The U.S. tax agency might be softening its draconian approach to foreign tax compliance.
American Citizens Abroad said Monday that it welcomed the agency’s latest step regarding the Foreign Account Tax Compliance Act, known as FATCA. The U.S. Treasury Department, the parent agency to the Internal Revenue Service, has just released a new version of an agreement that contains favorable provisions for some foreign financial institutions, said American citizens Abroad.
FATCA is the U.S. policy that has caused foreign banks to cancel the accounts of U.S. citizens because of U.S. government requirements.
As Forbes magazine explained, the Foreign Account Tax Compliance Act, was enacted in 2010 and requires foreign banks to report U.S. account holders to the IRS. Plus, the institutions must impose a 30 percent tax on payments or transfers to account holders who refuse to identify themselves. To avoid withholding, an institution must enter into an agreement with the IRS to: identify U.S. accounts, report certain information to the IRS, and withhold 30 percent on certain payments to those unwilling to provide the required information.
American Citizens Abroad and other expat advocacy organizations have been opposing the law that goes into full effect next year,
According to American Citizens Abroad, the new version of the agreement contains provisions that in certain cases require a foreign financial institution to avoid policies or practices that discriminate against opening or maintaining accounts for Americans overseas. This modification is aimed at small financial institutions with essentially a local client base, the organization said.
Although American Citizens Abroad continues to have many concerns about the negative consequence of the FATCA legislation for the U.S. economy, the organization welcomes this step addressing the problem of Americans living abroad being denied banking services because of FATCA, it said Monday. This is a clear indication that the organization’s advocacy, along with that of other overseas organizations, is having an effect, it said.
“Americans abroad have been seriously disadvantaged by the implementation of the new FATCA rules, even before they go into effect, because banks all over the world now perceive American clients as too risky,” said Marylouise Serrato, executive director of American citizens Abroad.
“Foreign banks have been closing Americans’ accounts and turning away Americans wanting to open a new account. We want to do everything possible to avoid this happening, and these new provisions are a step in the right direction,” she said.