Tax hassle leads to increased renunciation of US citizenship
Record numbers are opting out of U.S. citizenship because of strict new filing requirements for those living abroad.
I’ve written before about how recent changes in U.S. tax laws are causing misery for Americans who live and work abroad. The problem is largely invisible within the U.S., but continues to make waves in the ex-pat community.
Consider this from Forbes contributor Robert W. Wood (8/19):
Never heard of FATCA? You will. FATCA—the Foreign Account Tax Compliance Act—is America’s global tax law. It was quietly enacted in 2010, and after a four-year ramp up, it’s finally in effect. What is most amazing is not its impact on Americans—although that is considerable—but its impact on the world. Yes, the whole world.
Never before has an American tax law attempted such an astounding reach.
Wood’s full article explains why the scope of FATCA is so audacious. This lengthy article from the Wall Street Journal gives examples of “minnows” caught up in nets designed to catch big tax cheats.
Global News says this is creating a crush of applications to renounce U.S. citizenship:
Dundas-based tax and immigration lawyer David Lesperance said on Twitter yesterday that he booked 2014’s last renunciation appointment at the Toronto consulate for a client on Tuesday.
In an e-mail Tuesday, the Toronto consulate said the earliest date they could book for a renunciation is January 22, 2015.
Until recently, appointments to renounce U.S. citizenship in Toronto could be made within three to six weeks, said Toronto-based cross-border tax accountant Kevyn Nightingale, who specializes in tax advice for people giving up U.S. citizenship.
In my February post on this topic a number of readers asked why the fuss? After all, the vast majority will owe no additional tax. But the requirements, the reporting hoops and the penalties for non-compliance are the stuff of nightmares. Which means simple compliance is very burdensome.
Nightingale says he charges $1,000-$1,500 for “very simple” U.S. returns.
“Filing U.S. tax returns is complex, and the reason is that everything that happens to a U.S. citizen in Canada is foreign. People who are able to do their Canadian tax returns easily and relatively cheaply, once you add the foreign layer on to it, ordinary people have problems that need to be dealt with sophisticated tax people.”
“This is a giant, expensive hassle” is one complaint. Then there is a corollary issue of so-called accidental Americans, most of whom are dual-nationals with no ties to life in the U.S. who are also bound by the new obligations.
There is a legal challenge right now regarding Canada’s effort to comply without compromising Canadian privacy concerns. The Financial Post quotes Roy Berg, director, U.S. tax law at Calgary’s Moodys Gartner Tax Law as saying that cure is worse than the disease:
“The plaintiffs seem to think that victory means reversion to a pre-FATCA world,” Mr. Berg says. “Unless the U.S. Congress or the U.S. courts repeal or invalidate the legislation, that’s not what’s going to happen.”
This is where I wish I could point to something that appears to offer some remedy to the mess. Sorry! Haven’t found that yet.
Observers doubt FATCA will be repealed. Which is why the line up to dump U.S. Citizenship is long and getting longer.
Tags: canada, citizenship, cross-border issues, dual-nationals, FATCA, FBAR, law, tax law
Once again NCPR revisits the purported inequity of the “FATCA”. A Google search reveals that the FATCA was signed into US Federal Law as portion of the Hiring Incentives to Restore Employment (HIRE) Act specifically to make it difficult for U.S. taxpayers to conceal assets held in offshore accounts and shell corporations.
Let us do one of Einstein’s favorite pass times, a thought experiment. What would induce the US to pass such a law? Perhaps the glacial pace of recovery that the masses (poor and middle class) were experiencing, subsequent to the initiation of the great recession (2007/8), coupled with the trickle of information that the wealthy and uber wealthy had recovered and were piling it onto their already bulging portfolios. Although this knowledge was being slow leaked, via the press it was, never the less making the overlords slightly nervous over the potential for a voter backlash against their political hacks. Ergo, FATCA, balm for the seething masses, written in a manner as are all laws so as to appear to apply specifically to the public’s desired target, the super rich, but actually cagily wordsmithed so as to cast a wider net and invoke dissent from a significant portion of the “expat” community; purposefully. Why? So as to get the US Congress involved and get FATCA revoked through efforts such as the 24Jan2014 Republican National Committee resolution calling for the repeal of FATCA or the American Citizens Abroad, Inc., calling for the U.S. to institute residence-based taxation (RBT).
