US FATCA Laws Pass A Final Milestone


July 1 marked a milestone in the implementation of the US Foreign Account Tax Compliance Act (FATCA) for American expats and financial firms serving them around the world.

Although FATCA was passed by Congress way back in 2010, legal and political challenges have held up bringing the measure into full operation.

The Internal Revenue Service (IRS) has also delayed some of the legislation because US government online software and the ability of foreign financial firms to set up systems to identify US expats were lacking.

However, FATCA has finally jumped the last hurdle with the IRS setting July 1 as the date controversial penalties against financial firms failing to deliver their reports about US expats will start to bite.

Foreign financial institutions (FFIs) such as banks, investment houses and insurance firms must tell the IRS about the financial affairs of all their accounts controlled by US citizens every financial year.

Fines and tax penalties

Those that do not deliver the reports online face fines, a withholding tax of up to 30% of the value of their US dollar transactions and even a ban from trading on the American money markets.

These penalties would devastate a financial firm as they would effectively be barred from trading in US dollars, the main global default currency.

American citizens bear the brunt of FATCA, but the financial affairs of non-American spouses or business partners may also come under the law if accounts are held jointly with someone from the US.

Account controllers can also include US companies, trusts and partnerships as well as other entities.

Tax payers do not have to make any additional report to the IRS – only financial institutions.

How FATCA works

If their client is tax resident in the USA, the FFI has to report personal details, such as name, address, date of birth and social security information plus provide a financial statement for any account with a balance of $50,000 at the year-end or if less, any account that has had a balance of $75,000 during the year.

The rules are the same for US expats, but the balance figure is $200,000 instead of $50,000 and the rules have some flexibility for in-country accounts in the place where the expat is resident to try to minimise administration.

The information collected by the IRS is then cross-checked against tax filings by the account holder, who has to declare the same offshore accounts and investments on forms attached to their returns.

Any anomalies could signal a tax investigation by the IRS.

Millions of Americans affected by FATCA

Around 5 million US expats and millions more US tax residents are affected by FATCA. The issue with many is that although they live overseas, they still have to file tax documents with the IRS detailing their worldwide income each year.

The US is the only country besides the economic minnow of Eritrea on the Horn of Africa that makes this demand of citizens.

Just over 200,000 FFIs are registered with the IRS, along with more than 100 international tax authorities representing all the world’s major economies.


  1. The US has built a virtual Financial Berlin Wall to keep US persons in by punishing harshly those who have left – even those gone decades – all in the name of tackling US resident tax cheats with an account(s)/assets overseas. FATCA is part of this new Berlin Wall.

    JFK famously said in Berlin ‘we don’t need to build walls to keep our people in.’ Fast forward to the present day, and the US has done precisely that with its compliance and tax laws assuming all US persons live in the US, with extra penalties restrictions and disincentives for money, accounts, and investments in countries other than the US, even if you live permanently overseas and this money, earned income, accounts, and investments, are local to you.

    The US Constitution did not confine liberty and the pursuit of happiness only to those US persons resident in the US. In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with US Citizenship.

    The situation of US persons tax resident abroad:

    Double Taxation (county of residence plus US tax via tax treaty gaps)

    Without Representation (would never have agreed to it all)

    Without US Government Services (that US resident US persons may receive)

    Without a Care By The US Government For One’s Well Being (only about stick and compliance)

    With Unfathomable Compliance (obligation to overlay the 74,000+ page US tax code on top of the tax code of one’s country of residence – with inevitable tax treaty gaps through which double taxation flows through).

    With Excessive Compliance Cost (see above – it all requires highly specialized assistance and can’t be done with TurboTax, and you don’t use that because of the potentially bankrupting penalties (that US residents do not face for their everyday accounts in the US if not done right).

    With Excessive Compliance Penalties (The U.S. tax rules punish accounts and investments that are foreign to the USA. The compliance penalties for not reporting accounts right could be bankrupting even if no US taxes are owed)

    It is all UnAmerican, has nothing to do with ‘liberty and justice for all”, it is unfair and wrong!

    Any US persons living overseas caught up in this must visit the message boards of The Isaac Brock Society and Facebook Citizenship Based Taxation and American Expatriates Groups; and consider supporting the Canadian FATCA IGA Lawsuit and contribute to citizenshiptaxation dot ca.

    US citizenship should be about the greatest liberty in the world. Yet the truth is US persons living overseas are tremendously disadvantaged by the US government compared to nationals from all other OECD countries. The US should join the OECD and adopt Residence Based Taxation.

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