A frequent contributor, Em, e-mailed her story to me.
I am Canadian (born in Canada). My husband is American (born in the USA) and became a Permanent Resident of Canada in 1996. We lived in the USA for 12 years after we got married in 1982. I was issued a green card that year which I never used — did not earn any wages in the USA — did not access any USA benefits — did not pay into Social Security and will not therefore be claiming it for myself in retirement. We came to Canada to visit my parents in the spring of 1994. My mother was taken to the hospital just hours before we arrived. Several weeks later she passed away but my father was not able to take care of himself and his home so I stayed to help.
I only got back to the USA on brief trips (a couple of weeks each) 3 times after that — all before the end of 1997. We had to winterize our house in the USA, bring belongings to Canada and prepare our USA house for sale (finalized in l997). I have not travelled into the USA in the past 15 years but my husband still makes frequent trips to the USA to visit his elderly mother. The years 1994 to 1997 were a particularly stressful time (my father also passed away) and the last thing on my mind was my green card status but it was a few years after I returned to Canada that I heard or read that if you did not keep your green card “active” when absent from the USA for a long period it would become null and void. All these years I have felt certain my green card was null and void. I put the card away — never used it — never realized I should have returned it and filled out a form of some kind. I just found my old green card recently and happened to discover that the IRS has a classification called “US person for taxation purposes”. Now this card has become kryptonite in my hands.
RE: USA tax filing … My husband and I have filed jointly all through the years (we included a note saying I am a Canadian citizen, formerly a resident alien of the USA) but now we’re thinking it might be best for him to file separately to allow me to be completely free of the system (I hope it’s possible). We didn’t really know how to untangle his income from mine so we just did what we thought was the right thing and declared both of our incomes on the 1040s so the numbers would match those on our Canadian returns. (We have always included a copy of our Notices of Assessment with our 1040s.) Like most couples, our accounts (merely chequing, saving and GIC), were all jointly held for many years but not so now as we decided a few years back to completely separate them with my husband having no signing authority over my individual accounts (not what we would like to do but we sensed it was better that way when we saw the change in the FBAR form).
RE: FBAR filing … My husband has always completed a FBAR with all of his individual and our joint accounts listed. I never did a FBAR for my individual accounts because I did not think I was “US person” of any kind since 1994 or at least 1997 (my last visit to the USA). Apparently the IRS considers me to still be a “US person for taxation purposes” because I still possess what I believed to be a null and void green card. I have never professed to be anything but a Canadian and I cannot afford to pay an “expert” to explain to me a safe way to disentangle me from this mess.
If I try to return my old green card at this late date to get an ALPRS (I-407) I think it might put up red flags and expose both my husband and myself to some “unknown unknowns” (audits?, penalties?, more intrusive forms?, IRS and/or Treasury Dept. harassment?). Whatever I do, I cannot jeopardize my husband’s ability to visit the USA to see his mother. (I decided years ago that I would never go to the USA for any reason.) Now FATCA hangs over our heads and yet another intrusive form (i.e. 8938) has arrived on the scene with penalties as severe as FBAR. We are in a Catch 22 despite our attempts to maintain IRS compliance. Meanwhile, the IRS continues to churn out complexities which are beyond all reason and ken and threatens everyone (including those who owe no tax) with bankrupting penalties. I simply want and believe I am entitled to complete freedom from the USA tax system. For now all I can do is tentatively trust the Canadian government to protect me from IRS penalties and hope some degree of sanity prevails in the USA regarding the large net the IRS casts out to catch the big offshore tax evaders (i.e. the “whales”) while entangling innocents living abroad (i.e. the “minnows”).
Note:
FBAR = Report of Foreign Bank and Financial Accounts
FATCA = Foreign Account Tax Compliance Act
ALPRS = Abandonment of Permanent Residence Status
Form 8938 = Statement of Foreign Financial Assets
@Roger, I hadn’t quite put that together in my mind, you did a good job of explaining the impact of that insularity and perhaps how it’s managed to become so pervasive. In Brazil they’re all loincloth-wearing, spear toting jungle savages. Where I live in Canada, we seem to be seen as American wannabes who keep trained bear and elk as pets, have a socialist medical system, and exist as serfs for our arrogant US guests 🙂 I know, not all are like that, but since moving here many years ago, I have, over time, too often been ashamed by the behaviour of the tourists here and that my roots are in the US, and have certainly never advertised that I was born in the US.
