11 May More from NYT on US Overseas Tax Reach: Will FATCA Fly? (Maybe.)
Here’s yet another long-ish story in the NY Times on the Foreign Account Tax Compliance Act, or FATCA, and how it’s cramping American citizens abroad. (How many tax stories get this kind of play? NYT must have some reader traction on this.) Remember: the US is the only country other than Eritrea that taxes its external citizens.
Dueling takeaways: More AmCits abroad are complying with related disclosure requirements (almost doubled in the last three years), so it is sticking. Or, the numbers of Americans abroad who are looking to renounce their citizenship is skyrocketing (one accountant says that her Middle-Eastern clients are “lining up to get rid of the US passport), so it’s bound to fail.
I suspect that there’s a hidden third group, one that would be understandably shy with NYT reporters: those who are non-compliant but holding on to their US citizenship, giving rise to a new class of “secret Americans.”
Of course, the IRS and Congress could just stay the course, enjoying whatever enhanced receipts result from the measure (note that the IRS is tripling the number of its “international agents”). Overseas Americans may not be politically well-organized enough, partly because they are dispersed electorally, to make a run at repeal.
But vignettes like this one might shift the balance (every cause needs its poster person):
Roy, 37, [is] a lifelong Canadian resident and citizen whose dual-national mother fears the U.S. tax authorities will target the modest savings account the Canadian government provides him as a developmentally disabled adult . . .
Roy’s mother, Carol, and her husband emigrated to Canada in 1969 and took citizenship in 1975, believing that they had thereby relinquished their U.S. citizenship, she said in a phone interview from Calgary, Alberta.
When she learned she and her son were still subject to U.S. taxes, she said: “I was just astounded, angry. It’s not the tax. I just really, really, really, really resent being painted — all of us who’ve chosen to live in whatever country — as tax-evaders, you know?”
Because she has signature authority over her son’s account, she is taxable by the United States for all grants and bond contributions that the Canadian government has contributed to her son’s savings plan, she said.
On top of that, the U.S. Consulate in Calgary told her she could not renounce his citizenship because, it said, he lacked “the legal capacity to form the specific intent necessary to lose U.S. nationality.” Roy, his mother said, “does not understand the concept of citizenship.”
Doesn’t sound very fair, does it? Might even violate international law, insofar as states can’t arbitrarily obstruct expatriation.