updated 2:28 PM CEST, May 24, 2023

American Citizens Abroad responds to IRS 'procedures' with re-issue of call for Same Country (FATCA) Exemption

The American Citizens Abroad has officially welcomed the U.S. Internal Revenue Service's announcement last Friday of a set of "new procedures" that it said would enable "certain" expatriates to avoid key taxes normally associated with renouncing, but renewed its call for a "Same Country Exemption" to the FATCA regulations – which are the reasons "certain" expatriates are in need of the IRS's help in the first place – to be be introduced.

In a statement on Monday, ACA executive director Marylouise Serrato called the IRS's so-called ""Relief Procedures for Certain Former Citizens" a "helpful step for a small population of individuals who have left or are going to leave the U.S. tax system".

However, she went on, "ACA would like to see the Treasury Department take a similar modest step by relieving American expats from some of the consequences of FATCA, by putting a Same Country Exemption in the FATCA regulations, which could be done immediately, without legislation."

As the ACA first explained back in 2015, the idea of a Same Country Exemption is that Americans residing in a foreign country would be be exempted from the rules that the 2010 tax evasion law known as the Foreign Account Tax Compliance Act (FATCA) imposes on the banks and other non-U.S. financial institutions to report the account details of all their "U.S. persons" account holders. 

Where a US taxpayer truly resides in a foreign country and has a normal financial account at a bank or similar institution in the same country, the ACA suggested, "the account would be taken out" of the FATCA reporting requirements, and the bank in question "could treat it as if it belonged to someone who [was] not a U.S. taxpayer, and the U.S. taxpayer would not have to list the account on [their] tax form 8938." 

In her statement on Monday, Serrato also called on Congress to "take a big step towards enacting residency-based taxation by holding hearings", a message that the ACA unveiled recently, and which message the organization is clearly, as Serrato went on to say in her statement, making its "No. 1 ‘ask’ on our list”.

As reported, the IRS's just-announced "Relief Procedures" are designed to enable a sub-group of "accidental Americans" who have renounced their citizenship, or are considering doing so – to avoid key taxes normally associated with renouncing. Accidental Americans are citizens of other countries who, typically for reasons of birth, are viewed as American by the U.S., but who themselves have not considered themselves to be American, and who often were unaware that the fact that they were born in the U.S. or had U.S. citizen parents meant that they had lifelong tax reporting obligations to Uncle Sam.

'Limited relief' in 'highly-
circumscribed circumstances'

In its statement, the ACA said the new IRS procedures would “give limited relief, in the form of forgiveness of U.S. taxes and avoidance of penalties and interest, in highly-circumscribed circustances"  to those who are eligible to take advantage of them.

The ACA added: “This is for individuals who have not [ever] filed U.S. taxes, who owe a total of no more than US$25,000 over the recent six years, and who have net assets of less than US$2 million.

“Importantly, these taxpayers’ non-compliance must be ‘non-willful’. [In other words], they must not have known about their obligations and [not] deliberately failed to pay taxes.

Also, quite importantly, they still must prepare and file six years of complete tax returns.

“Provided that the taxpayer’s tax liability does not exceed a total of US$25,000 for the six years in question, the taxpayer is relieved from paying US taxes [or interest].”

Importantly, the ACA notes, individuals who fit these qualifications but who also “renounced any time after March 18, 2010 – recall this is the effective date of the FATCA legislation – can benefit” from the new IRS regime.

“Stepping back, this is a little help for so-called “Accidental Americans” as well as others, while not accidental, who simply did not know about all the requirements.”

The ACA goes on to quote Glen Frost, of Frost & Associates, a Washington, D.C. law firm, as warning that anyone who is considering participating in the new program “must be careful, in their excitement, not to represent to the IRS that they were ‘non-willful’, while at the same time knowing that this is not true,” since this could mean that what was, “on the face of it, [just] a civil tax problem” might then “morph, possibly, into a more serious problem”.

“People should step carefully,” Frost added.