The US might be heading for a major wakeup call if Americans don’t change their attitude, if they don’t quit penalizing their former citizens, and instead turn them into goodwill ambassadors, and if they don’t stop riding on the coattails of their former glory of the 50’s and 60’s… You’d think there would be some important, influential people in the US gov’t that could do the same math that you’ve done and draw the same conclusions!
@outragec, em, all,
My feeling is that what is continually fed to the populace in the US by the media (and to a somewhat lesser extent in Canada) is not conducive to having most people think or even care about much more than the ‘flag-waving’ type of issues — rah, rah, we are the best in ‘whatever’. It is ingrained. What does the general public in the US know about the issues ‘US persons’ in the rest of the world are facing — what do they care? I know I have only one sister in the US that has any concept of what is happening — thank goodness for me and my connection to my family that I have one of my relatives who has literal thinking skills. And, unfortunately, that is the case with many here in Canada too. It is not in the news so it can’t be an issue, right?
When we are continually more interested in being entertained than critically thinking about issues; when we are not giving education of our youth the value it once had, not even ensuring young people come out of school with at least some financial literacy and other life skills to see them through; when we don’t teach that there are consequences for all our actions, we don’t as a population any longer know of or value the rights we are losing. Most of us sure don’t have the coping skills required for this new reality.
This is a global world. If only we, as people of all the countries, could learn to be team players rather than always, always competing and needing to be the top dog, perhaps there would be some common sense in what we choose to do, some little peace on earth, some enjoyment of what we are given in our lifetimes. I know, idealistic. But what we’re doing now doesn’t seem to be working for all the living creatures on this Mother Earth.
@Calgary411, I admire that you’ve managed to hang on to your idealism, mine has certainly been eroding these past few years, to the point that I think that it IS human nature to be competitive and it IS human nature to consume, and I’m not sure if anything can be done to change that. You’ve also opened the door for one of my pet peeves, which is certainly not US-specific, but I see here in Canada, as well. As you say, the lack of emphasis on ensuring that our youth receive the basic bedrock of learning – and how to learn. I am appalled at a lot of the young people entering the workforce without basic grammar, spelling, math skills, communication skills, etc. And, this is my pet peeve, often with no work ethic. There’s seems to be little realization that if one is getting paid to work and do a job that that, indeed, is what they should be doing. There’s a something-for-nothing attitude that I find frightening – the expectation that something is owed simply because they exist. I fear it bodes ill… I have the fear that things are going to get much worse before they get better. Will the people growing up now, that will be our leaders in the future, have any understanding that a) immediate gratification can have horrific long-term results, and b) there will be no going back if we use all of the earth’s resources now to satisfy the immediate needs….
The dollar devaluation that is coming? It is already here. Over 10 years the Euro increased 55% in value with respect to the IS dollar (from $0.89 to $1.38) and 60% with respect to the Swiss Franc. But this is likely just the beginning. When we lived in Brazil in the late 1970s that country was going through the same thing, only much worse: There was a time when the Brazilian Cruzeiro was being devaluated with respect to the US dollar at the rate of 80% PER MONTH. Prices in the supermarkets were adjusted twice per day, so on payday, the 1st and 15th of the month, people were lined up ouside waiting for the doors to open so they could buy their groceries in the morning because the prices would be higher in the afternoon. In Rio de Janeiro the large supermarkets had over 100 checkout lanes that were used fully only on the 1st and the 15th of every month.
Now the econonomic situation in Brazil is just the opposite. It is the value of the US dollar, not the Brazilian Real (the Real replaced the Cruzerio several years back) that drops daily.
By the way the US trade deficit with Germany, instead of decreasing during that 10 year period when US goods became much cheaper to Germans, it increased by 21% from $24 billion to $34 billion. So much for the crazy idea that devaluating the US dollar will turn the US trade deficit into a trade surplus, or that the reason for the massive US trade deficit of $300 billion with China is because China does not allow the value of its cvurrency to increase. Without US feet on the ground selling products, it just will never happen. How absolutely insane for the US to have citizenship based tax laws which punish its citizens with double taxation if they relocate abroad. So they stay home. The blind lead the blind.
