Why FATCA is Bad for U.S. Citizens Living in Costa Rica and America, Why it Should be Repealed and What You Can Do Now!

According to the American Citizens Abroad organization: “The Foreign Account Tax Compliance Act (FATCA) will have a devastating impact on the U.S. economy, U.S. financial markets, American businesses operating abroad and American citizens who work and reside overseas.”

Ever wondered why banking abroad is so tough for U.S. citizens?

One of the reasons is that “FATCA has turned Americans into pariahs in the international financial world. FATCA has turned Americans into pariahs in the international financial world. Foreign financial institutions — banks, insurance companies and pension funds – are already turning away American clients due to the costly IRS reporting requirements and the perceived significant legal and financial risks. ”

“American Citizens Abroad (ACA) is working with a coalition of organizations in the United States and with the community of Americans residing overseas to inform Congress of the multiple dangers of FATCA, and to bring about repeal of FATCA legislation before it becomes active and wreaks irreparable harm on the economic interests of the United States. All of the members of the coalition support the goal of fighting tax evasion. They strongly disagree, however, with the methods and means employed in FATCA implementation.”

Their American Citizens Abroad has some articles that will be of great interest to U.S. citizens living in Costa Rica including the FBAR SCAM. American Citizens Abroad (ACA), the Voice of Americans Overseas, is calling for all Americans who are bona fide overseas residents to be exempted from filing the Foreign Bank Account Report (FBAR).

I wrote about FATCA Is NOT For Fat Cats – The Foreign Account Tax Compliance Act for U.S. citizens earlier however, I’m sure most people are leaving these matters until the last minute before they react, but this well written ACA report: Why FATCA is Bad for America and Why it Should be Repealed Now! explains in crystal clear terms why you should make your voice heard.

The Foreign Account Tax Compliance Act (FATCA), goes into effect on January 1, 2013. This requires U.S. taxpayers holding financial assets outside the United States to report those assets to the IRS. In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

For U.S. citizens living in Costa Rica, this is how FATCA affects you:

1. FATCA requires foreign financial institutions (banks, stock brokers, hedge funds, pension funds, insurance companies and trusts) to reach an agreement with the IRS and identify and report U.S. accounts or subject these accounts or, the foreign entities to a 30% (thirty percent) withholding tax.
2. Reporting applies for assets held in taxable years beginning after March 18, 2010. (Notice 2011-55 provides guidance for affected taxpayers required to file prior to the availability of Form 8938.) Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).
3. Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

The FATCA withholding tax of 30% on funds transferred from the U.S. to foreign financial institutions is also encouraging foreign investors to consider selling their U.S. securities and other investments. Many foreign banks throughout the world have already indicated their intention to do so and have advised their clients accordingly.

According to the report: Why FATCA is Bad for America and Why it Should be Repealed Now! the Japanese Bankers Association stated very clearly: “In the event that the implementation of FATCA is not practically feasible for the Japanese financial services industry, it would result in substantial confusion in the industry and could ultimately lead Japanese financial institutions to withdraw their investment from U.S. financial assets.”

The European Banking Federation and the Institute of International Bankers, which in their own words “represent most of the non-U.S. banks and securities firms around the world that are affected by the FATCA provisions”, highlighted their concerns: “… many FFIs, particularly smaller ones or those with minimal U.S. investments or U.S. customers, will opt out of U.S. securities rather than enter into a direct contractual agreement with a foreign tax authority (the IRS) that imposes substantial new obligations and the significant reputational, regulatory, and financial risks of potentially failing those obligations, or may disinvest their U.S. customers in order to reduce their compliance burdens under an FFI Agreement.”

“Foreign investment in the U.S amounts to $21 trillion and $10.5 trillion of this is invested in US securities. A KPMG survey indicates that only 36% of financial institution will comply with FATCA leaving 64% still considering divesting out of U.S. securities. If even a fraction of those foreign investors divest the loss to the U.S. would be in the trillions of dollars. This at a time when the U.S. economy desperately needs more foreign investment, not less.”

So in trying to collect an estimated $8.7 billion in unpaid taxes, “… the IRS hopes to collect about .7 percent of the total combined costs of the wars in Iraq and Afghanistan since 2001.”

• Visit the American Citizens Abroad website and learn what this is all about…
• Read the Why FATCA is Bad for America and Why it Should be Repealed Now! report.
• Sign the petition to repeal FATCA here.
• FATCA destroys lives and the US economy to stop FATCA here. Join the campaign to repeal FATCA legislation here.
• Consider sending this ACA model letter to your congressman.

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Information compiled by Scott Oliver, author of 1: How To Buy Costa Rica Real Estate Without Losing Your Camisa, 2: Costa Rica Real Estate Scams & How To Avoid Them, 3. Costa Rica’s Guide To Making Money Offshore and 4. ¿Cómo Comprar Bienes Raices en Costa Rica, Sin Perder Su Camisa?

Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.