Key Issues For American Expats

Carlie: Hey there, it’s Carlie with another episode of the Expat Focus podcast.

How much do you keep up with the news and issues back in your ‘home’ country? Where do you go for updates on subjects that affect you, like, new law proposals and policy changes?

American Citizens Abroad is an apolitical organisation on a mission to educate and advocate for US citizens living and working overseas, from expat voting rights to citizenship issues, taxes and healthcare.

ACA Executive Director Marylouise Serrato joins me in this episode to talk through some of the important work they’re doing from their headquarters in Washington D.C., for the benefit of all American expats.

Marylouise, tell me a bit about American Citizens Abroad and how you advocate for US citizens living outside of the country.

Marylouise: So, the organisation was created over 40 years ago. Two of its founders happened to find themselves in Switzerland, and so that’s where the organization was founded. And the early work that the founders did is … They had worked on the issue of getting the vote from abroad.

Many people aren’t aware, but 45+ years ago, you could not vote as an American living and working overseas. And they worked on campaigns with other individuals and precursors to other organizations on that very issue. They also worked on citizenship issues.

There were some laws and regulations that prohibited Americans who themselves had been born outside the United States to pass their US citizenship onto their children born overseas. So, they began working on those two issues.

And, as a result of that, they recognized that there was a real need for an organization to address, with the US Congress, the issues of Americans living and working overseas. You probably have seen from visiting our website that we do a lot of work on taxation.

And this obviously is one of the major concerns and problems for Americans living overseas, because we’re one of the few countries that taxes our citizens based on their citizenship and not based on where the income is earned.

Carlie: And this is the dreaded FATCA, right? I believe we’ve covered that with some tax experts on this podcast before.

Marylouise: FATCA is another component. At the base of it, the US tax system, as I said, looks at the individual and says, ‘You are an American. So, no matter where on planet Earth you are living, you must file a US tax return, if you meet certain thresholds.’

So, an American who is living, say, in Germany – they must file first to the tax authority in the country in which they’re living, which would be Germany, but then they have to file a tax return to the United States.

There are some mitigating tools to avoid double taxation. But, in a lot of cases, that doesn’t cover everything. So, there’s a certain level of double taxation. There’s also issues because the United States does not look at certain investments overseas in the same light as investments in the United States.

So, for example, tax-free pensions that may be tax-free for you in the country that you’re living in are not considered tax-free from the US side. So, those contributions would be taxed on the US side, but they may not be taxed on the foreign jurisdiction side.

FATCA is a piece of legislation that was passed in 2010. It was with all good intent passed, because they wanted to cut down on tax evasion and pretty much on domestic Americans who were holding foreign investments in foreign bank accounts overseas and not declaring them.

But forgotten a bit in the mix was that there were going to be a lot of Americans who were living overseas, who had a legitimate reason to have foreign investments in foreign bank accounts. And now there is a reporting regime, where Americans themselves must report on these accounts, and the bank must report to the IRS on the accounts held in their institutions by Americans.

So, the issue with FATCA and how it has really brought the citizenship-based taxation problem even more in focus, is that a lot of banks, to reduce their exposure … Because if they are harbouring an undeclared US citizen, they can be subject to penalties. You probably are aware of the DOJ cases against the big Swiss banks.

So, in order to avoid that, a lot of the banks have made a decision that the easiest thing to do is just to remove Americans from their client list. So, this has had a devastating effect, in many instances, of individuals not only losing checking and savings accounts, but maybe mortgages; they might not be able to get a line of credit … So that has been a complicating factor to the citizenship-based taxation regime.

Our solution is to go to a residence-based taxation regime, which is pretty much what the rest of the industrial world uses. And that is: if you earn the income in a foreign jurisdiction and it’s not earned in the United States or in conjunction with any economic activity in the United States, it is not subject to US taxation.

So, our platform of issues is: it’s taxation; it’s citizenship; it’s voting. There were other issues vis-a-vis US regulation that we touch upon: social security, Medicare … We did most of this through a traditional year upon year doorknocker, when we were still headquartered in Switzerland.

And doorknocker basically means the organisation comes to Washington, DC and meets with legislators, and we present our positions and try to educate them. We found, over time, that that was just not hugely effective, and to really have an impact, you needed to be in Washington, DC.

