I have now heard from the entirety of the U.S. expat population, in its millions-strong ranks, about the role of FATCA and FBAR in their lives -- along with dissenting views from a few locally based Americans. Here's an introductory sample of the range of arguments, after two crucial stage-setting explanations.
Something most "normal" Americans don't realize: U.S. tax policy, unlike that of most other countries, works on the principle of "citizenship taxation." If you're an American citizen, then wherever you live, however long you live there, however you earn your money, and wherever you spend it, you're still subject to US income tax law. No matter if you're living in Moscow or Manila, as long as you hold US citizenship you're supposed to send in your Schedule 1040 to the IRS, just as if you were living in Dubuque. This is so even though you're already paying taxes on that same income to the government wherever you happen to be.
There are escape clauses and caveats. If you're physically out of the US long enough (at least 330 complete days per calendar year), then you can exempt some or all of your income from taxes (now an exemption of as much as $92,900 per earner). Also, some or all of the tax you pay to a foreign government can be credited against the US tax you owe. It's very complicated, and I'll leave further nuances to the CPAs. The main point is, America's policy is unusual. No other major countries (that I'm aware of) apply the principle of "citizenship taxation"; they operate instead under "residence taxation" rules. If you're an overseas German, Canadian, Filipino, etc, you pay income taxes where you're making your living, not back to the motherland.
Something most overseas Americans don't realize: The home-bound population does not view them as a hardship class. A known risk category for long-term expats is becoming whiners -- I speak as someone who's lived outside the U.S. for several multi-year stretches and has been known to whine. (Naturally it goes without saying that all of my long-term expat friends and relatives are stalwart exceptions to this rule.) The $92,900 exemption on taxable income -- nearly twice the median household income in the United States -- means that from the start we're dealing with the kinds of problems many Americans-in-America would like to have, real as those problems are to the people encountering them.
With that out of the way, a few sample messages. First, from a reader in Sweden. This deals both with FATCA and the related FBAR rule, which I'll get into in another dispatch but basically requires expat Americans to report to the IRS any of the accounts they're holding in non-US banks:
I have a dream, an American dream.
I live in Sweden, which is hardly a tax haven. I am a citizen of that country as well as a US citizen. I have lived outside of the US for close to 25 years and thought I led a normal law abiding life. Unfortunately, the overzealous and poorly thought out attempts to catch US resident tax evaders have cast me and other overseas residents as criminals.
I am one of the few overseas residents who actually knew that I had to file taxes and did so. Last year, I needed to amend my US taxes due to a reporting error made by my overseas employer and I learned that as I had failed to file a form reporting my overseas bank accounts (the FBAR), the only option I had was to enter a so-called amnesty program, in which I have been told for this omission, I need to pay the US government 25% of my life savings, retirement plans, house, and car, all of which have been earned by legitimate employment overseas.
The "bank accounts" that I must report to the US government include life insurance policies, telephone prepaid cards, my customer card at the supermarket and my lunch card at work. The latter three must be reported, along with their highest balance (try to calculate that on a supermarket rebate card) all because they fit the definition of a debit card. All of this under threat of a penalty of USD 10,000 per account if I make a mistake in reporting. I think the most my lunch card has ever had on it was USD 60.
To add insult to the injury I described above, during 2011, FATCA began to be implemented in Sweden and my Swedish bank informed me that I would no longer be allowed to have any investment accounts because of my American citizenship.
FATCA also requires that for my 2011 taxes, I will need to file another form that repeats a lot of the information on the FBAR form and will cost me at least another three hours of accountant time. The much loved number of USD 10,000 in penalties is again threatened if I make a mistake on this form.
American information reporting requirements have become so demanding that I have made all kinds of new friends in my Swedish bank and tax authority. I get to challenge them to provide documentation that makes no sense in Sweden, but helps me to meet the US requirements. Without these wonderful FATCA requirements, I might have just led an unobtrusive life and like most other residents here, had very little to do with these people. Now I stick out like a sore thumb. FATCA has afforded me with the opportunity to prove to Swedes that Americans are different, demanding and difficult.
I no longer have any family in the US and I have spent less than a year there in the last 25 years. Where you spend your childhood stays with you and I have a strong emotional tie to the US. So even though indications are that it would be in my best interest to renounce my citizenship, I plod stubbornly along in the face of all the abuse and try to believe in the American "truth and justice" I was taught about as a child.
That is why I appreciate your article. It will help to make public the unfortunate consequences of the poorly conceived FATCA legislation. Maybe it will help me and other overseas US citizens to be able to return to leading a normal life. That is all I desire in my American dream.
After the jump, an account from Canada -- and then a contrary view from someone who strongly supports the law.