As Tax Day approaches, homeland Americans scurry to file their annual tax filing obligations. But for an estimated 7.6 million Americans working and living overseas, they have an obligation to not only pay taxes in their respective countries where they live; they need to pay the piper in homeland America as well, via the requirements under the Foreign Account Tax Compliance Act (FATCA),
FATCA has opened the portal to serious consequences for citizen based taxation.
FATCA targets US citizens living and working overseas and holds foreign financial institutions (FFI) responsible for reporting accounts to the IRS for taxation. The FFIs, in attempts to avoid costly reporting are closing and refusing American overseas' local bank accounts, retirement accounts, mortgages, etc.
Under very specific circumstances, there is an earned income exclusion of $99,200 but this doesn't mean tax free as that money is taxed in the Americans overseas' country of residence.
Who can argue with a process to catch tax shelters in the proverbial Swiss bank account? Not many, but this includes a world-wide dragnet that snags innocents resulting in little known serious consequences for hard working Americans and their families living and working overseas.
Mark Mazur, the Treasury Department's assistant secretary for tax policy, said the government's new enforcement was intended to help make sure all taxpayers pay what they owe "regardless of where they live."
But "What they owe", how they can invest, and do their banking is the resounding question.
The U.S. is the only industrialized country that taxes its citizens on their world-wide income, no matter where they live And FATCA has been referred to as a range of: protection from tax shelters, a net to catch people who don't want to report their income, all the way to pure fascism.
It is hard to fathom walking in the shoes of an American abroad experiencing the effects of the Foreign Account Tax Compliance Act (FATCA) Friends from social media have shared stories of serious difficulties handling their finances and investments and "divorce overseas style" with quite literal gut-wrenching effects.
There is bitter resentment of new U.S. tax laws but lasting affection for their homeland. This includes many American veterans that are renouncing their citizenship because they cannot conduct their financial business any longer; bank accounts, retirement accounts closing, mortgages rescinded and denied. And no American veteran should ever consider renouncing American citizenship due to invasive tax and reporting obligations.
Mrs. P living in Germany, an American overseas from a family job transfer now widowed, lives daily in fear of FATCA calling it "cruel, immoral, and unjust". She is a proud member of the Daughters of the Mayflower and has family in the US. While she has always paid her taxes, Mrs. P, while proud of being an American, broken hearted she feels that America has betrayed her. She is afraid to travel home and wants to renounce her American citizenship but cannot afford the significant fee of $2,350. (422 percent increase from the previous year) She is asking family contributions to her renunciation fund for birthdays and Christmas gifts.
Ms. M from Austria has been tax compliant for many years but now has been notified by her bank that she could no longer put money into her mutual funds account, negatively affecting her ability to invest for retirement.
Mr. B, an American Marine has painfully decided to say "good bye" to the US and renounce citizenship. Protecting his family and their finances resulted in this difficult decision.
Army veteran "G", stayed in Europe. He and his non-American in-laws have a business that American tax laws require an accounting. The cost for tax preparation is prohibitive at thousands per year. He feels like he is treated like a tax-evading criminal. He is preparing to renounce.
Mrs. C is a United States Air Force veteran that is tearfully considering renouncing her US citizenship due to fear of capital gains taxes to the U.S. where that tax doesn't exist in her country of residence. She cannot invest in retirement accounts. She is hoping for some relief for Americans overseas before making her final decision but claims that FATCA will not take away who she is - an American veteran.
In fact, American renunciation is up 221 percent in 2013 to be exact (according to the Federal Register).
Americans are "divorcing" their homeland and their spouses to protect their mortgages, family investments, bank accounts, and extreme tax preparations costs in the thousands of dollars annually.
In an attempt to repeal some provisions of FATCA, on March 4, 2015, Senator Rand Paul (R) Kentucky, introduced Senate Bill S66, a bill that amends the Internal Revenue Code with respect to withholding requirements for payments to foreign financial institutions, reporting for foreign financial assets, penalties for undisclosed foreign financial assets, and excessive penalties for failure to file.
Looking in the proverbial eyes of my cyber American overseas friends, it is easy to empathize with the difficulty of their new, broad range of tax obligations, reporting, banking, expenses, and gut-wrenching decisions.
Current committee work is being performed in the Senate to review FATCA. Contact your Congressional representatives with personal experiences and concerns.