In previous decades, U.S. residents were able to freely open foreign bank accounts the contents of which largely remained private. However, since the passage of the Report of Foreign Bank and Financial and Foreign Account Tax Compliance Act, U.S. residents with foreign assets are now subject to strict regulations with regard to reporting foreign assets in excess of $10,000.
In addition to imposing new and strict reporting regulations upon U.S. residents, FBAR and FATCA also require foreign financial institutions to report the names and account information of U.S. account holders. Consequently, U.S. residents are widely being shunned by foreign banks which are weary and leery of the extra paperwork and possible U.S.-imposed fines and penalties.
In anticipation of the enaction of FATCA, during 2013, the number of U.S. residents living abroad who renounced their U.S. citizenship increased by 221 percent. Since that time, the number of expatriates has remained high and steady with more than 1,300 U.S. citizens renouncing their citizenship during the first quarter of 2015.
Along with an increase in the number of expatriates, the U.S. State Department decided to increase the renunciation fee more than five times the previous cost from $450 to $2,350. Additionally, some U.S. citizens who choose to renounce their citizenship are required to pay an additional exit tax.
In recent years, the federal government has increased its focus on and scrutiny of foreign account holders. Individuals who fail to comply with IRS FBAR and FATCA reporting requirements are subject to astronomical fines that, in some cases, exceed the value of an account or property. Additionally, in some cases, the IRS may choose to pursue criminal charges.
Source: Forbes, “New Un-American Record: Renouncing U.S. Citizenship,” Robert W. Wood, May 8, 2015
IRS.gov, “Report of Foreign Bank and Financial Accounts (FBAR),” May 12, 2015
IRS.gov, “Foreign Account Tax Compliance Act,” May 12, 2015