Via Just Me on Twitter, we learn that Congresswoman Carolyn Maloney (D-NY), head of the House’s Americans Abroad Caucus, posted a video of her questioning Treasury Secretary Tim Geithner on, among other things, banking issues faced by U.S. Persons in non-U.S. jurisdictions. For those of you who hate watching videos (like me), after the jump I’ve made transcript of the relevant section, which begins around 3:14.
3:14/Maloney: Also, I’ve been corresponding with your office and you on the challenges that Americans living abroad — I represent many Americans working abroad, and they are reporting that they’re having problems gaining access to bank accounts abroad. And I know that we’ve requested a meeting with your office — and you’ve granted one in April, I want to publicly thank you for that — so that they can work out why they’re being denied access to these bank accounts.
3:40/Maloney: Now your office is saying that there is no policy in the American government that in any way denies American citizens or makes it more difficult for them, but the testimonials that are coming into my office tell a very different story, and I certainly support all of your efforts to improve tax compliance, and to determine the ownership of U.S. assets of foreign accounts — but these efforts should not impair or hurt law-abiding American citizens. My basic question is really on the fact of the US PATRIOT Act and foreign bank and financial services, and basically what are you doing to help accomodate American citizens so that legitimate American citizens are able to access bank accounts abroad? With more and more people in the world economy it’s becoming a growing problem across the country.
Leaving aside the fact that I am not trying to access a bank account abroad and it’s a growing problem across the world outside the U.S., it’s heartening to see someone in the U.S. Congress taking up this issue.
4:37/Geithner: Very important question, and you’re right, there’s been some concerns with the impact of this set of laws, particularly what we call in shorthand “FATCA”, and the [inaudible] rules. We are working very closely to try to meet the Congressional intent, in making it harder for U.S. citizens overseas to avoid U.S. taxes, without putting undue burdens on their ability to have a bank account, for example.
5:12/Geithner: And we’re doing a lot of things to provide more time for banks around the world to adjust and to try to make sure that we’re designing the rules in a way that creates a better balance between the important objective you spoke to of preventing tax evasion, but also to make it easier — a lot of Americans live[d?] overseas, or are living overseas, and it’s perfectly legal, and needs to be possible, for them to have bank accounts overseas. So we’ve got some work to do on that, I’m happy to work with your office and your colleagues on how to make sure we’re as responsive as we can to those concerns.
Some readers may think that Geithner misspoke, or is misrepresenting the Congressional intent. I would disagree. Ever since the U.S. started putting limits on the foreign earned income exclusion in the 1950s, every succeeding generation of Congresscritters has made its belief in American economic exceptionalism very clear — they think that the U.S. is the only place anyone could make any money, and that Americans abroad are all movie stars and other rentistas leeching off of the U.S. economy and spending their money in tax havens. So there’s a pervasive and destructive myth that taxation of Americans abroad only affects “the undeserving rich” thanks to the Foreign Earned Income Exclusion. And even the FEIE is subject to attack on the grounds that it’s a “tax expenditure” which violates the principle of “horizontal equity”. Once you’ve accepted these myths, you’re reduced to trying to defend the FEIE in terms of benefits to homelanders or to higher causes, such as promoting American exports or relieving burdens on Americans who live in hardship areas in developing countries. Indeed, people like Senators Chuck Grassley (R-IA) and Tom Coburn (R-OK) disbelieve those latter arguments, and on that basis argue that the tax code should put more burdens on U.S. citizens abroad, especially those who use their “American brains” to the benefit of foreigners. As the latter put it in his Back in Black: Reforming Tax Expenditures and Ending Special Interest Giveaways tax plan (at p. 35):
Regardless of where they live, U.S. citizens with identical incomes should have similar tax liabilities. The Congressional Research Service also found this provision is potentially a subsidy for business because it “subsidizes employers sending employees overseas” and it “may work against U.S. domestic interests by encouraging highly compensated U.S. citizens to work overseas … expatriating U.S. intellectual capital and reducing U.S. tax revenue.”
