MERRY CHRISTMAS: FATCA Drops Coal on the Doorstep of Americans Abroad

Merry Christmas to all of my readers and followers who celebrate this special time of year. I hope the joy of the season will follow you into the New Year.

Sadly, Christmas won’t be merry for many Americans abroad who are ensnared in the grip of “FATCA,” the notorious “Foreign Account Tax Compliance Act”.  Briefly, FATCA was introduced into the US tax law by President Obama a decade ago.  It was enacted in response to the revelations of Bradley Birkenfeld, a Swiss banker turned whistleblower, who revealed how Americans were hiding billions of dollars in Swiss banks and escaping US taxation.

FATCA was an unprecedented piece of legislation. It forced foreign financial institutions directly, or foreign countries (through their financial institutions) to reveal information to the US tax authorities about US persons having accounts at the institution. It has resulted in untold misery for many US persons abroad, especially those referred to as “Accidental Americans”.  These are often individuals who were born in the US while their foreign parents were working or traveling there. Being born on American soil results in US citizenship, like it or not.  These individuals often left  the US as an infant or young child.  Due to FATCA they were abruptly made aware—often from their banks—that an accident of birth has put them in the crosshairs of the Internal Revenue Service (IRS) who is waiting to see tax returns and “FBARS” being filed by these individuals.

Recent Case in the Netherlands – Thrown Under the FATCA Bus

The most recent case involves Ronald Aries, now 62 and a retired KLM pilot who grew up in the Netherlands. Mr. Aries was the son of a Dutch army officer temporarily in the USA. He was born on a military base in New Jersey and left the US when he was a few months old.  In 2018, he started to have serious problems with his Dutch bank, De Volksbank.  The bank demanded that he provide a US social security number in order that the bank could meet its FATCA obligations, or face having his account closed.

Mr. Aries sued De Volksbank in a Dutch court to keep his bank account open, rather than meet the bank’s demands.  The Dutch court just ruled that the bank may close the account even though the judge recognized that the situation in which accidental Americans like Mr. Aries were finding themselves with respect to their banks, was troublesome. Nonetheless, the Dutch court felt bound to uphold the laws to which it was bound under FATCA (the Netherlands signed a so-called IGA with the US permitting enforcement of FATCA).  The bank was reported to have expressed it simply had no choice since if it was found to be noncompliant with FATCA, the institution would suffer severe financial penalties that would eventually impact all of its customers.

No Surprise! Call to Action

The decision of the Dutch court is hardly a surprise. All attempts to date to thwart FATCA have failed – and there have been a number of them.

So, what should the “Accidental American” (indeed, not only the “Accidental”, but all US tax subjects who are facing trouble because of FATCA) do?  In my view, FATCA is not going away.  “Accidentals” and Americans giving birth abroad to children who “inherit” US citizenship from their parents need to face this head on.  (In my view, simply “not registering” a child who is born in a foreign country but who is a US citizen at birth due to his parent(s) US status, is not a great solution. It is far more preferable to plan for that child’s expatriation once it is age-permissible).

If it is possible to come into US tax compliance then compliance should be gained  This may not be as painful as people fear. You need to obtain full information and competent advice.

For many, compliance will be accompanied with the goal to immediately relinquish US status.  Currently, there are IRS programs in place to help such individuals come into tax compliance, including a more recent special amnesty program implemented in 2019 specifically with “Accidentals” in mind.  There is also the so-called “Streamlined” option, through which numerous of my clients have been successful without imposition of any penalties.

If you want to learn more, I have written many blog posts on these issues.  See the Categories page of my website and check out “Expatriation”, “Offshore Voluntary Disclosure” and “Streamlined Filing Procedure”.

I am happy to assist you and have years of experience behind me. I have been living and working abroad for over 3 decades and understand the sensitive issues surrounding the overseas American.  Email me to arrange a consultation. vljeker@us-taxes.org

Posted December 25, 2020

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