The FATCA follies
By Madeleine Johnson
started out with other ideas for this column. One was how aimless my days have become since the death of my dog, whose routine structured my life. Another was that the arrival of spring means no more hats and gloves, two under-appreciated fashion accessories I love.
Instead, my brain was hijacked by a letter I intend to write to the IRS after its call for taxpayer response to FATCA, the foreign account tax compliance act passed in 2010.
I thought I'd share some of it with readers who imagine expatriate life along the lines of F. Scott Fitzgerald frolicking on the French Riviera with wealthy aesthetes and artists.
The U.S. Treasury says Congress enacted FATCA "to target non-compliance by U.S. taxpayers using foreign accounts." It continues: "FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest."
As a part of the so-called HIRE Act (Hiring Incentives to Restore Employment), FATCA's aim is to root out expatriate "fat cats" hence the law's acronym. The IRS assumes they evade taxes because they like banking and investing where they live and work.
FATCA depends on the almost exclusively U.S. principle that non-resident citizens should pay taxes on their worldwide income (a principle shared only with Eritrea). This motivated the highly publicized story of London Mayor Boris Johnson, who is an American citizen because he was born in the U.S. Although Johnson left the U.S. at age five and has never worked in the country, the IRS hit him with a hefty tax bill for the sale of his London house. Smaller stories affect the ordinary lives of seven million Americans who live abroad for the best of reasons-their families and their jobs.
So here is what I will tell the IRS:
I am happy to pay taxes as much as one can be to fund government-provided services and assist those less fortunate than I. However, FATCA and worldwide taxation discriminate against me as a citizen, burdening me with extra costs for no other reason than my status as a non-resident, U.S. citizen.
I married an Italian, from whom I am divorced. As a 50-year old, poorly paid writer, I depend on the income generated by assets I received as a divorce settlement. I live in Europe and would like to purchase low-cost investment products, such as index funds.
But FATCA has created a domino effect of problems that complicate my modest financial life, among them:
That's for the IRS. But here are some other thoughts:
In Italy, I always hated having to ask for a tax receipt or invoice (ricevuta fiscale) from tradesmen, shops or restaurants. It forced me into acting as an agent of the Italian state, a role I always found anti-libertarian and un-American. Yet with FATCA, the U.S. does the same by asking other countries to follow its laws (promising to do the same), even if those laws conflict with local privacy legislation.
With the polarization of U.S. politics, my simple desire to contest or seek the reform of a poorly conceived law somehow seems to violate loyalty oaths I never took. Liberals reprimand me for having anything to do with Republican Sen. Rand Paul, who is working to repeal or reform FATCA. Conservatives taunt me with FATCA, saying I have gotten what I deserve for ever agreeing with Elizabeth Warren, a Massachusetts Democrat.
Meanwhile, what about the numbers? My own tax bill is less than $5,000, which suggests it will take catching a lot of small fry to reach the $8.7 billion FATCA is supposed to net in a decade,
I'm not alone in my skepticism. "By most measures," says the IRS' Taxpayer Advocate, "FATCA-related costs equal or exceed projected FATCA revenue."
While the IRS is busy figuring out if FATCA is even worth pursuing, Ill get back to my Cote dAzure lounge chair and finish off the champagne.
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