For US persons living abroad, living their lives means having foreign bank accounts. Regimes like FATCA and FBAR are particularly harsh for these persons, many or perhaps most of whom are either dual citizens themselves or are in families with dual and multiple citizenships. While it seems clear to me that the US can impose its sovereign jurisdiction with regimes like FATCA and FBAR, it's less clear to me that it should do so, especially with a one-size-fits-all approach that appears to treat everyone with a foreign bank account as a potential tax criminal. The question is whether and how these regimes can be tamed so that they fulfill the core mission--catching tax cheats--without becoming a Team America: World Tax Police, bypassing bilateral and multilateral cooperation among governments in order to impose draconian US rules on individuals and financial institutions across the globe.
In my latest Tax Notes International column, "Could a Same-Country Exception Help Focus FATCA and FBAR?" [pdf], I discuss some of the political and practical issues of relaxing the reporting rules for Americans living abroad with respect to accounts they hold in their country of residence. This is not a comprehensive technical proposal but rather a broad look at the pragmatic and political reasons why the US really ought to back off on exercising its tax sovereignty when it comes to its citizens living abroad. I argue that FATCA and FBAR are either a rather nasty piece of arm-twisting, a bit of bad faith in
the U.S. diplomatic relations department, or, worse, they are signaling a loss of faith in the pursuit of cooperation through diplomacy. I suggest that carving out an exception for US persons who are using bank accounts to live their lives as residents and often dual citizens abroad could provide a means of backing away from either of these destructive positions.