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Thursday, January 5, 2012

The 2012 Diaspora Tax Wars

It appears that the U.S. government has finally done something so annoying to the American Diaspora that they are actually organizing and their fury and frustration is something to see.

The issue at hand is FATCA (the Foreign Account Tax Compliance Act) which would require foreign FFI's (banks mostly) to report the accounts held abroad by U.S. citizens.   On the citizen side (folks like me) there is a new form to be filled out to report foreign financial assets over $50,000.  This Form 8938  is in addition to (not a replacement of) the already little known and often misunderstood FBAR (Foreign Bank Account Report).  Between FBAR and FATCA the reporting requirements are onerous and the penalties draconian.  Non-compliance can result in a foreign entity's assets in the U.S. being seized and for American citizens they run the risk of having their life savings wiped out if they are audited and found wanting by one of the local IRS agencies abroad in Frankfurt, London, Paris or Beijing (yes, the American "fisc" is quite the international organization.)

FATCA is a road to hell in the service of at least one good intention.  The original purpose seems to have been to expose American citizens living in the U.S. who might be hiding taxable assets abroad.  Somehow in the making of this law it escaped the notice of Congress that there are around 6 million "regular folks" (Americans who live and work abroad as teachers, managers, nurses, and so on) who are directly and adversely impacted by it.  An American living in London does not have bank accounts there to evade U.S. taxes - he or she has them in order to be able do manage such mundane tasks as getting paid and saving for retirement or paying rent and buying food.  One very concrete and unfortunate consequence of this law is that European banks are dumping customers with U.S. citizenship as fast as they can.  I can only cringe as I imagine the reaction of an overseas Americans to the news that he is no longer a valued customer but an annoyance to be reluctantly, but firmly, cast off lest his bank suffer the unpleasant attentions of the American IRS.

The heartening news is that, for the moment, their host countries seem to be on their side.  Canada and the EU have already expressed their "concern" about FATCA (which I think is a diplomatic way of saying "Are you out of your minds?").  Many countries would have to revise their privacy laws to comply and there is no real benefit to them since U.S. banks do not seem inclined (and are under no obligation) to share the names and account numbers of their citizens hiding money in U.S. "low-tax" states.

However, Americans should not count too much on their host countries' support.  I think it is very likely that one of the possible results of FATCA is that the U.S. government will make deals with other countries (over the heads of the U.S. states) to make U.S. account information available to foreign tax agencies. This would give foreign governments a stake in the game and a real incentive to pass their own new data collection and tax laws for their own diasporas. I believe it is already illegal for a French to have a foreign bank account abroad if he/she has not reported it to the French government. It might be very interesting (and perhaps quite lucrative) for said government to get their citizens' account information from, say, California...

As the deadline for implementation approaches, American citizens abroad are waking up and they are both fearful and furious.  FATCA was the just the trigger and now there is an avalanche of discontent about a whole host of other issues:  voting rights, discrimination, double taxation, citizenship rights, lack of representation.  To get a feel for some of this anger I invite you to consult this selection of articles and sites:
A truly depressing read but, please take heart, because there is something that can be done about it (above and beyond venting your spleen on an Internet forum.)  We are 6 million U.S. citizens abroad and we may not live on U.S. soil but we most definitely still have certain rights and one of those is the right to vote.  Yes, every U.S. citizen wherever he or she is on this planet has the right to vote in the upcoming presidential election.  2012 will be a close race and overseas Americans can make a difference and send a message.  To find out how easy it is to vote from abroad go here.   And then get yourself registered and have that absentee ballot mailed to you.  Just do it.  Hiding our heads in the sand and pretending that Washington, D.C. does not exist is no longer a viable option.

24 comments:

Anonymous said...

An added wrinkle, especially relevant in Canada, is that many persons are being caught up as "US persons" who really are not, except in a legalistic sense determined by the US government. Hence, a person born in Canada to Canadian parents is a "US person" if he/she has one parent with dual citizenship. Likewise someone born in the US to Canadian citizens, even if they left the US as infants. For those who take out Canadian citizenship, it is nearly impossible to shed US citizenship. Those with assets over $2 million, including home (not me, but that's no longer all that rich), are required to pay the US 50 percent of their total net worth, including home. This is in flagrant violation of article 15 of the Universal Declaration of Human Rights, to which the US is a signatory.

