# Fatca



## emilieable (May 26, 2019)

Good evening, I am an Italian-American citizen residing in Italy, I would kindly need clarifications regarding possible fiscal and FATCA aspects. I'm already trying to inform myself but I always get different answers.
I have always been resident in Italy fiscally also, and I go to the USA only for short periods, and I work exclusively in Italy.
More specifically, in such a situation, are there also fiscal obligations to the USA? What would the formalities be?
Thank you in advance!


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## Nononymous (Jul 12, 2011)

If you are a US citizen, then according to US law, you must file US tax returns every year, declaring your worldwide income, and also report (on something called an FBAR form) all your "foreign" (i.e. Italian) bank and investment accounts if the total balance exceeds US$10k during the year. This could be a minor paperwork nuisance with no money owing, or an expensive nightmare depending on how complicated your financial affairs are.

That's the theory. In practice, US law isn't enforced Italy. Presumably you have not been filing US tax returns? If so, continue to not file US tax returns. Do not make yourself known to the IRS, and nothing bad will happen to you.

FATCA is a law that requires banks worldwide to report to the IRS information about the accounts of "US persons" - US citizens or green card holders. In theory, you should declare your US citizenship to your banks, and they will in turn report your account information (year-end balance and interest income) to the US government. In practice, if your banks do not know that you are a US citizen, they will not report you. Whether you can escape FATCA depends on two factors: your place of birth and your willingness to lie. If you were born in the US and this is noted on the identification needed to open an account, banks will assume that you are US citizen. You will be subject to reporting and, in some countries, can be denied certain services or account types. If you were not born in the US and you are willing to lie when asked if you are a US citizen or tax resident, then you can avoid FATCA reporting and any restrictions on services.

Note that if you are reported under FATCA, you can still ignore your US tax filing requirements. The IRS cannot touch you in Italy, so the information is not useful to them.

There are other matters for you to investigate. If born in the US, you may be asked to use a US passport when you visit - the law requires that US citizens do so, but it's not often enforced. If you wish to avoid the obligations and restrictions of US citizenship, you can renounce (for a ridiculous fee of US$2350). It is *not* necessary to become tax compliant before or after renouncing.

It's a complex subject, but that's the high-level view.


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## Bevdeforges (Nov 16, 2007)

Basically, what Nononymous said. There could be a few variations, based on how you obtained your US citizenship (I'm guessing one US parent unless you were born in the US). 

If you need or want to make use of your US citizenship (i.e. to obtain a US passport, to go to live in the US for work or study, inherit from a USC family member or transmit an inheritance to a USC, etc.) you may want to consider something like the Streamlined Compliance program, where you file a few years back, the current year and then continue filing annually after that.

But as the saying goes, "the devil is in the details."


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## underation (Oct 25, 2018)

emilieable said:


> Good evening, I am an Italian-American citizen residing in Italy, I would kindly need clarifications regarding possible fiscal and FATCA aspects. I'm already trying to inform myself but I always get different answers.
> I have always been resident in Italy fiscally also, and I go to the USA only for short periods, and I work exclusively in Italy.
> More specifically, in such a situation, are there also fiscal obligations to the USA? What would the formalities be?
> Thank you in advance!


A moment of decision, precipitated by FATCA. There are three possible choices, each with pros and cons:

1) To live fiscally as tax-resident in both the US and Italy. 

Pros: you can live and work in either or both countries, as it suits you. You can travel on either passport (entering/leaving the US with your US passport and Italy with your Italian passport). You can invest in either country or both.

Cons: you will be subject to the tax laws of both countries: the US-Italy treaty determines which income will be taxed by Italy and which by the US. (In general - though not always - earned income is taxed by Italy and unearned income such as interest or dividends will be taxed by the country of investment; you shouldn’t be double-taxed *if* you are able to plan your investments carefully.) Under FATCA and CRS, your bank accounts and other financial accounts in both countries will be subject to reporting in the other country, and some types of accounts may not be available to you.

2) To invest and save only in Italy.

Pros: Much simpler. If you file US tax returns, you won’t owe any US tax.

Cons: You will still be subject to FATCA reporting.

3) To renounce your US citizenship. 

Pros: Very quick and easy, and you’ll no longer be subject to FATCA reporting or US tax obligations.

Cons: The fee is high ($2350). You lose the US passport and the right to enter the US and live there. (After renouncing you would need to apply for a visa or go through the ESTA clearance procedure; the renunciation does not create any problems for visiting the US.) 

