The Foreign Account Tax Compliance Act (FACTA), which was created to curb tax evasion, has increased the tax troubles of Americans living abroad. Even though the effort will increase transparency in the financial activity of American taxpayers overseas, especially in tax havens, it is the average taxpayer that will shoulder the increased tax burden.
Americans living overseas will be required to report to the IRS their income and assets. This does not sound so challenging, but the IRS will now also require the foreign financial institutions (FFIs) with which Americans living overseas do business to report about the certain financial transactions directly to the IRS. Only the FFIs in nations with which the IRS has FATCA agreements are affected.
Along with FATCA, there are many policy changes taking place in the U.S. such as the implementation of the Affordable Care Act. The American Citizens Abroad (ACA) wrote to the IRS, informing them that at present, clauses within act will lead to the double taxation of Americans residing overseas. The IRS has yet to offer an explanation on the issue.
Due to the complexity, increased paperwork, and restrictions placed on Americans living overseas, many American citizens living abroad, including some celebrities, have renounced their U.S. citizenship. The effect of increased vigilance by the IRS means a decrease in tax evasion, but discomfort for average taxpayers.