The IRS Turns Being An American Expat Into A Nightmare
It's so awful that a good many expats are renouncing their American citizenship to escape the burdens of the IRS. Atossa Araxia Abrahamian writes at Reuters:
The United States is one of the few countries to tax their citizens on income earned while they're living abroad. And just as Americans stateside must file tax returns each April -- this year, the deadline is Tuesday -- an estimated 6.3 million U.S. citizens living abroad brace for what they describe as an even tougher process of reporting their income and foreign accounts to the IRS. For them, the deadline is June.
The National Taxpayer Advocate's Office, part of the IRS, released a report in December that details the difficulties of filing taxes from overseas. It cites heavy paperwork, a lack of online filing options and a dearth of local and foreign-language resources.
For those wishing to legally escape the filing requirements, the only way is to formally renounce their U.S. citizenship. Last year, IRS records show that at least 1,788 people did, and that's likely an underestimate.
..In Europe, American women say they feel pressure to renounce even from their husbands.
"American women married to non-Americans are only just now finding out that they have to disclose years and years of income and accounts," says Lucy Stensland Laederich, a leader of the women's club who lives in Bordeaux, France.
Laederich has been acting as the group's liaison with politicians and bureaucrats in Washington, D.C., and plans to attend a meeting to discuss expatriate tax issues with Maloney and Treasury Department officials on Tuesday.
"When they decide to come clean and report everything," she says, "they have to go ask their husbands for all of their bank information, retirement funds, and investment accounts, everything."
Some of their husbands, Laederich says, refuse to hand over information to the IRS. That leaves the women in difficult predicaments.
"Your options are to ignore the IRS and stick your head in the sand; take your name off of all the accounts and live in a completely cash economy; divorce; or renounce U.S. citizenship," Laederich says. "We've seen all of these things happen."
Here's how my friends Matt Welch and his wife Emmanuelle Richard get their asses bitten by this. In reason, Matt writes:
Preposterous Foreign-Income Disclosure Rules
The IRS wants everyone with more than $10,000 in foreign-based financial institutions to cough up every last detail of every last account. Let's say (just for the sake of argument) that in 1997 you married a French woman who had previously written a few articles for a soon-to-be-defunct UK newspaper, and had opted to park her checks in a London bank for walking around money on future visits. Let's say further that she has earned enough European-based income over the ensuing 15 years to exceed that five-figure savings threshold.
Result? As of 2012, that London savings account, and every single other foreign based account you and your wife may have, must now be divulged in full--complete with your estimation of its highest value during the previous year--to the Internal Revenue Service.
Good luck figuring out form TD 90-22.1, by the way. My tax professional (who charged me more than $1,000 for her services, though it was worth every penny), shrugged, and gave me a yellow highlighter so that maybe I could shed light on the relevant verbiage of TD 90-22.1 and its rich cousin, form 8938. Even the Government Accountability Office has trouble; "Extent of Duplication Not Currently Known, but Requirements Can Be Clarified" was the subtitle on its recent paper on the dueling FBARs (foreign bank account requirements).
The important thing to realize is that by failing to cough up each and every detail of accounts that are filled with your legitimately earned and (in my case) already taxed money, you are subjecting yourself to a $100,000 fine and up to five years in prison.
If you happen to have some money overseas, and are nervous about the U.S. government's ability to harass or imprison you, you're probably better off burying the cash in a can. Or depositing it in a country that doesn't care about playing by Uncle Sam's rules.
The fun continues for those Americans living -- or trying to -- overseas:
Scaring Away Foreign Banks
This isn't a new IRS rule, it's a new consequence of a lousy new law, called the Foreign Account Tax Compliant Act (FATCA ... get it??).
This 2010 law, which was passed in an effort to increase tax collections on Americans using shelters abroad, is estimated by its supporters to maybe bring in an extra $8 billion in receipts over the next 10 years, or less than $1 billion per year. This for a federal government that spends $1 billion every two and a half hours.
Uniquely in the world, the United States government is demanding that all foreign financial institutions disclose the details of all U.S.-based accounts and withhold 30 percent in potential taxes from accounts held by other institutions that don't disclose. Let's see, what do you suppose might happen when Washington makes life a living hell for every foreign bank that dares do business with Americans?
Shocker: "Banks no longer want American clients." So if you are one of the estimated 6.6 million Americans living abroad, you can forget about opening or even maintaining that bank account. Sorry! Those 150 minutes of federal spending won't pay for themselves!