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FATCA: Loopholes with Dual Citizenship

(Dubai, 23/10/2012) DUAL CITIZENSHIP issues may lead to a "loophole" in the US Foreign Account Tax Compliance Act (FATCA) because the dual citizenship issue has not been addressed and may be hard to close. FATCA obligates foreign banks and other foreign financial institutions (FFI's) to report the individual account information of US citizens and US residents, green card holders, taxpayers.

What happened the last years, is a proliferation of dual status taxpayers: If they come and open an account with a FFI on their non-US passport, it becomes difficult, maybe impossible for the FFI to know if that person has US tax status - and therefore to comply with FFI's requirements to the IRS in reporting information on US account holders.

On the other side it could be rather simple. In all cases where the dual citizenship holder was born in the United States (which is likely in 95% the case), the second passport will show as place of birth "United States", making it very easy for a FFI to determine that the person is a US tax payer. we already have seen a few examples of Swiss banks declining clients with non-US Passports, because their passport stated as place of birth "United States". Only people who renounce their US citizenship - and can prove it - can be counted as non-US tax payers.

Under US law and in FATCA's eyes, a dual citizenship holder is treated as US account holder - because he is US taxpayer. The question is: How is a FFI able to detect dual US citizenship clients - or whether it would be too difficult to enforce. Of course, the proposed FATCA regulations give FFI's relief from liability - provided they have exercised due diligence in an acceptable level of care with respect to identifying, documenting and going through procedures in such situations.

FATCA is an important development in US efforts to combat tax evasion by persons holding investments in offshore accounts. Under FATCA, US taxpayers holding financial assets outside the US must report those assets to the Internal Revenue Service (IRS) or face penalties. FATCA will also require foreign financial institutions (FFI's) to report directly to the IRS certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest.


3 Kommentare to “FATCA: Loopholes with Dual Citizenship”

  1. Unfortunately for the IRS and Treasury, intergovernmental agreements with other countries are ILLEGAL. The same US Congress who voted for FATCA has also voted not to make agreements with foreign countries governments, making it unimplementable.

    If you make an agreement with Treausury now and you give over the US persons data, that US person can sue you later and if they get a powerful law firm behind them will be able to freeze the assets belonging to the foreign government. No one will win in this stupid law longterm. How can a Middle Eastern country protect US persons data when the US itself does not trust these countries with private information?. It is too tricky. The lawsuits are already beginning. Leadership in the US is voted in and out adn changes occur rapidly. Also,the US is a government by the people for the people but is acting against the people harshly today. Tomorrow the people will lawyer up and get revenge. This is a certainty. It is not a parliamentary government like Europe. The Treasury has little power. They are liars. They have no power.

    Posted by jamilla | 04/02/2013
  2. The next loophole will be when dual US EU citizens mount legal challenges to be considered an EU citizen while residing in the EU.  EU citizenship should be the dominate citizenship and banks should enter on their database these people as EU.

    US courts will probably see similar action by some people resident in the US.

    This will leave behind the US citizens with only one passport to suffer under FATCA.

    Posted by Don | 13/09/2013


  1. […] If both parents of a baby born abroad are U.S. citizens, or one parent is a U.S. citizen who fulfills the five-year residence requirement, then in theory the baby is automatically a U.S. citizen at birth under 8 USC § 1401. In practice, there are obvious barriers to the U.S. government’s ability to identify such children if they have another citizenship and do not wish to be identified, to the extent that dual citizenship is demonized as a “loophole” in FATCA. […]

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