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09/11/2024
Expats are rooting for this Trump tax policy
After Donald Trump won the election, many Democrats said they wanted to leave the country. If the president-elect follows through on one of his many tax proposals, it might get a little bit easier, Vivienne Walt reports for DealBook.
In a video address last month, Trump told the nine million or so Americans who live in other countries: “I’m going to end double taxation on overseas citizens. You’ve been wanting this for years, and nobody has listened to you.”
He was referring to the United States’ citizen-based tax system, which is virtually unique in the world and requires Americans living abroad — even those who were born in the United States but never lived there — to file U.S. taxes. Under the 2010 Foreign Account Tax Compliance Act, or FATCA, foreign banks are obligated to report U.S. clients’ accounts to the I.R.S. yearly.
Some expats feel caught in a maze. Fearing 30 percent penalties, many banks have simply shut accounts of those with even tenuous U.S. links, or rejected taking them as clients. And expats are sometimes stunned to learn they owe taxes to the U.S. government.
“We sold our small, solely Canada company but had to pay the I.R.S. more than 20,000 Canadian dollars (about $14,391),” said Suzanne Herman, 68, in Gibsons, British Columbia, who left the United States at age 12. She paid the I.R.S. $5,700 in penalties for her 2008 house sale in Canada, and now pays $2,880 a year for U.S. tax preparation.
For many like Herman, the simplest option is to renounce their U.S. citizenship, and the numbers doing so have rocketed tenfold since 2020.
FATCA’s dragnet: Democratic lawmakers argued in Senate hearings in April that FATCA enforcement targeted wealthy tax evaders, not unwitting foreigners.
Expats say that’s misleading. “There is this mythology that Americans outside the U.S. are rich fat-cat tax cheats,” said Keith Redmond, an American who lives in Paris and a co-founder of Stop Extraterritorial American Taxation. “Americans overseas are average folk.”
The requirement for banks to share data with the I.R.S. has flouted other countries’ norms. The European Union ruled in 2021 that FATCA’s data sharing violated its privacy laws. But governments and banks felt they had little choice but to comply. “As long as the dollar is the reserve currency, other countries will fall in line,” Redmond said. “They really need to push back.”
Will Trump follow through? Expats are tempering their expectations, knowing Trump has broken promises before. “It is just words,” said Anthony Parent, a Connecticut lawyer who handles FATCA problems, told DealBook. “He said, ‘I will end this,’” Parent said of Trump. If he fails to do so, “it will never come again.”