Victoria FERAUGE said...

Thank you very much for stopping by and leaving the comment. What you said is also quite relevant here in France. I met one of these "accidental Americans" at the US embassy here one year. He had born in the US to French parents and went back to France as a baby. He was informed that he needed a US passport to enter the US. He was in shock and very very upset. If this sort of thing became common knowledge in France (that the US was trying to claim French citizens for tax and travel purposes) the outrage would be heard around the world.

Interesting what you said about the difficulty in shedding US citizenship. I'd heard something about an exit tax but didn't have the details. Amazing.

I'm assuming you are from Canada. If that is the case I'd like to say that I'm counting on you folks. Your numbers (US citizens or duals) combined with your close proximity to the US makes you much better positioned than those of us in France or even Europe or Asia to fight this thing. I heard that the US Ambassador to France won't even answer expat questions about this matter. The best of luck to you and if you need a testimonial from an American emigrant in France to show that this is a worldwide issue, count me in.

Victoria

Peter W. Dunn said...

Bonjour. Merci de nous avoir mentionner.

Please contact me at pwdunn at barnabasventure dot com. I'd love to invite you to cross post your relevant blogs at Isaac Brock in order to get the French perspective on this mess. Thanks, Peter W. Dunn

Victoria FERAUGE said...

Bonsoir,

You're most welcome. You have a fine site though I must say that the more I read, the more my blood pressure rises. I must have gone though at least one pack of cigarettes.... :-)

Victoria

Anonymous said...

Add to this - you only have to be a signatory to an account for the whole of that account's assets to be considered a target for IRS attention. If you have a joint account, or are in business with a 'foreign' national in your chosen country of residence, then all of the assets of that joint venture are now American. Also if you fail to file FBAR or FATCA returns - even if you owe no tax to US - you are liable to large punitive fines from the IRS, and potential confiscation.

Good luck on the voting side - 6 million is less than 2.5% of American citizens of voting age, but over 6% of those who actually voted last year

Victoria FERAUGE said...

I live in hope, sir. I live in hope. American vote in such small numbers in the US anyway that perhaps a large number of very visible absentee ballots arriving in US states from overseas might make them sit up and pay attention.

For those of you who might be reading this and thinking that this is just an American problem concerning only US citizens or duals, think again. I read in this Forbes article http://www.forbes.com/sites/danielmitchell/2011/12/30/obama-has-united-the-world-in-opposition-to-bad-u-s-tax-policy/2/
that my suspicions are correct. There are some countries who think that maybe the American government is on to something. Sure we'll let you go after your citizens in our country if you'll let us go after our citizens in yours. Oh my!

Peter W. Dunn said...

I realized my bad french spelling after the fact. Tant pis. But I actually speak french as my second language and love visiting there--french cheese and wine.

Victoria FERAUGE said...

Peter, I know your pain. After nearly 20 years in this country my spoken French is fine but my written French degraded over the years. Once I got out of school and started working I found that I never had to do much more than powerpoints and emails. However I have been told that I will be required to take a written French exam when I apply for French citizenship so I am setting aside some time each day to study French grammar. I highly recommend Le Petit Grevisse. As you can imagine my Frenchlings are highly amused by all this....

Peter W. Dunn said...

It would be nice if you could use a grammar and spell chequer on the French exam.

My friends' frenchlings make incessant fun of my accent when I speak French (which isn't bad at all, if I do say so myself), to the point where I made up a story about how French was invented in Alaska where I grew up and exported to France. (Alas, the little brats never believed my story!).

Just Me said...

Victoria,

What a joy for me to find your blog and read all the stories that I too have been following and trying to help get coverage in the media

I have been persistently pestering James Fallows for some time, and have to give him a lot of credit for his tolerance and consideration of a long list of unsolicited emails. He is a very nice man, and remarkably responsive to your comments which is better than most journalist/opinion makers. He even provided advice on narrative construction.

