While FATCA was signed into law in 2010, many of the rules didn’t come into effect until 2013. Now many US Citizens living abroad are feeling the effects of FATCA. Also a ‘blowback’ effect has occurred, many foreign institutions not willing to deal with the complexities of the new rules have simply chosen to ban US Citizens from opening accounts. Some banks have even force-closed US accounts in order not to deal with aggressive US regulators and the IRS. Now it’s being observed that while the intent of FATCA was to drum up revenue for a dwindling US reserve, in actuality it’s raised little money and has damaged the image of the US abroad.
But in reality, that proposal—the “Foreign Account Tax Compliance Act” (FATCA), signed into law by President Obama in 2010—is inadvertently making life more complicated for any number of honest, law-abiding U.S. citizens living and working overseas by imposing onerous reporting on both financial institutions and taxpayers.
“It’s a monstrosity,” Steven R. Horton, a Paris-based tax accountant who works with expatriates, says of the law’s reporting requirements in the New York Times. “It compels every taxpayer to try to find a way that they’re guilty of some kind of omission.”
And in response, many of those U.S. citizens are jumping ship.
In August, the Wall Street Journal reported that based upon a review of Treasury Department quarterly data, record numbers of Americans are renouncing their citizenship. In the first six months of 2013, a total of 1,809 Americans had renounced their citizenship.
Nor is it likely that FATCA’s high costs will be offset by significant revenues collected from the “tens of billions” lost to overseas tax evasion each year. In introducing the bill, Senate and House sponsors noted that the new reporting requirement would bring in an estimated $8.5 billion over the next decade—less than $1 billion per year. It is uncertain how much will be lost as U.S. citizens renounce their citizenship to escape the law’s onerous requirements and penalties.
Senator Rand Paul has called for the repeal of FATCA. So far it doesn’t have much support in Congress, but even if it’s repealed, the damage to the US abroad may already be done.