A light at the end of America’s fatca tunnel?

A “glimmer of hope” has emerged in the US for reform of the controversial Foreign Account Tax Compliance Act (Fatca), which has caused extensive financial headaches for millions of American foreign assignees and even prompted 7,000-plus expats to renounce their US citizenships.

The post-crisis act, originally intended to expose details of foreign bank accounts held by Americans living in the US, requires overseas financial institutions to reveal to the US Treasury the information on the accounts of all US citizens or face a ban on financial dealings with the United States.

As a result of Fatca’s onerous and time-consuming requirements, some banks across the world are now refusing to handle any US expats’ accounts.

This summer, however, the congressional co-chairs of the Americans Abroad Caucus, Rep Carolyn Maloney, a New York Democrat, and Rep Mick Mulvaney, a Republican from South Carolina, are attempting to get the House of Representatives to support a “same country exception” ruling.

Jonathan Lachowitz, founder of White Lighthouse Investment Management in Lexington, Mass., and Lausanne, Switzerland, explained in the Wall Street Journal: “The same country exception, as envisioned by the overseas organisations backing its implementation, would exclude from Fatca reporting — for both individuals and foreign financial institutions — accounts held by US individuals in the country where they are bona fide residents.

“For instance, an American who is a bona fide resident of Brazil would no longer have to report his or her financial accounts in Brazil.

“Additionally, financial institutions in Brazil wouldn’t have to report these accounts annually to the IRS; in effect, they’d deem Americans resident in Brazil as local and wouldn’t subject them to potential restrictions on local financial services.”

Mr Lachowitz said that Fatca had made it difficult for US expats to procure financial services in their host countries, including banking and investment management, insurance and mortgages.

He added: “Support for the same country exception is also coming from within the IRS. The National Taxpayer Advocate’s latest report to Congress lists the same country exception as a key focus point to ‘mitigate the unintended negative consequences of Fatca’.

“A full repeal of Fatca still remains the goal of some individuals and organisations, of course… but the same country exception would be a middle ground that would ease the burden on Americans living overseas while continuing to focus primarily on Americans living in the US who maintain financial accounts overseas.

“If nothing else, Fatca has highlighted the burdens the US tax system places on overseas Americans. Hopefully, implementation of a same country exception will be a significant step toward comprehensive reform.”

The two representatives have now written to Secretary of the Treasury Jacob Lew and IRS Commissioner John Koskinen pointing out that Fatca has had “created the unintended consequence of limiting overseas Americans’ access to legitimate banking services”.

They continue: “We respectfully request that the Treasury Department adopt a recent Taxpayer Advocate Service recommendation that Foreign Account Tax Compliance Act reporting exclude financial accounts maintained by a financial institution in the country of which the US person is a bona fide resident.”

Mr Lachowitz said that members of Congress and their staff were now starting to listen more closely to the concerns of US expatriates.

“Candidates for election realise that overseas Americans voting absentee could make a difference in close elections,” he added, “which makes it an opportune time for expats to reach out to their lawmakers and ask them to support the same country exception.”