US tax law has some expatriates waiving the American flag
Los Angeles Times
COLOGNE, Germany — Genevieve Besser knows that many people would kill to have what she's thinking of giving up. It's been her birthright for 52 years, something she's cherished and taken pride in.
But being a U.S. citizen, she says, now seems more a penalty than a privilege. For 25 years, the New York native has lived here in western Germany with her German husband, whom she met when he was a student in the U.S. and whom she willingly, if warily, followed back to his homeland.
"I said we'll go, we'll try it, but we have to keep my American citizenship and the kids have to have American citizenship," says Besser, a onetime member of the Daughters of the American Revolution, adding bitterly, "and now I'm thinking of renouncing it."
What's led her to consider such a drastic step is a recent American law that has had an impact on many of the estimated 6 million to 8 million U.S. citizens who, like Besser, make their homes outside the United States.
The federal measure, approved in 2010, was aimed at cracking down on tax evasion. But it has also resulted in law-abiding Americans abroad being denied bank accounts or mortgages in the countries where they live and forced to reveal financial information about their loved ones. In response, some Americans abroad have decided that their citizenship is not worth the cost or hassle, nor the intrusion on their privacy.
The Foreign Account Tax Compliance Act, or FATCA, imposes stricter reporting requirements on Americans with significant assets outside the U.S. The act also demands that all foreign banks — whether they're based in Britain, Botswana or Brazil — disclose to the U.S. government information on accounts held by Americans, under threat of stiff financial sanction.
Proponents of the law, including President Obama, praise it as an important tool to help ferret out wealthy tax cheats in America and abroad suspected of hiding millions or even billions of dollars in offshore accounts.
But it has also wreaked havoc on many upstanding Americans who have settled overseas for reasons of love, work or adventure, and who now say they are having trouble buying a home, paying for their kids' education or planning for a comfortable retirement.
Because of FATCA, some overseas banks are refusing to take on American customers, declaring themselves unwilling or financially unable to report information to the IRS, which is, after all, the tax agency of a foreign nation.
That has created problems for some American entrepreneurs who have started up businesses in other countries and need access to financial services in them. Some older Americans abroad, too, report receiving a nasty shock from their local banks, in places where they've lived for decades, that have decided to close their retirement investment accounts.
Non-American spouses of some U.S. citizens have removed their names from shared bank accounts, not wanting their personal financial information divulged to the IRS. And the extra requirements imposed by FATCA have added to the paperwork and tax complications for many overseas Americans, who often pay hundreds of dollars for assistance in filing returns in two countries: the U.S. and their country of residence.
In the first half of this year, 1,809 people renounced their American citizenship or their right to reside in the U.S., a tally that exceeds the total for all of 2012.
Some analysts blame FATCA for turning loyal Americans into angry ones, men and women who once flew the U.S. flag proudly as informal ambassadors around the world but who now feel that their nation is treating them unfairly and with unwarranted suspicion.
"It's really a shame that government policies are pushing people to renounce" their U.S. citizenship, says Jackie Bugnion, a member of the executive committee of the organization American Citizens Abroad. "These people don't do it with a light heart; they're very, very disturbed about it. But this is what's happening."
Colleen Graffy, a law professor at Pepperdine University and former State Department official who lives in London, says the impulse behind the new law, to curb tax evasion and money laundering, is laudable.
But she likens FATCA to "using a sledgehammer to crack a nut."
"America should not make it difficult and onerous to be an American," she says.
U.S. officials insist the law promotes transparency and is fast becoming a model for other nations alarmed by rampant tax evasion. Other nations are negotiating agreements with the U.S. on sharing financial data, including information gleaned from FATCA.
Robert Stack, who specializes in international tax issues at the U.S. Treasury Department, says that FATCA will have "clear, positive benefits" for clamping down on tax evasion. Some technical delays have kept the law from coming into full force as of yet, making it too early to gauge the extent of any benefits. But Stack denies that the law's provisions are particularly burdensome and has dismissed complaints from Americans abroad about the unexpected fallout as "myths."
Not myth but unpleasant reality confronted Colorado-born Daniel Kuettel, a resident of Switzerland who says he kept hearing "nein" from Swiss banks to his inquiries about getting a mortgage to buy a house in Florida. Kuettel inherited some money upon his mother's death last year and had hoped to use it to purchase American property for when he retires. Although he eventually found a U.S. lender, he says he was worried by the Swiss banks' refusals and by the possible implications of FATCA for the local mortgage on his Swiss residence.
"One after another they said, 'Nope, we reject Americans,'" the 41-year-old software developer says. "Several people in Switzerland said to me: 'Basically, you have a U.S. problem. And you can get rid of it.'"
Taking that leap wasn't easy. His father's reaction in Colorado was a terse "no comment" when Kuettel — who spent three years in the U.S. Army — announced that he had decided to ditch his U.S. citizenship.
Kuettel, who held dual citizenship because of his ancestry, moved to Switzerland in 2001 after losing his job in San Diego during the dot-com bust. "I came here to find work. If I stayed in the U.S., maybe I'd be collecting food stamps and I'd be a cost to the U.S.," he says.
Last October, he traveled to the U.S. Embassy in Bern, filled out some forms, forked over $450, raised his right hand and, in a reverse of what thousands of immigrants in the U.S. do each year, forswore his American citizenship.
Diane Gelon, an American attorney in London who is originally from Los Angeles, says that by August of this year, she had counseled about 20 clients wanting to give up their U.S. citizenship, compared with what used to be six or seven annually.
Besser, the longtime resident of Germany, ran into difficulties when she and her husband, Jochen, tried to open a brokerage account for the youngest of their three daughters. Their application was repeatedly turned down because Besser, whose name would appear on the account, is American, which would trigger FATCA reporting rules for the financial institution.
Her and Jochen's retirement accounts are now in his name only to eliminate the risk that the bank might shut them down because of her U.S. citizenship. But that leaves Besser vulnerable if anything should happen to her husband or their marriage.
Besser, who lives near Cologne, says the U.S. government is discriminating against her simply because she lives outside the country. And no one in Congress represents her interests or those of any of the other millions of Americans abroad, she adds.
Anger over the situation prompted her to quit the Daughters of the American Revolution. Now she's thinking of quitting her American citizenship altogether and adopting German nationality through her husband.
"I was very patriotic," Besser says. "My father was very patriotic. You don't just shrug it off like a coat. But if you get pushed hard enough, you will."