This was proposed by Just Me and seconded by a few others so I thought we could take a shot at it together.
The basic idea is to create a one page (maybe two) tract that could be used as a template – something that could be adapted to the local circumstances. It could be sent to journalists, passed out during demonstrations or just emailed to people we know who are still very confused about what FATCA is, what it means, and why they should care.
Here are the latest updates as of September 17, 21:51 Paris time.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is an extra-territorial U.S. law that demands that all financial institutions in the world report to the United States’ Internal Revenue Service (IRS) the confidential account information of millions of people it classifies as “U.S. persons”.
What is a U.S. Person?
A U.S. Person can be a U.S. citizen, a Green Card Holder, or the citizen of another country who has a connection to the United States.
Here’s how you may have a US connection:
* born in the USA
* born outside the USA with one or two American parent(s)
* lived in the USA for a number of years
* visited too long in the USA in any given year
* married to a US person
* share signing authority on an account with a
Chances are very good that you, or someone you know, is a U.S. Person. That means FATCA affects you personally. Millions of people worldwide who do not consider themselves to be U.S. citizens are still considered U.S. Persons by the U.S. government even if they have never lived or worked in the U.S., are citizens of another country, and have never held a U.S. passport or Green Card.
But I’m not a tax evader or a U.S. citizen or Green Card Holder!
Under FATCA you are presumed to be guilty until proven innocent.
If your local bank suspects you are a U.S. Person, they will require that you prove you aren’t.
If you clearly are a U.S. Person, and your country has signed an agreement with the United States (called an “IGA”), then your local bank will send your account information to your local government who will then turn it over to the United States.
Under these agreements, this will happen even if your country has strict laws protecting personal privacy. So far the following countries have either signed these agreements or have agreed to do so: UK, France, Germany…..
What will the United States do with that information?
Under American law U.S. Persons are also U.S. taxpayers. Those who live outside the United States are required to file tax returns, bank account reports and pay American taxes. This is true even if the U.S. Person earns no income and has no assets in the United States.
You might consider yourself a responsible tax-paying citizen of another country but the United States sees it differently. If they think you are a U.S. Person then they feel they have the right to add you to the American tax base.
There are others ways they could use that information. If enough countries are bullied into complying then the United States government will have a master list in their databases of all the people (and their assets) in the world who have any connection however innocent to the United States of America. That sounds a lot like the recent NSA scandals where the United States spied on citizens of other countries.
FATCA is spying by other means.
But I thought FATCA and all those reporting rules only applied to the rich?
Not true. FATCA impacts ALL U.S. Persons: rich, middle, or low income .
The filing threshold for one form, the FBAR (Foreign Bank Account Report), is only 10,000 USD. This threshold is the total of all that person’s accounts (checking, savings, and retirement) combined – not the value of any one account. This means that even very low-income U.S. Persons must file and face stiff penalties – up to 500,000 USD and 5 years in jail – if they fail to do so. The American IRS can impose these fines even if the U.S. Person is too poor to file a tax return and doesn’t owe any tax.
I’m not a U.S. Person and I don’t have any connection to the United States. What does FATCA have to do with me?
FATCA impacts ALL citizens in ALL countries in three ways:
1. All financial institutions worldwide are affected by FATCA. The billions they will spend in compliance costs will be passed along to customers in all countries through higher FEES.
2. Local governments and local taxpayers will bear the cost of the staff and information systems required to implement FATCA in that country.
3. Existing privacy and anti-discrimination laws will have to be downgraded in every country in order to facilitate FATCA. This means that citizens everywhere can expect less protection of their privacy from their local government.
Part IV (What they can do about it)
Some ideas for this section:
Here I would point them to Isaac Brock first as a resource. As them to join us or pass the link around to people they know who are affected by FATCA.
Then we can list the other sites we think they would find useful: Maple Sandbox, ACA, AARO and so on.
You can be a covered expat and thus subject to the exit tax, but not have a tax liability because of the $640K exclusion. At least that’s my read of it.
I know why Phil Hodgen calls it a ‘happy goat’ because you’d have to have the stomach of a goat for it:
You become a covered expatriate under any of 3 conditions.
Your net worth is > 2 million. Your tax liability (not income) in any year is > 150,000 . You fail to file for the 5 yrs. prior to renouncing.