Also of note, citizens working overseas are not just working for American companies. In the 21st century global economy, many Americans are working overseas for non-U.S. companies, yet taking advantage of this tax break. The tax exemption is provided for these employees, but is not necessarily encouraging U.S. competitiveness. In fact, depending on the country, some employees working for non-U.S. companies may not be subject to Medicare and Social Security taxes, in addition to enjoying the income tax exclusion.
Once you’ve accepted the argument that the FEIE is a “subsidy”, nothing else looks like an “undue burden”. So Congress finds it perfectly reasonable to make U.S. Persons outside of their jurisdiction spend thousands of dollars on professional help to file ridiculous international tax forms allegedly aimed at catching onshore tax-evaders — like Form 8890 for an RRSP, Form 3520 for an RDSP, Form 8621 to buy an ETF or mutual fund from your local bank, Form 8858 to register a sole proprietorship and work for yourself where you live (or Form 5471 if you’d rather incorporate), Form 8938 if you sell your house, FBAR every single year — and to impose $10,000 failure-to-file fines on each and every one of the above items on those U.S. Persons who think they are “tax compliant” by virtue of filing Forms 1040, 1116, and 2555.
@BenFranklin and @all
The U.S. government has become worse than the British government of King George. It reminds of Orwell’s Animal Farm. Here is the last paragraph of the book:
“Twelve voices were shouting in anger, and they were all alike. No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”
Can any of you relate to this?
Why is full Ostrich not a viable choice? Is it because you want to go into the US for some reason or you have US assets?
I’m new to all of this. If the answer is somewhere else on IBS please point me there.
All of the paths to nirvana I’ve considered thus far lead me through substantial fines which are unacceptable to me. Not going to happen. So “do nothing” seems reasonable at this point for me. The implication is that I never enter the US again, which my circumstances allow me to consider. I also understand from IBS the possible Canadian banking implications (which I believe are manageable).
If I had to renounce or relinquish to keep the Canadian government or Canadian banks happy, I *think* I’d do that in a heartbeat. I would ignore FBAR and anything to do with IRS. What am I missing?
This video and thread comments all serve to reinforce my sad belief that ACA is wasting their time lobbying Congress and Americans on this issue. It reinforces my satisfaction in having relinquished my US citizenship many decades ago, my joy in having a CLN that I had forgotten I had until last Fall, and my continued moral and political (in Canada) support for my friends who wish to relinquish or renounce.
I agree with several posters above: full ostrich isn’t likely a plausible option, unless you know you can and will never want to cross the US border again (or unless you were born outside the US of US parents and are reasonably certain that fact isn’t going to be discovered by any US authorities). As I see it, your choices are either to comply or to renounce/relinquish, and in the latter case you may still have to stay on our side of the border to remain safe, depending on how you and the IRS respectively choose to deal with Form 8854 and all that, in your particular situation.
But, as I’ve always said, I’m not giving legal or accounting advice, and anyone contemplating any actions owes it to themself to seek both forms of professional advice, before taking any action on taxation or citizenship.
Full-ostrich may work for a while. But the tyrants in Washington keep dreaming up new ways to pressure foreign governments and financial institutions into trapping and squeezing Americans abroad.
Sooner or later everyone is gonna be forced to $#!T or get off the pot. Its only a matter of time.
I understand. I’d like to think that I can maintain the full-ostrich position with the US government while I aggressively assume the role of a honey badger with my Canadian government. Maybe that is not possible. But have to try something.
Good luck and God bless!
Full ostrich? I think it’s a lot like Stephen Mopsick said — it depends on how the banks are actually going to implement this. If they start asking for birthplaces, then I think the US is going to see renunciations go waaaay further. However, if banks are allowed to interpret the guidelines themselves, and let’s say that they deem someone who has lived in a country for 10-20 years with no presence in the US to be treated as a citizen of their country, then I doubt we’ll see much of a change from the status quo. — Just my reasoning…
It doesn’t sound like you are doing a “full ostrich” to me. You are making an informed choice based upon some reading, research and understanding of your options. You are choosing to wait and hope that the tax starved crazies in Congress won’t come up with some new provisions to pressure Canada into ferreting you out. You are deciding not to have any US assets and never to travel to the US again. That is the “do nothing” approach, and that might be a perfectly fine option for you. Delay the choice of complying or renouncing.
