FATCA and U.S. Citizens Living Abroad

by Murry Page

16 Jun 14  

mazmessenger.com

 

For many expatriates living in México the first they ever heard of FATCA (the Foreign Account Tax Compliance Act) was when they got notices from Banamex USA that the bank would be closing their bank accounts on June 30^th. The forums around the country lit up with people asking what was going on.

As broad brushed, expansive and invasive as the Foreign Account Tax Compliance Act is, the U.S. Congress tacked it on as an amendment to the Hiring Incentives to Restore Employment (“HIRE”) Act and passed it in 2010. In legislative procedure in the U.S. Congress it is known as a rider. A rider is an additional provision added to a bill or other measure under the consideration by the legislature, having little connection with the subject matter of the bill. FATCA clearly has absolutely nothing to do restoring employment.

Riders are usually created as a tactic to pass a controversial provision that would not pass as its own bill. As the provisions of FATCA come into effect, many people are beginning to realize why the legislation probably would not have passed on its own merit. I think all of us support Congress’s efforts to combat tax evasion, but to me, and many others, FATCA is not the way to go about it.

A few weeks ago I wrote about the Law of Unintended Consequences and it is certainly at play with FATCA. The purpose is to capture the billions of dollars taxable in the United States that escape. However, the consequences of Congress’ efforts include invading personal privacy, turning Americans abroad into unwanted customers in international banking, costing foreign financial institutions billions of dollars to comply, and discouraging foreign investment in the United States.

I will now step down from my soapbox and speak to the subject matter of this article.

Starting July 1, 2014, under FATCA foreign financial institutions will be required by the United States government to actively seek out and identify their customers who are “U.S. persons” (defined as, but not limited to, U.S. citizens and green card holders.) living in the U.S. and abroad. Once they have identified their “U.S. persons’” they must then report to the Internal Revenue Service their account information. Foreign financial institutions that do not become compliant will be subject to a 30 percent withholding on their U.S. investments when they are cashed in.

The requested documentation creates extra compliance costs for every U.S. person’s account.Bloomberg has reported that making sure overseas Americans are filing the right tax forms will cost banks about $7,000 per person. With the compliance requirements coming into effect on July 1^st many foreign banks have taken the road of eliminating the “problem” by notifying their “U.S. persons” customers they are closing their accounts on June 30^th.

Banamex USA is the U.S. banking arm of Banco Nacional de México (Banamex). Since it is a foreign financial institution and did not want to incur the expense of reporting, it decided, along with many other foreign banks, to close the bank accounts of US persons before the compliance requirements came into effect.

Those foreign financial institutions who intend to comply with FATCA are now beginning to gather information to determine which of their customers are “US persons.” For those customers who have been identified as such some banks are beginning to ask those account holders to fill out forms giving the bank permission to hand over their account details to the U.S. government.

So far México and 47 others countries have entered into Intergovernmental Agreements with the United States. These agreements set forth the rights and responsibilities of the foreign countries that agree to require their financial institutions to comply with the FATCA reporting requirements

So if in the near future you hear from your Mexican or other foreign financial institution requesting personal information from you, do not be surprised. And make sure you are complying with your financial reporting requirements with respect to foreign assets, because someone else may be providing that information to Uncle Sam.

For a U.S. person to comply with FATCA the U.S. taxpayer must annually report his interest in certain foreign financial assets on Form 8939 (Statement of Specified Financial Foreign Assets) when the taxpayer files his Form 1040. Specified Financial Foreign Assets (SFFA) includes bank accounts and stock issued by a foreign corporation.

Generally speaking Form 8939 must be filed by a single taxpayer or a married taxpayer, if filing separately, if the value of all SFFAs exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year. For married taxpayers filing joint returns the amounts double. If a taxpayer lives abroad during an entire tax year or lives abroad for at least 330 days during a tax year, the amounts increase even further.

The penalties for failure to file and accurately disclose are high: $10,000 for failure to file and a 40% penalty on any understatement. Although many expatriates were not aware of the possible need to file Form 8939, the filing requirement began with the taxable year 2011.

As most U.S. citizens living in México now know, they are also required under FBAR, the Foreign Bank Account Report, to file a report by June 30^th of each year, if they have one or more foreign bank account(s), which at any time during the year reached an aggregate balance of over $10,000.

FATCA picks up assets not required to be disclosed under FBAR. For example, FBAR only covers foreign financial accounts, e.g., bank accounts and brokerage accounts. FATCA requires reporting on these assets, i.e., foreign financial accounts, but also assets like an interest in a foreign partnership and foreign stock not held in a financial account.

Bloomberg has also said that U.S. citizens living overseas may find themselves paying out up to $4,000 a year to remain on the right side of the law.

A final unintended consequence of FATCA is the record number of Americans who are renouncing their citizenship, as they seek to remove the burden of filing complicated and costly tax returns simply for living in another country.

The United States is the only nation that taxes its citizens wherever they reside on their worldwide income in the same manner it taxes its residents. A foreign tax credit is given for some foreign taxes paid, but not all.

According to the figures released in May of this year by the Federal Register U.S. expatriates giving up their nationality rose to 1,001 in the first three months of 2014, up from 679 a year earlier. Internal Revenue Service data shows that last year 3,000 U.S. citizens renounced their citizenship, up three fold over the average for the prior five years.