If you are a covered expatriate, you are liable to tax on any GAIN > $640,000. I don’t know any reason why a RRSP couldn’t use this exclusion. The biggest problem for most would be the paperwork which would be impossible.
When a covered expatriate finishes the back nine, there are problems for his/her executor if the executor has US ties. (A US resident, a trust co. and so on.) There would also be a problem for any heirs in the US.
If a potential covered expatriate has no ties to the US, there is no reason to pay an exit tax. There is precious little they could do.
@bubblebustin, I thought hard about your question. It’s not easy to answer because we can’t know for sure what’s in people’s heads. Brock is the only place I know of where people freely talk about how they feel about it and what they might do. To add to that I get private email and even anonymous letters.
What we can say is that the moment someone realizes that he or she is a U.S. Person that person is going to be looking at all the options and doing a private cost/benefit analysis. I think it’s fair to say that today there is more to think about than there was 2 years ago. It’s a very different situation now.
Shame and fear used to keep people from talking to others their newly discovered “non-compliance.” It’s very easy to bully people who are isolated – to make them feel that it’s their fault and tell them “get compliant or else.” To their credit the IRS didn’t used to do that – they only started really coming down on people at the end of the last decade. Talking to people who became compliant before 2008, they tell me that the IRS was very understanding and helpful. That changed (though there is some evidence I have that the international IRS offices are still pretty helpful and pleasant).
So the IRS and Treasury got tougher and less understanding but at the same time people started talking to one another and all the taboos around CBT, renunciations of US citizenship and so on began to fall.
So what does that mean for the poor guy or gal who just wants out and refuses to do the compliance paperwork and the IRS decides to make an example of him? If he’s middle or low-income or he’s a senior or a whole host of other things, he can go public with his story and there will be a very good chance that he will be heard – not just in the US but in his host country/country of citizenship and all over the world.
So under this new landscape the US Government (I think) would have to be insane to go after some 72 year old woman in France or a stay at home mother in Japan or any person well under the threshold for the exit tax. It’s going to look godawful to the world – looks like retribution or punishment, not “tax justice.” It would make them look small and mean – the powerful US government on one side and some very average law-abiding person with few assets who is now the citizen of another country.
Two years ago that story wouldn’t make a single newspaper or radio/TV program. Today, it just might end up on BBC world radio (tune in today, folks).
So, yes, I think that this new landscape means that more people will just dump the passport and say to hell with the paperwork. Nothing new about it either. As J.C. Scott points out this is classic “avoidance protest” and people have been doing that for centuries….
@Kalc: I don’t know any reason why a RRSP couldn’t use this exclusion.
Retirement accounts aren’t covered by the capital gains exemption. Congress wrote special rules in HEART that immediately tax their full balance on expatriation. These rules apparently cover RRSPs as well as 401k and other US-centric plans:
“… expatriation triggers the acceleration of the covered expatriate’s account balance in a wide variety of retirement plans. … the expatriate’s interest in any individual retirement account … will become immediately taxable. In addition, “any interest in a foreign pension plan or similar retirement arrangement or program” is included within the definition of a “deferred compensation item” … This would appear to include RRSPs, as well as other retirement savings arrangements common in Canada.”
Thank you. One must avoid being a covered expatriate.
I thought you were in the “tell the IRS to bite tires” camp.
Everyone has noticed I’m sure that there is a plethora of news articles about FATCA out there now (media interviews too). Remember when we were jumping up and down about even a tiny mention in the most obscure news source? Now it’s hard to keep track of everything and that has an upside and a downside. The upside is obvious — FATCA is finally creeping into public awareness. It can’t hide in the shadows, snapping up victims in silence anymore. The downside is that we might have trouble keeping up with all the latest articles. Up until now we have been able to maintain a rapid and prolific response in the comments sections but for how long? For one thing the latest articles pop up in various threads here and there in Brock and unless we read everything everyday, good opportunities will fly by and fade away.
QUESTION: Would it be worthwhile to have a thread dedicated solely to new FATCA “finds” where a Brocker could list an article URL, the name of the source and just a tiny blurb about what the article is about? (I need to know the source because I have a limited number of places that I can make comments.) It would have to be kept uncluttered with followup “chat” so a person could do a quick check everyday to see what’s new. This would put FATCA FINDS (CBT too of course) in one spot but of course I’d expect us to carry on with the regular discussions in other threads and continue to feature, in separate threads, the best of the articles. Any thoughts anyone?