It’s up to you to figure out which choice is better (or possible) for you, taking into consideration your already-existing savings/investments.

HTH


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## Bevdeforges (Nov 16, 2007)

I think you'll find that the choices aren't always as cut and dried as some folks seem to think. The US-Italy tax treaty has a few "oddities" to it, in part due to the fact that Italy takes taxes out of many of your deposits into an Italian bank account. There are also some "privileges" accorded those who are both resident in Italy and Italian citizens, though the ones I'm familiar with mostly involve Italian residents/citizens drawing US Social Security benefits, which won't be your case unless you wind up living and working in the US at some point in your career.


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## underation (Oct 25, 2018)

Bevdeforges said:


> I think you'll find that the choices aren't always as cut and dried as some folks seem to think. The US-Italy tax treaty has a few "oddities" to it, in part due to the fact that Italy takes taxes out of many of your deposits into an Italian bank account.


Can you explain how that causes difficulties for any of the options I mentioned? It sounds like just a form of withholding.

And of course, the US-Italy tax treaty only becomes relevant if the OP has US income.

As for “cut and dried” - I don’t think I suggested that the choices are cut and dried. I said: “It’s up to you to figure out which choice is better (or possible) for you, taking into consideration your already-existing savings/investments.”



> There are also some "privileges" accorded those who are both resident in Italy and Italian citizens, though the ones I'm familiar with mostly involve Italian residents/citizens drawing US Social Security benefits, which won't be your case unless you wind up living and working in the US at some point in your career.


Treatment of US SS benefits, if any, does indeed vary from one US treaty to another. Dual citizens with US Social Security credits can consult their country’s tax treaty to check what the situation is for them - or contact the nearest US Federal Benefits Unit.


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## underation (Oct 25, 2018)

underation said:


> Can you explain how that causes difficulties for any of the options I mentioned? It sounds like just a form of withholding.


I stand corrected. A site at Taxation in Italy and compliance by expatriates | www.italianinsider.it gives a run-down - how accurately, I can’t say.

So this does indeed complicate the situation for dual US-Italian citizens fiscally resident in Italy and wishing to retain US citizenship.


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## underation (Oct 25, 2018)

Quite a sensible arrangement if I understand it correctly - making good use of the reciprocal elements of the CRS and FATCA IGA1, and keeping the emphasis on tax-residence rather than citizenship, for both USC and non-USC residents of Italy. (If I understand it correctly.)

Residents of Italy who are tax-resident in a foreign country get taxed on foreign income, assets, or accounts; and their Italian accounts get reported to the other country under FATCA or CRS.

Residents of Italy who are not tax-resident in a foreign country (have no foreign income, assets, or accounts, and don’t have US citizenship) don’t get their Italian accounts reported under FATCA or CRS.

Am I right?


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## emilieable (May 26, 2019)

Nononymous said:


> If you are a US citizen, then according to US law, you must file US tax returns every year, declaring your worldwide income, and also report (on something called an FBAR form) all your "foreign" (i.e. Italian) bank and investment accounts if the total balance exceeds US$10k during the year. This could be a minor paperwork nuisance with no money owing, or an expensive nightmare depending on how complicated your financial affairs are.
> 
> That's the theory. In practice, US law isn't enforced Italy. Presumably you have not been filing US tax returns? If so, continue to not file US tax returns. Do not make yourself known to the IRS, and nothing bad will happen to you.
> 
> ...


Hi, thank you for your answer.
I'm an American citizen because I was born in the US.
This is my first time filing taxes in Italy also, so I really wanted to know what kind of fiscal formalities I would have to follow.
Thank you in advance.


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## Bevdeforges (Nov 16, 2007)

If it's your first time filing taxes at all (i.e. in Italy as well as in the US), then you should be able to just start filing, and not worry about all the "streamlined compliance" stuff or quite possibly, not any of the FATCA stuff.

First thing to consider are the US "filing thresholds" - for US filing purposes, you don't need to file anything until and unless your worldwide income exceeds about $12,000 if you are single. 

Next comes the question of where your worldwide income is coming from - i.e. job, investments or other sources. That will determine which forms you need to file and what options you are eligible for.

You may want to take a look at the availability of "Free File" software. https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free
Not all the Free File programs are available to us "overseas filers" but if you can find one that works for you it is probably easier than downloading and filling out paper forms.


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## Nononymous (Jul 12, 2011)

Do not blithely begin filing US tax returns without considering the possible implications of identifying yourself to the US government. If you have no plans of moving to the US, you are better off not filing - even if you cannot avoid being subject to FATCA reporting by your bank.


