What could be wrong with Congress trying to catch the bad guys, in this case, folks who use offshore tax havens to avoid paying their fair share of taxes?
It seems as if the legislation meant to catch tax evaders caught a lot of other folks in its net, too.
While it seems like a law designed to catch tax cheaters is a good idea, it’s implementation is making life difficult for the tens of thousands tax-abiding Americans residing abroad (including Israel) who now are facing difficulties at banks and foreign investment houses.
The Foreign Account Tax Compliance Act of 2010 (FATCA), imposed upon foreign banks and financial institutions the obligation to identify American account holders or face a 30% tax penalty.
Backdrop to FATCA
The U.S. government needed to raise revenues, and thought it had a good target: levying taxes on money hidden in accounts in foreign banks and financial institutions.
In order to go after these concealed assets, America needed to go after the banks and financial institutions that help hide them. Who would have thought it possible that America could flex its muscles overseas and force foreign banks to report their customers to a foreign government? Apparently the threat of extracting taxes and fines on the foreign institutions itself was a great motivator and Uncle Sam managed to remove the veil of secrecy on Swiss accounts when it successfully negotiated a settlement with UBS. In order to avoid criminal prosecution by the Justice Department, UBS paid a large fine and disclosed details about thousands of the bank’s American depositors.
The FATCA Legislation
FATCA imposes an obligation on foreign financial institutions to register with the IRS if they have depositors or conduct financial transactions with U.S. citizens or businesses. Registration includes an agreement to identify and report information about American-held accounts directly to the IRS.
Critics of the legislation, and particularly the foreign financial institutions, view it as an improper extension of the enforcement powers of the IRS into foreign countries. However, France, Germany, Italy, Spain, and Great Britain were the first nations to lend legitimacy to FATCA by agreeing to comply with the legislation’s mandates.
Impact of FATCA on Americans Living Abroad
Foreign banks are concerned about the additional costs to them associated with complying with FATCA disclosure rules. Rather than incur these expenses, foreign financial institutions are closing their doors to Americans living abroad.
As a result, it’s difficult for many American expatriates to find a bank or financial institution that is willing to do business with them. Americans living in foreign countries for legitimate reasons are being lumped with tax evaders and tax cheats by foreign banks that are wary of subjecting their institution to FATCA disclosure requirements. These Americans are being treated as criminals by foreign banks seeking to avoid FATCA.
In the end, the law-abiding American expats and foreign financial institutions are the biggest losers from the FATCA legislation, since the bad guys will probably find a way around the system anyway.
American expatriates (olim included) are being subjected to many new regulatory requirements by Uncle Sam. My new book, The Expatriates Guide to Handling Money and Taxes, discusses how expats can become compliant with the IRS and gives strategies for dealing with common financial problems faced by expats. Jewish Press readers can get the book at a discount by using the discount code JPRESS.
About the Author: Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning and investment services firm located in Jerusalem. He specializes in working with clients who live outside of the United States and want to maintain a U.S. brokerage account. Doug’s newest book, co-authored with Susan Polgar, about how using chess strategies to improve your finances, Rich As A King can be purchased at www.richasaking.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Contact at email@example.comThe author's opinion does not necessarily reflect the opinion of The Jewish Press.
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