Both this article and the previous, NCPR, article about the FATCA contend that the US tax return preparation is very complex. I share the opinion with an intelligentsia minority that the complexity of the US tax codes is a direct response by the US Government to accommodate the dictates of the uber rich overlords, such that each and everyone of their brands of capital accumulation through slight of hand maneuvering enables them to shirk paying their “fair share” of taxes.
From what I could glean on-line the following apply to FATCA:
US expat citizens are allowed to exclude their first $97,600 (2013) of their earned income from US taxation, but not monies from pensions and other sources.
US expats must file an FBAR with the US Treasury by June and note on their Form1040 any foreign bank accounts if the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year; heavy fines may be levied for failure to comply.
Financial institutions which accommodate US expats are required to inform the US Government about expats who have over $50,000 at the end of the tax year or $75,000 at any time during the year.
Because the foreign banks, which have built up reputations for not outing Americans who hide large quantities of money “off-shore” to avoid taxation, do not desire to accommodate the US Government requirements that “other nations abide by its’ banking and financial laws when dealing with US citizens”, expats of moderate means have sometimes been denied service at banks and other institutions in the countries they reside.
The US has been attempting to coerce all of the countries with which we have economic entanglements to sign an Intergovernmental agreement to accommodate the implementation of FATCA. To date only 8 countries have implemented the agreement, Canada being one of them is likely the reason for the local displeasure.
I’ve lived and worked in Canada for 21 years and have held Canadian citizenship since 2001.
I tried to relinquish my US citizenship this past Spring but was refused by the consular officer.
Going forward, my plan is to “hide in plain site.” What does this mean? Since being refused, I have travelled to the US three times on my Canadian passport declaring myself to be Canadian and Canadian only. I won’t ever renew my US passport. I have divested myself of all US investments in my retirement accounts. If push ever comes to shove, I will formally renounce.
My point: relinquishments and renouncements are just the tip of the iceberg. For every ex-patriated USC coming in from the cold to the consulate to relinquish or renounce, there are many other long-ago ex-patriated USC who are simply “going to ground”, living as Canadian citizens and not advertising their US roots in any way. Formally published numbers (from the US government) are low-ball and given the numbers of ex-pats going even farther off the grid woefully understate the problem.
This narcissistic, obsessive, God-complex-suffering government is no longer the United States other than in name.
DC has actually gone beyond abusing its power over the U.S. Citizenry and is now attempting to rule unopposed, over the World.
This is the ANTITHESIS of everything in every founding document that made the United States a model for nations of the world to admire and emulate for two and a quarter centuries.
How do other countries do it? What does Canada do for its citizens living in the US on their taxes for example?
Apparently, in the whole wide world, only the U.S.A. and (wait for it) Eritrea (small nation in the horn of Africa) require filing taxes based on citizenship instead of residency.
Which means it does not matter where Americans live. Although tax treaties may shield earned income to set levels, these people must still must file U.S. tax returns regardless of residency. The logic of never letting a citizen go can get pretty wild, as in these comparative examples .
If you are a Canadian with legal residency in the U.S., for example, you need not file Canadian tax returns.
The assumption is you pay taxes where you live. That is considered normal and appropriate by nearly every other nation on earth. (More American exceptionalism, I guess.)
Anybody who wants to renounce their U.S. citizenship, go for it. Nobody cares but you. That is a personal choice. Same for anyone who wants to go to a foreign country to seek their fame and fortune and not pay any U.S taxes. I get it, nobody likes paying taxes. The only thing I ask is don’t go running to some consulate at an American Embassy if you get in trouble or expect the U.S. to shed American soldier’s blood or treasury or go to war just to come and get you if something bad happens. You don’t see Canada or any other country bring in the military because something bad happens in another country to somebody born in their country.
