Banks in France Sued by Accidental Americans Claiming Discrimination
As reported by Reuters, a group of American citizens living in France filed a class-action lawsuit this past week against local financial institutions, alleging discrimination due to their U.S. citizenship.
The class mainly consists of so-called “accidental Americans” or those living in France who are U.S. citizens by birth, and who typically only realize they have filing obligations later in life.
At the heart of the issue is the Foreign Account Tax Compliance Act (“FATCA”), a key piece of U.S. legislation being used by the IRS to combat tax evasion abroad.
Quick FATCA Background
The main objective behind FATCA is to combat offshore tax evasion by: (1) requiring U.S. citizens, including those living abroad, to report their holdings in foreign financial accounts and their foreign assets on an annual basis to the IRS, and (2) requiring foreign financial institutions (“FFIs”) (which include just about every foreign bank, investment house and even some foreign insurance companies) to report to the IRS the balances in the accounts held by customers who are U.S. citizens.
If U.S. tax return filers don’t comply with the FATCA rules, they can be subject to severe penalties, and if foreign banks and other institutions don’t comply, they and their account holders can be subject to an automatic 30% withholding tax on U.S.-source payments such as interest and dividends.
FATCA has impacted U.S. expats in many important ways. Most importantly, it has allowed the IRS to extend its global tax reach further than ever before. Some local foreign banks are requiring U.S. citizens to sign a Form W-9 or similar documentation verifying their citizenship. The banks can then send account information directly to the IRS or indirectly via the foreign government. Some banks have decided they do not want to get involved at all with the FATCA fallout and simply reject U.S. customers or restrict their banking activities.
In addition, annual IRS information reporting requirements have increased significantly with the addition of FATCA Form 8938, the form which must be filed to disclose specific information about one’s foreign financial assets.
Complying with FATCA has also proved quite expensive for banks and other financial institutions, with costs relating mainly to making processes and systems compliant with the FATCA regulations. Banks that want to be viewed by the IRS as FATCA compliant must also make certifications to the IRS regarding its U.S. customers, including those who were account holders prior to starting the process of FATCA registration.
Accidental Americans in France
The man leading the charge against the FATCA fallout in France is Mr. Fabien Lehagre, who himself was born in the US in 1984 but then moved to France with his French father at the age of two years old. In 2014, soon after FATCA’s implementation, Mr. Lehagre received a letter from his bank asking him for his U.S. tax ID number, which led to his realization that he was in fact an accidental American.
Lehagre decided to start a legal battle against the implementation of FATCA in France. He formed a group called the Association of Accidental Americans (“AAA”) in 2017 for this purpose. The AAA estimates that are more than 10,000 accidental Americans in France and up to 300,000 across Europe.
The AAA has previously filed a demand to the Conseil d’Etat, France’s highest administrative court, to cancel France’s intergovernmental agreement (“IGA”) with the U.S., which implements FATCA’s data gathering and information exchange rules of in France.
The Discrimination Lawsuit
Following Lehagre’s lead, the Association of Accidental Americans filed a lawsuit this past week against financial establishments in France who they say discriminate against U.S. customers, including those who are accidental Americans.
The AAA says that while they recognize that accidental American always have the option of renouncing their citizenship, they argue that this can be a timely and expensive process, and it can also have hidden onerous tax consequences, depending on the circumstances of the individual.
Takeaway For U.S. Expats
While FATCA continues to be challenged both in the U.S. and abroad, it remains the law for now and for the foreseeable future.
We will continue to monitor governmental actions involving FATCA and provide updates to you in our blog and monthly newsletters.
By Joshua Ashman, CPA & Nathan Mintz, Esq.