I was anxious to get this subject discussed in the Progressive media. It needs the light of day there as well as in the Conservative media. It really is a non partisan issue, in my opinion, but I feared that it would be regarded just as right wing conservative demigod bashing of Obama and then not get a fair hearing by my more liberal friends. They would reflexively jump to defense of these misguided policies which have been created to go after the “wealthy” tax cheats.

Keep up the good work educating those that are seeking light on this subject. The discovery process is a painful one and a long journey to get ones head around, but you have done a pretty darn good job with your synopsis here. I especially liked and have tweeted your quote, "Fatca is the road to hell in service of at least one good intention." Hope you don't mind.

btw....Peter Dunn is doing a great service on his Canadian blog, and he occasionally re-posts my emails to journalists. When I started my Reporter "attention getting" quest via email, there were no stories being written except in specialized blogs, but that has certainly changed now, and let's keep it going.

ACA has been great in working the media and maintaining a great resource web site. Good people there. I have learned a lot from them. I volunteer as much time as I can to assist, as they have been very helpful to me.

Here was the first success at breaking into the news…

Title: Taxpayers with overseas accounts seethe at penalties, by Amy Feldman

Maybe your readers who haven’t seen it will be interested.

http://reut.rs/uwDMt9

NYTs and WSJ articles then followed.

Here is a new opinion piece at the conservative Washington Times.

http://bit.ly/AnCvwk

Also today, the rating agency Fitch is paying attention to the FATCA issue.

http://bit.ly/wAuAD3

btw What they are reporting and lumping together as FATCA is the IRS unilateral attempt via regulatory powers to force US banks to disclose non-resident clients to the IRS, assumedly to give information back to foreign tax offices. I think they are taking this action under the theme of "what is good for the FFIs goose is good for the US bank gander”.

Not surprisingly some Congressman are objecting. Don't you love the ironies of all of this? FATCA was a Congressional creation. The Statute came out of Congress in 2010 as part of the Hire Act. You can thank Carl Levin for this. Now Congress objects to this unintended turn of events.

Of course, what the IRS is attempting to do is co-opt the foreign country tax offices to support the IRS imperial reach into their banks for tax revenues from "US Persons" which can be dual nationals. If there is reciprocity of reporting on French citizens who are US banking clients in the US homeland, then maybe French tax officials will roll over on FATCA intrusions into their banks and mute their criticism. From a narrow IRS perspective, it is good strategy actually!

I call this DATCA, or D for domestic. It really is not part of FATCA, but it is understandable that a Reporters would lump the actions together as FATCA. Simpler story to tell. Frankly that errant reporting probably suites us well, as it makes FATCA seem even more draconian. It becomes a world wide cross reporting by all tax offices of all client banking transactions. Let the One World government conspiracy theories begin! :)

Read more about it here….

http://bit.ly/o8pywL

All the best

Victoria FERAUGE said...

Just me,

Thank you so much for coming by, reading and for your excellent comment. I also want to thank you for being persistent with Fallows and the other media. I was beginning to despair that any of this was ever going to get any serious media attention. Most Americans in the US are completely unaware that there are over 6 million Americans abroad. Since we are not part of the census there are no official numbers. Since we are required to vote through our last state of residence our overall numbers are diluted as each state counts its own "overseas vote'.
However psychologically difficult it is for the home country to admit to our existence, we are now in a position where we need to roar and make them understand that there is indeed an American Diaspora, 6 million strong and composed of "regular folks" who did not lose any of their citizenship rights just because they happen to live outside of the borders of the US proper.

I'm fascinated about what you say about DATCA. So it is true that the US government is trying to sweeten the deal with foreign governments? I am not surprised - it is actually a very clever move. There are over 500 startups in California run by French citizens and I am sure that the French government would love to have their account information. I am also sure that banks in the U.S. will fight this one tooth and nail. Inquiring minds want to know more - I will check out your links this morning.

And finally it appears that the PS (Socialist Party) here has taken note of American efforts. There are several initiatives on the table that would effectively create a special tax on the French diaspora abroad. Some of the PS are proposing that these French men and women show their solidarity with the French nation by paying a small percentage of their overseas income. They are also proposing to expand the "fisc" overseas to countries where there are long numbers of expatriate French. I'm researching it now and will write it up for the Flophouse and cross-post to Isaac Brock.

