OK, this is not the most joyous subject but I am going to throw it out there because it has me worried.
The U.S. government passed a law called the Foreign Account Tax Compliance Act which very briefly will require Americans to report their assets (not just their bank accounts) to the IRS AND require foreign banks to report the account information of Americans at home and abroad to the IRS.
The additional reporting does not thrill me - I already file tax returns and FBARs - but, hey, this isn't the end of the world.
What really worries me is how my bank here in France is going to react to this law. Will they cheerfully comply? Or will they fire me as a client? Because let's face it I'm not a big client - I'm just a regular person with all the usual stuff you need to live like a checking and saving account. There are reports coming out of other European countries that some banks are closing the accounts of their American clients because the reporting hassle is too much - expensive and annoying.
The Canadian government has already fired back at the U.S. gov. I wrote a post about it with some good links here http://thefranco-americanflophouse.blogspot.com/2011/10/uscanada-tax-war.html
Anyone else concerned about this? American Citizens Abroad and other expat organizations are working to get the law softened or repealed. More info is here http://www.aca.ch/joomla/index.php
Americans - the new international banking pariahs... :-)
Thought I would leave a note here about the progress of the Isaac Brock Society. This is a group that was originally started by expat Americans in Canada and has since spread to American expat communities in South America and Europe. The goal is to fight FATCA and the demeaning way in which American expats are being treated by the American IRS through "amnesty" programs. Full disclosure - I started contributing there a few weeks ago and I am also a member of ACA.
This site http://isaacbrocksociety.com/ has now topped 50,000 views in less than 2 months. We are getting 3,000 hits a day. We have Canadians organizing to get the Canadian government to act. Those of us from Europe are talking about contacting MP's at the EU level (there are about 20 of them who have come out very strongly against FATCA). There is an on-line petition to be presented to American politicians. And finally there are folks we are watching the media closely and every time an article comes out, we are on it, correcting misconceptions about expats being "tax evaders" and trying to set the record straight. It's really something to see. The "2012 Tax Wars" have officially begun and if something doesn't occur to get this fixed, this will not end well for the US.
If you are following the 2012 Diaspora Tax Wars here is a very good resource that you might want to have a look at:
Taxpayer Advocate Service 2010 Report http://www.irs.gov/pub/irs-utl/2011_arc_internationalmsps.pdf
This report is up on the IRS website and gives a great overview of the U.S. tax system impacts citizens abroad and immigrants in the U.S. and abroad. They have some very harsh words for IRS enforcement efforts. Here is a good quotation:
"The complexity of international tax law, combined with the administrative burden placed
on these taxpayers, creates an environment where taxpayers who are trying their best to
comply simply cannot. For some, this means paying more U.S. tax than is legally required,
while others may be subject to steep civil and criminal penalties. For some U.S taxpayers
abroad, the tax requirements are so confusing and the compliance burden so great that they
give up their U.S. citizenship.
A recent IRS study of taxpayer needs and preferences showed that international taxpayers
may have a greater current need for irS services than the general taxpayer population."
"May" have a greater need? Yes, indeed....
Also if you are interested I've had some very good comments (and a ton of hits) on the Flophouse blog in response to my post about how U.S. tax law impacts "U.S. Persons"
http://thefranco-americanflophouse.blogspot.com/2012/01/consequences-of-being-us-person.html
For info - a group of expat bloggers from Canada, Brazil, New Zealand and France have come together and started a group blog about the U.S. tax system, FBAR and FATCA. It's called The Isaac Brock Society http://isaacbrocksociety.com/ and we are now getting over 1000 hits a day following articles in The Atlantic, the New York Times and the Wall Street Journal. We are following every news outlet and every site and we are commenting EVERYWHERE. Our motto is "Liberty and Justice for all U.S. Persons in Canada and Abroad." Check them out (full disclosure I am a contributor) and also an excellent Twitter feed by a guy in New Zealand called @FBAR_Compliant - fabulous source of links to articles in the media by Just Me. This is a fellow who is NOT a U.S. citizen but he nevertheless got in a world of trouble with the American IRS. He says that if he had any idea about U.S. tax law he would never have moved to the U.S. much less become an immigrant there. His story and the stories of the other folks at Isaac Brock are just mind-boggling. If this topic impacts you, check it out.
