Crossposted from the Flophouse. Okay, folks, am feeling perkier and so I thought I’d bring this one over. This is a very modest attempt to explain some of the thinking behind a decision to renounce (or not) American citizenship. I know there was another thread about this some time ago here at Isaac Brock so I’m sure there is nothing new here. But given all the recent media attention about this issue, I thought it was timely to bring it up again. This represents the state of my “internal committee” at this time. Your mileage may vary. 🙂
The U.S. has a new export that is really taking off: Americans. In 2010 a record number of U.S. citizens decided to renounce their citizenship. A mere drop in the bucket (under 2000) but a trend that has some people worried and others horrified and angry. This topic has finally hit the mainstream media with articles in the New York Times and the Huffington Post. Any discussion of why this is so tends to degrade very quickly into an emotional argument with lots of exclamation points, capital letters and a “don’t let the door hit you on the way out” mentality. It’s a subject that hits all of us (homelanders and expatriates) right where we live.
I think we have a failure to communicate here and so perhaps it might be instructive to use my own case as an example in order to dispel a few myths about why some Americans abroad are considering renouncing. What follows here is my own situation and my own reasoning – a cost benefit analysis, if you will. My case is definitely not representative of all Americans abroad but I’m sure it will resonate with some.
I left the U.S. in 1989 for France when I was 23 years old – right after I graduated from the University of Washington. I was married to a French citizen in 1990 and though we have expatriated to other countries during that time, the majority of our life has been spent here in Europe. When I left the U.S. I had no money and no assets since I had just finished school and had not yet started my working life. Today not one dime of my savings was earned in the United States and I currently have no property or savings in my home country. Everything I have in France was earned in France or in Japan. I have had a modest but good career as an IT manager in those two countries and I have paid taxes in every country I’ve lived in and worked. I have two children who are dual nationals (French/US citizens). My husband is a French national and has neither US citizenship nor a Green Card. As of this time I am not a French citizen though I currently hold long-term EU resident status. Our family has no intention of returning to the U.S. to live though we have never ruled that out as a possibility for the future.
Given my situation (and looking at it with cold reason) what are the costs and benefits of holding American citizenship? Let’s start on a high note and talk about the benefits:
Voting in U.S. Elections: As an American citizen abroad, I have the right to vote in Federal elections (president and congressional representatives). The way the American system works, I must vote in the State of Washington (my last state of residence) and will do so as long as I remain outside the country. Since our numbers are few, our impact is negligible and I don’t feel terribly well represented in the United States but I will concede that I do have this right which I can exercise or not as I wish.
Right of Return: My U.S. citizenship gives me the right to return to the United States at any time to live and work. As a practical matter however, my ability to exercise this right is limited since I am married to a foreign national and I would not think of returning unless my spouse could (and wanted to) come with me and I was assured that he would receive a warm welcome in the U.S. From the news reports we are getting from the States, it seems rather evident that the “welcome” is not what it was. Another factor is that I have one minor child (dual US/French citizen) at home and if I chose to return to the U.S. without my spouse, I would have to have his permission to take her to the U.S. Needless to say that just wouldn’t happen and both the U.S. and French courts would forcibly return my daughter to France were I to try this.
Opportunity: With a U.S. passport and EU residency I have the possibility of working on two continents (Europe and the U.S.) with a minimum of hassle. This is tempered by the high unemployment rates in both countries and the lack of benefits and worker protections in the U.S. Given U.S. work laws it is quite conceivable that I could return to the U.S. for work and find myself unemployed with no benefits the day after I arrive. So moving to the U.S. one day might be a grand opportunity or a complete catastrophe. I am not complaining about this, mind you, just pointing out that at 46 it is not an obvious decision to pack up and seek a rather risky opportunity on the other side of the Atlantic. But my U.S. passport does give me access to the U.S. job market which is not a small thing.
These are the benefits that I currently enjoy as a US citizen. What about Social Security, you might ask, or the right to pass American citizenship onto my children or consular protection? Well, the first does not apply since I never worked in the U.S. long enough to qualify for benefits. The only pension plan I am vested in is the French national system. As for the second, my children are already U.S. citizens and it’s irrelevant at this point whether I remain a citizen or not – they will keep their US citizenship regardless of my status. And finally the third just doesn’t exist. If I am accused of breaking the laws in my host country (France) the only help I will get from the U.S. embassy is a visit (if I wish) from a consular officer and help finding an English-speaking lawyer. Concerning the latter, my French is fluent and I already have a very good lawyer here so I don’t really envision needing that service. As for a U.S. passport being a useful bit of protection when traveling, I think that time has come and gone, my friends. It’s certainly not worth more then an EU passport these days. Most places I’ve visited have either been strictly neutral about my pretty blue passport or slightly hostile (perhaps that was my imagination but I did sense a rather cool reception in a few places.)