All the best to you and if there is anything at all I can do to get the message out further, just let me know.

Victoria

Just Me said...

Victoria.

You ask what you can do....Well, I would just encourage you or your readers to do what I have been doing for many many months. Old technology called email! :)

For every article I see on the internet on offshore taxation issues, VD programs or FATCA, I try to find the reporter email address and write the author, or put a comment on their article if that is allowed. I usually try to find the positive first in their story,(honey catches the flies) and then correct their mischaracterizations or reconstruct a narrative for them or redirect them to better information if that is necessary.

Frankly, the response level is low. It is discouraging at times. You have to be persistent and dogged. Sometimes you wonder what is the point, as you launch yet another email into the Ethernet with no hope of getting a response or attention. But nothing ventured, nothing gained. And then... you get a break through and one engages with you. That is what happened with James Fallows and Amy Feldman.

Also consider Twitter. Even though I hate social media, I have taken up fooling around with Twitter to see if it is a medium I can use to reach others and spread the word. Still figuring it out, and trying to see what works best and what doesn't. Knowing who to follow and who to target is a bit of a chore. I am "FBAR_Compliant" if anyone wants to follow me or add to the conversation there.

One good thing about Twitter, is that the 140 characters really forces a discipline on your expression, which in some ways is good. I tend to be too wordy, so I find I like the artificial restraint. I will see how it goes. Don’t know how long I will keep it up, but have captured the attention of a few reporters that I had difficulty getting email responses from, so maybe, just maybe, it will work. Although, when you see someone following 1650 Twitter accounts, you have to wonder what is the chance you will get through the Twitter haze. One liner jokes probably work best for attention getting, but I am not so good at that! Guess I better start learning. Also learning hash tags is very important, like #FATCA.

I admire what you are doing here with your blog. I probably should have done this long ago, but now with the good work at blogs like Isaac Brock, there is no need for me to launch another. I just occasionally contribute there.

And do read up those links I sent you, especially on what I call DATCA. Clever, those guys at the IRS on how they subvert to get their way. Here is the link to Congressman Charles Boustany, Jr., letter to Geithner complaining about the IRS unilateral action related to US banks. Never heard what the response was, and haven’t been able to get a response out of his office. Guess I will need to follow my own advice and be persistent and try again. :)

http://1.usa.gov/ty6cyk

cheers

Victoria FERAUGE said...

Martin, OK you've inspired (tempted) me to try Twitter. I'll be following your musings. I took a quick look and a lot of great links in there.

Some of the responses I've had via email on this topic were downright disheartening. I won't go into the particulars but much of it came down to "we don't see what you're complaining about" and "what's the big deal?" and "don't you have better things to do?" And this was from close family and friends, mind you. If I were a very paranoid person I might take this all as a signal that none of them particularly wish for me to remain an American - something that really hits me where I love.

Because one of the reasons I started this blog was to try to convey to the people in both my home and host countries some of the joy and anguish of being one of the "people who move around."

You are giving me some hope that, with a little persistence, we might just get it though some people's heads that we are not undeserving, unpatriotic monsters who should be punished for a sin that I was unaware that we had committed.

All the best,

Victoria

Just Me said...

Your comments about family and friends are exactly what I have run into also. They don't get it.

I have taken to sending them the comment from the Washington Times Opinion piece "EDITORIAL: Tax-haven wars." That seems to connect better with them. Makes it more personal as something they can relate to.


http://bit.ly/AnCvwk

Written 01/06/2012 01:24 AM, it starts with...

"Obviously many Americans with little or no international experience think that any bank account outside the US must be a US person trying to evade taxes.

Let me help people like Peterwise understand the situation a bit more.

What if you were born in California but moved to New York early in life. You live and work and pay taxes in New York for 30 years and one day you find out you were supposed to ALSO file and pay taxes to California, because you were born there and never formally renounced your residency! You are a California Tax Evader!"..........

