OAW - Some personal thoughts

Here we are, the week has flown.  It's really time to write an update.  Aside from seeing our own Representatives' and Senators' offices, most of our meetings were concentrated on the tax and banking staffers of the tax, finance, and banking committees. We have also seen the National Taxpayer Advocate's staff, the Joint Committee on Taxation, Treasury,  and two of the Senate Banking Committee staff.

Will there be comprehensive tax reform soon? Unlikely. Just as residence-based-taxation is a concept that certain offices find attractive,  the consensus is that its time has not come, yet. It seems ingrained in American exceptional-ism.

Will FATCA be repealed? Well, Senator Rand Paul introduced a bill on Wednesday that would repeal at least some sections of FATCA, the sections that are an invasion of privacy.  John and Lucy met with Rand Paul's FATCA expert on Tuesday and were very impressed by him. In any event, as John says, the train has left the station. Many other countries have jumped on the FATCA bandwagon, so whether you call it FATCA or something else, automatic exchange of financial information will happen worldwide and, according to the people at Treasury, the discrimination will stop.

Could FATCA be tweaked to allow the “same country exclusion”? For the first time since we started talking about this idea (this is my third year and it was on the agenda before I started coming to DC on these OAW campaigns), it has been suggested that our local banks might not agree with it as it puts a burden on them to certify our “bona fide  residence”. We need to find out.

Can the threshold of the FBAR be raised? Who would be responsible for that? Treasury? Congress? It's a hot potato.

We are visiting the right offices. They appreciate our positions. They want us not to give up.

And what about bank discrimination on the part of US banks and brokerages against Americans with foreign addresses. Is it FATCA related? Does it have something to do with Dodd-Frank? The S.E.C.? We have never gotten an answer from the banks and brokerages. Can the Congressional offices get answers?

We do sometimes manage to slip in some of our other issues: raising the threshold of exclusion for social security income, for example, but this year is really dedicated to the tax and banking concerns.

What's next for AARO? We need to collect documentation that FATCA is the cause of discrimination against Americans with foreign accounts and we need to get documentation explaining the reason for US financial institutions discriminating against Americans with foreign addresses. We have the documents that show the discrimination, but very few say why. Send documents to banking@aaro.org. 

Making appointments for March

First of all, here's a picture of one of the Magnolia trees on our street, taken about 10 days ago, still at the beginning of the month! And in the States, it's still freezing! Unfortunately, that blue sky has disappeared in a haze of yellow smog. The sun comes through, but the sky is ugly. Details at any distance are blurry. The other day, from the library, just a block over from the Eiffel Tower, the tower was not clear.

High school mate, C, was in town last week and after work, she went off to tango. I accompanied her one evening, even though I don't dance; I watched the feet go by and was entranced. Another evening, she invited my friend R and me to come to the studio to observe the dubbing work. (I love that -- never get bored!) Then she and R went off to tango and I came home. They had a fair dance lesson, not great, but really hit it off and didn't end their evening of gabfest until almost midnight. 

AARO has the first of its two tax seminars during the week. I didn't need to go to 101, but because I am one of the event organizers, I did go. I always learn something, anyway. It motivated me to finish up my FBAR form, which I did just before opening the blog post. This year the FBAR must be done on the pdf form one downloads from the site. You can then fill it out on your computer, without being on line. I got out last year's FBAR so that I had all the bank info ready and I had already gotten the highest balance during the year figure onto my spreadsheet and converted into USD, so I was ready to fill it out. It still took almost an hour. Once it's filled out properly, you click on the "Home" tab of the file and it connects to the website for e-filing. You get a confirmation notice, which I printed up, as I also printed out my file. I don't know why I actually printed them -- old habits die hard -- I have the file and the confirmation saved on my hard drive. So, that's done. Next step is to try to get an estimate on my taxes, because I will owe more for 2013. I get an automatic extension for filing but still have to pay (overpay) by April 15, so I don't get stuck with a penalty.

During the week, I had to tackle the appointments for Overseas Americans Week. I was asked to hold off to start with, so I feel I got a late start. I wasn't as free as I had been earlier. I'm frustrated, because next week, it should be done -- then we go!

I'm getting excited about the trip. I won't see T&B immediately, during OAW, but will get a chance on the return leg. I'm staying an extra week in order to go up to Pittsburgh, family visit there, and then back to DC. J tells me we may get to go to the Pirates' season opening home game. I hope we can get tickets. And they've got tickets for the opera the next evening! Sounds great. 

A calmer view of FATCA

US citizenship-based taxation being what it is; FATCA, being what it is, I've been thinking more calmly on the subject of FATCA these days. For one thing, I've been compliant as far as tax filings and FBARs are concerned for a long, long time, so I don't personally have any particular problem with reporting. However, I do understand the panic over the terrible penalties others face, potentially, if they have not been compliant. Either they did not know of the FBAR requirement and since they did not owe any tax, they did not realize they still had to file their taxes. The program to bring them into compliance is not really conducive to coming it. It is also punitive and, in the case of people who would owe nothing, I think there should be a more lenient approach. And the taxpayer's side of FATCA declaration, the 8938 form, is a pain in the neck, almost the same form as the FBAR, but not quite and not with the same threshold amounts. It can be confusing. But I do it.

