Behind the scenes campaigning and election pledges that are yet to come to fruition do not mean US expats can ignore FATCA.
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Lobbyists have joined under the banner of the RepealFATCA website to influence Washington DC policymakers to scrap the Foreign Account Taxation Compliance Act, but their tireless walking of the corridors of power has not seen any move to repeal the law.
For American expats, this means that obligations for tax filings are still in place and that banks and other financial institutions are reporting any accounts or assets worth $200,000 or more to the Inland Revenue service.
Although FATCA does not demand expats should take any action, they still have other special reporting obligations.
Depending on personal financial circumstances, these obligations can include filing a FBAR and FATCA 8938 every tax year.
Fines and penalties
US taxpayers must file a FBAR if they are signatories to a foreign account with a balance of more than $10,000 at any time in the year, while a Form 8938 details the total value of any foreign assets.
Failure to do so can mean fines of up to $10,000 and more serious penalties of the IRS suspects tax evasion is involved.
US expats should also look for potential tax traps.
Selling real estate can lead to tax on a capital gain in countries where private home sales are exempt from tax as the transaction does not generate foreign tax credits.
Foreign savings and investments that come with tax incentives can also create a tax problem with the IRS.
Trust-based schemes are often taxable in the US because federal law does not recognise the foreign trust as a legal entity.
The IRS says that since FATCA was introduced in 2011, more than 100,000 US taxpayers have paid more than $10 billion in previously undeclared tax.
Meanwhile, the Republicans vowed to repeal FATCA if they came to power in Washington DC. So far, President Trump’s tax musings and bills before Congress have not mentioned what will happen to the controversial law.
“The Republican Party Platform in the 2016 federal election put forward the position that the Republicans are for repealing FATCA because of its breach of privacy and unconstitutionality,” says the RepealFATCA website.
“The GOP-controlled Congress has yet to act. If the Republicans decide to fulfill their campaign promises, then it likely will be contained in the coming tax-reform legislation.”
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