The Foreign Account Tax Compliance Act, or Fatca, is forcing millions of Americans living abroad to reconsider their U.S. citizenship, a lawyer, Colleen Graffy, writes in the Wall Street Journal.
"The legislation is Fatca, the Foreign Account Tax
Compliance Act. To appreciate its breathtaking scope along with America's
unique "citizen-based" tax practices, imagine this: You were born in
California, moved to New York for education or work, fell in love, married and
had children. Even though you have faithfully paid taxes in New York and haven't
lived in California for 25 years, suppose California law required that you also
file your taxes there because you were born there. Though you may never have
held a bank account in California, you must report all of your financial
holdings to the State of California. Are you a signatory on your spouse's
account? Then you must declare his bank accounts too. Your children, now
adults, have never been west of the Mississippi but they too must file their
taxes in both California and New York and report any bank accounts they or
their spouses may have because they are considered Californians by virtue of
one parent's birthplace,"
Graffy explains.
"Extrapolate that example to the six million U.S.
citizens living around the globe. Many, if not most, don't know about these requirements.
Yet they face fines, penalties and interest for not complying—even if they owe
no U.S. taxes, own no U.S. property, have no U.S. bank account and haven't
lived there in years—if ever.
A particularly alarming aspect of Fatca is that it seeks to
co-opt foreign banks as long-arm enforcement agencies of the Internal Revenue
Service—even when it might contravene that country's own privacy or
data-protection laws. If financial institutions don't report U.S. citizens
holding accounts with them, these institutions face a 30% withholding tax on
securities transactions that originate in the U.S."
Graffy
argues that because of the difficulty in following this law -- it's easier and
more attractive for Americans abroad to simply renounce their U.S. citizenship. "Given this threat, why allow an American, or
even suspected American, to bank with you? The reporting costs, and the
consequences of a mistake, are too onerous."
And
sometimes those Americans perhaps feel that they don't have much of a choice. "Foreign financial institutions trying to
avoid these new requirements have two alternatives: to drop American clients,
or don't invest in the U.S. Neither scenario benefits America."
Graffy
herself lives in London.
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