The IRS is easing withholding requirements for the Foreign Account Tax Compliance Act (FATCA), an international reporting regime that has drawn criticism from lobbying groups for US taxpayers living abroad and financial institutions, as Trump gets ready to cut US expat tax ties.
FATCA requires foreign banks and brokerages to report on the assets held by their US persons or be subject to withholding on US transfers.
The penalty for failure to comply, withholding, would essentially put the foreign bank or brokerage out of business. They would be unable to receive transfers from the United States, or any bank with a branch in the United States. Also, they would lose their ability to transact in USD because no correspondent bank would take on a non-compliant foreign bank.
The large majority of members of my organization were born on American soil to French parents and now face negative fiscal consequences as a result. Had there been no birthright citizenship, we wouldn't have the problems we have today." Fabien Lehagre, lawyer
The practical effect of FATCA has been to close 95% of the foreign banks to US customers. For someone living, working, or doing business abroad, it's nearly impossible to open an offshore bank account.
"Accidental Americans" — dual nationals who have US citizenship but only loose ties to the country — have been campaigning to be freed from increasingly onerous obligations linked to their American nationality and might now achieve their goal.
The American president said he is preparing an executive order with White House legal staff that would reverse so-called birthright citizenship, a policy that grants automatic citizenship to those born on US soil.
As the US tax system is based on citizenship rather than residence, any American expat must pay income and capital gains taxes based on their worldwide income to the Internal Revenue Service.
"The large majority of members of my organization were born on American soil to French parents and now face negative fiscal consequences as a result. Had there been no birthright citizenship, we wouldn't have the problems we have today," Fabien Lehagre, leader of a French "accidentals" advocacy group told Politico.
The move by Trump is still in the early stages. His administration team is reportedly in talks with lawyers about if such an executive order would have the desired result.
However, an executive order by Trump would likely trigger judicial action. Many legal scholars argue that the policy is rooted in the 14th Amendment of the US constitution, and would hence require a constitutional amendment to change.