Americans living abroad are experiencing significant financial consequences as a result of recent crackdowns on tax evasion. Many of the expatriates who live outside of the United States indicate that their financial accounts are being closed; they are being denied partnerships and promotions in business; and their relationships with non-American spouses are being strained.
These tremendous consequences are occurring as a result of an intense effort being made by the US Department of Justice and the Internal Revenue Service to try to identify US citizens who keep money offshore. The problem is that people who may not be aware of their ongoing tax requirements to the US are being caught in the crosshairs and having difficulty conducting their normal banking activities. Because of the challenges that exist under the new regulations, any US citizen with undeclared offshore accounts needs to consult with a Washington DC international tax attorney.
Ex-Pats Face Banking Problems Due to Tax Evasion Crackdown
In 2010, the US Congress enacted the Foreign Account Tax Compliance Act (FATCA) after learning that some foreign financial firms were earning a profit by encouraging US taxpayers to move money into foreign banks. Under FATCA, foreign financial firms are required to report investment income and bank balances that exceed certain thresholds if the accounts are held by a customer who is a United States citizen. If a firm fails to comply with the FATCA requirements, all of its customers will have 30 percent of income from US sources withheld. This means that all customers may have their interest income and dividends withheld.
To prevent the withholding, almost 100,000 banks and financial firms worldwide have registered with the Internal Revenue Service. However, many other banks have decided not to cope with the regulatory burden and are closing accounts of US taxpayers to avoid having to meet these FATCA requirements.
The problem is some US residents live and work abroad and FATCA does not distinguish between the accounts of ex-patriots and people still living within the United States. This means a person who has a small bank account at his local bank in the foreign country where he lives could find himself having his account closed by the bank as a result of the bank’s desire to avoid FATCA regulations.
One survey by Democrats Abroad, for example, found that more than 2/3 of the bank accounts that had been closed had a balance of $10,000 or less while nearly 60 percent of the affected investment accounts had a value of $50,000 or less. Some people were simply unable to open bank accounts.
Not only is FATCA interfering with banking relationships, but a person who is living abroad and who fails to file a required annual report of his foreign investments called the Foreign Bank and Financial Accounts (FBAR) form could face tax penalties for nondisclosure.
With the new compliance requirements and regulations in place, it is more important than ever for ex-pats to consult with a Washington DC international tax attorney for assistance in understanding their ongoing obligations to the United States.