You needed to have an ongoing presence with the legislators and the administration. You needed to be available to them. And in 2012, we moved the headquarters of ACA to Washington, DC. And we created two non-profits.

One is ACA Inc., which is our advocacy organisation – the organisation that does all the advocating to Congress. And then, there’s ACA Global Foundation, which is the research and educational branch of ACA.

So, a lot of people say, ‘If you’re in Washington, DC, aren’t you distanced from the problems of Americans overseas?’ And [the answer is] no, because we know the problems come from the community, and we’re engaged with the community. And sometimes, we see problems on the legislative side before the community even sees them.

FATCA is a good example of that. We saw early on, and started to blow the whistle early on, that this legislation that’s being drafted and considered could have a problem, if you don’t have an understanding that there are Americans overseas that are going to need bank accounts.

We were successful, in a small part, in helping to raise the threshold. So, there’s a higher threshold for reporting on FATCA if you are an American that is legitimately resident overseas, as opposed to an American that’s living in the United States and holding bank accounts overseas.

So, it’s really important to be available to the Congress. And the other thing is, it’s important to bring practical solutions to the Congress. There’s a lot of frustration out in the community. We certainly understand that. And, a lot of times, individuals will say, ‘Well, just overturn this’ or ‘just repeal that’ or ‘just tell them to do this or that.’

And, unfortunately, the system itself, which ACA is not trying to break down. The system itself in Washington—

Carlie: I’m sure it’s not that simple.

Marylouise: Yeah. We recognise how things operate. And sometimes people say, ‘Well, it shouldn’t be that way.’ Okay. Well, it shouldn’t be that way, but that’s the reality. And our charge is really to bring forward practical solutions and say, ‘How can we solve this problem?’

A lot of times, it’s not through legislation, and it might be through regulatory change. Obviously, our gold standard is residents-based taxation. We’ve developed what we call a side-by-side platform. It’s not legislation itself, but it takes the current tax code.

And it says, ‘Where do you have to cut into that code to get to a residence-based style of taxation?’ And we actually put some numbers behind that. That work was done by raising funds through ACA Global Foundation, because it was a research project.

And what we did there, is we said, ‘Okay, if you want to get this to zero’ – because, at the end of the day, Congress is going to want to know, with any piece of legislation, how much it is going to cost and who’s going to have to pay for this.

So, we were able to show that if someone did take all the elements of our platform and draft legislation reflective of that, that we could get to a zero cost for residents-based taxation. So that’s really important work. And it’s really important work to have in the hands of Congress. That’s our gold standard. Obviously, we continue to push for that.

However, for FATCA, we do have a small “interim solution”, which would be same country exemption. This is an example of the practical approach that ACA brings to a problem. It would simply remove, from the reporting regime, accounts that an American holds in the country where he is legitimately resident, because those are not overseas accounts. That’s not what FATCA really is looking for.

So, same country exemption would say, ‘I’m an American overseas. I’m legitimately resident in France or Thailand or whatever. And these bank accounts with my local in-country bank and financial institution are not reportable, because they’re my local accounts.’

Those accounts would also not be reportable on the bank side. So that would remove this fear factor. So, that’s a really great example of a practical approach. We think we were really close to perhaps getting that through the treasury in the last administration, but obviously the 2016 elections changed everything. So, there was a whole new cast of individuals that we had to deal with.

Another thing that we worked on, on top of FATCA, is the foreign bank account report, and this is something that’s been around since 1970. It’s not a tax filing report per se. It’s more about drug money, money laundering, terrorist financing … And what it requires is that, if an American has more than $10,000 in bank accounts – cumulative, not per account – they need to also report a Foreign Bank Account Report.

With the advent of FATCA, there has been more of an administration of FBAR. And a lot of people suddenly realised they hadn’t filed this FBAR form. Because the other confusing element of FBAR is it says ‘bank accounts’, but you may think, Okay, well I have a tax-free pension in France. I don’t need to put that on there.

