The Biden administration’s “American Family Plan” proposes a series of measures that would expand IRS access to financial information, tighten reporting obligations for banks, and increase tax rates on high‑income earners. These changes could significantly affect U.S. citizens and green‑card holders who live abroad or hold offshore assets.
Expanded reporting obligations
- FATCA extension – The Foreign Account Tax Compliance Act already requires foreign financial institutions (FFIs) to report U.S. account holders to the IRS. The new plan would tighten this regime by mandating that banks disclose account balances, aggregate deposits, and withdrawals on a regular basis.
- Bank reactions – In response to FATCA, many banks worldwide have begun refusing U.S. persons, closing existing accounts, or refusing to open new ones. This has already made it difficult for some expatriates to obtain mortgages, savings accounts for their children, or basic banking services in their country of residence.
- Geographic impact – The majority of U.S. persons living abroad are not in traditional tax havens; they are concentrated in the United Kingdom, Australia, Canada, and other high‑tax jurisdictions. The increased reporting would make it easier for the IRS to track their worldwide assets.
Potential audit and compliance risks
- Bank‑to‑IRS data flow – With banks required to transmit detailed balance and transaction data, the IRS could cross‑check reported income against actual inflows and outflows, reducing the “honor system” that self‑employed taxpayers currently rely on.
- Higher audit likelihood – Business owners and individuals who move money between multiple accounts may trigger “false positives,” increasing the chance of an IRS examination.
- Complex filing requirements – Even modest offshore holdings now often require the assistance of international tax preparers, accountants, or tax lawyers. The cost and administrative burden of compliance are expected to rise.
Tax burden changes
- Zero‑tax threshold – The plan proposes eliminating federal income tax for families earning less than $75,000 annually.
- Higher rates for the wealthy – To fund the expanded benefits, the administration intends to raise taxes on high‑income earners and capital gains, though exact rates were not detailed in the source.
- Overall cost – The government estimates that increased enforcement and higher rates will generate additional revenue, but critics argue the projections are overly optimistic.
Relocation alternatives
- Flat‑tax jurisdictions – Some countries, such as Italy, offer a €100,000 flat annual tax on foreign‑source income for qualifying residents, simplifying compliance to a single lump‑sum payment.
- Countries still accepting U.S. persons – A limited number of banks (including at least one Swiss institution) continue to service U.S. clients, though they must comply with the enhanced reporting rules.
- Professional support – Successful relocation typically requires advisors experienced in international tax law, offshore banking, and corporate structuring to avoid inadvertent non‑compliance.
Practical considerations
- Assess privacy vs. tax cost – The new reporting regime reduces financial privacy and raises the probability of audits. Individuals must weigh these risks against the potential tax savings of remaining in the U.S.
- Citizenship and residency – Renouncing U.S. citizenship eliminates tax filing obligations but involves a separate, often costly, legal process and may have personal or professional repercussions.
- Compliance infrastructure – Even in low‑tax jurisdictions, businesses must still meet local reporting standards (e.g., issuing 1099‑type forms, handling credit‑card processing requirements) and may face additional U.S. filing obligations if they retain any U.S.‑source income.
Bottom line: The American Family Plan would give the IRS unprecedented visibility into the bank accounts and transactions of U.S. persons worldwide, increase audit exposure, and raise taxes on high earners. For entrepreneurs and investors with significant offshore assets, the growing compliance burden and loss of privacy are prompting many to explore relocation to jurisdictions that offer simpler tax regimes and stronger privacy protections. Careful planning with qualified international tax professionals is essential before making any move.