Against these benefits, let’s look at the costs:
Tax Compliance: It is costing me between 500 and 1000 USD per year to be compliant with all the tax and reporting requirements of the U.S. government. This is not a huge amount of money but, as I start saving for retirement, the complexity of my tax situation will grow and I will surely have to pay more just to keep up. I’ve had estimates from 1000 to 10,000 USD depending on the amount, types of investments and so on. There will also be taxes to pay in the U.S. in addition to what I pay in France. Not all French taxes count as a tax credit in the U.S. Capital gains (on the sale of a house, for example) are a direct hit. I would need a professional to quantify this for me in a more precise manner but what is sure is that I will pay more and more every year (unless, of course, I throw caution to the wind and stop saving for retirement at all).
Discrimination: I have already had one interview with a U.S. company here in Europe that didn’t even want to talk to me until I showed that I was a long-term EU resident. Clearly the fact that I was an American citizen was not a point in my favor. I have also had my bank give me trouble over certain kinds of investments because I am a U.S. citizen. From the stories circulating among other U.S. expats here in Europe it seems that Americans are becoming persona non grata in the banking communities in our host countries. From what I am hearing, I am probably safe for now with my existing accounts but may have trouble opening new ones which means not being able to change banks.
Lost opportunities: I have always wanted to work as an independent or start my own business here in France. A quick look at the U.S. tax rules for Americans living abroad who do this sent me running for cover. Ouch! Very complex. Potentially very costly. In addition, just as Americans are becoming pariahs to the local banks, local business is becoming less then eager to start up a venture with an American partner because of the onerous reporting requirements. And, finally if I have trouble opening new bank accounts here in my host country, I may be seriously limited as to the kinds of local investments I will be able to make in the future.
Stress: The FBAR/FATCA fiasco came out of nowhere for many (if not most) Americans abroad. The U.S. Congress is constantly cooking up all kinds of brilliant ideas that impact us and we are usually informed after the fact. I have to wonder what else they have planned for us. Over the past few months I’ve seen some pretty persistent people trying desperately to get the U.S. government, politicians, and the public to listen to our grievances and to take them seriously. While I am so grateful to all of the organizations and individuals who are tirelessly working on the behalf of all Americans abroad, I’m not seeing much traction. I feel like a pigeon waiting to be plucked with very little say over the next surprise to come out of Washington. I greatly fear that next year’s (or the year after) legislation will financially ruin me and my family.
Rejection: I am also getting very tired of reading headlines about how we are “tax evaders” and “ingrates.” Clearly homeland Americans do not love their diaspora. Since there seems to be a large number of homelanders who think we should “shut up and comply” or “get the hell out” I have to wonder why I’m even bothering to maintain my membership in the club as they seem perfectly happy to see me and others go.
On a last note, to be brutally honest with you, I’m just very tired. Tired of writing letters, tired of explaining, tired of fighting. There is so much about this that I simply cannot change. I cannot make homeland Americans feel differently about their expatriates. My influence (even as a U.S.voter) is practically nil. I have lost all faith in the U.S. government (Obama and company included). I no longer think it will improve – on the contrary I can think of a hundred ways it could get worse. And I have slowly come to the realization that American citizenship and globalization are an imperfect fit these days. Perhaps it will get better with time but that, it seems to me, is something I can hope for for my children’s sake but not something I am coming to believe that I can realistically expect to have for myself.
@Watcher
Sue em. That is what its going to take.
@watcher – As well as being treated equally with other EU / UK citizens with regards to opening an account, I expect my tax reporting to be treated equally the same as other EU resident citizens. I’m going to start with the Financial Ombudman and see what they have to say about the matter. It doesn’t stack up for me to openly discriminate against US dual nationals and get away with it.
Under “Open an account”: “To open a trading account online with TD Direct Investing you will need to meet the following requirements: You are a private individual aged 18 or over; You are a UK resident; You are not a US national”. Also, later on: “Please note due to international tax reporting it is not possible to open an account for US nationals living in the UK.”
————— This is just absurd. So any other nationality who is resident of the UK can open an account!! I really wish someone would sue over this discrimination. It could probably get some sympathetic articles. I honestly can’t believe the UK is giving up the tax revenue. After all, the person lives there and not in the US.
I’m really disappointed in the UK in this regard. Why doesn’t the US just add another star and call them the 51st state!!?
Because of Don’s health insurance, ADD Belgium to the list!!