You do, because the US, again, doesn’t recognise it as a pension. So, it says, ‘For us, that’s just a financial account.’ So there were a lot of people who got caught up in a programme to come clean with their FBARs, which was really geared towards those who were criminal tax evaders, not the people who simply didn’t know that this account belonged on this form.

Carlie: I can imagine there’s a lot of expats like that, right? Because I’m sure, with US citizens moving abroad, the last thing on their minds is what reporting they may or may not still need to do back to the USA, while they’re on their overseas adventure.

Marylouise: For sure. And a lot of people did get caught up with that, because a lot of tax preparers were unaware of it or didn’t advise, or people were doing their own taxes. So, like I said, many individuals tried to come in through the criminal tax evasion door, but they weren’t [criminal tax evaders]. And they got caught up with lots of back taxes and lots of penalties.

ACA put forth something that we called the comprehensive compliance programme, and we proposed it to the Treasury and IRS and said, ‘Why don’t you give these individuals who are truly non-wilful a path forward, where there’s a reduced penalty or no penalty?

So, fortunately, the IRS and Treasury took a look at that work and created their own programme, but off the basis of what we had recommended. And, in fact, there still exists a streamline offshore programme that individuals who are truly non-wilful can use. They can come in and say, ‘Hey, I just didn’t know I had to file this.’ Or, ‘I didn’t realise that these accounts qualified to be reported on an FBAR.

So, that’s really at the base of a lot of our work – we’re working for the gold standard, and we’re pushing for that, but we also understand the immediacy, and we’re trying to find practical solutions that can get either through legislation or regulation, and solve some of these some of these problems.

Carlie: So, you mentioned that you did make some progress with the last administration, but obviously President Donald Trump came into power in 2016. How receptive to US expat issues has the government been in the past four years?

Marylouise: We work with a number of congressional offices, both on the Democratic and the Republican side. There’s definitely interests on both sides of the aisle on this topic. Your listeners may or may not be aware that Congressmen Holding, who is a Republican from North Carolina, he introduced legislation called the Tax Fairness for Americans Abroad Act.

And that was a bill that is often called, in Congress, a marker bill. And it basically just set down an outline for a piece of legislation that says we should not be taxing Americans based on their citizenship. We should tax them based on a residence-based approach to taxation or RBT.

But it didn’t give very many details. It wasn’t completely fleshed out. It needed a lot more work. But it was put out there to start the conversation, and offices on both sides, legislators on both the Democratic and Republican side, did start that conversation.

The important offices, like the tax writing committees, and a lot of the community may not understand that it’s great to have a legislator behind something. You need a legislator behind something. You need someone to be your champion, but you also need to have the tax committees get involved and interested.

And this would be on the house side, the House Ways and Means Committee and the Senate Finance Committee. And there’s another committee: the Joint Committee on Taxation. And that’s another very important committee that needs to be aware of the research, the work, the legislation, and the proposals that are out there.

ACA has met with all those offices, and in the Senate Finances and House Ways and Means, we’ve met with the committee staff on both the Republican and Democratic side. So we know that they have been looking at this and that they’ve been considering the marker bill legislation, and probably other ideas that are coming into their offices from legislators.

And we definitely know that the Joint Committee of Taxation has been looking at this. We ourselves had a meeting, quite a substantive meeting, with the Joint Committee of Taxation, where we brought to them our research work. And we did that with a company here in Washington, DC called District Economics Group, which is a revenue estimator.

So they’re the people who are able to take our side and say, ‘Okay, if you actually really made this reality, let’s run the numbers and see how much it’ll cost.’

Carlie: Definitely sounds like a bit of a marathon rather than a sprint when it comes to advocating for US citizens to Congress and getting change through.

Marylouise: It is. You have to be invested in the long-term. But we have seen incredible awareness, in particular since our headquarters moved here to Washington DC – a lot more awareness for the issue. In a kind of perverse way, FATCA actually helped with that.

It brought a lot of Americans overseas to their congressional offices saying, ‘Hey, I’m affected by this. I’m a small businessman overseas now. And I’m having problems being able to get a line of credit. I’m having problems being able to sign onto the corporate accounts. It’s really affecting the ability for me to work.’

And also, individuals who were having problems maintaining mortgages – having the banks come to them, saying, ‘Well, you’ve got to pay up on this mortgage.’ Or having their bank accounts closed. So, that really did increase the awareness.