To me a “full ostrich” is one who denies there is any problem and refuses to educate themselves as to their risks. They just stick there head in the sand, so they don’t see or hear anything else that might concern them. They refuse to acknowledge approaching danger. You are still here asking questions. A “full ostrich” doesn’t seem to be you. A “full ostrich” would have been long gone from this blog by now.
I believe geeez is correct. It will all depend on how the final regs come through and what agreement Canada may/may not reach regarding FATCA. The Canadian banks do so much business south of the border and they pay taxes in Canada, so there will finally be an agreement reached between our two countries. In the meantime, I think people like you and I and many others on the site, need to remember Steven Mopsick’s words – if we have had no contact with the IRS in decades then don’t start throwing tax returns at them. As Just Me implied above – sitting tight is not being a ‘full ostrich’.
Thanks for your clarifying comments re: full-ostrich. I now understand. I hope that I can make some meaningful contributions to the IBS. I have certainly been motivated by your experiences and the clarity of thought that all of you have expressed here. Stay tuned!
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US citizenship based taxation creates a second class of citizen in Canada. You can expect yet another division when those second class citizens are divided between those who are ‘out’ or not, perhaps pitting themselves against each other?
They cannot round up 1,000,000 “US Persons” in Canada, although some have rounded up 8,000,000 elsewhere. Watch my video again.
The moral argument is the best one we have Let’s use t!. Canadian are rightly and justifiably suspicious of the USA. Let’s play to our strength.
Great video! US Persons are already being rounded up in Switzerland and sent to special bank camps.
*Everyone’s friend Ms. Linda Beale is at again.
@Tim… I saw that over at BusinessInsider. Guess I will try a comment and see if she allows a counter opinion.
Well, I tried posting something in response to Linda. It either didn’t take, or is in moderation, I am not sure, so just emailed this to her…
I don’t know about the T-party, as last I looked they were not a coherent group with a spokesman or a platform. Rather they are just a lose amalgamation of old white men who love their medicare, social security, and the war industrial complex, but hate taxes and the size of government. So, let’ set aside that straw man.
The POINT about FATCA, from my perspective, is not support for Rich homeland tax evaders (or loophole avoiders) and Too Big to Fail Bankers, but opposition to the broader damage this Over-The-Top bill is doing to average middle class Expats abroad and the US economy as a whole.
The road to FATCA hell is paved with one good intention,(Stop Homeland offshore tax evasion) but the unintended consequences are disastrous in terms of how it is being applied, in my opinion.
As usual, Congress passes something in the dead of the night, do not read the details of what they are passing, have no understanding of their own citizenship taxation laws, do not constrain IRS unilateral actions with IGAs and domestic version of FATCA, and then wonder why there are all these unintended consequences like capital flight form U.S.Banks. From the Miami Herald, this story on Sunday http://hrld.us/QGX5Vv
Who in Congress gave them the power to create reciprocity tools to force recalcitrant Governments to go along with a BAD Bill, and join up with the OECD to create a global GATCA?? Is the IRS our masters, or our servants?
All of this trashing around in the last 3 years of IRS offshore jihad culminating with FATCA has been creating enormous anxiety and anger abroad for a mere $800 million of revenue per year? That is only a rounding error on our current deficit!! For that, I am pretty sure it has gotten about $800 Million of negative press, and has woken up about 6 million goodwill Ambassadors abroad and turned them into vocal critics and more anti-American than foreigners.:)
Never mind, that the 388 pages of regulations the IRS comes up to force FFIs to search out all U.S. Persons every where in the world is so complex and burdensome that it is estimated to cost $8 billion to implement. There are thousands and thousands of financial institutions which are supposed to become compliant, put these FATCA regs into place and directly report to the IRS even if their countries Constitutions, privacy and human rights laws forbid it. Of course, America has shown time and time again, it has no regard to any other countries laws.
