Next, the Supreme Court decides how to punish American expats


The United States Supreme Court has polarized Americans lately with controversial verdicts on abortion, guns, climate change, and more. Another case on his docket, by contrast, will receive intense scrutiny primarily from millions of Americans living abroad.

Alexandru Bittner v. United States addresses some of the tax and compliance rules that the United States applies to its own expatriates. These can be so draconian as to criminalize the mere act of living outside of the US.

Bittner is a businessman and has dual US and Romanian citizenship. He used to live and work in Romania and naturally had to open financial accounts there. What he apparently didn’t know (many expats don’t) is that he had to report all of these accounts every year to the US Treasury’s Financial Crimes Enforcement Network, on a form known colloquially as an FBAR.

All parties to the case agree that Bittner’s failure to timely and adequately disclose was “unintentional,” meaning unintentional. Still, the penalties are harsh. An appeals court assessed his fine at $50,000 or $10,000 for each of the five years the FBAR was omitted. Another court set the penalty at $2.72 million, or $10,000 for each account he should have been in each FBAR, each year.

The first amount is painful, the second ruinous, and frankly, insane. The Supreme Court now has to decide which is legal.

This question mark about sanctions is one of many ambiguities about FBARs. But even FBARs are just the tip of the iceberg.

Americans abroad suffer a long list of humiliations trying to comply with American laws. Most of them don’t owe the IRS any actual taxes (because they typically pay higher rates to their host countries and subtract those amounts from their US liabilities). But they still have to fill out incomprehensible forms that demand information that is often unavailable or ambiguous, at great cost in time, worry and money.

Some expats, for example, find themselves owning simple mutual funds registered in their host country; Employers sometimes place such investments in occupational retirement plans by default. To the IRS, these are PFICs, or “passive foreign investment companies,” a byword for toxic. The resulting paperwork is considered the most complex in the entire US tax code, and taxes amount to forfeiture.

Depending on what an American expat does next, there will be more misery to come. If you marry a “foreigner” (the reason many Americans move abroad in the first place), he may face nightmares about joint accounts, inheritance and more before he even considers having children. More punishment awaits those who own a business abroad or do almost anything interesting.

US expatriates may also find it difficult to open, or keep open, financial accounts abroad. Foreign banks and brokers are required to report “U.S. persons” (citizens or green card holders) to the U.S. Rather than risk U.S. retaliation for errors and omissions, many financial institutions prefer not to have any customers American. This particular issue is a consequence of the Foreign Account Tax Compliance Act (FATCA), a notorious Obama-era piece of legislation that has changed the lives of many American expats.

But the original reason for all the hairball of complexity is the peculiar American way of taxing, which is indeed unique in the world (only Eritrea has anything vaguely similar). That approach is called citizenship-based taxation (CBT). It means that a person’s passport or green card, not place of residence, determines tax status and liability.

The unintended consequences are legion. One is to ensnare “accidental Americans” in the IRS and FinCEN webs. These are people who, usually because their parents were in the US when they were born, have US citizenship but are otherwise not connected to the United States. One day, they may receive a letter informing them of bureaucratic torment on a scale that would impress Franz Kafka.

This (largely coincidental) intertwining of citizenship law and tax law for decades has made the US unique. Every country wants to crack down on tax fraudsters hiding money in offshore accounts; That’s why more and more governments agree to share financial information with each other. But the United States alone targets millions of expatriates with modest assets and few leads every time it targets wealthy and sophisticated tax evaders living in the United States.

In a sign of growing desperation, a guerrilla litigation insurgency is forming from Canada to Israel to Europe. In the UK, a woman named Jenny Webster, born in the US but British, has taken British authorities to court for sharing her financial information with the US, arguing that this amounts to breaches of privacy. of her data.

In France, Fabien Lehagre, born in the United States but raised French, founded the Association of Accidental Americans. He has legal cases underway in several countries. With input from him, France’s National Assembly recently passed a measure that would make his government stop sending people’s financial data to the US under FATCA, unless the US responds by sending information. on French taxpayers in return. But the bill was rejected in the French Senate.

In the Netherlands, a court recently prohibited a local bank from closing the accounts of accidental Americans in the country. And the European Parliament sent a delegation to Washington, DC, to discuss the problems caused by FATCA.

But all of these efforts only address the symptoms of the underlying aberration, which is citizenship-based taxation. So another group of lawyers, including Marc Zell, an Israeli-American, and John Richardson, a Canadian-American, want to challenge the constitutionality of the TCC as such, at least in its current form. Now they are building their case.

There are many reasons why people born in the US find themselves living abroad at some point. It should not be US government policy, even implicitly, to make those lives unnecessarily difficult. The United States must treat all of its citizens equally, whether they live at home or abroad.

The nine robed judges now have a chance to send the first little sign that they got that message. Alexandru Bittner should not be financially ruined just because he made unintentional mistakes while living abroad. Neither should any other American, or anyone at all.

More from Bloomberg’s opinion:

• Golden passports, citizenship and identity in times of war: Andreas Kluth

• Inflation is even affecting the middle class now: Andrea Felsted

• Russian dissidents are not in France for the food: Lionel Laurent

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Andreas Kluth is a columnist for Bloomberg Opinion who covers European politics. A former editor-in-chief of Handelsblatt Global and a writer for The Economist, he is the author of “Hannibal and Me.”

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