Financial Adviser Jonathan Lachowitz of White Lighthouse Investment Management published the following editorial regarding FATCA on the The Wall Street Journal on Tuesday July 28th:
Managing personal financial issues is challenging for most people. For American expats, the normal complexities and expenses are compounded by a panoply of post-financial crisis legal requirements mostly relating to taxes and bank account reporting.
Even more challenges arise as financial institutions at home and abroad continue altering business practices to comply with the Foreign Account Tax Compliance Act (Fatca), making it harder for individuals to bank, invest, buy insurance, get a mortgage and manage their personal finances.
All of this is why many of us are advocating for legislative reform. I’m glad to say that another glimmer of hope, this time on a bipartisan basis, has emerged from Washington, D.C., this summer: the congressional co-chairs of the Americans Abroad Caucus, Reps. Carolyn Maloney (D-NY) and Mick Mulvaney (R-SC), are encouraging their colleagues in the House of Representatives to support a “same country exception” ruling to address some of the biggest problems with the implementation and enforcement of Fatca.
The same country exception, as envisioned by the overseas organizations backing its implementation, would exclude from Fatca reporting — for both individuals and foreign financial institutions — accounts held by U.S. individuals in the country where they are bona fide residents. For instance, an American who is a bona fide resident of Brazil would no longer have to report her financial accounts in Brazil on the Form 8938 (and hopefully the Report of Foreign Bank and Financial Accounts or Fbar). Additionally, financial institutions in Brazil wouldn’t have to report these accounts annually to the IRS; in effect, they’d deem Americans resident in Brazil as local and wouldn’t subject them to potential restrictions on local financial services.
The reason the same country exception is so important has mainly to do with how difficult it has become, since Fatca was passed, for U.S. expats to procure financial services — such as banking and investment management, insurance and mortgages in the countries where they live. Passage of a same country ruling exception should alleviate many concerns about access to financial services as well as some data privacy and security issues, if expats need to store and transmit fewer personal financial records.
Support for the same country exception is also coming from within the IRS. The National Taxpayer Advocate’s latest report to Congress lists the same-country exception as a key focus point to “mitigate the unintended negative consequences of Fatca.” A full repeal of Fatca still remains the goal of some individuals and organizations, of course, and Republican presidential candidate Rand Paul has been outspoken on the issue. But the same country exception would be a middle ground that would ease the burden on Americans living overseas while continuing to focus primarily on Americans living in the U.S. who maintain financial accounts overseas.
According to the IRS, as of 2014 various Offshore Voluntary Disclosure Programs targeting presumed hidden offshore wealth had brought in only $6.5 billion in taxes, interest and penalties since 2009, with about 45,000 “voluntary disclosures.” A large part of these totals comes from American expats who weren’t trying to hide money or evade any taxes but were non-willful in their non-compliance with U.S. tax rules. It’s a rather paltry amount, considering the zeal with which the laws and programs were introduced. If Fatca reporting doesn’t lead to a more dramatic increase in identifying previously undisclosed offshore taxable income, it would be reasonable to question whether the effort has been worth it. If nothing else, Fatca has highlighted the burdens the U.S. tax system places on overseas Americans. Hopefully, implementation of a same country exception will be a significant step toward comprehensive reform.
Co-Chairs Maloney and Mulvaney are rallying support in the House for a letter that will be sent to Secretary of the Treasury, Jacob Lew, and the IRS Commissioner, John Koskinen. The letter will ask the Treasury Department to implement recommendations from the Taxpayer Advocate for the same country exception. An extract from the letter follows:
“On behalf of the roughly eight million American citizens who live abroad, we write to express our concerns regarding several tax reporting requirements imposed on U.S. citizens living abroad that have created the unintended consequence of limiting overseas Americans’ access to legitimate banking services. We respectfully request that the Treasury Department adopt a recent Taxpayer Advocate Service recommendation that Foreign Account Tax Compliance Act (FATCA) reporting exclude financial accounts maintained by a financial institution in the country of which the U.S. person is a bona fide resident.”
Members of Congress and their staff are starting to listen more closely to the concerns of U.S. expats. This is an important element to getting any changes in legislation. Candidates for election realize that overseas Americans voting absentee could make a difference in close elections, which makes it an opportune time for expats to reach out to their lawmakers and ask them to support the same country exception.
Jonathan Lachowitz, the founder of White Lighthouse Investment Management of Lexington, Mass., and Lausanne, Switzerland, is a financial planner and fee-only investment adviser specializing in cross-border planning. Among prior pieces for WSJ Expat, he is the author of How Does Your Financial Adviser Stack Up? Take This Quiz and Find Out.
more recommended stories
Canadian citizen killed on a motorcycle accident in Isla Mujeres
An Ontario man killed in a.
Mérida among the Best Travel International Destinations
Time’s MONEY magazine announced its annual.
At least 50 million Facebook profiles harvested for Cambridge Analytica
Cambridge Analytica, the company at the.
Fitch confirms Mexico’s good rating, but warns of AMLO risks
The rating agency Fitch Ratings confirmed the credit rating of.
“Yucatan’s good public safety is attracting foreign direct investment”: Expert
“Just a few years ago, Yucatan.
Members of the “Antorchista” Mexican political organization march the streets of Mérida
According to estimations of the state.
Mexico, Inditex fifth most important market in 2017
The expansion and growth of the.
Explosions rattle Austin, Texas
A deadly string of unsolved bombings in.
Quintana Roo will have Port Facilities Protection Code
“As part of the security adjustments.
Mexico celebrates Benito Juarez “The Lincoln of Mexico”
Benito Juarez’s birthday (March 21) is.