Surely you understand how broad the definition of a “U.S. Person” is. The measures necessary to find them and report on them by FFIs as compliant little IRS tax agents is not an easy task. If these actions were just limited to US homeland resident tax evaders, that might make more sense and be more workable, as that is how the rest of the world operates, but not America.
Of course Congress never does a cost versus benefit analysis on anything they do!
Do you think the already shaky banks in Europe need this additional head ache right now?
Do you have any idea of the size of the FATCA Compliance Complex that is being created on the back of this extra-territorial over reach? What is the cost of that? Where is the benefit, except in the jobs being created overseas amoungst the Big 4 accounting firms, International tax attorneys and accountants?
What happens if a significant number of institutions around the world decide not to be compliant and set up a cartel that just avoids any investment in any U.S. financial products? What is the systemic impact of that?
What if compliant and non compliant FFIs can not longer transact with each other for fear of the 30% withholding penalty on pass through payments? What does that do to international commerce and global financial transactions?
What if this global monster that they are trying to create leads companies to stop doing business with American partners, so their financial details don’t have to be revealed to the IRS? What is the homeland job impact of that on the export market?
Do we have to wait for the books to be written 20 years down the road to explain to us the collateral damage consequences like we did with the repeal of Glass Steagall and the CDO and CDS derivative toxic assets after the financial melt down?
Will there have to be a new chapter in the newest edition of “All the Devils are Here” by Joe Nocera?
Maybe your readers would like to read the letter the Senators sent to Geithner rather than just the characterization in your blog. Here is the link. http://bit.ly/MYowMF They can ponder the contents themselves.
In my opinion, it is way past time to slow down the FATCA fanatics in DC and the OECD a bit. We need to get some level headed discussion going to either repeal it, or significantly modify it to be more modest in its global aspirations.
The Empire is biting off way too much on this one! The IRS is becoming way way way too big and over extended. It can’t even shut down child tax credit fraud at home properly, or make Government workers pay up past due taxes, and now we want it to be chasing phantom income of U.S. Persons around the world? Frankly, for such a BIG policy change, why has there has been no discussion in America as to whether or not its Citizens support these actions?
We have had big public debates on Obama Care, but nothing on OBAMA Global Tax and Reporting initiatives and I would say the later is worse for the world’s economy than the former.
The establishment media have been mostly silent on FATCA, and whether you support it, like I think you do, or you oppose them, like I do, what should be unacceptable to both of us, is that this should all be happening under the radar of the 99% who have no idea what is being created, but will surely be impacted!
Where is the public debate and discourse? Not very many Americans read these specialized blogs on the most complex tax system in the world, or have any idea of the current Global mission of the International Revenue Service. It is time they know, before it is too late.
*@ Just Me
Great post, and it is there now, in it’s entirety.
*No it did go through went through. Check out my piece about Ted Cruz.
@JustMe. Very thoughtful post to Linda Beale. Thank you.
Within 1 day of the first domestic bank withholding 30% of the funds transferred to another domestic bank there will be a lawsuit(s) filed. (unless there is a change in domestic banking law fiirst)
I cannot imagine any court not telling the first bank to pay the funds in full, nor will the courts allow the first bank to not transfer the funds. The banks will be faced with the prospect of paying the US govt 30% AND having to transferring the all the funds.
The banks will quickly opt out of FATCA and the client will have to deal with the US govt regarding any deductions at source.
If anything kills FATCA it will be this.
@Just a Canadian, you’ve given me a boost in the hope/morale department, just when I needed it. thanks!
@Just a Canadian
I hope we don’t have to wait until then, but you may be right!
Thanks. Sometimes it feels like these comments back to FATCA apologist accomplish nothing, but then, I think… well, maybe there is some lurker out there that has their mind changed, and so it is worth the effort. I just wished I was faster at it, and had an editor! LOL
That provision is not set to come into effect until 2017, and its still unclear exactly what transfers are affected. Regardless it will get very ugly.