Carlie: Marylouise, alongside the ongoing tax issues for US citizens abroad, right now COVID-19 is very topical and the upcoming US election – at the time of recording, there’s just a week or so to go, and mail-in voting is well underway. How is ACA engaging with US expats on these issues?

Marylouise: So, definitely COVID-19 has been a big issue, in particular for Americans overseas, with regard to the CARES Act. So, because Americans are taxed based on their citizenship, they were eligible for the stimulus out of the CARES Act, if they met the thresholds.

So, not only the pandemic, and all the associated problems, but as well as that, there have definitely been issues with being able to access the stimulus payments. There was a problem initially with being able to track those payments. Individuals wanted to be able to use the IRS ‘Get My Payment’ online tool to be able to find out where their payment was in the system and how it would be sent to them.

Many people wanted to have a direct deposit and didn’t want to have an actual physical cheque mailed to them. It was an issue not only for domestic filers. For international filers, there was a complication, because initially the tool was unable to accept a foreign address. No matter how people put the address into the system, it kicked them out.

So, ACA dialogued extensively with the IRS on getting that problem resolved. And they finally did, although it took them a couple of weeks to get it fixed. And the unfortunate thing there was that, once that was fixed, it ran up to the deadline of when individuals could provide their direct deposit information. It gave Americans overseas, I think, about two or three days to be able to provide that information.

There was also an issue, which we’ve been raising with Congress, for joint filers, where one individual did not have a social security number and had an ITIN. This is for someone who is not a US citizen and in lieu of a social security number uses an ITIN number. Those individuals were disqualified from the stimulus if they met the threshold.

Also, the PPE programme for small businesses was limited to US companies that were based in the US, so there were areas of the legislation where Americans overseas thought they were going to be able to get some relief and were unable to.

So, we’ve been highlighting those issues, along with problems with the closures at the State Department and embassies that affected a lot of people – and continues to affect, in some cases – who are trying to get births abroad for their children and trying to apply for first-time social security numbers.

This is a bit of a FATCA problem, as well. For reporting purposes for the FATCA legislation, you need to provide your bank with the social security number. So, a lot of individuals didn’t have that – they might’ve been born in the United States, left when they were children, and never applied for a social security number.

So, in the last few years, there have been a lot of individuals who are trying to apply for a first-time social security number, and there you actually have to make an in-person visit. So that has been a problem with COVID. So, we’re trying to give people – ACA is trying to give people – information on the deadlines, how to apply for stimulus, etc.

And we’re also letting them know that we’re addressing some of the problems with the legislature and with the US State Department. On the election, obviously, one of the things that is a concern for voters overseas is the mail delays and the lockdowns. Initially, there were some countries where I think there was no mail going back and forth.

There are still concerns with COVID, that there is a slowdown of mail delivery, and in particular in the United States, with a lot of people mailing in ballots. This is something that even domestically has been talked about. Will the postal service be able to handle this? Will my vote get counted? So, that’s definitely a concern.

What we have been doing to support the community is just getting out there and giving them the information. We launched two five-day challenge voting campaigns, and the first one was a week-long challenge to individuals.

We gave them information or an article to read or a video to watch that just helped explain the voting process, and what they needed to do and be aware of in terms of registering to vote and requesting their absentee ballot.

And then we did a second campaign that also talked about the importance of voting. A lot of individuals that are American citizens overseas think, oh, I don’t think I can vote from overseas. But yes, you can vote from overseas.

So, we gave them a little bit of history on the great work that people did 45+ years ago to get this right for Americans overseas and the importance of voting and that your vote counts. And we also had a campaign, ‘Voice Your vote’, where you were able to go in and ask the candidates running in your district and the presidential candidates their opinion on your issues.

We’ve also done a lot of sharing from two other great groups: one government group, which is the Federal Voter Assistance Programme (EFAP), and a non-profit called Overseas Vote Foundation (OVF).

And they, on their websites, have all the information that individuals need: to know the deadlines in their state of when they need to register to vote and request an absentee ballot and what they can do if they have not. There’s the Federal Write-In Absentee Ballot that voters can use. So, we refer a lot of their information out to our members and out on social media.

