It’s no secret that US expats are frustrated and angry over FATCA’s impact on their lives abroad. FATCA, Foreign Account Tax Compliance Act, requires individuals to report the value of specified foreign financial assets to the IRS if they exceed certain thresholds. There is another important aspect to FATCA – the agreements being entered into by foreign governments often call for exchange of information rather than just sending information to the IRS. I.e., US institutions will have to report on their non-US clients to the appropriate foreign government under the FATCA-based reciprocal agreements.
Recently, the Yucatan Times reported that US authorities have begun sharing information with the Mexican SAT on all Mexicans who have bank accounts or investments in the US that have more than $10 in annual interest. The Mexican SAT will share with the IRS the name, address and tax number of Americans with accounts whose balance is greater than $50,000. The information sharing is not retroactive.
The news is concerning for the roughly 1 million US expats living in Mexico. Since the inception of FATCA, the US has begun negotiations with 70 different countries to enact a mutual exchange of information and this could be just the beginning.
This mutual exchange of information has an impact on US citizens living abroad. The greatest FATCA issue for American expats may end up being that their US bank or brokerage may no longer want to deal with them. If US banks start to have to report financial information of their foreign and US expat clients living in many different countries all over the world, they might just want to stop dealing with non-US and expat clients altogether. Since US banks have so few clients living abroad, the complexity and cumbersome reciprocal reporting requirements might just not be worth the benefit of having those few extra expat and foreign clients.
What is FATCA?
FATCA, Foreign Account Tax Compliance Act, requires individuals to report the value of specified foreign financial assets to the IRS if they exceed certain thresholds. In addition to the individual filing requirements, FATCA extends to foreign financial institutions who are required to report on the accounts of their American clients. Failure to cooperate results in a 30% withholding of certain US payments, which is crippling for some banks. The result? More and more banks are simply choosing not to work with expats in order to avoid the hassle.
Taking the IRS to Court
There is an intense legal battle over FATCA. Rand Paul, a Republican Senator who is leading the charge to repeal FATCA, cites that FATCA’s reach has gone too far and that the Obama Administration exceeded its power and ignored Congress with this Act. Ultimately the charge against FATCA is this: It violates the constitutional rights of the American people.
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