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Tax Notes Quotes Dianne Mehany on Expatriation and FATCA

January 16, 2020, Tax Notes

It’s been almost a decade since the Foreign Account Tax Compliance Act was passed, but thousands of individuals are still renouncing their U.S. citizenship each year, a trend that practitioners don’t see ending anytime soon.

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Wealthy persons are renouncing their citizenship in droves, said Dianne Mehany of Caplin & Drysdale. “In my opinion, it will continue; it’s the perfect storm of [an] unpopular administration, growing knowledge and awareness of what U.S. citizenship or long-term green card holder status means, as well as tax reform and its unintended and unfair impact on individuals living abroad,” she said.

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But Mehany said some high-net-worth individuals did move abroad in the wake of the 2016 presidential election “with perhaps a long-term intent to give up their citizenship, but more to try to test the waters. . . . I’ve only had a handful that have actually decided, 'Yes, this is a lifetime choice for me and I’m going to relinquish my citizenship,'” she said.

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The thresholds for tax owed and net worth and the requirement that an expat have no filing history “unduly restrict the availability of this program to all high-net-worth individuals who may still be accidental Americans,” Mehany said.

“It’s wonderful in that you do not have to obtain a social security number — that is the best news — but it’s still expensive because you still have to engage a professional to prepare returns,” Mehany said. The IRS needs to get rid of the $2 million net worth threshold and not require five years of prepared returns, Mehany said. “If you’re really targeting your middle-class accidental American, this is not enough relief.”

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If an individual is denied admission to the program after eubmitting returns — possibly with Form 8938, "Statement of Specified Foreign Financial Assets" — penalties could be imposed if FBARs aren’t correspondingly filed, or even if they are, Mehany said.

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“I find it unreasonable that the IRS views FBAR knowledge with such a blanket approach and has such a high degree of skepticism with someone saying they didn’t know,” Mehany said. The average person working and living in Asia, Germany, or Latin America isn’t necessarily finding out about FBAR requirements from the Financial Times, she said.

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Mehany said she’s had clients with businesses and bank accounts who didn’t find out the U.S. tax implications until they tried to enter into a business transaction. “In the midst of the due diligence process, then it’s raised,” she said.

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“The vast majority of clients who relinquish U.S. citizenship either have no desire to ever enter our borders again or hold citizenship in a country that allows free access or has methods to expedite visas,” Mehany said.

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“I always counsel my clients to not utter the word 'tax' in their exit interview unless it’s to say, 'I am fully tax compliant,'” Mehany said.

For the full article, please visit Tax Notes’ website (subscription required).

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