If you’re an American living overseas, Uncle Sam is making life hard for you—and he’s probably giving your bank a headache, too.
For one, the U.S. government often taxes the earnings you make outside the U.S., meaning you can be double-taxed—both by the U.S. and by your host country. But even if you don’t owe U.S. taxes, reporting your foreign earnings to the IRS can be expensive and complicated.
In addition to that, if you live overseas, your bank is probably quite annoyed at you and has an incentive to stop doing business with you.
Thanks to an Obama-era law, the Foreign Account Tax Compliance Act (FATCA), any foreign bank or other financial institution—such as a brokerage firm—must report information to the IRS about their American customers’ account balances, deposits, and withdrawals.
But it’s a foreign institution, not beholden to the U.S. government—so how can the IRS do this?
Quite simple. If the institution doesn’t comply, the U.S. government will withhold 30 percent of any income or gross proceeds from U.S. assets that the American customer holds in their foreign account.
This causes headaches and time-consuming paperwork for both the financial institutions and their American customers. As a result of this policy, many foreign institutions have closed the pre-existing accounts of their American clients and refused to do business with Americans.
Some Americans have even resorted to renouncing their U.S. citizenship to get free from Uncle Sam’s constant nagging.
This might have you wondering, why would the U.S. government bully its own citizens this way?
The original goal of the law was to root out tax evasion by those the Obama administration considered “fat cats.” The problem is that the law’s heavy-handed measures treat every American abroad as a criminal—guilty until proven innocent—and treat foreign institutions as subservient to the U.S. government.
The effect of the law is to make Americans radioactive in the…