Ranting and Raving Mad - Second Class Citizenship

I am not a tax professional. I am an active member of AARO. As an active member, I was privileged to participate in Overseas Americans Week in February 2013.
If what I write below is erroneous, please send me a comment so I can correct it.

Let us start with FATCA and take a cool-headed look at how FATCA affects us US citizens (and non-citizen US taxpayers).

Depending on Intergovernmental agreements (IGAs), or their absence, foreign financial institutions must declare, to their government or directly to the IRS, the existence of your accounts and the amount in them. For bank accounts, they will not have to report holdings under $50000 and for other investment accounts, amounts under $250000. We, however, may be required to report these accounts, even if the banks do not. That depends on the total amount in our accounts and our filing status.

Single or married filing separately. If the total amount in all the accounts outside the US is not greater than $200000, then we do not have to file form 8938. If the total amount in all the accounts outside the US is greater than $10000, we must file form TD F 90-22.1 (the FBAR form).

Married filing a joint return. The threshold for form 8938 is $400000. For the FBAR,  it's still $10000.

So much for the filing requirements, which are simplified, here. If there is an exceptional short-term deposit which carries the total amount in the accounts above the threshold, there are other dispositions, and these are covered every year in the AARO tax seminars.

Many Americans abroad do not have to file form 8938. They do not have such savings abroad. That does not mean that FATCA has not affected them. It has made opening or maintaining accounts in the countries in which we reside difficult, if not impossible, because banks are reluctant to hold these accounts that will create such expensive reporting requirements, and in some countries, these requirements are contrary to local law on privacy. There has been a modification to the FATCA rules that requires banks to not discriminate against US persons, but it is not clear how that rule will be enforced. If you live abroad, either full time or part time, and you need a local account, FATCA has affected you.

Many Americans who live abroad do not have significant savings abroad because they have maintained an investment account in the United States. Now, US brokerages are closing or restricting accounts held by US citizens with foreign addresses. There's no law telling them to do this; it's their new policy. Policies from one brokerage to another are not consistent. The closures or restrictions seem to depend on the country of residence. There's no clear explanation, but it looks like it may be linked to which countries have entered an IGA with the US about FATCA. If any of us were thinking that we were lucky not to have to deal with the FATCA business because our money was still in the States, we are now stuck.

I'm going to skip the long diatribe about how the FBAR and FATCA filings affect us finding jobs, creating companies and partnerships, taking on responsibilities with associations -- anything to do with our having a signature on a bank account. Short story -- negative effect.

What are we to do? Where are we supposed to be investing our savings? How?

There is a second issue. Some Americans who live abroad do not have bank accounts in the US. Either they have never lived in the US, or they left and closed their accounts when they realized they would be residing abroad indefinitely. Since the passage of the Patriot Act, banks have refused to open accounts to US citizens who do not have a local address. This is not part of the law, but it is the policy based on the “know your customer” requirement. It is discriminatory. The workaround solution is to claim residence at parent's, sibling's, or friend's homes. In fact, the bank clerk might suggest this solution. In effect, they will know you to be a liar and that is okay. I have never done this. To claim one address to a bank and then another, foreign address, to the IRS, seemed hypocritical.

I have lived in France for over 40 years, having married a Frenchman while still a student. The money in the States has its origins in the States, from my very modest saving account and  mostly thanks to the success of my parents. It is not money that was earned in France and stashed in the US. Likewise, the savings my  husband and I have here in France originate here, our savings. I closed the checking account as I no longer used it; that was a mistake because when after my mother died, it would have been easier if I had a checking account, but I couldn't open one. (Well, the clerk did suggest I use a bogus address and I balked since the reason I could not use my French address was the "know your customer" rule!) The investment account is my sole account in the US.

Is it the intent of US financial institutions that we remove our funds and import them to our country of residence? I could do that. And I suppose, that over time, that is what will happen. Can you imagine what life would be like for US citizens who move from country to country (for work)? If they have not maintained an address in the States, they no longer have a home base.

My own dilemma is Fidelity Investments phone call this week warning me that I would be receiving a letter with the details of the new restrictions on my account: I can sell, but will not be able to buy securities. I will not be able to deposit new funds to the account. My investment account, in effect, over time, becomes a cash account in which I will only be able to withdraw funds, to my understanding. My children, who have accounts at Fidelity, are in the same predicament. The restrictions are linked to our living in France. What has France done, or not done, to warrant US financial institutions treating US citizens like this?

Please, do not imagine that money is my sole connection to the US. No, it is not. I still have family and I still feel American. I am proud to be an American. I am sick of America making me feel unwanted. I have been a member of AAWE and AARO, organizations that fought for our rights to transmit our citizenship to our children and grand-children and to vote, fought for more reasoned thought into how we are taxed by the US. I am sick to find myself telling my children it might not be such a good idea to burden their children with US citizenship.

Can financial institutions in the US have such discriminatory policies? Is it legal? There is no law, it seems, that imposes these policies; it's the instituion's new policy; like it or leave. But leave for where, since all the institutions are doing this? And at what cost. If I had to sell all my mutual funds and stocks in a single stroke, I'd have excessive capital gains taxes.

As I noted at the beginning, I am mad. My discourse is not as well-organized as I'd like it to be. I have already written to my Representative, Chaka Fattah, to my Senators, Bob Casey and Pat Toomey, to Representative Carolyn Maloney, who is the chair of the Americans Abroad Caucus and the House Committee on Financial Services and who is also the sponsor of HR597 To establish a commission to study how Federal laws and policies affect United States citizens living in foreign countries. 

You can support HR597. You can write to your Congress people: If you, yourself, live outside the US, this letter. And if you are in the US and have family or friends who live abroad, use this letter.

And to give your opinion on tax reform -- in favor of RBT (Residence Based Taxation) for we who live overseas, consideration of accounts in one's country of residence as local, not foreign accounts, elimination of FATCA requirements that are strangling financial services.... Or maybe you disagree.