@Roger, I’m curious. How did Brazil turn things around? I have a friend from there, so I know there are still problems, but I understand that things have vastly improved, and your stats show that clearly… Did Brazil have an actual plan?
@ Roger I like your suggestion as to why the trade deficit began, because Americans couldn’t live overseas. I have to trust you on this one, because I don’t know better, and I do, since much of the woes in the world are actually because of government policies. The penchant of your theory is the US dollars status as the world’s reserve currency is what made the trade deficit possible, since other countries accept a surplus of dollars instead of a real goods from the US. The US retains the reserve status for its currency, though weakly at this point because the international community, especially the BRICs are ready to dump it. The Obama deficits will break that status, and then devaluations like what one has seen recently in Brazil, Argentina, is inevitable (I don’t think what you’ve seen so far is as drastic as what is coming). The death debt spiral is a reality. Inflation is inevitable unless the US drastically cuts its federal expenditures–in half would be a good way of addressing the problem. But you don’t have leaders in the US, you have career politicians.
@poutragedcanadian, Best that our contributors to this blog who live today in Brazil explain this in their own words. But it really started with the right of center president Henrique Cardos who, among other things, brought a massive reform in the financial system in that country that eliminated the inflationary measures that made it possible to live with inflation and replaced them with inflation-destroying measures. He repaced the Cruzeiro with the Real as the coin of the realm.
Then he was followed by Lula, a left wing labor leader with little academic training but tremendous public support from the masses, but not from the business community, who implemented many right wing economic policies which transformed Brazil in to a massive exporter of goods and simulaneoulsy made big strides to create productive jobs that lifted many out of poverty and moved them into the middle class. He was then followed by Djalma, a lady who was at Lula’s right hand. She had been a left-wing gurella during the years before Cardoso of Military dictatorship and belongd to the same group that kidnapped the US, German and Swiss Ambassadors and exchanged them for the release of leftist leaders in prison. Butr he has so far successfully continued to policies of Lula which have, among other things, transformed Brazil from a country that needed to import 90% of its petroleum into a net exporter of petroleum.
Both Lula and Djalma sprent time in prison duing the years of military government. Cardoso lived in exile most of these years, I believe in Chile where General Pinochet, who overthrew the Communist government of Salvador Allende in a booody coup, implanted economic reforms that transformed that very poor country into the economic power house of South American. He was follwed by left of center governments who have left in tact Pinochet’s economic reforms, one of which was to replace its bankrupt social security siystem with a private social security system where those who pay into it have control over how it is invested and which has become a model being studied by many other countries whos social security systems are universally in deep financial trouble.
That is an oversimplification, but what I have observed from afar.
@petros, my previous reply should have been directed to you rather than to outragedcanadian. My error.
@Roger, thank you. I know I was asking for a simplistic answer to something very complex, that I’m sure people have spent years on, but you do have a way of explaining things in a way I can understand. From the above, reading between the lines, it seems that Brazil made it’s way out of the mess by having a series of strong, decisive leaders, who focused on fixing the problem, which, as Petros has pointed out, the US does not have.
@outragedcanadian,
Yes I think that is indeed true. And they have also been willing to listen and evaluate the ideas of their political opponents and convince their closest supporters that in certain cases their opponents had sounder ideas than their supporters. I sure wish we had more of this today in the US.
I recall vividly when Lula was campaigning, he vowed to re-nationalize the just privatized-by-Cardoso state telephone monopoly which had been vigorously opposed by the labor unions for fear that thousands of their members would loose their jobs as a result of privatization. It was indeed a giant bureaucracy loaded with people who had important well-paying jobs because of their political connections. At that time there was a massive shortage of telephones and you could be on the waiting list for a phone for 5 years waiting for one to be installed, and you had to shell out the equivalent of US$1,000 to help finance the expansion of the phone system so that it could eventually provide you with a phone. If absolutely you could not wait, you could “buy” the service from someone who needed the money and would be willing to transfer their telephone service to you in exchange for $5,000 to $10,000, The name in the phone directory did not change, but the bill was mailed to the new person’s address. Nobody ever lost their phone because they could not pay their monthly bill. It was a valuable asset which could be sold and it was if you got in a financial bind.. There were page after page of ads in the classified section of the newspapers for “Wanted – Telephone.”