Carlie: I find it really interesting – as an Australian, where back home voting is actually compulsory – to see the interest in actually participating in the US election this year. I was reading on Twitter just before that a record number of Americans domestically have actually already submitted a vote.

I’m curious – if you know at all – how many Americans are abroad and how many are actually submitting votes from overseas this year?

Marylouise: Well, in answer to how many Americans are abroad, that’s an excellent question, because there is no real official count. And, unlike a lot of other countries that have maybe a little more rigorous relationship with their expats when their citizens leave and go elsewhere, the United States really doesn’t have that same sort of system or set up, so to speak.

An American doesn’t have to let anyone know when they leave the country or move elsewhere. The one thing that they are supposed to do is file their taxes. So, the US doesn’t have a really hard and fast number. The US State Department issues – I don’t know if it’s annual, but they do issue – a report.

The latest one indicated that there were about nine million Americans overseas. But we aren’t clear as to the methodology that the State Department uses on that. Other organisations, like EFAP and ACA itself … Through our research programme that we did with District Economics Group for our residents-based taxation work, we think the number is more like five or six million.

And that does sort of mirror the estimates that the Federal Voting Assistance Programme has published. So that, we think, is probably more representative of the whole community. But within that, obviously, not all of those individuals are voters.

EFAP has estimated that within the community of five million or six million, there’s perhaps 2.7 million that are actually eligible voters. So there are a lot of eligible voters out there. This year, certainly, we have seen a lot of interest in voting from overseas, but we’ve also seen a growth in those numbers over time.

Four years ago, there was a lot of interest in the presidential, because it was the presidential election, also in the midterms. So there’s definitely growing interest in voting overseas.

Carlie: I understand you were an expat yourself at one point. Is this how you became involved in advocating for Americans abroad?

Marylouise: So, yes, I lived overseas for 20+ years, in Brussels, Belgium, and then in Geneva, Switzerland, and I still continue to split my time between Europe and the United States. And yes, this is how I got involved.

When I moved to Switzerland, I became aware of American Citizens Abroad. And prior to that, we were on an expat package. And if you know anything about some of the original expat packages that companies were giving their employees, [you’ll know] they were quite generous and there was tax equalisation.

And when we moved to Geneva, we were no longer with a US company, and we didn’t have “all the benefits” of an expat package. So it made us very much aware of some of these issues that perhaps before I wasn’t quite aware of, because it was all being taken care of administratively through my husband’s employer. So it did make me aware.

And because ACA was headquartered in Geneva, Switzerland, and I was there, I became quite familiar with the organisation, and I really believe in their mission. And I think that it’s hugely important to have Americans overseas – not only for the economic reasons, just to be able to create partnerships and economic opportunity for the United States and for Americans living and working overseas …

But I saw it myself, just in my interactions with the foreign nationals I was living with. Being able to talk about the United States, talk about things that were or are going on in the United States. Some of the political issues. Some of the things that perhaps foreign nationals read and hear about and might understand in one way but aren’t quite fully aware of the whole picture.

So I think, on a lot of levels, it’s hugely important to have Americans overseas and to make sure that they have the ability to go overseas and work overseas, and that they are not hampered by legislation or regulation that makes it more expensive for them to be overseas or difficult. Or, in some cases, impossible, because they can’t have financial integrity. They can’t have bank accounts.

Carlie: Marylouise, you’ve lived abroad. You’re now back in the USA advocating for other Americans overseas. Do you think these Americans are engaged enough in the issues going on back home and the issues that ultimately affect them?

Marylouise: So, I think they’re becoming more and more aware and engaged. Like I said, the FATCA legislation, in this kind of perverse way, brought a lot of things to light. Because a lot of Americans overseas were suddenly contacted by their banks, who said, ‘We have this reporting. We need your social security number’ or ‘we need more information on you as a client.’

Nonetheless, I think there are definitely issues, regulatory issues and legislative issues, that come up that Americans overseas aren’t aware of. And they might not always be linked to taxation. There are things with regard to citizenship and immigration back into the United States, if you have a non-US spouse or children. And passage of US citizenship voting rights.

