FATCA Requirements Create More than Just Financial Costs for U.S. Taxpayers Living Abroad

FATCA requirements leave many institutions and U.S. citizens wondering if the gain is worth the cost.

shutterstock_65714203When FATCA was first passed in 2010, law makers may not have realized the full impact it would have on financial institutions across the world. The law requires foreign financial institutions to gather and report information about their clients who are U.S. citizens. If banks, investment groups, employers, and other institutions fail to comply with the required reporting procedures, they may face sanctions on incoming transfers of U.S. funds up to 30 percent.

On July 1st, 2014, FATCA officially went into effect but many jurisdictions are still deciding whether or not to sign an agreement with the United States. The deadline for signing an agreement was December 31st, 2014 but even after that day passed, many areas were still undecided.

Weighing the Costs

Financial institutions have the choice of signing an individual agreement with the IRS or falling under a signed agreement within their jurisdiction. Whether or not an agreement has been signed, many institutions are still considering the benefits and managing the negative consequences of the law. It is a very expensive process to build the information systems necessary to gather and report the information. Furthermore, companies are having to work carefully to balance client privacy policies and FATCA requirements.

Even nonfinancial activities may trigger compliance requirements within an institution in regards to assets, investments, and employment. For this reason, some companies are cutting ties with U.S. citizens to avoid the cost and hassle.

According to some estimates, the cost of compliance with FATCA has reached over 8 billion dollars annually for financial institutions worldwide. In turn, the US government only expects to receive an additional 800 million in tax collections. Many wonder if the benefit is worth the cost in global financial relationships for the United States.

Stimulus or Barrier?

Ironically, FATCA was part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010. The purpose of the act was to encourage employment of U.S. citizens working abroad. Unfortunately, due to the costs and complications of maintaining FATCA compliance, some companies are now avoiding U.S. employees rather than welcoming them.

While the IRS and global jurisdictions are still sorting out the details of how the law will be carried out, U.S. taxpayers living abroad may still be accountable. It is important to contact your tax attorney to find out what is required to be in compliance in order to avoid unwanted penalties or charges. Freeman Tax Law provides nationwide services for individuals and financial institutions who need to navigate the compliance regulations of FATCA. Comprehensive legal and accounting services are available to ensure you are in compliance and receive the full tax credit benefits available.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.

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