But Lula did not keep this promise. He did not re-nationalize the telephone system.. The new private owners, mostly Telefonica from Spain but also others including Carlos Slim who controls Telmex in Mexico, invested vast sums in expanding Brazil’s telephone system so today Brazil has one of the most developed telephone networks in the world today which employs many times more workers than it did in the days when it was a Government monopoly. Wire-line phone service is available on demand and Brazil has several cellular competitors today which have given that country one of the most advanced cellular networks in the world. So Lula’s commitment to reprivatize telecommunications (which is exactly what Chavez did in Venezuela by throwing out the private owners) was promptly pushed aside as a vote getter but a truly bad economic idea.
Back in the 1970s when I lived there phones were so scarce that the biggest decision a judge had to make in a divorce case what not which parent would have custody of the children, but which one would would get the telephone. No exaggeration.
The last time I flew to Sao Paulo, the instant I got off the plane there was a “ping” on my cell phone. It was a text message, in English, from Claro, the local cellular company controlled by the Mexican Carlos Slim. It welcomed me to Brazil on behalf of Claro and encouraged me to make use of my US cell phone on their network for both calls within Brazil and to anywhere in the world. I did and the charge for the calls were on my AT&T bill when I got back home to the US. For anyone with a foreign cellphone in Brazil for any extended time where you would be using your cell phone extensively, you could obtain a new SIM card to use while in Brazil at newspaper stands everywhere and save money on those calls.
Do not be absurd. The US trade deficit is a result of moving virtually every manufacturing activity off shore. Lenin was right when he said: “When it becomes time to hang the capitalists, they will sell us the rope.”
@Harold
“If you are not living in the US and don’t care about the US, then screw it, they can’t do anything to you that you would care about anyways.”
Absolutely right. Sadly, the IRS will be kept busy by all of those panicking and filling in their forms. 🙁
@ outragedcanadian, Petros, Roger Conklin and calgary411
What a fascinating discussion going on here today. I’m learning a lot about the situation in Brazil and loving it.
Roger Conklin wrote: “At that time there was a massive shortage of telephones and you could be on the waiting list for a phone for 5 years waiting for one to be installed …” I have to say that just made me envious because we waited 10 years to get a phone when we lived in the USA. There were no phone lines where we lived so our first quote for phone service was $17,000 — we passed on that for obvious reasons. It took 10 years to get phone lines into our area (just 4 miles from the nearest town, 8 miles from another where we used a pay phone at the post office for all those phoneless years). When the lines came in we signed up immediately and it only cost us $32 to be connected. I guess it was worth the wait but we only enjoyed phone service for 2 years before we ended up back in Canada. Imagine that! We would have had a phone for 7 years if we had been in Brazil.
@Em, the difference between your long wait in the US and what it was in Brazil was that you were way out in the sticks.”beyond the end of the world” whereas in Brazil you would have been without a phone for a very long time riight in the middle of Sao Paulo with 12 million population or Rio de Janeiro with 8 million. There were lots of pay phones in those days and often there were people lined up waiting to use them because they had no phone in thiir own home.
@joe smith: tell me Joe, why is it that Germany and Switzerland, where the wage levels are 26% higher and 53% higher respectively than the US, have not done the same thing? It is not because they export less that the US. In fact on a per-capita basis Germany imports 2.3 times more and Switzerland 4.3 times more per-capita than the US. Yet they have huge trade surpluses. Germany’s unemployment rate of 6.7% is its lowest in 20 years and Switzerland’s of 3.1% is the lowest in 35 years. Do not underestimate the competitive problems created by the tax laws. The US has the highest corporate tax rate in the world and is the only country that double taxes its citizens if they relocate abroad. They say that it is to increase tax revenue, but that is not the reason at all. That double taxation brings in some $6 billion in tax revenue, but the tax revenue that is destroyed by the $740 billion trade deficit, at 18% of GDP, is 133 billion. Tell me why a trade of of $6 billion for a loss of $133 billion makes any economic sense? It does not. By the way, both Germany and Switzerland are currently recruiting qualified foreign workers to relocate to those countries to fill jobs that are going begging, and are having to turn down foreign orders because they can’t keep up with the demand.
