Foreign Account Tax Compliance Act forces Americans to divorce the U.S.
The Foreign Account Tax Compliance Act forces U.S. citizens in foreign countries to reconsider citizenship.
March 25, 2014
Foreign Account Tax Compliance Act forces Americans to divorce the U.S.Article provided by M. Bradford Randolph, Esq., PLLC
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Did you know that several U.S. citizens residing in other countries are letting go of citizenship in America in an effort to avoid harsh tax filing responsibilities? The problem is the difficult and complex tax reporting mandates from authorities.
According to USA Today, there are approximately six million U.S. citizens living in other nations. Moreover, the Internal Revenue Service suggests that U.S. taxpayers in other countries owe as much as $123 billion in taxes.
In just a couple of months, the Foreign Account Tax Compliance Act (FATCA) will go into effect. As you may already know, the Report of Foreign Bank and Financial Accounts (FBAR) is in place at this time. FBAR mandates that U.S. citizens with foreign investments or accounts worth $10,000 or more inform the IRS of the particular account's highest annual balance.
On the other hand, the FATCA is intended to locate citizens suspected of tax fraud by hiding wealth in bank accounts in other countries. It does so by mandating that all non-American financial institutions pass along information about U.S. account owners or acquire serious penalties.
However, this law is creating some hurdles for Americans who faithfully pay their taxes from other distant countries. Specifically, foreign banks are reluctant to work with the IRS, so they are refusing to hold money for Americans. Moreover, Americans abroad are forced to spend several hours and money filing U.S. taxes each year. This is leading U.S. nationals to consider renouncing citizenship.
In fact, approximately 3,000 Americans got rid of citizenship in 2013, according to numbers reported by the Federal Register. Furthermore, this is a 221 percent increase from the prior year. Looking back to the year 2008, only 231 people renounced their membership to the land of the free.
At this time, only two countries in the world, including the U.S., taxindividuals based on "nationality." In other words, regardless of where you live, you must file a U.S. tax return -- even if you pay taxes in a different nation.
With FATCA in effect, many Americans overseas are feeling compelled to divorce the one country they love. It is all just too much of a headache.
If you are struggling with foreign accounts or plan to live abroad for some time, take the time to speak with a tax attorney. Before you journey to new lands, you should know what your tax liability would be -- even from a distance.