Tax Compliance Burden More Intense for American Living Overseas

Last updated on May 2, 2014

Taxpayers living overseas will now need to complete a great deal of tax related paperwork due to the reporting requirements under Foreign Account Tax Compliance Act (FATCA). Many people might even need to hire tax professionals to comply with the various reporting requirements. Some Americans that have been living in other countries for years are considering renouncing their U.S. citizenship due to the burden of tax reporting.

FATCA was created to bring down tax evasion, but it was only in the years 2013 and 2014 that the IRS began to strictly implement it. Under FATCA, the IRS is making agreements with governments of other countries to increase transparency in the financial transactions U.S. citizens make with the financial institutions of other countries. Tax havens were particularly targeted. Some of the countries that now have a FATCA agreement with the U.S. are:

Australia (4-28-2014)

Belgium (4-23-2014)

Canada (2-5-2014)

Cayman Islands (11-29-2013)

Costa Rica (11-26-2013)

Denmark (11-19-2012)

Finland (3-5-2014)

France (11-14-2013)

Germany (5-31-2013)

Hungary (2-4-2014)

Ireland (1-23-2013)

Italy (1-10-2014)

Many Foreign Financial Institutions (FFIs) are also required to report their financial transactions with U.S. citizens to the IRS. Due to such strict reporting requirements, it is feared that the FFIs will be reluctant to deal with those having U.S. citizenship. Though the effect of FATCA on FFIs is yet to be seen, FATCA has multiplied the problems of Americans living abroad. The IRS is expected to make FATCA agreements with more countries this year.