@ Roger Conklin
Well yes I guess we were in the “sticks” but in true euphemistic, American fashion the area we lived in was called the “estates”. Actually, it could well be the lack of phones and TV which made our neighbours the wonderful people that they were … they simply did not get propagandized into the myth of the American dream. They just buckled down and lived their own version of whatever it was they dreamed of. They were the “salt of the earth”. BTW, we did have electricity at least but everything else was left up to us.
@ calgary411 who wrote: “ … when we are not giving education of our youth the value it once had, not even ensuring young people come out of school with at least some financial literacy and other life skills to see them through; when we don’t teach that there are consequences for all our actions … “
You can’t completely despair about the education systems on either side of the border when you see this video of a very smart 12 year old Canadian girl …
WOW! Flaherty should hire this girl!
Thanks, Em. She is awesome. That is a child reaching her potential!! A human being / a mind not going to waste.
@petros, You wrote: “I like your suggestion as to why the trade deficit began, because Americans could live overseas.” I remember a statement made by Brazil’s Finance Minister Delfim Neto back when we lived in Brazil in the early ’70s. He said “There are two reasons why we tax. One is to generate revenue to operate the government, and the other is to discourage people from doing what we consoder to be undesirable and we want them to refran from doing. And there is one reason for tax incentives: To encourage people t do what we want them to do.” I have never forgotten that.
Citizenship based taxation, although some in Congress ,may think it is to generate tax reveue, but that is not true. It generates some $6 billion/per year which, as one expressed it, “is just the rounding off a rounding off.” It is a lot of money to both of us, but it is a pittance to the Federal Government. It is therefore really a tax to discourage people from doing what the government does not them to do. Just what is that? By the way it is written. it is to discourage US citizens and green card holders from living abroad, specifically in countries with tax systems that do not mirror that of the US and in those countries where foreign tax rates are lower than in the US. If the foreign tax system is similar to the US system and the tax rates are as high or higher than the US rates, then foreign tax credits will completely satisfy the US tax obligation and the taxpayer will end up owing nothing to the IRS. But in order to substantiate this he must keep accurate records and spend several thousand dollars for professional assitance in preparing tax returns and additional forms to prove that a balance of zero is due to the IRS. These represent some 91% of all tax returns filed with foreign addresses, according to Nina Olsen, Taxpayer Advocate. But the real discouraging punishment falls on those who live in countries with very different tax systems whoch finance their government expenses from consumption taxes (like VAT) or Sales Taxes, net worth taxes and other kinds of taxes never heard of in the US. The US taxpayer in such countries may very well pay more in taxes than persons in countries with high income taxes, but because these are not “income” taxes they cannot be used for foreign tax credit purposes. So those US persons who live in contries with these different tax systems end up generataing very little revenue for the IRS because the US citizeship based taxation means they cannot survive at competitive wage levels in such countries. If it was not for the foreign earned income exclusion (presently $92,900) there would be extremely few US persons in these couuntires. In calculateing the “tax expenditure” of the FEIE, the Joint Tax Commission assumes that if the FEIE were eliminated then those taking advantage of it would start paying an addtional $19,636 in taxes to the IRS (Single person rate). This is of course untrue because in all probability few would be able to survive a tax increse like this, so they would come home or otherwise just disapear fromt the tax roles.
So truly this is not a revenue generating tax but a punishment tax. What is the offense? Living in a country with a different tax system than the US. Certainly this not illegal but nevertheless it is punished as though it were some sort of crime. Persons who relocate abroad are interested intheir after-tax income.
