FATCA Legislation

US Expats and the IRS

Many members of Germany’s American expat community are now considering renouncing  their US citizenship, as the FATCA Legislations prepare to be implemented from January 1st 2013.

FATCA Legislation

Chicago-born graphic designer Claire Muir has lived near Dusseldorf with her German husband for almost a decade. Claire still holds a US passport and chirpily describes herself as “American as apple pie.” This is despite the fact her two children were born and are schooled in Germany and are, “way more German than American.”

The 38 year-old, like a growing number of Americans who live overseas, is however now considering the drastic decision of renouncing her United States citizenship. This is because Washington is preparing to roll out FATCA  (Foreign Account Tax Compliance Act) on 1st January 2013.

From the 1st of January, the US will require all of its citizens to report their worldwide assets and earnings to the Internal Revenue Service  (IRS), regardless of where they live, how long they have lived there, or whether any money is owed. Foreign financial institutions will also be required to disclose such information of any American clients that they may have.

Claire explains that ever since she travelled for a year after graduating, she had an inkling she may eventually settle outside of America. She never thought giving up her US citizenship would ever be on the agenda, and has always been proud of her nationality. She explains why her citizenship is now in question,

“FATCA, the new requirement for reporting overseas financial accounts, backed up by ludicrously heavy fines, punishes Americans who choose to live abroad by demanding an extra – and overly complex – layer of IRS reporting, compared with those who live within US borders.”

It’s possible to notch up thousands of dollars in fines even if you don’t owe the IRS a cent in taxes. Many banks and financial firms will no longer work with American expats, even if they have done so for a long time, because they too will have to report to the IRS if they have Americans on their books. This, of course, makes living and working in a foreign country more difficult than before.

Major Banks rejecting business from US Citizens

Indeed, as has been recently reported, major wealth management firms including Deutsche Bank AG, HSBC Holdings Plc (HSBA), Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS), have all rejected business from US citizens ahead of the implementation of the FATCA Legislation.

As Claire states, the US government, it seems, is determined to castigate expats for having the audacity to live outside America. She sees it almost as if the authorities assume that all American expats are high-rolling tax evaders.

“I don’t want to be subject to their ridiculous new rules for expats so I’m thinking of ditching my US citizenship  so I don’t have to go through the nonsense of the reporting and so I don’t have to live with the threat of a massive fine, and so that I can work with my local financial institutions.  I know many others who feel the same as I do,” says Claire.

Renouncing Citizenship

The majority of US expats are being prompted to consider relinquishing their US citizenship due to the complexity of the reporting process to the IRS, plus the threats of heavy penalties, which includes fines for previous, inadvertent non-compliance.

This sense of anxiety is compounded by the fact that a growing number of Americans are being left stranded by their foreign financial institutions. All banks and wealth management firms will also have to declare the assets of their American clients. This process is perceived as very costly and burdensome, meaning many are refusing to deal with US citizens.

Some Americans are even being turned down by foreign firms for jobs in which they will require signatory authority as those accounts would be subject to FATCA too.

Officially, almost 1,800 Americans renounced their US citizenship in 2011 – six times more than in 2008.  But experts suggest that this figure could be considerably higher as many of those who have renounced do not feature on the US Treasury Department’s lists.

Chicago-born graphic designer Claire Muir has lived near Dusseldorf with her German husband for almost a decade. Claire still holds a US passport and chirpily describes herself as “American as apple pie.” This is despite the fact her two children were born and are schooled in Germany and are, “way more German than American.”

The 38 year-old, like a growing number of Americans who live overseas, is however now considering the drastic decision of renouncing her United States citizenship. This is because Washington is preparing to roll out FATCA  (Foreign Account Tax Compliance Act) on 1st January 2013.

From the 1st of January, the US will require all of its citizens to report their worldwide assets and earnings to the Internal Revenue Service  (IRS), regardless of where they live, how long they have lived there, or whether any money is owed. Foreign financial institutions will also be required to disclose such information of any American clients that they may have.

Claire explains that ever since she travelled for a year after graduating, she had an inkling she may eventually settle outside of America. She never thought giving up her US citizenship would ever be on the agenda, and has always been proud of her nationality. She explains why her citizenship is now in question,

“FATCA, the new requirement for reporting overseas financial accounts, backed up by ludicrously heavy fines, punishes Americans who choose to live abroad by demanding an extra – and overly complex – layer of IRS reporting, compared with those who live within US borders.”

It’s possible to notch up thousands of dollars in fines even if you don’t owe the IRS a cent in taxes. Many banks and financial firms will no longer work with American expats, even if they have done so for a long time, because they too will have to report to the IRS if they have Americans on their books. This, of course, makes living and working in a foreign country more difficult than before.

Major Banks rejecting business from US Citizens

Indeed, as has been recently reported, major wealth management firms including Deutsche Bank AG, HSBC Holdings Plc (HSBA), Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS), have all rejected business from US citizens ahead of the implementation of the FATCA Legislation.

As Claire states, the US government, it seems, is determined to castigate expats for having the audacity to live outside America. She sees it almost as if the authorities assume that all American expats are high-rolling tax evaders.

“I don’t want to be subject to their ridiculous new rules for expats so I’m thinking of ditching my US citizenship  so I don’t have to go through the nonsense of the reporting and so I don’t have to live with the threat of a massive fine, and so that I can work with my local financial institutions.  I know many others who feel the same as I do,” says Claire.

Renouncing Citizenship

The majority of US expats are being prompted to consider relinquishing their US citizenship due to the complexity of the reporting process to the IRS, plus the threats of heavy penalties, which includes fines for previous, inadvertent non-compliance.

This sense of anxiety is compounded by the fact that a growing number of Americans are being left stranded by their foreign financial institutions. All banks and wealth management firms will also have to declare the assets of their American clients. This process is perceived as very costly and burdensome, meaning many are refusing to deal with US citizens.

Some Americans are even being turned down by foreign firms for jobs in which they will require signatory authority as those accounts would be subject to FATCA too.

Officially, almost 1,800 Americans renounced their US citizenship in 2011 – six times more than in 2008.  But experts suggest that this figure could be considerably higher as many of those who have renounced do not feature on the US Treasury Department’s lists.

This article has been submitted by James Dodds

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