The irony of it is, for every “ex-pat” ” going to ground” in Canada, there are 100 Canadians who retire and move to Florida and North Carolina and spend that money here. A law is a law until it isn’t the law anymore. You either abide by it or don’t, it is all personal choice and personal responsibility.
Hey, speaking personally, I file faithfully, every single year, in both countries. We pay our taxes and are happy to enjoy the benefits of two great countries. “I don’t like to pay taxes” is not what this is about, for me at least.
For me this is about badly-crafted law that plain forgets some Americans just live overseas. They are not hiding their assets, they are just living ordinary lives — which happen to be taking place in other countries.
Unfortunately, this package of laws cannot distinguish between hiding money and living abroad. Right now the regulations almost start with a presumption that the government deserves to know every last detail about one’s financial affairs (without being able to cope with them very well, since they are “foreign”) and the starting point is guilt that must be disproved, at great effort and expense. Keep in mind, in most cases, no additional taxes are owed at the end of the whole exercise!
Similar requirements would never even get passed if the same burdens were applied to Americans living within the U.S.
If by some fluke they were passed, I have no doubt they would be repealed one step ahead of electoral lynch mobs! Yet because it’s out of sight, out of mind, we ex-pats are dismissed as a bunch of whiners, who probably do have something to hide. (Thanks very much! It’s that mind-set that got these laws enacted in the first place.)
And I’m speaking as someone who likes being American and wants to keep that status. For the accidental Americans (who don’t have ties to the U.S. and expect nothing from the accident of their birth) it’s a heavy threat of very dire outcomes, for no good purpose.
Here’s my objection: this is bad law – highly burdensome, discriminatory law. At great expense, it alienates tens of thousands (hundreds of thousands?) and doesn’t even accomplish the stated goal.
It’s very American to rally public opinion and use representative democracy to change things for the better. In my opinion, parts of these tax regulations violate principles our nation was born to protect.
Of course I say that because the shoe is on my foot. But I can just about guarantee the same shoe on your foot would cause you to howl too.
Its government heavy handedness, given that the US and Eritria are the only countries in the world that want people to pay taxes on money they earned in another country. Its like if I move to Nebraska and NYS still made me pay personal income taxes to NYS. Of course this is probably in the works in Albany as we speak.
Maybe it has to do with American Parochialism? As you say Lucy, its like they are shocked anyone who is a US citizen actually lives overseas. Since they must be odd or strange or criminals, go ahead and lay heavy burdens on them.
Ms. martin- Good post. As stated by you though, ” Keep in mind, in most cases, no additional taxes are owed at the end of the whole exercise!” It is the process that is the issue for most people then. Is it not?
Sorry, but I am really tired of U.S. citizens constantly “bashing” the United States and our Government and our laws and rules and regulations. Most of it is just blind rage and hatred for anything ” Obama ,” as he is our President so therefore America is now the new ” Fascist” State out to control everything and take away your ” Constitutional ” rights. Everything is now a “Grand Conspiracy.” It is led by talking heads and politicians who lack the ability to be Statesmen and govern so they keep their office by being modern day ” Elmer Gantry’s. ”
I am NOT implying that you are part of that narrative. Not at all, I respect your writings greatly. You read the constant drone of venomous rants just like everybody else does.
As this article correctly states, one cannot even get a renunciation appointment in Toronto until some time in 2015. Today (August 27) we get the notification that the US is now raising the renunciation fee from $450 to $2350. Obviously this is a good example of supply and demand at work.
I GUARANTEE all of you, if the USA just went to residency based taxation (the world norm) NOBODY would be seeking to renounce.
In the meanwhile, I will NEVER admit to being a “US person” (as defined by the US gov’t, not me!).
PierreD could you cite your source on a fee hike? I’m not able to substantiate that figure with an initial Internet search. Thanks!
Hmm. Found a source on that here and more discussion on the blog site Maple Sandbox.
Hefty as it may be, it sounds like that hike is still in the proposal stage. But perhaps that’s just a formality of something that is generally approved as proposed?
Hi Lucy:
Further to your question,I see you’ve indeed located the same source as I had. You’re right, the implementation date remains fuzzy.