Another aspect of my calm is that I live in France and I think the the inter-governmental agreement (IGA) that was signed on November 14 between the US and France is fair. It doesn't answer all the questions, but it helps. It is a Model IA agreement. (Price Waterhouse has a summary of types of agreements and the particular clauses for each country, as well as how far along in the agreement process they are.) Without an agreement the IRS expects all foreign financial institutions (FFI) are expected to report on US persons who hold accounts. If they do not correctly identify all their US persons; if they make mistakes, then the FFI face terrible penalties. The cost of FFI compliance and the penalties have led many institutions to just not want to do business with US persons. That burns me up. If I lived in Switzerland, I'd be frothing at the mouth, because the discrimination would be extended to my spouse, who is not a US person. With an IGA, especially the Model II, the FFI report on US persons to their own government agency, which then reports to the IRS. Not only that, there are pages of particular rules pertaining to the country and, for France, that includes a list of types of accounts that the FFI will not have to report on, at all, and a time-table to introduce increasing amounts of information to be reported. 

In summary, from the AARO meeting last week in which John Fredenburger presented the IGA, it is set to take effect “when their necessary internal procedures for entry into force have been completed”. So, when is that? Is it a treaty that has to be ratified or does agreement mean something else? Assuming things are in place, the reported information with increase over a three year period from 2014 to 2016. The required due diligence on account ID is different below and above $1,000,000 worth. And most savings accounts, the kind with (French) tax incentives, the most common in France, including the work-related ones, are excluded from being reported by the FFI. There are still some questions about a very popular type of savings/investment account called Assurance Vie. Other accounts, like checking accounts an investment accounts, if they have above the threshold amount in them, will be reported. 

Now, the FFI in France will be reporting on some, but not all accounts. That doesn't mean that I, as the US tax-filer, will not have to report them on my FBAR and form 8938. It just means that the FFI have less reason to reject US persons as customers. I think that most Americans in France have checking accounts and maybe a few of the excluded accounts. Long-term residents, like me or the children, might have the Assurance-Vie or other investment accounts. For my part, I have made sure that I have nothing that is hard to declare on my own -- simple "mono-support" Assurance-Vie with no fund-like investments that are a major headache to declare and require the help of a tax professional. Actually, once this FATCA thing gets off the ground, we should be getting the paperwork reflecting what is reported to the IRS, so that we can fill out our tax forms more easily.

I started out saying "US citizenship-based taxation being what it is; FATCA, being what it is". What I would like is change in what is. If the US were to conform to the world-wide norm of residence-based taxation, most Americans overseas would not have to deal with filing US taxes, filing an FBAR to the US, or having FATCA-related discrimination. Only those with US source income would have to deal with US taxes. ACA, with AARO support, has proposed this change to residence-based taxation. Unfortunately, with the US Congress in such dysfunctional mode, I don't think the proposal will go anywhere, soon. There is renewed interest on the part of Republicans to push for it, but I believe such radical rethinking of US doctrine will need bi-partisan support.

What can be done in the mean time? Well, a more realistic and lenient approach to allow Americans overseas to become compliant if they haven't been, so far. The first step would be to inform Americans going overseas that, should they stay abroad, they remain US taxpayers and must file..... They could put a paragraph about that on the inside passport cover! 
They could inform the parents of children born in the US that their children are Americans. If you are not American, you might not realize that quirk of US citizenship because in so many other countries "droit du sol" is not the norm. An editorial change to birth certificates to "declaration of birth and US citizenship" would take care of that. They could allow parents to disavow or renounce US citizenship for their minor or mentally incapacitated children, so that this citizenship does not become a burden on people made no effort to gain it and did not live for any significant length of time in the US. 

They could bring the FBAR threshold amounts for reporting up to the FATCA thresholds. AARO has been working to that end for years, even before FATCA -- just bring up the FBAR thresholds. If they were linked to inflation, they would be up there!

It's nice to think they could get rid of FATCA, but they won't. Let's face it, there are people who used off-shore accounts to amass undeclared income because the FFI did not have the document matching requirements that have existed in the US for decades. But let's face it, too, they are, for the most part, US residents. Now that this FATCA thing has been invented, other countries, all interested in collecting more income, think this is a great thing, so it will become, global, whether we like it, or not. Of course, a country like France is only interested in the foreign accounts of residents of France.

Barring a change to residence-based citizenship, which would be so simple, why not say that all accounts in one's country of residence are treated as "home" not "foreign" accounts, thus getting rid of FBAR and FATCA reporting on "home" accounts?

As things stand, now, in many countries, US citizenship has become a burden. It explains the current explosion in renunciations. Even I have considered it. As a member of AAWE and AARO, I was part of the efforts to make sure my children are American. I had no idea that what we had done gave them automatic US citizenship, whether we declared their birth at the embassy, or not. I thought it was their right to citizenship, but that it had to be requested (and I did, and my children have been very happy to be Americans). It turns out, I was wrong. I have learned of the case of a Canadian woman, who had knowingly relinquished her US citizenship and whose citizenship was reinstated without her requesting it and knowing it, and since renounced, has a child, now an adult, a Canadian, who is now, all of a sudden, told he is an American, too. With all those tax filing obligations. To add to the distress, he is unable to renounce this citizenship and the consulate will not allow his mother, who is responsible for all decisions, cannot renounce on his behalf. He is entrapped. If it were any other country, this would not be such a problem.

Here are the US and French versions of the IGA:

The US version of the IGA

The French version of the IGA.

If you live in a country with an IGA, how do you feel about it? What's in it that is good or bad or unclear?