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## underation (Oct 25, 2018)

Nononymous said:


> Do not blithely begin filing US tax returns without considering the possible implications of identifying yourself to the US government. If you have no plans of moving to the US, you are better off not filing - even if you cannot avoid being subject to FATCA reporting by your bank.


It all depends on circumstances and desires.

If the OP chooses, s/he can work, invest, and file tax returns in both countries, claim certain benefits from one country and certain other benefits from the other country; and eventually retire in the country of his/her choice with pensions from both countries.

Alternatively, s/he can, if s/he chooses, live, work, and invest in only one of the two countries (presumably, in the OP’s case, in Italy); in which case, US citizenship might be superfluous or disadvantageous and might make renunciation a sensible choice.


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## Nononymous (Jul 12, 2011)

emilieable said:


> Hi, thank you for your answer.
> I'm an American citizen because I was born in the US.
> This is my first time filing taxes in Italy also, so I really wanted to know what kind of fiscal formalities I would have to follow.
> Thank you in advance.


A longer reply.

Take your time and make an informed decision about filing US taxes. Unless you have a good reason to do so, it is better not to enter the US tax system and make your existence known to the IRS. Filing may be simple now when you are young, but later on if your life becomes more prosperous/complicated, the paperwork burden, accounting costs and possibly even taxes owing can be a problem; you may also find your options for investment limited by the need to maintain US tax compliance. In general you are much better off avoiding the whole mess.

It's also possible - though very unlikely in my view - that in the future Congress could change the rules to make life easier for non-resident US citizens, particularly "Accidental Americans" like yourself whose only tie to the US is birthplace. Why start filing now if there's a chance this will get better?

The fact that you have a US birthplace could be a bit of a problem. Is your bank aware that you are a US citizen? If it is, you may have account information reported to the IRS, either now or in the future. If not, keep the bank ignorant, but when you open new accounts you will either be asked about US citizenship (or tax residence, which is effectively the same thing) or the bank will notice the US birthplace on your ID. Do you have a Social Security Number? If not, be aware that next year banks may become more aggressive about requiring an SSN from any US citizen customers. 

If banks know of your US citizenship, the only way to avoid FATCA reporting is to renounce, for a huge fee of $2350. In some countries banks are very reluctant to offer services to known US citizens, and you may find yourself limited to simple accounts with no investment options. I'm not sure if this is a problem in Italy. If it is the only cure is to renounce.

One last thing to consider is passports. If you travel to the US, you may need a US passport. Sometimes the customs officers notice a US birthplace on a foreign passport and ask questions; if you enter as an Italian you would technically be lying on your ESTA waiver application if you did not claim US citizenship. Something to consider, anyway.

Note that in the case of both FATCA reporting or obtaining a US passport, the US government will gain a small amount of information about you, but this is *not* a good enough reason to begin filing US taxes. Really the only good reason for doing that is if you intend to move to the US to study or work in the very near future.


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## Bevdeforges (Nov 16, 2007)

Let me second what Nononymous has said. The difficult thing early on in your life is to know what options of US citizenship you may or may not want to take advantage of later on in your life. Normally, while you're still young, you probably want to leave open as many options as possible.

OTOH, staying off the radar without renouncing is not that difficult, nor will it be all that difficult to "fix" later on in your life (i.e. by backfiling under the Streamlined Compliance program or whatever backfiling option is available when you decide you need to get compliant for some reason). 

Renunciation is expensive and it may not solve all your problems. I kind of suspect that many banks may simply report all accounts where the customer has "US indices" like a US birthplace, regardless of a CLN or other documents the person has submitted. (Easier approach for the bank and/or the national bank.)

This is one situation where the "best" option may be to simply do nothing for a while and see how things develop.


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## Nononymous (Jul 12, 2011)

Bevdeforges said:


> Renunciation is expensive and it may not solve all your problems. I kind of suspect that many banks may simply report all accounts where the customer has "US indices" like a US birthplace, regardless of a CLN or other documents the person has submitted. (Easier approach for the bank and/or the national bank.)


The problem with banking is less the FATCA reporting to the IRS, given that the data apparently disappears into a void, but rather the fact that in some countries banks for whatever reason are reluctant to offer full services to known US citizens.


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## underation (Oct 25, 2018)

Nononymous said:


> It's also possible - though very unlikely in my view - that in the future Congress could change the rules to make life easier for non-resident US citizens, particularly "Accidental Americans" like yourself whose only tie to the US is birthplace.


