Re: FATCA's consequences not considered
@Greg Mac Sweeney
Once you are living abroad you then have to file two tax retrurns. One to the country in which you live, and many of these have much higher marginal tax rates than the U.S. Then you must file in the U.S. every year. There is a tax treaty and for my country there is no U.S. tax owed on earnings and interest as the tax rates here are higher. However, the U.S. has some taxes that other countries do not and vice versa that knock out the best tax breaks of either country.
Then there is a different currency and depending on the country a different tax year. The exercise involves a lot of credits going back and forth between the two countries and of course some credits are disallowed. On top of this there is really massive penalties if you get it wrong or don't report right. For instance if you don't make one FBAR report the fine could be 50% of the high account balance going back 5 years (better report your share account!), then a second 8938 report that indicates the line of your 1040 that income from the account is reported - if not filed could be a $10,000 fine with up to an additional $60,000 fine. ALL THIS IS NOT FACED BY US CITIZENS LIVING IN THE US. So potentially crippling/bankrupting fines is another reason to go with expert tax advice.
Because of FATCA I may say that the reporting requirement has increased quite a bit. The 8938 form is new. In the last few years the compliance cost of expert tax advice has doubled for me. The Wall Street Journal reports that the cost of this tax advice is anywhere from 3 to 20 times that required for return prepartaion in country of residence. So we see it is not only the FFI compliance costs that the United States government does not care about, it is also the compliance costs of United States Citizens living abroad that the U.S. does not care about. So much for the Constitutional rights of liberty and the pursuit of happiness for those Americans living abroad. And let's remember they are not receiving government services from the U.S. but from the countries they live and also pay tax to.
While we are on the topic of FATCA. You live overseas, all your accounts are "foreign." If something is not reported right in regards if you are a US person then you could get 30% of your account value witheld, just for noncompliance and this has nothing to do with any tax owed. There is a U.S. Bill of Rights provision against unreasonably high fines - and guess what, the aim of FATCA violates this and there will be lawsuit in the U.S. that will go to the Supreme Court.
One aspect of FATCA I am particularly pissed off about is that along with this came the taxing of my overseas pension. The tax is on the account gain every year at my marginal U.S. rate. No doubt the gain of my pension will be added to my income to reach the thresholds for the new 3.8% Obamacare tax for all of which there will be no credit against taxes paid in my home country.
Overseas pension: (you live overseas and local law does not have 401K, it is not legal there as it is not U.S. territory, they have a different plan). The U.S. tax on my pension, is like the U.S. now saying to all of you who have a 401K that, the rules are now changed, we are now going to tax the account gain each year at your marginal tax rate. You are not allowed to withdraw from your 401K to pay the tax liability. And if you don't report your 401K right we will fine you 50% of the maximum value of the account for the past five years, plus $10,000 each year for 8938 if you don't complete this right.
I have only gone over part of it.
So you might see how the U.S. government may be considered very anti-American in regards to the poor souls, for what ever reason, have ended up living overseas. Do the phrases: "double taxation without representation" and "freedom from the tyranny of an overseas sovereign" sound familiar?
The answer and fairness of it all could involve the folloing changes:
1) Exemption to FATCA requirements for the country in which you live - "same country exclusion."
2) Abolish "Citizen Based Taxation" The U.S. wants to tax its citizens no matter where they live. All other countries in the OECD have residency based taxation (only tax you in your own country you live in for your earnings there).
In the next week or so there will be a Human Rights Complaint against the US government on behalf of US citizens living abroad.