How FATCA Affects Americans Living Overseas

Last updated on June 10, 2023

Tax evasion is one of the biggest challenges faced by the IRS. Foreign Account Tax Compliance Act (FATCA) was introduced to fight tax evasion. The strict tax laws under it helped to limit tax evasion by improving transparency. To create a system with greater transparency, the IRS made compliance with the tax rules under FATCA a requirement for individuals with U.S. citizenship living overseas. The complexity of the filing requirements, along with heavy penalties for non-compliance, worried Americans living abroad, and rightly so.

Along with individuals, foreign financial institutions (FFIs) such as banks are also required to share financial details of their transactions with U.S. citizens under FATCA. That created more problems for individual taxpayers living overseas, as they feared that banks will grow reluctant to entertain them.

Now, the IRS is considering the problems faced by Americans living overseas and may relax some of the reporting requirements that are causing them difficulties. This will provide much relief to U.S. citizens living abroad that need to file taxes in the U.S. and also the country in which they are residing.

Preventing and punishing tax evasion saves the government billions of dollars in taxes, but the problems faced by innocent taxpayers that have been compliant with the tax rules must be considered in order to provide a strict and fair law.