A growing number of Americans are renouncing their citizenship to escape a law that was designed to crack down on offshore tax evasion.
The Foreign Account Tax Compliance Act, or FATCA, requires foreign banks to report the assets of US account holders to the Internal Revenue Service. It was designed to go after wealthy Americans keeping money overseas to avoid taxes, but is also ensnaring regular people living abroad. Rather than risk steep penalties for failing to provide the information, some banks refuse to open accounts for US citizens at all.
This is particularly frustrating for so-called accidental Americans — people who are citizens of the US because they happened to be born there or because one parent is American but don’t have a connection to the country.
In response to European pressure, the US Treasury Department is planning guidance that would offer some relief to foreign residents and banks. The Supreme Court has also agreed to hear a case regarding the tax and compliance burden on expats.
But for some Americans who live abroad, it’s not worth waiting for things to change.
Denied Service
Julia Seiermann was born in the US to German parents, but remembers nothing of the first two years of her life there. Now she’s looking to ditch her citizenship.
The 36-year-old trade analyst, who lives in France, found out with her first job that she had to file tax forms to the IRS despite having no connection to the US. She has to pay 450 euros ($430) a year to her accountant and about $2,500 in taxes to the IRS for income from a rental property.
What’s worse, she can’t invest in local financial products, as French banks refuse to open even the most basic savings accounts to her.
“It’s really hard because I have my whole life in front of me and I’d love the possibility of working in the US, but this FATCA situation has made living in France and investing in my future impossible,” Seiermann said.
Under FATCA, foreign banks have to report a US tax identification number for every US client, something which accidental Americans often don’t have.
As a result, many banks abroad deny services to US citizens — including savings accounts, retirement funds, investing and lending — to avoid possible fines. Some Dutch banks have even closed the existing bank accounts of US citizens.
Meanwhile, an April review from the US Treasury found that while the law cost more than $574 million to implement, it only brought in $14 million in revenue through May 2021.
Ditching Citizenship
Joshua Grant, a 30-year-old communications engineer in Braunschweig, Germany, said FATCA was a major financial hassle and pushed him to renounce his citizenship in August.
“I just got married, and I can’t even have a shared account with my husband because I’m US-born,” said the Alabama-born American who moved to Germany 10 years ago to study and is now a citizen. “I can’t do retirement planning, write a will, or even buy a property at a decent rate without fearing expensive US taxes or banks simply saying ‘no.’”
Out of the approximately 9 million US citizens living abroad, about one in four have considered ditching their citizenship, according to the tax firm Greenback Expat Tax Services. For 40% of them, it’s because of the burden of filing US taxes every year.