The ultra-conservative US Supreme Court does not shirk from giving controversial verdicts on abortion, gun control and climate change that can shock the nation.
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And critics suspect another shock-jock verdict is on the way for the millions of US expats living overseas who may not realise they are dual-American citizens responsible for filing complicated tax returns even though they owe little or no tax or have never set foot in the United States.
The case under the spotlight is Alexandru Bittner v the United States of America.
Bittner is a businessman with dual citizenship of the USA and Romania. He lived in Romania and, due to his business, opened personal and commercial bank accounts there.
In common with tens of thousands of other Accidental Americans with links to the States by birth, he did not realise he had to file information about these accounts with the US Treasury each year on a form known as an FBAR or foreign bank account report.
$2.72m FATCA Penalty
Everyone connected with Bittner’s case agrees his non-compliance was unintentional rather than wilful, but that doesn’t reduce the penalties.
Judges have assessed his non-compliance penalty as $10,000 for each year he failed to file an FBAR – adding up to $50,000.
Another court set the punishment at $2.72 million, derived as $10,000 for each account he failed to include on an FBAR each year.
It’s up to the Supreme Court to steer a way between these two markers to set the appropriate penalty.
FBARs, the Foreign Account Tax Compliance Act (FATCA) and other financial legislation laid in Washington DC have long been considered unfair and draconian by expats and their supporters.
PFIC – The Worst Expat Tax Filing
Expats must file their forms, even if no tax is owed, as expats pay higher tax rates overseas than at home. But completing the forms and filing them on time is time-consuming and complicated.
And the worst is the PFIC. A PFIC is a ‘passive foreign investment company’ often harnessed by employers and expats as a retirement-saving vehicle. PFICS are standard investment wrappers in many countries outside the States, where the IRS considers them tantamount to tax evasion.
Many tax professionals consider PFIC paperwork the most complex and demanding to complete under the US tax code.
Other complications for expats arise from marrying a foreigner or running a business overseas.
Even the details of holding joint bank or investment accounts with non-Americans must be reported, while many foreign banks refuse to serve US customers due to FATCA and the cost of complying with the law.
US Expats Fight Back
According to many tax critics, the problem is US law which taxes individuals based on birth rather than residence. The USA and Eritrea are the only nations that tax citizens this way.
Some US expats are fighting back.
In the UK, American-born Jenny Webster is challenging the UK government for giving her personal and financial data to the IRS.
Founder of the Association of Accidental Americans Fabien Lahagre – US-born but lives in France – has helped many expats launch court cases against the US government.
One action is by 20 American expats from 13 different countries alleging the US State Department has violated international law by charging expats a $2,350 fee to renounce their citizenship.
The plaintiffs have called for the court to rule after holding back for almost a year.
One plaintiff, Miriam Kupper, said: “The delay is causing me daily harm. Every day the renunciation fee remains at $2,350 is a day that prevents me from securing financial stability and peace of mind. Justice delayed is justice denied.”
Victims Of Discrimination
“Because they have no social security number, many Accidental Americans are being denied bank accounts, mortgages, life insurance and start-up loans in their home country. Even Americans who have a social security number have been victims of discrimination by foreign financial institutions,” says the Accidental Americans website.
“In 2014, a Democrats Abroad survey estimated that the bank accounts of 1 million Americans living abroad had been closed because of FATCA. In addition, some Accidentals have been refused promotion to senior positions, and others have been hit with huge fines and back taxes for non-compliance with U.S. tax laws.”
Elsewhere in Europe, French politicians voted down a bid to cancel FATCA data transfers to the US if the IRS refused to send data about French expats to Paris. In the Netherlands, a court stopped a bank from closing an expat’s bank accounts under FATCA, while the European Union is holding talks in Washington about FATCA laws.
Expats Tire Of FATCA Fight?
There are some signs of expats tiring of the fight against factor. For example, the Association of Accidental Americans was recently forced to pull a money-raising campaign for another FATCA lawsuit.
Members complained the suit was an unnecessary duplication of current court action and an unnecessary financial burden.
FATCA FAQ
When was FATCA introduced?
The Foreign Account Taxation Act (FACTA) was introduced as part of other legislation by President Barack Obama’s administration in 2010, although there was a considerable delay between introduction and implementation.
How does FATCA work?
American expats automatically come under FATCA which enables the transfer of financial information between governments aimed at stopping tax evasion by the non-reporting of foreign held income and assets.
Expats do not have to do anything under FATCA – the reporting is carried out by banks and financial institutions with US customers.
How much has FATCA raised?
Figures to measure how FATCA performs are scant. At one stage, the IRS and State Department revealed FATCA had saved the country around $10 billion, but this was some years ago and not a currently reliable figure.
What’s the common reporting standard?
FATCA legislates for foreign banks to supply data about American customers to the IRS. The common reporting standard is similar to legislation enacted by more than 100 countries to promote similar information exchange between the tax authorities of more than 100 countries, excluding the US.
What is an Accidental American?
An Accidental American is American by birth but has probably only lived in the States as a child and has no personal or official links with the country. Most do not speak English, according to the Association of Accidental Americans.
Former British Prime Minister Boris Johnson was classed as an accidental American as he was born in New York but left as a young child.
Which countries signed up for FATCA?
The IRS lists 248 countries signed up to FATCA on a website.
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