American Citizens Abroad, Inc., has proposed that the U.S. Treasury Department amend the regulations to exempt Americans residing in a foreign country from the rules in the Foreign Account Tax Compliance Act requiring banks and other foreign financial institutions to report on U.S. account holders.
Where a U.S. taxpayer truly resides in a foreign country and has a normal financial account at a bank or similar institution in the same country, the account would be taken out from under the compliance act, said the organization. The bank could treat the account as if it belonged to someone who is not a U.S. taxpayer, and the U.S. taxpayer would not have to list the account on tax form 8938, American Citizens Abroad said.
As is widely recognized, Americans living abroad are experiencing problems with lock-outs from some foreign financial institutions. Banks are turning away American customers or asking existing American customers to find another bank.
This development is attributable, at least in part, to the relatively new Foreign Account Tax Compliance Act rules, said the organization. These institutions, primarily banks, say they cannot afford the costs of complying with the U.S. rules, including the costs of conducting identification procedures and reporting to the Internal Revenue Service on U.S. account holders.
“If the account in question is a garden-variety bank account and it sits in a bank down the street in the same country, it’s realistic to assume that this account is used for normal, everyday purposes: To buy groceries, to pay the rent, to pay for vacation travel, and so forth,” said Marylouise Serrato, executive director of American Citizens Abroad. “With this exemption, foreign bankers could relax a bit when dealing with their American customers. And Americans living outside the U.S. would not need to feel that they are being unfairly targeted.”