Some news about FATCA. Folks are waking up and boy are they mad. There have been articles in the New York Times, the Wall Street Journal and the Atlantic (Fallows is writing a series about it). American Citizens Abroad has succeeded in getting a lot of publicity and in Canada the dual US/Canadian citizens have the support of the Canadian government. Apparently so many inquiries about renouncing US citizenship were direct at the US Embassy in Toronto that they started having group sessions. German banks are starting to close American citizens' investment accounts in that country even if they are legal residents. The heat got so bad here in Paris that the Ambassador meeting with US expats here simply refused to discuss the issue even though the crowd was standing room only and a lot of people wanted answers. Hold onto your hats this is getting very ugly. I stayed up last night writing this post - The 2012 Diaspora Tax Wars with links to some of the more interesting organizations that are fighting this ACA, Isaac Brock Society and so on. Also a link to the Fallows series which is quite good.
http://thefranco-americanflophouse.blogspot.com/2012/01/2012-diaspora-tax-wars.html
What a mess this is. For info Ron Paul sent this letter to the Treasury Department saying what he thought of the whole business. http://www.bsmlegal.com/PDFs/FATCA_LUETKEMEYER.pdf An interesting read.
Wow, those are fantastic links, Kimarie. Thank you so much. I looked at a few of the letters. This is shaping up to be a real diplomatic disaster. I've heard that a couple of countries have already said "no way" and they are reported to be Australia, Japan and China.
What I do know is that my French husband will have a fit and strong words for our bank if any of his information is shared. He says, and I completely understand his position, that he is not an American citizen or Green Card holder, he lives in France and it is not the US government's business to poke around in what is his. I think it is also having a real chilling effect on our future plans. After getting more information moving back to the US and getting a Green card (or even citizenship one day) suddenly looks really unattractive. And that is really sad for me since I always thought that one day I might go "home". :-)
I found an interesting article quoting a representative from the French Banking Federation:
FATCA: Confronting a costly behemoth
Here's a quote from the article:
In the following panel discussion on the political and technical aspects of FATCA, Tania Saulnier of the French Banking Federation provided a summary of a French legal opinion on the incompatibilities of FATCA with French law. Under French law, banks and other financial intermediaries will need to get clients’ prior consent in order to process personal data. Without prior consent of account holders, disclosing information to the US tax authorities under FATCA would breach French banking secrecy. Getting consent from account holders is thus a key issue, and will be a lengthy and costly procedure for banks. In addition, applying a US tax on French territory is most likely a violation of French sovereignty. As Tania Saulnier pointed out this may even result in banks being sued by their clients.
Also found a site that lists letters to the IRS from organizations and countries around the world in response to FATCA:
FATCA: Responses to IRS
For info there is an on-line Repeal FATCA petition here http://www.signon.org/sign/repeal-fatca?source=c.em.cp&r_by=188650. Read some of the comments - quite amazing.
Also the AARO is reporting that the Foreign Earned Income Exclusion is once again under attack. Good story about it here: http://www.royalgazette.com/article/20111001/COLUMN07/710019936/-1
And finally there is a bill up for discussion in the House of Representatives to amend the Controlled Substances Act. Basically it would make it illegal for Americans to take controlled substances in foreign countries if those substances are illegal in the U.S. even if it is legal in the country where they are consumed. Interesting. Not sure how this would be enforced but the example they give of the sort of person who might get in trouble if this were passed would be college students in the US talking about going off to Amsterdam. More info here: https://www.popvox.com/bills/us/112/hr313
I read some of this stuff and I just feel like I've entered a parallel universe with a reality-distortion force field around it. :-)
You might find this interesting. I already posted links about Canada's reaction to FATCA. Here's one that talks about how the EU is reacting: http://www.stepjournal.org/news/news/also_in_the_news/european_commission_complains.aspx
Basically they sent a letter (the Semeta-Matolcsy letter) expressing their concern and containing a veiled threat as well - if the US does this many European financial institutions will simply stop dealing with the US market.
How credible do you think this is?
All I can say is... incroyable.
Alas, it is true. You must file a 1040 that includes all of your world-wide income. So, in your case, you must report the income you earn in France or anywhere else. It is completely independent of where you happen to be living. As Kimarie pointed out the US is one of the only countries in the world that has a citizenship-based tax system versus a territorial one.
You have to report but that does not necessarily mean that you owe taxes. There is something called the Foreign Earned Income Exclusion which means that you can exclude the first 91,000 U.S. dollars that you earn abroad. Anything over that is taxable. Also investment income is not excluded. So, for example, in my case I've never earned enough to owe money to the IRS until last year. Then we sold a rental apartment in 2010 and earned a modest profit (capital gains) when we sold it so I ended up paying a few thousand to the IRS for my half of the gains. To be clear this apartment was an investment paid for with money earned in France, was located in France, and made possible through a loan from a French bank. Oh and I paid French taxes on it too. Nevertheless to my astonishment I owed and so I paid up. Pretty amazing isn't it?
It gets better. Almost every year some politician in the US Congress tries to get the Foreign Earned Income Exclusion thrown out. If that happens then, yes, ALL of our foreign earned income would be taxable. That was one of the reasons I joined the ACA.
