By Annie Ellison
Published: Jan. 25, 2014
Americans living outside the US now face more tax scrutiny with a new law that critics deride as draconian and impractical.
FATCA, or Foreign Account Tax Compliance Act, is a tax law that the US government passed in 2010 and will start implementing by July this year.
The new tax law requires financial institutions outside the US to disclose to the IRS foreign accounts held by American citizens.
The attempt, according to the IRS, is to net American tax evaders, but it’s been severely criticized as a draconian and an onerous tax bill that will instead target ordinary Americans living outside the country.
Starting July 1, 2014, banks will be required to scour the records of all of their customers with more than $50,000 in an account.
They will also look for birth, alternate addresses and phone numbers, and past residency in the United Sates.
“A law aimed at big tax evaders is catching people who are sick of complying with the costs of bureaucracy.” Quest prof. Jonathan Warner.
For anyone opening a new account, the banks will also directly ask if the person opening that account is a “U.S. person” as defined by the IRS.
Squamish resident and Whistler Olympic Park Coordinator Melinda Hainsworth moved to Canada from Towanda Pennsylvania 11 years ago, at age 22.
Hainsworth said she has not filed her FBAR, but isn’t worried because during her 11 years in Sea to Sky country, she hasn’t acquired any assets.
“I live paycheck to paycheck,” she said laughing. “I would still fall into that poor starving college student tax bracket.”
Hainsworth said she is considering moving back to Pennsylvania, at which point she will file over a decade worth of returns spent “living below the poverty line.”
“I’m sure at some point I’m going to get nailed, but for now I’m turning a blind eye,” she said.
“What can they take?”
That is exactly what worries one American living in Squamish who didn’t want his name in the paper for fear of being tracked later.
He said he will never cross the United States border again because settling up decades of income made in Canada would cost him upwards of $50,000.
He wants to renounce his American citizenship, but to do so would mean paying years of what the IRS considers back taxes.
Any bank that does business with American entities is deemed a Foreign Financial Institution under FATCA and must “provide the Internal Revenue Service with information on certain U.S. persons invested in accounts outside of the U.S.”
Quest University Social Sciences Professor Jonathan Warner said from an economic standpoint, FATCA is messy and badly designed.
“The trouble is if you’re a big player you’ve already moved your money,” he said.
“A law aimed at big tax evaders is catching people who are sick of complying with the costs of bureaucracy.”
“They’ve never complied because they don’t consider themselves US citizens,” he added.
Moreover, the time consuming, confusing financial process is a field day for lawyers, said Warner.
There are more than 6 million Americans living in Canada, but the number of U.S. tax returns filed is less than a tenth of that.
