We’ve written about the Foreign Account Tax Compliance Act (FATCA) extensively on this blog, and with good reason. The U.S. law extends an expansive reach over foreign banks and compels these institutions to report the finances of U.S. citizens living or working abroad to the Internal Revenue Service. This creates a number of consequences for both the individuals who are being targeted overseas, and the United States as a whole.
The consequences are numerous for the people living or working abroad. Because of FATCA, these people have to deal with very confusing and complicated tax returns. This can increase the likelihood that they are investigated by the IRS — not because they are hiding something, but because the overcomplicated nature of the filing makes it more likely that the filer makes an unintended mistake.
In addition, the people who are targeted by FATCA could see their jobs jeopardized due to tax investigations, and they may have trouble having a bank account in foreign countries. The reach of FATCA causes a lot of anxiety and stress for many people.
There is another consequence of FATCA: people are choosing to give up their U.S. citizenship as a result of the law. Roughly 3,000 Americans gave up their citizenship in 2013, and that number is expected to rise over the coming years — with FATCA being a main culprit of the surge in relinquished citizenship. FATCA may have had good intentions, but in practice it puts Americans overseas in precarious situations and they are practically forced to take drastic action.
Source: Newsweek, “Why Americans Abroad Are Giving Up Their Citizenship,” Barbara Stcherbatcheff, June 28, 2014