Future US tax legislation may be good for (some) expat US taxpayers and/or spectacularly bad for (some) expat US taxpayers, as was the case with the 2017 TCJA. The lobbying organisation American Citizens Abroad has suggested for some time that the US tax code should be altered to provide a path for US citizens to establish non-residence in the US - which at present cannot be done. Should this eventually materialise, a US expat would be able to prove non-residence and previous tax compliance and then be allowed to register with the IRS as not required to file US tax returns. I agree this is unlikely to become reality, though it will no doubt continue to be trotted out by both parties in the run-up to US elections. Still - fingers crossed. 



> One last thing to consider is passports. If you travel to the US, you may need a US passport. Sometimes the customs officers notice a US birthplace on a foreign passport and ask questions; if you enter as an Italian you would technically be lying on your ESTA waiver application if you did not claim US citizenship.


Doesn’t the ESTA application ask place of birth and whether you or either of your parents has or had US citizenship? And CLN number if US-born but claiming non-citizenship?

So I’ve heard, but have never applied for a visa waiver myself so I do not know whether it’s correct or not. But US forms don’t usually allow much room for constructively ambiguous replies. (In fact, from what I’ve seen, the US often rules out ambiguity by making a presumption - which the citizen may or may not be able to rebut.)

The simple solution IMO would be to enter on a US passport as long as one is a US citizen.


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## Bevdeforges (Nov 16, 2007)

Nononymous said:


> The problem with banking is less the FATCA reporting to the IRS, given that the data apparently disappears into a void, but rather the fact that in some countries banks for whatever reason are reluctant to offer full services to known US citizens.


Which is kind of the same thing. On at least one of the online banks here, the application form asks for your place of birth. Once you've filled that in with a US location, you get thrown out of the system with a "Sorry, you're not eligible for an account with our bank." Doesn't matter if you have a CLN or not. 

In any event, yet another reason why the "non-compliance" or "partial compliance" options are important to consider, especially when one is young.


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## underation (Oct 25, 2018)

Bevdeforges said:


> Which is kind of the same thing. On at least one of the online banks here, the application form asks for your place of birth. Once you've filled that in with a US location, you get thrown out of the system with a "Sorry, you're not eligible for an account with our bank." Doesn't matter if you have a CLN or not.


Indeed. Certainly under the UK IGA legislation a CLN simply establishes that the bank doesn’t need to treat the account as reportable; it doesn’t give any rights to the accountholder (or applicant) that s/he didn’t have before, such as a right to make a bank give him/her an account.

EU citizens are entitled to a payment account; end of story.


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## underation (Oct 25, 2018)

Bevdeforges said:


> ...the option of staying off the radar [not filing US tax returns] without renouncing is not that difficult, nor will it be all that difficult to "fix" later on in your life (i.e. by backfiling under the Streamlined Compliance program or whatever backfiling option is available when you decide you need to get compliant for some reason).


Not filing US tax returns is indeed extremely easy and may indeed be the appropriate course of action for a USC expat who is not required to file because their _US-taxable_ income is below the threshold. The danger is that the non-filer may inadvertently make investments which _are_ US-taxable if s/he later wishes for any reason to become compliant with US tax law. This can turn into a very expensive mistake, as quite a few expats found when they tried to become compliant with US tax law after the FATCA IGAs began to take effect.

Equally, filing US returns and complying with US tax law can also turn into a double-edged sword, as USC expats with small businesses found when the TCJA suddenly turned around and demanded 30 years back payment of US tax on the “deemed” distribution of their corporation’s earnings. Wham!



> This is one situation where the "best" option may be to simply do nothing for a while and see how things develop.


I would say, do nothing for a while, research the (quite complicated) situation, and make an *informed* decision as to what you want to do about your US tax obligation. There’s no hurry.


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## Nononymous (Jul 12, 2011)

underation said:


> ...a very expensive mistake, as quite a few expats found when they tried to become compliant with US tax law after the FATCA IGAs began to take effect.


Let us point out that FATCA did not directly compel any of these US persons to become compliant, be they dual citizens, accidentals or single-citizenship expats. They were likely scared into doing so by IRS or tax industry propaganda.


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## underation (Oct 25, 2018)

Nononymous said:


> Let us point out that FATCA did not directly compel any of these US persons to become compliant, be they dual citizens, accidentals or single-citizenship expats. They were likely scared into doing so by IRS or tax industry propaganda.



Of course. The FATCA IGA1 agreements require FIs to report accounts held by US Persons. The agreements don’t place any obligations on accountholders.


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