They may be able to stop you trading US stocks, but the rationale for trading elsewhere in the world becomes murky. It’s only £100 to open an account maybe I’ll do that and see what happens.
sorry..looks like a French company, not Belgian.
Hmm…in case someone failed the read the fine print on that TD investing website they might become frustrated/perplexed due to the fact that “USA” or “American” are not present on the nationality selection screen. To be fair though I don’t see several other nationalities either, like South Korean, , Belarusian, Argentinian or Chilean to name a few. There is no option for “other” on the nationality select screen. Isn’t this pretty clearly blatant discrimination. I only wonder why some of these other nationalities are not wanted either?
@geeez
Yeah, a lot of our insurance companies here in Belgium are French, German or pan-European subsidiaries or conglomerates. I think ASFE is connected to AXA (one of the biggest European insurance companies) because my local AXA insurance sent me to ASFE to get a plan once when I lived in Germany.
With TD it seems you don’t even have to be a US person to be barred. Here is an example of TD UK apparently refusing a customer who isn’t even a US citizen, but rather lived (past tense only) in the US for a while:
http://boards.fool.co.uk/us-ira-and-stock-trading-in-the-uk-12450144.aspx
The implication here is that even a CLN or stamped I-407 may not be enough to inoculate against FATCA. How thoroughly and completely depressing.
I’ll go find the Junior ISA application forms in 2 ticks, but I have DH’s Jupiter adult ISA application form open right now: http://www.jupiteronline.co.uk/ApplicationFiles/getFile.pdf?DocId=1601&confirmed=true
He had to confirm that: “B. I am not a restricted person (including a US person) (as defined in the Key
Features (incorporating the Simplified Prospectus) OR from 30 June 2012 the
Supplementary Information Document) nor am I applying for units on behalf
of a restricted person (including a US person) nor am I applying for units in
order to further offer, sell, assign, pledge or otherwise transfer such units
directly or indirectly to (a) restricted person(s) (including (a) US Person(s))”
Now, I know that as an adult, taking out a stocks and shares ISA is probably a pretty poor choice with the IRS reporting, it’s more the principle of being shut out that annoys me and most investment houses now have a variation of this wording on their application forms.
Back in a tick with the Junior links….
Here’s AllianceTrust’s Junior ISA form: http://www.alliancetrustsavings.co.uk/pdf/junior-isa/junior_isa_application.pdf
You have to declare: “The child is not a US person. (Please tick)
If you cannot give this declaration, please do not continue with this application. A financial adviser will be able to help you. For a definition of a ‘US’ person please see glossary on our website.”
And here’s Legal & General’s: http://www.legalandgeneral.com/investments/_common-functions/juniorisa/Junior%20ISA_AppForms_WEB.pdf
The declaration includes: “• I am not aware that this child is a US person”
Some companies don’t have the statement yet, but I’m guessing it’s only a matter of time before they update their literature.
Sorry, me again! Here’s Alliance Trust’s definition of a “US Person” which refers to FATCA:
“US Person has the meanings set out in Regulation S of the United States Securities Act 1933 (as amended) and under Foreign Account Tax Compliance Act (the ‘Acts’) and is understood to include any resident of the United States and/or a partnership or corporation organised under the laws of the United States or deemed to be so organised or a person or entity that is entitled to or actually works or does business in the US or (where ‘United States’ means the United States of America, its territories and possessions, all areas subject to its jurisdiction or any political sub-division thereof, any state of the United States of America and the District of Columbia). For full detail of what constitutes a US Person, please consult the Acts, or seek independent legal and/or other professional advice.”
It’s the bit that says “or a person or entity that is entitled to or actually works or does business in the US.” that is worrisome.
If I am misunderstanding, someone please let me know!
@Victoria, nice job and thank you. I believe that you’ve been ruminating of this subject for quite some time. Conclusion: for US citizens living abroad, our future is like walking on shifting sands in a mine field in an earthquake zone.
@bubblebustin; re ‘walking on shfting sands in a mine field in an earthquake zone’ and for me I’d add – ‘trying not to be eaten by zombies’….
@badger, lol. Would those zombies be waving the star and stripes?
@Scotgirl: There’s a bunch of different conflicting definitions of US Person in different laws and regulations.
