How Notice 2023-11 frames the issue
According to the Notice …
The Treasury Department and the IRS have received communications from Model 1 IGA jurisdictions, FFIs, and U.S. citizens expressing concern that FFIs are closing or may close bank accounts of U.S. citizens who have failed to provide a required U.S. TIN, including accounts of U.S. citizens resident outside the United States. FFIs have indicated that these closures are based on concerns about being treated as in significant non-compliance with their obligations under a Model 1 IGA. Model 1 IGA jurisdictions have also indicated that FFIs are unable to close certain accounts, which may increase the risk that the FFI is found to be in significant noncompliance with its obligations.
It bears repeating that:
1. The non-US banks are required to supply the IRS with the US citizen’s SSN, even though;
2. The US citizen either does not have or will not disclose a SSN to the bank.
Treasury’s response to the problem of looming “significant non-compliance”
On December 30, 2022 US Treasury issued Notice 2023-11. The primary purpose of the Notice was to prescribe temporary conditions pursuant to which (1) the bank could avoid being deemed to be in “significant non-compliance” under the FATCA IGAs while (2) retaining certain US citizens who are unable or unwilling to provide US SSNs. This relief is an interim measure and will last for three years. In addition, the relief is contingent upon both the banks and the government of the Model 1 jurisdiction taking additional steps to “encourage” FATCA compliance from US citizens. Separately, the relief requires that the government of the IGA Model 1 jurisdiction to take additional steps to “enforce” FATCA compliance on its banks. It is obvious that the words “encourage” and “enforce” have very different meanings.
To be clear Notice 2023-11 does NOT simply provide an extension. The extension is conditional on taking additional steps designed to strengthen FATCA compliance generally. Interestingly, early commentary has ignored this troubling escalation of FATCA enforcement.
Early Commentary About Notice 2023-11 Focuses ONLY On The Carrot Without Regard To The Stick
Interested persons can read Notice 2023-11 here. It has been the subject of thoughtful commentary by Helen Burggraf of American Expat Financial News Journal and the Democrats Abroad Taxation Tax Force. Both articles allude to the fact that the FATCA problems of today are because of the US policy of “citizenship taxation”. This is reflected in the following excerpts from their respective articles:
And because of the U.S.’s globally-unique tax regime based on an individual’s citizenship (if they happen to be American, even if only as a result of having been born in the U.S.) rather than their current country of residence, FATCA has made life extremely difficult for tens of thousands – some say as many as a million – U.S.-born citizens of other countries.
American Expat Finance
FATCA is a symptom of the extraterritorial nature of the U.S. tax code, which is why Democrats Abroad continues to support changing the U.S. to a Residency Based Tax system: taxing based on residency and source of income.
Democrats Abroad Taxation Tax Force
It is absolutely correct that the FATCA problem experienced by Americans abroad is because and only because of US citizenship taxation. To be clear, for US citizens living outside the United States, this means that the United States imposes full taxation on their non-US source income and subjects them to a comprehensive, penalty-laden reporting scheme which requires reporting of their local accounts and financial assets. It is equally clear that the Biden administration continues to be absolutely intent on the continuation of citizenship taxation on US citizens living outside the United States. For example in it’s August 29, 2022 letter to the Dutch Embassy Treasury confirmed the intention of the United States to impose the Internal Revenue Code on Dutch residents who happen to be US citizens. Specifically the letter noted:
We value our collaboration with the Netherlands in countering offshore tax evasion and improving international tax compliance. We believe that it is in our mutual interest for U.S. citizens resident in the Netherlands to continue to be able to access basic bank accounts in the Netherlands in order to conduct their ordinary course daily financial activities like the receipt of wages and the payment of bills. However, we wish to again emphasize that obtaining U.S. TINs from U.S. citizens holding accounts at foreign financial institutions (FFIs), including accounts located in their country of residence, is crucial to ensuring that the U.S. Internal Revenue Service (IRS) has the tools it needs to determine whether U.S. citizens are complying with their U.S. tax obligations
In other words, the purpose of FATCA is to enforce US citizenship taxation on residents of non-US countries who happen to be US citizens only because they born in the United States.
Brief aan Nederlandse ambassadeur inzake FATCA
Notice 2023-11 reconfirms the intention to impose US citizenship taxation on US citizens who live outside the United States. On page 6 the following appears:
Obtaining U.S. TINs from U.S. taxpayers connected to accounts at FFIs, including accounts located in the taxpayer’s country of residence, is crucial to ensuring that the IRS has the necessary information to determine whether U.S. taxpayers are complying with their U.S. tax obligations.
What a nightmare – heightened FATCA enforcement. I am blessed to no longer be a US citizen. Having recenty moved to a new place, some of my new neighbors have lingering US citizenship. My sympathies go out to them as their situations were more complex than mine. These new policies add another layer of complexity and fear for those trying to live a peaceful life. I believe the USA will eventually drown in debt but in the meantime they wil try to collect to collect funds in this ill fated manner.