There is a really good book I highly recommend that gives you a quick course through taxes for American expats called Your US Expat Taxes Simplified by David McKeegan. This is a good place to start. I'd filed before but was completely unaware of the FBAR requirements until I read the book.
My husband is also French. While I've only been here a short time, I've been very careful not to put anything in our names jointly.
I must admit this information is so surprising to me. I assumed as long as I don't earn income in the States and am a permanent resident in France, I would not have to file taxes. I do earn income from the States, so I had planned to file anyway.
And are you really saying that if I earn income in France I must pay taxes on it in the States? That is insane! Tell me that's not true.
And by the way, my husband would love to have a green card, too; but one of the reasons we live in France is because that is near to impossible. I have children in the States and so it irks me that if I wanted to go and stay for more than 3 months, he could not stay with me.
Toni
Hi Dedene,
I hope so too. But I can think of one scenario where they might be motivated to cooperate.
There are at least 500 start-ups in California run by expatriate French. Now I think the French gov would love to get their hands on some of that money or at least have some idea of what these guys are up to. I could see the US offering a deal - you report on our citizens and we'll report on yours.
Which is why I think that this is not just some quirk of the US gov that has little or no impact on anyone else. If the US succeeds in doing this (helped enormously by better technology) then other countries just might decide that the Americans are on to something and decide to do the same thing.
It sounds like we are in exactly the same situation. My husband is French, does not have American citizen or a Green Card, and he does not own any assets or earn any income in the US.
I've filed myself for many years and had my taxes done by professionals last year. I'll pass along what the accountant said and what I have learned over the years:
-Foreign spouse's income is NOT taxable by the US. You could file jointly if you wanted to but it's not required (I always file separately).
-You pay on your half of the investments, rental income and so on. The rest is his and is not taxable by the U.S.
-On the FBAR (Foreign Bank Account Reporting) you have to list all accounts in your name and all the joint accounts and this is where it gets tricky.
To say that my husband is not happy at having any of his account information or his assets sent to the U.S. government would be the understatement of the year. He feels that this is an invasion of his privacy. If one day he does get a Green Card he's more than happy to comply but until then when tax time comes around every year we have a lot of conversations that start with "Your damn government..." I see his point. :-)
I freelanced while living in Germany and I made a good income so it wasn't so bad. I'm recently married and currently pregnant here in France so I haven't been working but if this were really going to be enforced, does that mean that I would be taxed on all things joint through my marriage? Our property and my husband's income? He says if that happens, they BETTER give him a greencard at the same time - haha!
Hi Kimarie,
I think there was one other country that had a citizenship-based tax system. Eritrea maybe? :-)
You're freelancing? Oh my I've heard that from a tax standpoint freelancing is just about as tough as starting a business abroad. Is that the case?
I did a post recently about how different countries manage renouncing citizenship and I came across a very good site written by two Americans who did renounce. Apparently it's still possible BUT you are required to be tax compliant before they let you go. Here's the site http://www.renunciationguide.com/Renunciation-Process-Step-By-Step.html.
Hi Toni,
I've been very happy with BNP Paribas if you are looking for a bank. :-) My understanding is that since I don't have a U.S. address I can't even get a U.S. bank account (thank you Patriot Act) if I'm thrown out of my French bank.
What's interesting is that the US gov seem to think that they can enforce it - the fines for non-compliance are staggering. They can't easily go after assets outside the US but they appear ready to seize what is within US territory. I hear the the EU is quietly protesting. Canada is the only country that seems to be prepared to openly argue about it with the U.S.
Here is Arthur Cockfield's piece in the Globe and Mail: http://www.theglobeandmail.com/news/opinions/opinion/the-coming-canada-us-tax-war/article2198931/
What do you folks think about his proposal?
This is especially discouraging news considering the US is the only developed nation that requires their citizens to file taxes from abroad - and if you freelance, you MUST file and PAY taxes, no matter your income. There's also a rumor that Congress is talking about even preventing Americans from giving up their citizenship so they can forever have a hold on us.
Hi Victoria,
I don't have anything very intelligent to add. I can't really imagine the French banks being overly cooperative with the US. Let's hope their traditional lack of concern keeps up for this too.
Have a good day!
Victoria, yes, this has me concerned also. While I've always been a law-abiding American citizen, I'm not a proponent of Big Government to begin with. And living abroad now makes it even more complicated. I still have an American bank account and have not yet opened a French bank account. (I"ve only been here a few months). This type of law makes me fear that I would not be allowed; and as you said, I need an account because daily life demands it.
I also find it a bit ridiculous that the US could pass a law requiring business entities in other countries to comply. Of course, they know they can't enforce it; but even to try it seems ludicrous. I hope this law is repealed on principle. And if I were living in the States now, I would feel the same way.