A lawsuit against FATCA, the Foreign Account Tax Compliance Act, was filed back in 2014 by Senator Rand Paul and the Republicans Overseas and, while I am certainly no fan of the senator, I support this lawsuit. It was, however, dismissed in April because the Ohio federal judge who heard the case decided that the senator and the current and former US citizens who were the plaintiffs didn’t have any standing to sue on this issue. His argument was that the plaintiffs hadn’t shown that the law harmed them or was likely to.
This question of standing seems to rest on the idea that if banks, because of the expense of complying with the FATCA rules, refuse to do business with Americans, it’s the fault of those banks. In other words, the judge did not deny that the plaintiffs were hurt, but denied it was the US government’s fault. I beg to differ.
FATCA and the Constitution
FATCA can be opposed in the US based on three main Constitutional arguments:
- Gathering so much information about citizens without a warrant violates the 4th amendment right to privacy.
- Cruel and unusual punishment, including excessive fines, is prohibited in the 8th amendment. When the fee structure means that mistakes on tax returns can trigger fees higher than a person’s assets, that’s excessive.
- The Intergovernmental Agreements (IGAs) between the US government and foreign governments are essentially treaties, and it’s the US Senate that is empowered under the Constitution to make treaties, not the Treasury Department.
So the case will be appealed or restarted, and might eventually go all the way to the Supreme Court. Lawsuits are tremendously expensive because of the legal fees, yet scraping together the money has been a problem since the beginning. So far, they’ve managed it, but it’s going to be a huge effort to raise the money to launch an appeal of the US case. And yet there are literally millions of overseas Americans who would benefit if they won.
But that lawsuit isn’t what I want to write about. I want to write about the general reaction of Americans abroad to the US lawsuit’s dismissal and other recent events.
For the most part, the response has been underwhelming to say the least.
There has been very little outcry lately: some surprised, angry comments on Facebook groups and a few on-line essays. And it barely made the mainstream news, except in expatriate and accountancy circles.
The first-quarter 2016 reports that came out in April about how many Americans renounced their citizenship drew very little coverage outside of expat circles. The numbers are wrong, by the way—significantly underreported—yet still showed a record high of renunciations. (My name has still not made the “name and shame” list, and I renounced last November, so I should have been in this or the last one.)
When the Panama Papers were leaked, the media pointed at tax evaders, using language that presumed all of us overseas Americans were tax evaders and equating “foreign accounts” with hiding tax money. We overseas Americans were angry and defensive, since our “foreign accounts” are our local accounts. Some wrote letters to the press or posted comments online, to very little effect.
It’s not that people aren’t fighting FATCA; they are. But considering the sheer number of us (7-9 million!), I would have expected more noise. So why are we showing so little energy to fight this fight?
Americans overseas are afraid. If they haven’t been filing their returns, they’re afraid that the IRS will notice them. Most wouldn’t owe any money, but the cost of compliance is high (accountancy fees), especially if they don’t speak good English, and it would put them on the IRS’s radar if they filed.
Many overseas Americans have never filed taxes. They are “accidental Americans” because their parents were Americans or because they were born in the US but grew up somewhere else. Many people like me, who have lived overseas for a long time, didn’t realize they had to file taxes because they file where they live. Common sense told them that they didn’t need to pay taxes to a place where they don’t live or receive services.
These Americans also fear that their local banks will find out they’re American. If that happens, the bank, under IGA rules, will send their personal financial information to the US, which could potentially alert the IRS to the fact that they haven’t been filing their forms. This could be disastrous: not in terms of back taxes, but in terms of high punitive fines. The IRS threatens a $10,000 fine for each non-willful violation of a filing requirement. That could add up very quickly. If they determine that it was willful, the fines are even higher. How would they make that determination? I don’t know.
Even Americans who are compliant and up to date on their tax forms fear that the IRS will audit them. Since tax laws are ridiculously complicated for overseas Americans, the chance is high that they’ve made a mistake on their forms, or that their accountants have filled them in wrong.
All of this fear adds up to a strong desire to stay anonymous. Speaking up against the injustice of FATCA, they fear, would “out” them to the IRS. I was surprised at how many messages I received about how “brave” I was when I “came out” against this state of affairs using my full name.
Some overseas Americans are just biding their time, hoping that the new president next year will do something to fix this situation. Interestingly, on the Facebook groups for Americans overseas, opinions vary widely about which candidate is most likely to do that. Many support Trump because of his generally anti-IRS attitude. Many support Sanders because his brother is an overseas American, so they feel he’d understand. Clinton has made vague statements about reviewing the situation.
Some are placing their hopes in Congress: that the next one will hear our complaints about how we are treated under FATCA and make changes. Others hope that either the Rand Paul lawsuit or an ongoing Canadian one will eventually force a change.
3. Indignation fatigue
Another possible reason for the low level of activism is “indignation fatigue” (The phrase is not my invention.). I felt so tired of the fear, anger and resentment that I lost hope and resigned: in other words, I renounced.
People like me who suffer from indignation fatigue feel that nothing will change. Writing letters and articles expressing our indignation accomplishes nothing, making us angrier and more tired.
An example: on the day I renounced, I submitted, with my official paperwork, a written statement explaining my reasons for renouncing. Other than sending me my Certificate of Loss of Nationality, it received no response from the State Department. Afterwards, I sent it in slightly different form to a number of newspapers in the US. Then I submitted it to several different American websites as well. I wanted it to be published somewhere with a much bigger audience of homeland Americans than this blog has so that they could see why the number of renunciations is steadily rising.
Nothing. And I don’t mean it was rejected. I didn’t even get a rejection e-mail from a single one of them. They simply didn’t respond.
Another example: I wrote letters to both the senators in California, where I was registered to vote, as well as to “my” congresswoman. After many months, I received letters back from two of the three, both of them form letters, only one of which actually addressed FATCA. The other was a general “We understand that everyone is concerned about high taxes” form letter: nothing to do with what I had written.
This complete lack of interest on the part of homeland Americans is just so discouraging that we succumb to indignation fatigue and give up.
I sincerely hope that others can use their indignation to summon up the energy to continue the battle. I hope they will contribute to the lawsuits, keep barraging decision-makers with letters, and keep making noise to bring about change by educating homeland Americans about this issue.
Now that I’ve renounced, though, I find that indignation fatigue has taken over, and I need to step back from it and get on with my life as a Dutch citizen. That doesn’t mean I won’t write on FATCA-related topics again; it just means I am turning my attention to other, more positive, things as much as possible.
In the meantime, thank you to those of you who have commented on, shared and otherwise supported my writing on this topic. And I hope you stick around (and subscribe!) to read my travel posts.
Are you an overseas American? Are you still feeling hopeful or has indignation fatigue set in? If you’re a homeland American, did you ever hear of this issue before finding your way to my blog? Feel free to leave a comment below.