The Foreign Account Tax Compliance Act (FATCA) requires U.S. taxpayers with money outside this country to report those assets to the IRS and pay taxes on the earnings. That’s not particularly new.
But it may have some unintended consequences — especially for those who haven’t been disclosing their accounts.
Seems the new law also requires foreign banks and other foreign financial institutions (FFIs) to turn over the records of their U.S. citizen customers.
So under FATCA, the FFIs may alert the IRS about all that money fat cats are trying to hide. (Curious that Congress couldn’t come up with a “T” word, like transactions or something, to make the acronym FATCAT.)
We’re hearing that, perhaps in response to the law, more U.S. citizens overseas are deciding to renounce their citizenship. That means the FFIs won’t need to report anything and people can keep their foreign accounts and not worry and be happy.
It’s not clear how many people have opted for this solution to avoid paying taxes. And it may be that many of these folks are dual citizens of places like Canada or England or Switzerland or other nice countries, so for some people the renunciations are no big deal.
For expatriates deemed not to be wackos and clearly acting without coercion, the loss of citizenship most likely will be approved.
The problem is that for U.S. citizens overseas, that could mean you would have to apply for a visa to get back into the States. And getting your citizenship back later may be tricky.
So it depends how much you think your citizenship is worth?