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Divorce, stress and fines: How citizenship-based taxation affects Americans in France

Genevieve Mansfield
Genevieve Mansfield - [email protected]
Divorce, stress and fines: How citizenship-based taxation affects Americans in France
US federal tax forms in Chicago, Illinois in 2005.(Photo by Scott Olson / Getty Images North America / Getty Images via AFP)

For Americans in France - even those who have spent most of their lives outside of the US - reporting bank accounts, income and personal information to the IRS is a yearly struggle. Here is what they had to say.

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Tax season can inspire a unique type of anxiety and stress for Americans in France, thanks to citizenship-based taxation.

Practised only by the US and Eritrea, citizenship-based taxation (CBT) requires US nationals to report their global income to the IRS yearly - on top of their obligations to make declaration in the country they are living in.

In recent years the United States has passed additional legislation know as FATCA - it was intended to monitor money laundering abroad but brought new regulations and challenges for Americans abroad, especially when it comes to banking.

Some Americans have resorted to renouncing their US citizenship due to onerous reporting requirements, while others have found themselves landed with hefty fines or, in the effort of avoiding penalties, sought out expensive professional assistance for filing each year.

READ MORE: Why more and more Americans in Europe are renouncing their US citizenship

A recent study from the organisation "Stop Extraterritorial American Taxation" (SEAT) garnered hundreds of responses from Americans living across the world, with many sharing their frustration with CBT and FATCA. 

One respondent summed it up by saying: "The biggest emotion is the feeling of the relentless burden of being an American overseas. It never lets up! Either one is preparing the vast documentation for US taxes, or having problems with a French bank account, or being told one’s longstanding savings will be punitively taxed!"

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The Local reached out to American readers to hear about their experiences, as well as their advice for others considering moving to France.

Struggles with banking

FATCA, according to the US dept of treasury, requires that "foreign financial institutions (FFIs) report to the IRS information about financial accounts held by US taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest."

In practical terms, this has forced French banks to collect and maintain more information about their American customers. If the banks fail to disclose information to the IRS, they risk exclusion from the US market as well as penalties.

For some French banks this extra reporting is simply too much hassle and they prefer to avoid getting involved with American customers - Americans in France routinely report difficulty in opening an account, or being asked to supply extra paperwork every year.

READ MORE: The best banks for Americans living in France

One reader of The Local, wishing to remain anonymous, told us "I have had two French bank accounts closed on me uniquely because I was born in the US." 

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An American in France told SEAT: "I have lived abroad for 33 years and my husband is not a US person. My retirement and savings accounts abroad were all shut by the banks in France between 2010 and 2015 because they didn't want to do FATCA reporting.

"I moved some of my savings to the US and transferred the rest to my husband. Now it is the US that has blocked my investment accounts because I live in France and they don't want to do reporting to the French (this includes my IRA and retirement savings in the US). So I find myself close to retirement with no access to financial services despite 41 years of hard work and honest savings.

"Very 19th century - I have been forced to transfer all my money to my husband and my father! It is humiliating and infuriating to be a pawn in a sick power battle between the US and Europe over who can set up the most dissuasive and annoying financial reporting requirements!" 

Another American in France told SEAT: "In several cases we’ve opted to exclude my name/joint ownership of foreign accounts and investment funds purely due to US tax reporting."

IRS fines and penalties

Many Americans mentioned that a large part of their stress comes from a fear that they will make a mistake when reporting, or accidentally miss a required form.

Paris-based reader of The Local, Andrew, told us that so far he has not had any issues with the IRS. Nevertheless, he said: "I have felt compelled to use a tax attorney since the situation is complex, else I feared making a mistake".

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He reported spending over €1,500 yearly on professional help with filing US tax forms.

Respondents to the SEAT survey felt similarly.

One said: "I do my own filing and FATCA paperwork but resent it very much. It took hours of reading the tax code and a very expensive appointment with a tax lawyer to understand the process.

"I'm not a billionaire corporation with huge offshore accounts! Just a normal adult working and trying to survive."

Another told SEAT: "I have 3 post-graduate degrees but I cannot figure out how to complete my US tax return correctly. The last time I tried I spent easily over 30 hours trying to fill it out - I made a mistake and had to pay a fine. So I have no choice but to pay someone else to do it."

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Local reader Suzanne Girolami told us: "Of course you can't ever get the IRS on the phone, or they can't do what you want because you're abroad, and they have to write you a letter which takes weeks and arrives too late to be acted upon.

"I think it took two years to clear up as I didn't want to pay all the penalties. I finally got through to someone, in the end, who was authorised to approve the abatement, which he did. I'd probably still be waiting of I hadn't gotten him, because he made the decision on the spot. No answer yet been sent to me and I've never had confirmation of this by letter. A ridiculous waste of time."

One respondent in the SEAT survey, who has been living in France for 23 years, discussed the ramifications of failing to report PFICs (passive foreign investment companies) to the IRS. These are pooled investments registered outside of the United States - whether that is a mutual fund, an exchange-traded fund (ETF), a hedge fund, or certain types of insurance products.

READ MORE: Ask the experts: What do Americans in France need to know about investments and pensions?

They said: "Most years I owed nothing until the PFICs. I had to find 10 years of statements from 12 bank, retirement, life insurance, and investment accounts. I had to get a US tax lawyer and two US accountants - this resulted in over $16,000 of taxes due for unrealised capital gains.