As for Twitter, there certainly is a bunch of crap on there, I am slowly filtering out those that I don't have an interest to follow. I am then trying to target those that remain with the @ symbol, so it goes directly to their feed. At least that way I can see it got there, and with email you never know. Do they see it within their twitter haze? Don't know. Do they click on the links I provide. Again, don't know. Does it resonant. Probably not, but keep trying.

As for me, I don't have much of a following, and why would I? It is mostly celebrities and Big Name news personalities who do, but every now and then, a tweet I do, gets re-tweeted and suddenly the audience jumps up, if the subject has any relevance to that person's followers. Of course, relevance is the problem, as your family and friends show. Don't have the answers, except that I keep trying.

Finally, I haven't read enough about you to know if you are a dual citizen. See, I too get lazy.
I am sure you must have seen this posting on "Dominant nationality and why it matters" Something to muse about.

http://bit.ly/wlccIC

Cheers.
Marvin not Martin. :) but have been called worse.

Victoria FERAUGE said...

Sorry about that, Marvin.

I read the comment at the Times (looks like it is also up on Isaac Brock) and the analogy is absolutely brilliant. I think I will post it in its entirety tomorrow.

At this time, I am not a dual citizen but I have two daughters (The Frenchlings) who are and a French spouse. That any of them are impacted by this nonsense just makes me sick at heart. And I think that the moment I started to care deeply was when I realized how much my being a US citizen could hurt them. My family greatly underestimates the wrath of a mother trying to protect her children. I am however one of the lucky ones - there are stories of EU citizens who are proposing divorce to their Americans spouses.

Victoria

Anonymous said...

I am afraid voting for any of the Republicrats other than Ron Paul will be a waste of time.

A heavy surge of Renunciations is the best hope for sending a clear message.

Anonymous said...

Your site and Peter's are vital for many of us (us expats) trying to figure out what to do with these unjust laws and regulations .
Innocent, law abiding, citizens are now enduring damage from the very people who are supposed to protect us.

Victoria FERAUGE said...

Thank you so much for stopping by and for your comment.

When I first started writing about this I felt very alone and that most people were unconcerned about it. I've learned a lot since then and the very best part has been meeting other people who not only share those concerns but are actively working to do something about it. Gives me hope.

All the best,

Victoria

Victoria FERAUGE said...

Oh and I did want to add that Peter (Isaac Brock) and Marvin (Just Me) have become minor deities in my universe. What they are doing (and they are working so hard on our behalf) is just incredible.

My hat is off to you both.

Anonymous said...

Pretty interesting stuff. I am French. I had lived in the US for quite sometime when out of the blue, back in 2008, La Caisse d'Épargne sent me a US Person tax form and notified me that from now on, I would be considered a US Person for taxation purposes and would have to report my annual 150 dollars in dividends to the IRS. I thought it was Nicolas Sarkozy's government's fault but then realized that France was added to the list of countries that had a tax agreement with the US. Reading your article, I see that this is more complex that I imagined. Thanks for the info.

Victoria FERAUGE said...

That is fascinating. So the Caisse d'Epargne was au courant. I've talked to my banker here in Versailles and he had no idea what I was talking about.:-)

Anonymous said...

Oui, la Caisse d'Épargne était au courant mais pas tout de suite. Il me semble qu'ils ont attendu la signature de l'accord.

John said...

Some Americans abroad have long been aware of the problems caused by the US policy of citizenship-based taxation. The Association of Americans Resident Overseas (AARO)has been grappling with the issue for years. This non-partisan organization, based in Paris, even sends delegates to Washington every year to "educate" Congress and government agencies on the effects of this policy -- not only on Americans living and working overseas, but on the US economy. There's information on this and other issues on the website www.aaro.org.

Victoria FERAUGE said...

Hi John,

Yes, the AARO is a GREAT organization. I'm a member and I consult their website often. I'd encourage everyone reading to go have a look and join. I would love to get more involved with them but I live out in Versailles and it is not always easy to get into town for event.

Thanks for mentioning them and I think I'd like to do a post on their work soon. My sense is that people are looking for some way to take action over FATCA and other issues dear to us - this is one way to do it.

Voting, my friends, is the other. :-)

All the best,

Victoria