On another note, I feel sad for the USA right now.There’s SOOOO much positive about it, and it could much better flourish by taking a positive attitude towards business and expats. The practice of citizenship based taxation on both individuals and corporations is such a huge disincentive to growing any business there, and don’t kid yourself, it’s happening. I’ve been forced to NOT invest my retirement funds in US instruments. How many corporations have NOT been started in the USA as a result? Unfortunately, your (NOT my!) current government seems to be thinking more along the lines of trying to burn it’s jacket in order to stay warm.
I REALLY hope the USA “smartens up” soon. It’ll be good for all of us.
“On 1 July 2014 over 300 million Americans lost the right to cash out of the United States, and move abroad without the US Government tracking them.”
That’s what FATCA is really all about.
Americans deserve the same rights as other citizens receive in other countries.
I think Don may have a point. This may be more about tracking individuals who actually wish to renounce or even live overseas. Also I am not laying that at Obama’s feet, this is a classic move of both the Bush and Obama administrations.
Here is the notice from the Department of State. http://www.state.gov/r/pa/prs/ps/2014/231128.htm
The fee increase is effective September 12.
Fight the injustice and the loss of Canadian sovereignty. Donate at Alliance for Defence of Canadian Sovereignty, http://www.adcs-adsc.ca/
It amuses me that their are so many folks, one would surmise of means, who are convinced that the purported intent of the FATCA, to recover taxes and penalties from those US citizens who intentionally park their money in non US banks to hide it from US tax liability, is not true. As I pointed out in my initial post the processes by which bills/laws are created in the US and likely everywhere on Earth, similar to sausage making, are controlled by the uber rich who have the means to bribe political functionaries, fund political campaigns and hire lobbyists to ensure that said bills protect their economic interests to the greatest extent possible to the detriment of all those of lower, much lower and no means.
The visceral denunciation of the FATCA, or any unpopular government bill/law, by average citizens is through intentional psychological engineering, by the uber rich, to result in false dichotomies of thought whereby the masses line up in an oppositional, rather than complementary, yin and yang interactions which allows the obscenely wealthy to play the two sides one off the other and enable them to continue to control “everything”. Think about it; how is it that the 80-90% of US citizens in the categories of lower, much lower and no means who would obviously benefit immensely from economic programs to improve their lot in life, rather than the current economic programs which significantly improve the lot in life of the uber rich, be so nearly split down the numbers middle that every election cycle is a series of nearly a 50/50 squeakers? Accident? Act of god? Luck? “Purposefully” The USA was founded in a manner to “purposefully” ensure that those of means would continue to be the major benefactors of her great natural resource wealth and would always be in a position to control her destiny while the masses were intentionally relegated to subservient roles, just as it is in all countries on Earth.
This has almost nothing to do with taxes really, since most ex-pats will owe little or nothing (except of course, if in Canada, they 1) have a capital gain on the sale of their principle residence, hold TFSA or RESP accounts, hold non-US mutual funds in a non-RRSP account, own a professional corporation, etc.!!!). This is about the cost of compliance, which for many people/families will run well over $5,000/year. It’s madness.
I’ll bet just about everyone except the accountants and lawyers would be better off if the US simply charged a $500 “citizenship maintenance fee” to those US Persons living abroad. Or, the US could get on board with the rest of the civilized world and eliminate citizenship-based taxation. Dream on.
I moved to Canada from the U.S. 42 years ago, became a Canadian citizen, and have built all of my savings from Canadian sources. I am not eligible for any U.S. benefits. I am now a retiree living on a modest income. I owe no U.S. taxes, and never have. But the mere cost of compliance for this IRS insanity can wipe out any investment gains and impact my retirement. The U.S. is forcing me to formally renounce due to its unjust and oppressive tax reporting requirements. This, from a nation that was built on immigration. Imagine if every nation in the world imposed punitive citizen-based taxation. Millions of ordinary, hard-working Americans would be impacted. As for Mr. Kent: I am very well served by a Canadian consular corps that is very effective in helping its citizens abroad without going in with guns blazing.