"This was a VERY painful time I now dread the tax season."

Family and spouses

Many people told us that having joint accounts or owning a business jointly is complicated for Americans married to French people.

US financial authorities require that any foreign account - even if it is jointly owned between a US person and 'non-resident alien' be reported for both FBAR and Form 8938, meaning the same challenges with opening or maintaining a French bank account that an American might experience on their own can also occur when the account is shared with their French spouse or partner. 

Several people said they had removed their names from joint accounts, property deeds or shared companies - all with the goal of decreasing reporting requirements and the reach of US fiscal authorities into their French spouse's life.

One SEAT respondent said: "I was a partner in my husband's business from 2012 to 2020. I previously worked as Company Secretary and have worked as a consultant through this business in the past. This has become too complicated so I have gifted my share in the business to my husband this year and will no longer take an active role due to US tax reporting obligations."

Another person replied: "Our assets are put in my husband’s name as he is French nationality. I feel suppressed as a woman, American nationality tax penalty programme causing this stress to me and my family." 

Referencing capital gains reporting in the US - which differs from those in France - a respondent told SEAT: "For a woman living in France it is a terrible conundrum as to whether it would be a good idea to remove my name from the title of our home considering the potential tax burden if we were to sell. But the alternative is absolutely out of the question in case of divorce."

Some Americans have found that tax season leads to arguments with spouses, while others have even considered divorce.

"My spouse did not like the fact that he was involved in the US taxation process in any way. He wanted me to eliminate his information, and couldn't understand why I could not. I felt that I had no control and was not knowledgeable enough to explain everything to my spouse", said one SEAT respondent.

The SEAT questionnaire also spoke with French partners of Americans. One said: "We have contemplated divorce (but staying together) as single seems a better status than MFS. We need to keep our assets separate. We are limited on which banks are prepared to deal with us, so we pay a lot more in home-loan interest."

Children

Respondents also discussed concerns about passing American nationality down to children.

One American in France told SEAT: "I am afraid for my children. When they were born it was very important for me that they have US citizenship.

"How could I have understood the problems I was saddling them with? They are contemplating renouncing their US citizenship. It would break my heart if they did, but I would understand."

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Opportunities lost

Many Americans in France have struggled to get a mortgage, turned down job opportunities, or experienced confusion about how to legally invest for retirement.

One SEAT respondent said: "Multiple banks have denied me a mortgage because I am American. We are currently in the process of buying an apartment in France. We used the services of a mortgage broker and when we went in for the final presentation a few weeks ago, only one out of the many banks queried offered us a mortgage, and it wasn’t even a good offer."

Reader of The Local, Ellen Lebelle told us: "Because of FATCA and US tax rules, we are not able to invest in the typical savings French residents usually take advantage of, like Assurance vie. Because of US tax rules, it has become difficult and onerous to even have a business."

READ MORE: 'Death by a thousand cuts': Tax warning for Americans in France

Tips and advice

While many found the tax situation for Americans abroad to be difficult, some respondents to The Local's survey offered recommendations for those looking to live in France.

Christopher Tipton in Dordogne advised getting professional help, especially in order to benefit from the double taxation treaty between the US and France.

He said: "You should consider getting help with the French tax declarations to ensure you are doing them correctly, and getting tax treaty benefits for US sourced income." 

Jennifer Hua in Bezons said "Join AARO and attend the tax seminars. France has one of the best double taxation treaties around... appreciate it!"

An anonymous reader of The Local said: "Get a good accountant who understands the double-taxation agreement".

They added: "Thanks to a well-informed accountant here, we find the process of filing straightforward. This said, it takes two rounds: we get a large tax bill in late August/early September, and our accountant writes back to explain how they have failed to take account of the double-taxation agreement. Then we receive a note of reduction of the tax demand (so, far, to zero).

"This is the result of the very good double-taxation agreement, which effectively says that income generated in the US is taxable by the US, and income generated in France is taxable in France. (Income anywhere else could be a matter of dispute, but not a concern for many people.). So, for moment, the system seems to work."

Others had tips for keeping assets in the US. One respondent told The Local: "Maintain bank accounts and US based credit cards and also a US cell phone that you can use in France in order to get security codes for US banking purposes.

"Do not keep any trusts in your name in the US that could be inherited if you die while domiciled in France, as your heirs will be taxed in France at an exorbitantly high rate".

READ MORE: What Americans in France need to know about trusts

Ellen Lebelle advised that "If you are an expat (intending to return to the U.S.) then maintain your finances there. Keep an address, there. If you are an immigrant (intending to stay in France), then become a French citizen and if you want to create a business, go into a partnership, then consider renouncing U.S. citizenship beforehand." 

Similar to Ellen, Victoria in Marseille said: "Get rid of the American nationality if you can!".

But others recommended doing your best to keep meticulous records and being emotionally prepared for future filing requirements.

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A reader of The Local advised: "If you are moving before you retire, then don't have any illusions about the difficulties you will face. You will likely not face them right away - it will happen progressively over time, as your financial interests (bank account, investments, retirement planning, home ownership, business activities, ...) shift from the United States to France."

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Comments (1)

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Mark Harfield 2023/11/23 23:25
Can anybody recommend a good accountant that understands the double taxation situation, ideally in the Parisien region. Thank you.

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