This post is also on the RenounceUScitizenship site.
Yesterday I wrote a post describing why FBAR and FATCA will make U.S. born children unadoptable. After all, they carry with them U.S. tax filing and reporting obligations. The general toxicity of U.S. citizenship is such that non-U.S. citizens will NOT wish to risk financial involvement with U.S. citizens. Here is another example.
The risk of foreign companies employing U.S. citizens outside the U.S.
This is an example of how and why it is becoming harder and harder for U.S. citizens to maintain employment outside the U.S. It was a topic of discussion at the “Overseas Americans Week” which was recently held in Washington, DC. A number of position papers were delivered. One of the most interesting was delivered by Mr. Jonathan Lachowitz, who is a financial planner, for U.S. citizens living overseas. I recommend the complete paper to you, but the following paragraphs are of particular interest:
“3. Next is the FBAR, Foreign Bank account Report. As part of these regulations we require
American citizens who have signatory power over their employer’s foreign bank accounts to
fill out FBARs even when the taxpayer has no beneficial interest in the accounts. What does
this mean? Any American working in the finance, treasury or senior role requires them to
disclose private information about their employer to the IRS. And “breaking a foreign law” is
not a reasonable defense in the eyes of the IRS for completing this form. So the IRS
encourages Americans to break foreign laws to comply with the FBAR rules which are
“information only.” What’s happening is US citizens are having to choose between their
career and their citizenship. Overseas employers don’t want to hire Americans in most
financial or senior roles when they understand this requirement. The FBAR itself is really a
mess, but this one small part, which again leads to no increase in tax revenue, is leading to
American unemployment overseas and a decrease in exports. Why? Companies are finding
that doing business with America and Americans has too many financial risks. The US has
become a scary place to do business.4. The FBAR penalty structure was put in place to give the Federal government another weapon
to fight international drug cartels and money laundering. No one I know in the overseas
American community supports tax evasion (or any other crime) and when used properly this
is an effective weapon against financial criminal activity, but before 2008 there were less
than 10 FBAR penalties assessed per year from my knowledge. Since about 2008, the FBAR
regime combined with the Voluntary Disclosure programs is causing great damage to people
whose worst crime in most cases was not being well informed about the American tax code.
This is an important factor in many Americans overseas being 1) Denied business
opportunities, 2) Denied employment opportunities 3) Getting pressure from non American
spouses and/or employers to consider renouncing their citizenship. Why can’t we have the
same penalties for Americans living overseas as for those who live in the US? Just a level
playing field, not a draconian penalty structure, reporting that is “information only” and from
2011 required in multiple places and that puts many overseas Americans in conflicts with
their employers. Complying with all of the FBAR rules requires many Americans to break
the laws of the countries they live in. This is unjust. “
For the world outside the U.S., involvement with U.S. citizens carries with it extreme risk.
U.S. citizenship is the most toxic citizenship in the world. Renounce U.S. citizenship and rejoice!
Happy New Year and let’s hope that the US may finally see sense and back off. Though noticed the 8938 has finally been published: it looks identical to the draft form.
I am a U.S. tax lawyer practicing in Canada and the premise that I have a conflict of interest with my clients resulting from FBAR reporting obligations is preposterous for several reasons.
First, the FBAR does not require me to disclose the identity of clients for whom I hold funds in trust. Second, such information (even if required to be disclosed) would be protected by attorney (solicitor) client privelege. Third, the trust accounts for every Canadian and U.S. lawyer are regulated and audited by the provincial Law Society (state bar association in the U.S.), which audits are protected by the privelege. If they were not, by your reasoning, every lawyer would have a conflict with his client.
it is inflamatory and irresponsible for you to publish such a rediculous statement.
Thank you for your comment. Have amended the post in recognition of the issue of privilege.
Happy new year to you.
Hi Mr. Berg: Thank you very much for commenting here. I did not realize that any law firms were watching what we are doing here. Your protest is duly noted, and renounce has changed the post to reflect the realities about which you wrote.
I am still quite intrigue with Renounce’s logic (no longer reflected in the post) in assuming that a lawyer might be in a conflict of interest because of FBAR. Yet I think lawyers are in a delicate position for another reason:
One of our people once called Phil Hodgen. He said to him that he did not need an lawyer to renounce his citizenship. That seems like good advice, and the man seems to be quite honest.