There are a lot of things that Americans overseas aren’t quite aware of. And the important role of ACA is … Because, through our website and through our social media, we’re able to not only give the community updates on the big issue of taxation, but [we can tell them] that there are smaller things that the community needs to be aware of.

Carlie: And if you haven’t been actively engaged in the issues that are affecting you, what’s the best way to plug into what ACA is doing and start possibly getting involved.

Marylouise: I would say, join ACA. We are primarily an all-volunteer organisation, outside of a small number of administrative staff. And so, we really rely on membership and donations to do the work that we do here on behalf of the community in Washington, DC.

I can’t say that loud enough, because we really are the only organisation representing overseas Americans that’s headquartered in Washington, DC. Come to our website. Like I said, sign up to be a member. You can also just sign up for our newsletter. Obviously, it’s better if you sign up as a member – you get the newsletter and you also get email updates and blasts.

We also have resources for members. One really important research, and something that’s been very valuable to our members, is the ACA member SDFCU account. It’s a US-based bank account. And other problems that the community has faced with banking has been closures of stateside banks.

So, the US Patriot Act, coming out of 9/11, has given banks guidelines for due diligence of knowing your clients. And a lot of US banks now have taken that. Initially, a lot of them wanted to see a US residential address – a valid US residential address, not a post office box.

And now, a lot of banks want to see not only a US residential address, but they want to see that you actually are linked to that address, and they want to see utility billing and your name. And that has caused a lot of Americans overseas to have their US bank accounts closed or frozen.

There’s also been some foreign legislation that has made a lot of financial institutions and brokerages concerned about simply servicing their US clients who are no longer resident in the United States. Because that might rub up against some foreign legislation that says, ‘We might interpret that as selling your product in a jurisdiction where you’re not authorised to sell.’

So that has had a lot of individuals see their IRAs or 401ks either frozen or simply liquidated. And that has some significant tax implications. So, with the SDFCU, which is the State Department Federal Credit Union … And the State Department is not involved. It is the employees of the State Department.

They are the owners of the Credit Union, and it was created in order to service that community, which was very mobile. Obviously, State Department employees are sometimes moving year upon year. So it is US banking services that has a good knowledge of the overseas community and the sort of people who need to migrate for their jobs and move around.

So they are able to offer bank accounts to Americans who are overseas, who no longer have a US residential address. They’re able to help with some of the rollover on the IRAs. So this has been a real lifesaver. They also have been able to help people deposit their stimulus cheques.

Because we’re hearing from a lot of individuals overseas, who’ve received the stimulus, but their foreign banks won’t cash the cheques. So, this is a really great product. And the reason we’re able to offer it is: the State Department will only work with certain authorised groups, and we’re one of the authorised groups.

So, if you have a membership in ACA, you’re able to then go and apply for an SDFCU account. So, that’s a great membership benefit. But again, we have a wealth of knowledge on our website. We are out there with all the social media tools trying to communicate whenever there’s information.

So, I would say, join ACA; get involved with ACA. We’re also always looking for volunteers. That would be my recommendation. And get involved. Write to your legislator. If you have an issue affecting you, write to your legislator. And probably, right now, join our campaign for hearings.

So, if you go on the ACA website, there is a link to a petition that goes to your representative. You input your voting address, and it brings up your representatives and also goes into the House Ways and Means Committee select revenue members. And that was the committee I mentioned earlier that works on tax policy, and it asks them to hold hearings.

And it’s really important to stay engaged with your legislator. ACA sees that when we go into offices, if an office has been contacted by constituents. And don’t think that, oh, it’s just me; it’s just one voice. It doesn’t take all that many voices into an office to make them take a look at an issue. And that’s hugely beneficial and helpful to ACA’s work.

Carlie: Marylouise, thank you so much for coming on the Expat Focus podcast.

Marylouise: Thank you for having me. I enjoyed being here.

Carlie: That’s it for this episode. If you want to continue the conversation about issues affecting US citizens abroad, head over to expatfocus.com. Follow the links to our Facebook groups.

Remember to check out our previous interviews. We cover all aspects of expat life, all over the world. If you like what we do, we’d love to read your review. And I’ll catch you next time.