US Expats Buckle Under Strain Of Obama's Tax Compliance Burden

by Mike Godfrey, Tax-News.com, Washington

24 July 2009

The Obama administration’s crackdown on tax evasion is creating serious hardship for honest Americans living overseas, according to an organization that represents the interest of US expats.

The situation has become so “untenable” says American Citizens Abroad (ACA) that it has sent letters to President Obama, Treasury Secretary Tim Geithner and Chairman of the President’s Task Force on Tax Reform, Paul Volcker, urging them to rethink the “draconian” policies.

ACA’s letter to the President describes four policies which it considers are “infringing upon the constitutional and economic rights of US citizens overseas” and are causing “severe prejudice” to these citizens and to the nation.

The letter states:

“First, the proposed reinforced Qualified Intermediary regulations are so draconian that banks overseas are getting rid of American clients rather than face the administrative hassle and the perceived legal risks of complying. If Americans overseas cannot even open an ordinary bank account for everyday transactions in their country of residence, how can they live and function in the modern economy?”

“Second, the Patriot Act, in 2001, tightened the Know-Your-Customer regulations. Many US banks have decided that this KYC clause cannot be fulfilled if the customer lives overseas. Consequently, these banks are closing accounts of US citizens on the sole ground of their overseas addresses. This denial of service clearly infringes upon the constitutional and economic rights of US citizens.”

“Third, the new more inclusive Treasury FBAR [Report of Foreign Bank and Financial Accounts] filing requirements for foreign bank accounts are excessive and carry unduly harsh penalties for not filing or incorrect filing, even when this is done unknowingly. Due to the extra-territorial reach of the FBAR to bank accounts where the US citizen has no financial interest, non-US companies and organizations are removing US citizens from positions of responsibility to protect their privacy and strategic interests. FBAR also creates numerous problems in the everyday life of American citizens, and specifically those with foreign spouses.”

“Fourth, US citizenship-based taxation, unique among nations, subjects overseas Americans to double taxation. A flagrant example of recent tax injustice is the 2006 TIPRA act, which opportunistically increased taxes on Americans abroad to compensate for a domestic tax cut. Americans abroad already pay taxes in their country of residence. In fact, they pay more taxes in total than citizens living in the United States, yet they do not benefit from US government domestic services. Residence-based taxation is the only practical tax system that would be fair and allow Americans to be competitive in the global economy.”

“Mr. President, we implore you to stand by the fundamental rights of Americans abroad and we request that your team ensures that equity and constitutional rights are respected for US citizens overseas,” the organization’s letter to Obama concludes.

The ACA’s letter to Geithner expresses concerns over banking issues, and the letter to Volcker raises further issues surrounding taxation.

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