40,000 Accidental Americans’ French Bank Accounts May Close
France has been a hotbed of expat tax activity lately. Last week, the IRS admitted that it might have over-collected taxes from Americans living in France. However, the latest news is not so great for expats: the French Banking Federation (FBF) gave France’s Minister of Finance a warning that they may be forced to close over 40,000 accidental Americans’ bank accounts. Find out what expats need to know!
Why Are French Banks Targeting Accidental Americans?
Accidental Americans are people who were born in America but have typically never lived or worked in America and didn’t realize they were considered American citizens. Accidental Americans often have no idea they carry American tax obligations. But, even though they didn’t know, they can suffer dire consequences such as having their passports revoked, facing steep penalties, and even prosecution.
The letter sent to the Minister of Finance warns of the significant consequences French banks will face if they do not close the banking accounts of approximately 40,000 accidental Americans. Due to FATCA, the US can heavily penalize French banks that don’t report certain information about the American citizens – including accidental Americans – that reside in France. When these FATCA rules came into play in 2014, the US Treasury Department offered a grace period on some of this reporting, but the period with relaxed requirements ends in January of 2020. Banks that do not comply face 30% withholding on their US-sourced income.
What Is FATCA?
FATCA stands for Foreign Account Tax Compliance Act, and it’s a reporting requirement that affects both expats and foreign banks. For expats who meet the asset thresholds, Form 8938 must be completed each year to remain in compliance. Failure to disclose your foreign accounts can result in a $10,000 fine plus an additional $10,000 for every 30 days (up to $60,000) for not filing after the IRS contacts you.
FATCA also requires foreign banks to give the IRS information on American citizens doing their banking abroad. The requirement is burdensome for foreign financial institutions and has the unintended consequence of disincentivizing those institutions from working with American citizens. The result? Many foreign banks do not want to – and do not have to – agree to let American citizens bank there. This is an example of how the American taxation system sometimes punishes US expats for continuing to keep their citizenship.
To some expats, this treatment feels like discrimination – so much so that accidental Americans in France filed a lawsuit to that end. However, the French court recently ruled that FATCA did not result in discriminatory behavior, to the disappointment of expats worldwide.
What’s Next?
France is not the only country considering shuttering American citizens’ bank accounts. The UK recently did a very similar thing. FATCA continues to ruffle feathers of American expats worldwide, so it is reasonable to expect more lawsuits to come or more citizenship renunciations as expats find the tax burden too much to overcome.
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Greenback specializes in expat taxes and has worked with accidental Americans and their many, varied tax situations. Get started with us today, and find out how easy it is to become tax compliant.
