President-elect Donald Trump could make a whole lot of friends abroad if he did away with just one of President Barack Obama's measures: the Foreign Account Tax Compliance Act.
Better known as FATCA, the law was passed in 2010, went into effect in July 2014 and ordered all non-U.S. financial institutions (including banks, insurance companies, investment funds and pension funds) to report the financial information of American clients who have accounts holding more than $50,000 directly to the Internal Revenue Service. The goal was to prevent tax evasion, but Nigel Green, founder and CEO of U.K.-based deVere Group, says it's had negative repercussions for both his firm and its U.S. clients abroad.
"Tackling tax evasion is a noble and worthwhile objective," Green says, "yet FATCA's dragnet approach will be highly ineffective at achieving this as well as being prohibitively costly."
Scores of U.S. citizens have taken drastic measures just to escape FATCA's reach. Last year, 4,279 U.S. citizens gave up their long-term U.S. residency, according to the Treasury Department. That's up 25.3% from the 3,415 individuals n 2014 and adds to the 10,693 total who dropped their citizenship between 2013 and 2015. That's more than the 10,189 who did the same between 1998 and 2012. In the first quarter of this year alone, more than 1,000 U.S. citizens abroad renounced their citizenship.
Green estimates that there are 8 million U.S. citizens living abroad, which makes the number who revoke their citizenship tiny by comparison. However, Green notes that FATCA's stringent reporting rules for overseas banks and investment firms that hold the assets of U.S. citizens and U.S. citizens who hold money in foreign accounts have had an impact on those renouncing citizenship. Thanks to criminals who held money in accounts in Switzerland, the Cayman Islands and elsewhere to hide taxable income from the U.S. government, FATCA drops huge penalties on folks who won't comply.