updated 2:27 PM CET, Feb 8, 2023

IRS issues 'temporary relief' (through 2024) for banks of 'accidental Americans' who lack TINs

The Internal Revenue Service has quietly announced that it is introducing "temporary U.S. Taxpayer Identification Number (TIN) relief" for non-U.S. banks and other "foreign financial institutions" located in certain countries, so that they won't be deemed to be in "significant non-compliance" of their obligations under the U.S. tax evasion-prevention law known as FATCA, because one or more of their apparently American citizen account-holders say they're unable to provide them with their U.S. taxpayer identification number (TIN).

The IRS's announcement, which came in a 12-page statement released on the last working day of 2022 (yesterday, the 30th of December), was immediately welcomed by the Paris-based Association of Accidental Americans (AAA). The organization represents some 1,400 individuals whom the U.S. considers to be American citizens – and thus taxpayers – typically because they happened to have been born in the U.S., in spite of having lived the rest of their lives in other countries. 

"Although this is not a permanent solution, it is a relief for hundreds of thousands of European citizens, and a great victory for [our organization], which has brought this subject to the fore in the public debate over the past five years," said the AAA's founder and president, Fabien Lehagre, a U.S.-born French citizen.

Lehagre said his organization will continue its work on the banking issues accidental Americans in France and elsewhere are facing, "so that a lasting solution can be found to all the problems arising from FATCA [the Foreign Account Tax Compliance Act] and Citizenship Based Taxation."

Introduced by President Obama in 2010, FATCA enabled the U.S. Treasury for the first time to obtain the names and other details of the millions of Americans living outside of the U.S., by creating a new requirement that non-U.S. banks and other financial institutions (normally referred to by the IRS as "foreign financial institutions", or FFIs) report to the IRS on the accounts of all of their U.S. citizen account-holders.

Because significant penalties potentially await any institution found not to have complied with FATCA, many FFIs have simply opted not to accept, or keep, Americans as account-holders, which for the past 12-years has made it increasingly difficult for Americans living abroad, including accidental Americans, to obtain even the most basic bank account where they live. Accessing such other financial products as mortgages, business loans or savings accounts can often be even more difficult if not impossible, expats and accidentals report.

And because of the U.S.'s globally-unique tax regime based on an individual's citizenship (if they happen to be American, even if only as a result of having been born in the U.S.) rather than their current country of residence, FATCA has made life extremely difficult for tens of thousands – some say as many as a million – U.S.-born citizens of other countries.

The reason that U.S. Tax Identification Numbers are at issue here is because they are needed by FFIs in order to report to the U.S. tax authorities on such U.S.-born (and thus U.S. citizen) account-holders as they may have, even though few accidental Americans stayed in the U.S. long enough to receive such TINs, which for most people, are their Social Security Numbers. 

Initial comments from tax pros

One of the first tax industry specialists to issue a notice about the new "temporary relief" was the global tax firm KPMG, which essentially repeated the IRS's explanation of its new regime, while pointing out that it was being introduced in order to "enable the IRS to collect and analyze additional information" concerning those accounts around the world that lack U.S. TINs.

It noted that the relief was being made possible for "certain pre-existing accounts" only, "as defined in applicable Model 1 intergovernmental agreement (IGA)". 

(The Model 1 IGA is the format used by more than 100 of the 113 countries that have existing FATCA agreements in place; only around eight countries have Model 2 IGAs, or a combination of the two.)

"To obtain the relief provided by the notice, the reporting Model 1 foreign financial institution must, as part of its requirements under the notice, use certain codes provided by the IRS that identify features of these accounts that may explain why the reporting Model 1 foreign financial institution does not report a U.S. TIN," the one-page KPMG summary added.

"The Treasury Department and IRS intend to use this data to enhance IRS compliance procedures and to inform potential future options for reporting Model 1 foreign financial institutions [that] continue to be unable to obtain and report the U.S. TIN for certain accounts.

"If permanent relief is granted in the future, it is anticipated that the scope of the accounts for which a foreign financial institution may obtain such relief will be narrower than the scope of accounts for which relief is given under [this] notice."

In other words, said Toronto-based lawyer John Richardson, the "temporary relief" that the IRS is giving here is, as its heading at the top of Page 1 of the document suggests, aimed at foreign financial institutions, even if it may also, for a time, give a breather to their TIN-lacking American account-holders.

He also stressed that the bank accounts in question needed to have "pre-existed" at the time that the FATCA IGA currently in force in that country in which the bank is located was signed – which in most cases was 2014; and that the new "relief" will be offered only to FFIs in jurisdictions in which "the government of the jurisdiction commits to engaging with individual U.S. citizens, its banks, and the U.S. Treasury, in order to help to ultimately facilitate compliance" with FATCA. 

"All of the problems that Americans abroad are struggling with will be resolved only when the U.S. replaces its citizenship-based tax regime with a residence-based system, like every other country in the world has," Richardson, a well-known advocate of "pure RBT," Richardson added.  

"Notice 2023-11 is intended to provide 'temporary' relief for the world's foreign financial institutions. Individual U.S. citizens, who continue to be nothing but trouble for the banks, are not the focus here."

David Treitel, the founder of  London-based American Tax Returns Ltd., and a longtime FATCA observer, said IRS officials may be unaware of the difficulties faced by those who, through no fault of their own, lack a Social Security Number or TIN. "Applying for an SSN requires an in-person interview at a U.S. embassy – which often requires many hundreds of miles of travel on the part of the individual who needs it  – plus extensive paperwork showing their eligibility for U.S. citizenship. Then, once the application has been filed, the U.S. Social Security Administration will take months to issue the SSN." 

Banking issues said driving expats,
accidentals to renounce

As this and other publications have been reporting for some time, the banking difficulties expatriate Americans and accidental Americans are struggling with are said to be behind the soaring numbers seeking to give up their citizenships, and Green Cards, since FATCA was introduced in 2010.

In 2020, U.S. citizenship renunciations hit a record of 6,705, in spite of the fact that U.S. embassies and consulates around the world – which are needed to process such renunciations, which also require an in-person interview – were closed or offering reduced services for most of the year.

The year before FATCA was introduced (2009) there were only 743 such renunciations, and the year before that, just 231. (This data is obtained from counting the names of renunciants that are published quarterly in the U.S. Federal Register, as the U.S. government doesn't officially provide such numbers.) 

Since 2020, renunciation numbers have remained mostly below the levels seen before the pandemic began, while a trend to re-publish the names of people whose names appeared on previous lists has also been observed. Many of those currently seeking to renounce report still-lengthy waits for the necessary appointments.