Washington's Tax Assault on American Expats

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January 3, 2012

Washington's Tax Assault on American Expats

Wall Street Journal, Washington's Assault on American Expats, by William McGurn:

The U.S. is the only developed nation in the world that taxes its citizens on income they earn abroad.

This new year, spare a thought for that most underappreciated class of citizen: American expatriates.

[N]ew changes in tax law regard foreign financial institutions (banks, pension funds, etc.) as colonial subjects who must be dragooned into enforcing ill-thought-out U.S. regulations, or face huge fines. Indeed our tax code appears to rest on the assumption that the American expat is a criminal and must be treated that way.

This assumption is embodied in the IRS's new Form 8938, which requires Americans who live abroad to report any foreign financial assets from stocks to partnerships to derivatives above a designated threshold. It comes on top of another form (the FBAR, or Foreign Bank Account Report) already required if a citizen has any foreign accounts that add up to more than $10,000. In some cases, you can be fined for failing to file even if you don't owe the IRS any money.

As bad as this is, the burden will fall more heavily on foreign financial institutions. Within the next two years, these companies will be required to register with the IRS and to report information about their U.S. customers to the IRS?or face a 30% withholding tax on securities transactions that originate in the U.S. It's all part of the Foreign Account Tax Compliance Act (Fatca), which Mr. Obama signed into law in March 2010 as part of one of his larger "jobs bills." ...

Financial associations on several continents are screaming foul, and some foreign banks have responded the way you would expect them to respond to something that makes dealing with American customers more costly and burdensome: They're dropping their American customers. ...

[H]ere's a New Year's resolution for the IRS and its allies inside the Beltway: Maybe it's time we treated these Americans as economic assets instead of criminal liabilities.

January 3, 2012 in Tax | Permalink

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