updated 10:42 PM CEST, Jul 30, 2020

Opinion: Give trapped Americans abroad a break this tax season

The spread of the deadly COVID-19 pandemic is wreaking havoc on most Americans’ finances, prompting the federal government to delay 2019 tax filing and payment due dates to July 15. 

Here, Ross Marchand, director of policy for the non-profit, Washington, D.C.-based Taxpayers Protection Alliance, notes this is little consolation to the estimated 9 million Americans living abroad who must report and pay their taxes to two authorities every year...

Citizens living overseas and trapped in coronavirus-plagued countries (such as Italy), as readers of the American Expat Financial News Journal know only too well, must often pay taxes to Uncle Sam on top of the taxes they pay to whichever countries they reside in.

As Americans living abroad struggle to keep food on the table and procure healthcare products in short supply, this double whammy couldn’t come at a worse time. 

Even with (promised) stimulus checks due to be headed to these far-flung Americans in the weeks ahead, the reality is that America's citizenship-based taxation regime means that this will merely end up being a tragic case of one hand giveth, even as the other taketh away.

For this reason, it's clear that the time has come to give millions of trapped and beleaguered Americans working abroad a break.

Despite the recently announced postponement by the IRS of "Tax Day" in the U.S., to July 15 from April 15 (for Homeland Americans),  American taxpayers will still pay nearly US$4trn into the U.S. Treasury for, among other things, the promise of a robust public health system (i.e. to purchase coronavirus medicines); a functional infrastructure system, and expanded unemployment assistance programs.

But U.S. citizens living abroad are missing out on most of these benefits, and – apart from a single payment they might receive as a result of the so-called "Coronavirus Aid, Relief, and Economic Security (CARES) Act"  (H.R. 748) – mainly stand to benefit from programs enacted by their host countries to tackle the coronavirus and keep households afloat.

Explicit tax payments to both the IRS and foreign tax authorities are just one part of the onerous costs of America's worldwide tax regime.

Thanks to the Foreign Account Tax Compliance Act (FATCA) of 2010, Americans living abroad must maintain extensive documentation of their accounts with financial institutions; and failing to comply with these rules can result in endless liability from the federal government.

If the federal government believes that individuals are in “willful violation” of reporting requirements, they can be on the hook for the “greater of US$129,210, or 50% of the amount” of the unreported account balance.

Typically, legal violations due to simple misunderstandings can be cleared up through communication with enforcement agencies. But, as the Association of Americans Resident Overseas notes, late and failed notifications regularly result in the imposition of criminal and civil penalties, without adequate due process.

These problems persist “due to routine gaps such as the fact that most Americans’ abroad telephone numbers have too many digits to be entered into the agency system.”

Banks doing business with Americans living abroad must also be careful, lest they receive unwanted attention by tax and regulatory authorities.

Recently it emerged that American citizens living in the United Kingdom would not be permitted to open an account with Marcus, Goldman Sachs’s relatively new non-U.S. wealth management operation for ordinary (as opposed to high-net-worth) clients, due to the company’s inability to comply with byzantine FATCA regulations.

The company stated that it was “unable to support customers subject to FATCA information reporting or to provide the required 1099 statements, due to the additional infrastructure required to comply with these tax regulations.”

Millions of Americans must regularly endure these inconveniences and regulatory shortcomings, even when they hardly consider themselves to be Americans.

“Accidental Americans”, for example, such as Kevan Earl (who lives in the U.K.) were born in the U.S., but for all intents and purposes are non-Americans, who have spent most if not all of their lives in their mother countries. Some don't even speak English. Yet because Earl and countless others like him spent at least a few of their diaper days in the U.S., they are subject to IRS tax reporting requirements for the rest of their lives, unless they go through the trouble of renouncing their citizenships.

And so it is that despite a historic crisis now underway, which has proven especially tough for Americans living abroad, these rules remain on the books. And despite these hardships, American citizens who live overseas will have to continue preparing returns this year for at least two different tax agencies: one for that of the country in which they live, and one for Uncle Sam.

The Trump administration and Congress are, however, relaxing more rules by the day, and some are hopeful that they may one day agree to at least put an end to the current  citizenship-based tax regime, in favor of one based on an individual taxpayer's place of residence.

Surely now, as they endure an exceptionally difficult and tumultuous time, the estimated 9 million American expats around the world deserve relief  – in the form of reforms to America's tax laws. 

Ross Marchand is the director of policy for the Taxpayers Protection Alliance, a Washington, D.C.-based non-profit advocacy group that monitors and reports on federal tax, spending, and regulatory policies. This piece originally appeared on Townhall.com, a U.S.-based website which promotes conservative views.