Carolyn Maloney and Mick Mulvaney, co-chairs for the congressional caucus for Americans living abroad, have shown support for a FATCA exemption on reporting of financial accounts in the country of residency for Americans living overseas.
A letter from the co-chairs is circulation among the House of Representatives, soliciting signatures before it is sent to Secretary of the Treasury Jacob Lew and IRS Commissioner John Koskinen.
“On behalf of the roughly eight million American citizens who live abroad, we write to express our concerns regarding several tax reporting requirements imposed on U.S. citizens living abroad that have created the unintended consequence of limiting overseas Americans’ access to legitimate banking services. We respectfully request that the Treasury Department adopt a recent Taxpayer Advocate Service recommendation that Foreign Account Tax Compliance Act (FATCA) reporting exclude financial accounts maintained by a financial institution in the country of which the U.S. person is a bona fide resident,” the letter said.
Recently, the IRS’s own National Taxpayer Advocate Nina Olson suggested merging the overlapping reporting requirements on multiple forms into one form and changing the rules for identifying and reporting accounts for Americans abroad when they are resident in the country where their financial account is held.
This type of “same country exemption” would allow FATCA’s legislative goal of catching wealthy tax cheats but alleviates Americans living abroad and needing legitimate personal banking services from the onerous reporting requirements of FATCA.
FATCA requires all non-U.S financial institutions to report directly to the IRS the private financial information of U.S. clients with accounts of more than US$50,000. Noncompliant institutions are penalized with a 30% withholding on U.S.-dollar wires to their bank.
The FATCA requirements of foreign financial institutions has caused many to simply close any American-held accounts and not take new U.S. clients.
The United States is the only developed country that collects taxes based on citizenship instead of residency. The only other countries—developed or not—to tax nonresident citizens based on worldwide income are Eritrea and China.