Of course, FATCA and FBAR will not affect many who have chosen to retire and live in México. However, it has never seemed logical to me to dismiss an important issue just because my ox wasn’t the one getting gored. In my opinion there are serious issues in the Foreign Account Tax Compliance Act that deserve discussion.

FATCA Compliance has Banamex USA Closing Accounts

Jeff Berwick - The Dollar Vigilante
go to original
June 13, 2014

Notices have begun to be sent by Banamex USA, a bank operating in Mexico and used by many American expats in Mexico, to all US citizens notifying them that their accounts will be closed within 30 days.

As the first set of Foreign Account Tax Compliance Act (FATCA) compliance issues for banks worldwide is set to come into effect on July 1 we have seen a flurry of banks around the world advising US citizens that they will be immediately closing their accounts.

None has been so far reaching as this notice sent to US citizens who have accounts at Banamex USA in Mexico this week, however.

Banamex USA's parent, Banamex, is the second largest bank in Mexico and there are over 1 million US citizens living in Mexico, by far the largest amount of any country, and so this news will be felt over a very widespread area.

Notices have begun to be sent by Banamex USA, a bank operating in Mexico and used by many American expats in Mexico, to all US citizens notifying them that their accounts will be closed within 30 days.

HERE, HERE and HERE you will find three separate online discussions surrounding Banamex USA's summary closure of American's accounts.

In most of the forums people know the reason why - FATCA - but in one of the forums in particular the people are not even aware of FATCA and its implications. This action by Banamex USA is, of course, because of FATCA, which has forced 77,000 banks in 70 countries to surrender all information on American customers to the Internal Revenue Service (IRS) or be extorted and possibly put out of business altogether.

Banamex USA, a subsidary of Citibank with its headquarters in Los Angeles, has sent letters to many US customers informing them that their accounts will be closed June 30. As one online commenter wrote:

"No more SS check deposits: no more linking of accounts to Banamex Mexico, no more credit card, no more ATM for free, no more nada."

One customer was told that it was a "bank decision" with no reason given why. This move has left former account holders scrambling to find a bank that will let them open an account without their presence in Mexico, something likely impossible to find.

It does not appear that all accounts will be closed, but nobody knows Banamex USA's strategy here, even banking insiders in the US who we've contacted are confused about what's going on.

What's for sure is this: Are you an American expatriate living abroad or an American currently thinking of moving abroad? This could, and likely will, happen to you.

Options for US Expats in Mexico

 

There are many ways to protect yourself and to sidestep many of the issues that FATCA will be bringing upon US citizens trying to transact in the financial system worldwide.

In the case of Americans who live and/or spend a large amount of time each year in Mexico one solution is to attain Mexican citizenship. By doing this you can still have bank accounts in Mexico if you so chose as you can open the account as a Mexican citizen, not as a US citizen, thereby not being restricted by banks that do wish to deal with US citizens due to the egregious nature and expense of filing with the US government all transactions of US citizens.

Having a second citizenship, especially for US citizens, is a very prudent move as it has become very difficult to do anything financially, worldwide, as a US citizen. It also has a tremendous amount of side-benefits including large tax breaks (up to nearly $200,000 per year, tax free, for a married couple if they live outside of the US)... and if you choose torenounce your US citizenship the benefits can be massive for those with a high net worth or income as this would unchain US citizens from the worldwide taxation imposed on them by the US government.

Other options that are still available to US citizens is to re-organize their affairs internationally using things like offshore trusts which are specifically set-up in a way that FATCA regulations do not apply to it. This is a service, for high net worth (over $1 million) US citizens that is offered exclusively by TDV Wealth Management (TDVWM). TDVWM has recently held two Crisis Conferences in Panama and in Mexico helping US citizens stay ahead of the curve and to organize their affairs prior to events, which we predicted, such as more banks worldwide closing accounts for Americans.

We also predict that more countries in the West will begin to enact FATCA like controls as the economy in the West continues to fall and governments begin to enact more egregious worldwide taxation laws. In the case of Canadians, for example, many "snowbirds" (those that are retired and usually spend six months or more per year in the US) are beginning to be deemed "US resident" even without their knowledge and will soon find themselves under attack by the IRS for tax liabilities. As well, the Canadian and US governments have reached all manner of agreements tying the sharing of financial information between the two countries.

As we've researched and written here and at TDV Wealth Management Crisis Conferences (which we will be holding another one soon, likely in Mexico due to recent events), FATCA is very real and Americans abroad will be forced to adapt and quickly. Many might simply end up without a bank account altogether and unable to open one abroad when they get this now all-too-common letter that your bank no longer wants to serve you.

We hate to constantly be the bearer of bad news but those who have been following TDV know that we have been warning of these events for a number of years. And we expect things to go nowhere but downhill from here as governments in the West implement nefarious capital controls such as FATCA.

Stay tuned at The Dollar Vigilante blog as we continue to cover FATCA and its consequences and offer insights, news, analysis and solutions to protect yourself at The Dollar Vigilante newsletter. And pass along this particular news to US citizens who are Mexican expats to inform them to prepare for more bank account closures for US citizens and what they can be doing about it to protect themselves.