Catch-22: Americans abroad have problems with local bank accounts

In an absurd manner the Obama administration has chosen with the passing of FATCA (Foreign Account Tax Comliance Act) to penalize almost ALL US Citizens living abroad while trying to close loopholes for tax cheats. This will of course have a profound long term negative effect on US export competitiveness, but the administration does not care. The penalties and the reporting requirements are draconian, and banks are responding by refusing to serve Americans living abroad.

Ellen Wallace has written about the effects of this on citizens who live in Switzreland. In Geneva Lunch she responds to an article in the Swiss newspaper Le Matin Dimanche:

Swiss banks are no longer accepting Americans who live in Switzerland as clients, a fact born out by nearly 80 personal stories registered with ACA (American Citizens Abroad), as well as numerous anecdotes that GenevaLunch has collected.David Treitel, a tax specialist quoted by Le Matin, says that 20 percent of his US clients have had to change banks…

The newspaper also states that there is a six-month wait for appointments to renounce US citizenship, for dual nationals who are taking that route to dealing with the growing problem of being American outside the US. But when GenevaLunch recently checked, the US Embassy was taking appointments for May 2012, 15 months away, and the waiting list in some other countries is equally long.

Other disincentives appear to be at work, such as insisting that citizens come in for a first interview, then return weeks later for a second meeting, costly for anyone at a distance from an embassy.

Nevertheless, Le Matin has drawn Swiss attention to a growing problem for a key group of foreigners in the country, where 22 percent of the population is foreign. The impact is not limited to US citizens: it covers anyone who has held a US Green Card as well, and nor is it limited to these groups living in Switzerland since it touches anyone outside the US…

Fatca’s deep, wide net will catch far more than fraudsters

Fatca is designed primarily to catch people who are illegally avoiding paying US taxes, but the net has been thrown wide and deep, prompting ACA to formally contest the legislation as details were drafted in 2010.

“Fatca aims to go after tax evaders by requiring massive reporting to the IRS on two fronts–first from all foreign financial institutions taken in the largest sense of the term and secondly from all US persons who have a foreign bank account, foreign investments or foreign trust,” the non-partisan group argues on its web site.

“This means that all US citizens residing abroad, who necessarily have a foreign bank account, will have to report on their 1040 all assets held in foreign institutions.” Congress has “created a reporting monster with Fatca,” argues the ACA. “It will cost billions of dollars for foreign financial institutions to comply and it will significantly increase the reporting compliance costs of individual US citizens residing abroad.”

The numerous provisions include:

  • impose a 30 percent tax withholding on payments either to foreign banks and trusts that fail to identify US accounts and their owners and assets to the IRS, or to foreign corporations that do not supply the name, address, and tax identification number of any US individual with at least 10 percent ownership in the firm (effective for payments made after December 31, 2012)
  • impose penalties as high as $50,000 on U.S. taxpayers who own at least $50,000 in offshore accounts or assets but fail to report the accounts on their annual income tax return (effective for tax years beginning after the date of enactment)
  • levy a 40 percent penalty on the amount of any understatement attributed to undisclosed foreign assets (effective for tax years after the date of enactment)
  • allow the Treasury Department to presume that a foreign trust has U.S. beneficiaries if a U.S. person directly or indirectly transfers property to the trust (effective for transfers of property after the date of enactment);
  • establish a $10,000 minimum failure-to-file penalty for some foreign-trust-related information returns (effective for notices and returns due after December 31, 2009).

The ramifications of the new Fatca legislation are only beginning to be felt, with Swiss banks and other financial institutions, including PostFinance, refusing at least some services, if not all, to clients.

One man who is getting close to retirement tried to move funds to a PostFinance account but was told that as an American investment funds are closed to him. PostFinance, as an arm of the Swiss government, which must legally respect Swiss banking secrecy laws, may have a tough time complying with Fatca legislation. Smaller banks, including regional banks, have said the cost may be too high.

American citizens who until now have hoped the passport application office and the IRS would continue to ignore each other while they try to understand the implications of the new legislation, or to become compliant with filing requirements they have learned about only in the past year or two, will be surprised to see the latest version of the passport renewal or application form.

It makes it clear that a social security number is needed by the government, and that the IRS will have access to passport form data.

UBS and Credit Suisse, with substantial commercial operations in the US, appear likely to comply with Fatca, but they are already known to have refused several US citizens as private clients.

Some US citizens, such as one who recently moved to eastern Switzerland, have had no trouble opening a Credit Suisse current account, but the bank knew she was a long-term employee for a major Swiss multinational.

Buying a home or investing through her Swiss bank may not be options, but at least she will know in advance, unlike US citizens with mortgages and retirement funds who have been told their accounts are being closed by their local, long-term banks, which happen to be Swiss.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>