war zones, American military stationed overseas pay federal income tax and some are required to pay state income tax. Some expats post that they derive no benefit of being U.S. citizens must never avail themselves of a consulate or embassy for passport or other matters. Also, in the event of political turmoil in a foreign country they do not expect, or want, the U.S. to fly them out of potential harms way. Admittedly, FATKA is overkill and should be revised. Perhaps a system of a minimum annual fee instead of federal taxation  should be implemented for those citizens residing abroad.
Anonymous   |     |   Comment #27
This is an intelligent post.  I've often felt that Americans overseas, rather than being taxed, should be offered a form of insurance for evacuation and/or legal representation if needed.  Problem with your assumption of an "evacuation" benefit is this is not provided for free, as citizens that are evacuated by the US or the US military have to pay for their evacuation, so even that's not covered by the taxes we pay.
JC Double Taxed
JC Double Taxed   |     |   Comment #31
Most US persons living overseas live in countries not normally needing US evacuation.  I am thinking Canada, UK, and Australia.  I am still waiting for US payment to Australia for supporting the US militarily in every war since World War I.

Perhaps an annual fee my be embodied in the Passport fee.
Anonymous   |     |   Comment #32
Good Point
Anonymous   |     |   Comment #36
It is very simple solution people, just renounce your citizenship and you are off the hook. Why are you still carrying USA passports if you do not feel American with obligations to pay taxes.
Anonymous   |     |   Comment #39
Why are you posting if you're too stupid to read the article to which you think you're responding? This isn't about tax evasion; it's about normal, law-abiding citizens getting their bank accounts closed because of this new law.

It's about (for example) the guy who is currently in Germany negotiating a trade deal that is going to result in your own very next job in the USA, instead discovering that he can't do business with any banks, giving up in disgust, and putting the kibosh on your next job. And it's about the Swiss bank deciding that dealing with the USA is just so complicated that it pulls all of its US investment, and it turns out that your *current* job depended on that investment.

(Okay... maybe not *your* job is affected; maybe you own your own business and so it's only your *customers* who lose their jobs because of spillover from this terrible law. And if your customers lose their income, well, that can't affect *you*, can it?).

But even aside from any potential affect on you personally, promise yourself that you'll not be the kind of person too stupid to understand the articles to which he thinks he's replying.