As National Taxpayer Advocate, Nina Olson helps taxpayers navigate the complexities of the IRS tax code and reporting requirements by trying to simplify the process and make it fair. With a recent focus on FBAR reporting requirements and FATCA disclosures, Nina Olson recommends the reporting rules be merged into one action when a taxpayer lives in the country where the bank account is located. Such a merger would be known as the Same Country Exemption.
Merging of FACTA & FBAR Reporting Rules
The Taxpayer Advocate’s recommendations are in direct response to complaints from Americans living abroad. Given the difficulties presented by the reporting requirements, the international tax team at LSL CPAs is not surprised that American expatriates are upset. Merging the reporting process should help to avoid duplicative disclosure requirements. By simplifying what needs to be reported, the goal is to demonstrate support for American expatriates that maintain bank accounts in foreign countries where they live.
The decision by Nina Olson was motivated by the advocacy work of Americans Living Abroad. An expatriate group, they have been pushing for relief from the extensive requirements of FATCA and FBAR reporting. FATCA requires foreign financial institutions to report on the holdings of U.S. taxpayers to the Internal Revenue Service. If banks fail to make such reports, they face stiff penalties of up to 30 percent on any income based in the United States.
National Taxpayer Advocate Recommendations
In conjunction with the IRS’s Taxpayer Advocate Service, National Taxpayer Advocate Nina Olson posted a series of recommendations to address this issue. In her recommendations, Nina Olson addressed the following salient points:
“Organizations representing U.S. taxpayers abroad and the press have voiced concerns about unintended consequences of new FATCA rules for foreign financial institutions, which make it harder for U.S. taxpayers living abroad to open and maintain legitimate bank accounts overseas… Some foreign financial institutions (FFIs), such as Deutsche Bank, HSBC, and ING have reportedly been closing out foreign accounts of U.S. citizens in response to FATCA. During recent meetings with TAS, organizations of U.S. citizens abroad reiterated their concerns and proposed several changes to IRS regulations.”
In contrast to FATCA institutional reporting, FBARs require taxpayers themselves to report on their holdings in overseas bank accounts. The legislative goal of both FBAR reporting and FATCA disclosures is to prevent taxpayers from trying to hide financial assets in secret bank accounts abroad. The problem is that FATCA reporting has led to problems for many U.S-born expatriates. Suddenly, such innocent taxpayers are caught in a vise and finding it hard to maintain their foreign bank accounts. Despite long-term financial relationships, the banks suddenly are rejecting their business.
Same Country Exemption Proposed
In terms of the specific steps to take Nina Olson recommended that the Internal Revenue Service merge the rules for reporting bank accounts on Form 8938, the Statement of Specified Foreign Financial Assets. In addition, the IRS should change the FATCA rules for identifying and reporting accounts of Americans abroad if the accounts are in the country where the taxpayer resides. This would be known as the Same Country Exemption.
American Citizens Abroad responded positively to the recommendations, but they believe more action needs to be taken and taken quickly. “We are very happy to see progress made on these subjects,” explained ACA executive director Marylouise Serrato. “But we cannot rest in our efforts to get these changes actually made. For sure, the Same Country Exemption could be put in place almost immediately; it does not require Congressional action. It is a change that everyone, including Treasury Department and the IRS, should be enthusiastic about.”