Starting in 2014, the Foreign Account Tax Compliance Act (FATCA) will require foreign financial institutions to report on accounts held by US citizens. This means foreign financial institutions such as local banks, stock brokers, pension funds, insurance companies, etc. must to report directly to the Internal Revenue Service (IRS) all clients who are “US persons” (citizens and green card holders living in the USA or abroad).
What is more, FATCA requires US citizens who have foreign financial assets in excess of $50,000 to report those assets on a new Form 8938 beginning with fiscal year 2011 tax returns. Penalties for non-willful failure to report can quickly amount to $50,000. This is the penalty for simply, innocently even, failing to include an asset or account that the IRS believes qualifies.
Of course, one fear that is coming to fruition for many is that banks are going to drop their US clients to cut compliance costs and indeed many US citizens have already had their foreign accounts closed. And foreign banks, insurance companies and financial institutions have started to refuse Americans as clients.
According to American Citizens Abroad, FATCA “… will have a devastating impact on the U.S. economy, U.S. financial markets, American businesses operating abroad and American citizens who work and reside overseas.”
Significantly, foreign investment in the U.S amounts to $21 trillion and $10.5 trillion of this is invested in US securities. A recent KPMG survey (PDF) indicates that only 36% of financial institutions will comply with FATCA leaving 64% still considering divesting out of U.S. securities. If even a fraction of those foreign investors divest the loss to the U.S. would be in the trillions of dollars.
FATCA should be repealed. Reporting on foreign accounts simply because they are held overseas is discriminatory.
If you are an Americans abroad or know any Americans abroad, write to your Congressmen and encourage all of your American friends, both abroad and in the U.S. to join the write-in campaign lead by American Citizens Abroad. Click on the link for a model letter.