@rogerconklin;
Yes: “in order to substantiate this he must keep accurate records and spend several thousand dollars for professional assistance in preparing tax returns and additional forms to prove that a balance of zero is due to the IRS. These represent some 91% of all tax returns filed with foreign addresses, according to Nina Olsen, Taxpayer Advocate.” Exactly. The stats don’t support the claims that we are ‘not paying our FAIR share’. The US does not even have accurate stats on citizens ‘abroad’ – which they have admitted themselves. Commissioner Shulman said as much publicly about the so-called ‘tax gap’ in reference to citizens abroad – he said that it didn’t matter if they can’t actually quantify it with reliable numbers – they’re committed to proceeding with their plans regardless of any robust basis in fact. By spending our own after-tax, legal savings, we will end up paying MORE than our ‘fair’ share – subjected to the requirements of two systems of taxation: because we’ve already paid our taxes – in full – where we live and work, – anything more is money we spend – under threat – to satisfy and subsidize the baseless claims of a government who only speaks of us to insult, and accuse. All those expensive accountant and tax specialist fees – spent to prove that we owe zero – every year for the rest of our lives. What an absolute waste. It’s not even potentially taxable ‘interest’ earned, or real values we are to report – the funds get counted multiple times as they pass from one account to another – or even originate in debt – ex. a car or house loan lump sum that passes through temporarily.
Whatever we are forced to spend on expensive accountants or lawyers – that is money that is not going to pay for food, clothing, shelter, or college savings for our children. And if they are US citizen children, doesn’t ‘their government’ owe them a debt? Doesn’t it owe their wellbeing some consideration? It doesn’t provide them with any other tangible service or benefit – but saddles them with a heavy and punitive burden – as soon as they are born. They can’t eat US citizenship, or use it to pay tuition.
@Roger, I so appreciate that you come here and educate us on how the US tax system damages its own economy. I shake my head in disbelief at the blindness of it all, knowing that you have testified to this before a Congressional committee, and yet they keep on shooting themselves in the foot with more onerous taxation and reporting legislation. There has to be a reason why they do this. There has to be some sort of pay-off that they value more highly than a vigorous and robust economy, which would in itself raise their revenues through increased wealth flowing through everyone’s hands. Perhaps it is all based on the campaign cycle, where they can parade themselves as champions of “tax justice”, and win votes by uniting the ignorant voters against those un-American tax cheats who leave the country.. How very small they are.
@foxladyhawk, To quote a source much more authoratiive than myself. “…and if the blind lead the blind, both shall fall into the ditch.” Matthew 5:14.
I need advice re: getting rid of my old green card via an I-407.
By phone there is no way to get through to the US consulate nearest us which is 3 hours driving and 1 hour of public transportation away– plus another 4 hours to get back home. They simply will not take any general enquiries by phone. The telehell options made that pretty clear.
Anyway I had decided that since the 8 hours total travel time would be too much for me (bad back) that I would get my husband to hand deliver a completed I-407 application with instructions for them to phone me with any questions they might have. However even for just dropping off paperwork, an appointment must be booked online. (What in the world do people do who are not online — possibly no internet service available or no computer?) The online appointment booking page asks for the applicant’s name and info (that would be me) and since it would actually be my husband arriving at their nearly impenatrable door then this looks like a no go. (Unless I type in my info and then my husband appears at the door and tries to explain why he is there and not me — sounds dicey and could just be a wasted trip.)
So next I thought of sending an I-407 by courier but I’m not sure they would allow a courier into the not-so-near-us US consulate with all that security to go through and of course I can’t phone to ask.
I did find out that the US Embassy in Ottawa lists a courier address so maybe I could just courier an I-407 there. It’s getting confusing after a whole morning of web searching and one useless descent to US Consulate telehell.
Question: How the heck do I get an I-407 into official US hands without actually appearing at a consulate in person? Do they honestly expect everyone is able to appear in person — no matter how far — no matter how difficult? I’m thinking either I make a painful journey or I am stuck with a green card I want desperately to get rid of until the day I die (probably from entrapmentitis). Any ideas? Has anyone ever just done this by courier and phone and thereby escaped the face-to-face grilling of a US official?
I really don’t want to go there and not just because the trip is difficult for me. I don’t trust them and I’m afraid they will try to make me feel like a felon or something for having a green card in my possession which should have been properly abandoned many years ago.
Not sure how many time you called, it took me a few calls and being on hold for over an hour a couple of times before I got to a live person. The live person then gave me an email address. Turn around times for an email run into days.