But then I spoke to someone else who entered the OVDI with the help of an attorney. The OVDI penalty (assessed at 5%) was about 1/14th of his lawyer’s fee. But the details made it clear to me that this person should not have been in the OVDI and therefore, the lawyer did not give good representation. I.e., the OVDI is really intended to be an amnesty program for big fish who were afraid that their offshore tax shelters would be found out. Ordinary people resident in Canada should never have been in the program and one would think that the lawyer should have known that–but then how could the law firm charge extortionate fees without feeding this person fears? Yesterday, we saw that Sally had left the OVDI with no penalty.
I happen to know that the law schools in the US are pumping out more lawyers than could ever find employment. So there is a desperation for work that makes it difficult to trust the profession–especially when you hear about the fees that some folks are paying. If they were criminals, one could understand their need to pay such fees, but by golly, we are just innocent people who the IRS is hounding because we made the mistake of living in “foreign” country.
So right now, lawyers are not high on my list of people you can trust to solve the dilemma of most US persons in Canada.
Happy New Year to you too!
Petros, who knows, but this seems a tad bit sensational. The child just has to REMEMBER to go to the embassy or consulate to renounce.
I would love to see someone sue the US government to challenge citizenship-based taxation in the first place. The US can’t say it can’t be done like it’s done in Great Britain. After all, the US already uses the “substantial presence test” with resident aliens.
This is a great website. My Canadian son has a green card (required to accept a tenure track position at a US university), Meanwhile, he currently pays $2000 a year in extra taxes to Canada while working in the USA, as both countries demand their pound of flesh while he lives in the USA. He currently has no assets in Canada.
He says although he is only a green card holder, and not a US citizen, he will be followed by the IRS for the higher of the taxes of the two countries for 8 years after his return to Canada.
I thought that wasn’t a problem, as our taxes are higher than yours. But from reading the articles here, I see if he buys a home back here in Canada after his return, and sells it here within 8 years, the IRS will want him to pay capital gains on any Canadian earned profit, even though under Canadian laws, that is not taxable.. Should I advise him to rent instead for 8 years?
Or is there some way to renounce a green card when he leaves? This dual tax problem has already cost him over $10,000, and could get even more expensive.
Then there is the health insurance problem if he ever wants to work in the US again! He’d better take out an extra policy here in Canada, but with an American firm, to prove he has continuous coverage, then hopefully any preexisting conditions can’t be excluded.
You “United States persons” need to check out the potential health insurance problems you might have on your return, when deciding whether or not to work abroad. If you get a serious health problem while away, you might not be able to afford to come home again.
Thanks for a very interesting comment. Your comment about health insurance strikes me as astute.
Both U.S. citizens and green card holders can go through a process of “renouncing”.
As you might imagine there are tax implications.
See the following post:
http://renounceuscitizenship.wordpress.com/2011/11/11/exit-tax-triggered-by-renouncing-u-s-citizenship/
and the following lawyer’s site:
http://www.expattaxandlaw.com/expatriation.html
As a well known lawyer said: U.S. citizenship (and I suppose Green Card Status) is a problem to be solved.
Hi Canadian Mom:
Your son shouldn’t have to pay Canadian taxes on earned income that he made while he was in the United States. It matters not that the Canadian tax rate is higher. What matters for Canada is that he was not resident in Canada for tax purposes. As far as I know, he should be able to revise his taxes and get that Canadian taxes refunded to him, explaining that he was a student in the United States and resident there. Someone correct me if I am wrong please. Obviously, it is easier to never pay money that you don’t owe than to get it back.
It is only the United States that requires taxes no matter where its citizens and Green card holders live.
It is possible to relinquish a Green Card once he returns to Canada. If he returns to Canada permanently it is advisable that he relinquish it. If he decides to stay in the states, well then he will need to keep it.
Thanks for the excellent advice.
So if I have this straight, I should tell my son that when he returns permanently to Canada he can renounce that green card and eliminate 8 extra years of American potential extra taxes.
I guess to end the extra Canadian taxes he pays while working in the US, he could alternately renounce his Canadian citizenship, but that would only make sense if he planned to settle permanently in the US, which he doesn’t.
So for now I see a kind of trade off. If he comes home soon, or even if he winds up spending the rest of his working life in the US, as long as he stays Canadian and pays those nasty extra taxes to Canada, he keeps open the option of Canada’s currently more favorable health care system in retirement.
I sure hope our two countries can work out a better tax agreement. Expats either way get punished!.
Well, I would suggest that he get some legal advice. The two posts that I referred you to would alert him to the issues.
Question: what are “those nasty extra taxes to Canada” that you are talking about?
Also, Canada does NOT have a system of citizenship-based taxation. So, why would anybody renounce Canadian citizenship.