FATCA is failing to deliver as millions of Americans abroad ignore the law aimed at stopping tax avoidance, claim US expat accountants.
The Foreign Account Tax Compliance Act was introduced a decade ago and requires all US expats to disclose their overseas bank accounts and investments with a balance of $10,000 or more to the US Treasury and the Internal Revenue Service.
But although 9 million Americans are estimated to live abroad, just 2.2% – 204,000 taxpayers – have declared them.
And research by Bambridge Accountants New York revealed that only one in four of those who declared their offshore holdings made a full disclosure to both the US Treasury and IRS.
Americans abroad unaware of FATCA rules
Partner Alistair Bambridge said: “US expats can struggle with taxes as the law is complex. Introducing the added level of reporting your foreign assets twice seems to have missed most Americans living overseas.
“Many US expats are unaware they need to report all their financial accounts outside the US back to the US Treasury each year.
“These accounts are reported using the Foreign Bank Account Reporting form.
“Although it is intrusive, there is nothing to pay as long as the FBAR forms are filed – if not, the penalties can be severe.”
FATCA demands foreign financial institutions with US taxpayer clients to inform the IRS about their financial status each year.
Fines for flouting the rules
Taxpayers then file the FBAR form with their tax returns, which is cross-checked against the FFI FATCA reports to make sure US expats are paying the right amount of tax to the IRS.
Nearly 400,000 FFIs across more than 100 countries report to the IRS.
US expats who do not file an FBAR when needed face fines of $12,000 from the US Treasury and $10,000 from the IRS.
Taxes for US expats are based on citizenship, which means they still pay tax in America, regardless of where they live in the world and even if they no longer visit the States if have foreign financial assets in excess of $200,000 for single filers and $400,000 for joint filers.