Rule 902(k) says absolutely nothing about “entitled to work” in the definition of “US Person”. Rule 902(k) only applies for purposes of securities law (i.e. what financial products an advisor can recommend to me). When you sign up to purchase stocks in a non-US IPO for example and they ask you to declare that you are not a US person, usually they are only asking under the Rule 902(k) definition. I have heard of US expats saying “no” on these forms and then going to a Commissioner of Oaths with the form and executing a secondary declaration that they’re signing the form with the understanding that it only refers to securities regulation. I always thought this was overkill, but now I’m not so sure.
http://taft.law.uc.edu/CCL/33ActRls/rule902.html
There’s the Qualified Intermediary/Kill Your Customer rules which are different in every country. They’re used by financial institutions both to check customer identity for anti-money laundering purposes when opening an account, and I believe also to determine US Person status for tax purposes (to make sure a US person doesn’t pretend to be a foreigner when investing in the US through a foreign institution). Here’s the UK version:
http://www.irs.gov/pub/irs-utl/uk_qi_attachment_v3_2006.pdf
In practice these were not adhered to very strictly. E.g. I have opened a bank account in Hong Kong by showing a non-permanent ID card (i.e. an ID card issued to a resident who needs a visa to remain, as contrasted with a permanent ID card issued to a permanent resident) after 2001, which according to the rules shouldn’t have been done
http://www.irs.gov/pub/irs-trty/qiattachhongkong.pdf
Every US expat is a US person for tax purposes but not a US person for securities regulation purposes. In practise it is not always easy to convince brokerages of this 🙂 FATCA does not change the definition of US Person for tax purposes (that’s been the same in the law all the time: 26 USC 7701(a)(30)). What FATCA is doing is changing brokerages’ reactions to US persons: they are taking the most restrictive position possible in order to avoid any potential future problems with the IRS.
Now I understand the stars and stripes. The stars are what you see when they hit you over the head with a 2×4 Fu Bar and the stripes adorn the new clothes they issue you when they haul you off to the zombie holding pen.
Ahh.. I’m wanting less and less to deal with that place (the US) — all traces, even my name:
Today was nice and sunny so I said “I’ll take the motorcycle.” On my way, I get pulled over by the cops at a checkpoint. As soon as I handed the cop my documentation, he looked at my name and then started asking if my drivers license was from a different state… how do you say my name? Was my drivers license from a different country? No, it was issued in this city!! How long have you been here for? They were nice about it, but it took twice as long to verify my information. At least it wasn’t the US where I would be tasered if I sneezed 🙂
My wife doesn’t want me to, but I’m going to “aportuguesar” my name, pick some Portuguese-sounding name and then be that. But I’m sure that will probably break some sort of US law…
This is a comment that I once made on another thread about the cost benefit analysis. To renounce or retain. It is based mainly on the monetary considerations. Regardless of the money, I don’t see how anybody can live this way. Renunciation is necessary for a happy state of mind.
____________________________
http://isaacbrocksociety.com/2012/03/11/late-loyalist-renounces/#comment-9061
renounceuscitizenship
March 11, 2012 at 8:37 pm
@all
Interesting thread. Let’s focus on M’s:
“You want to save money? Do nothing.
A citizenship (and residency) is an asset, no matter the country. What you are a citizen of is your business, and only your business, that you need not tell anyone, just like your money and assets.
Giving up an asset because of a potential liability should be studied and measured very carefully.
I am seeing (pop culture) romantic analogies and medical analogies. I am not seeing legal or financial analysis.”
____________________________________
Renunciation is a personal decision. The issue is not whether U.S. citizenship is an “asset”. Let’s imagine that it is. The value of that “asset” must be measured against the costs. This should be “measured very carefully” with “legal or financial analysis”.
Okay, let’s do that.
Financial Aspects of The Cost of Retaining U.S. citizenship
Everybody has a different situation. But, remember that if you renounce you will have to have five years of tax compliance. That may or may not come at a cost (depending on whether you have been filing US tax returns). I have the impression (but have no actual knowledge) that some are to date with their filings and others not. Furthermore, some of you are worried about filing U.S. taxes when you may not be U.S. citizens.
For those up-to-date on the filings, and have no impediment to renouncing, then the issue becomes the possibility of the exit tax. It is important to consider the exit tax may or may not end up being a cost. It may end up being a prepayment of the estate tax (we don’t know which way the estate tax is going).
Those who are subject to the exit tax (who don’t see it as a prepayment of the estate tax) may have a financial reason to NOT renounce.
But, those who are NOT subject to the exit tax (remember we are talking finanical analysis) have a very sound financial (if this were the only consideration, but of course nobody would renounce for purely tax reasons) to renounce. Why? Through inflation it won’t take long for you be a “convered expatriate”. Owning a house in Vancouver would do the trick. Remember again that the U.S. has an estate tax to deal with eventually. Now, I don’t know how the U.S./Canada tax treaty affects that.
Those are “some” of the possible financial considerations and one part of the cost.
Non-Financial Aspects of the Cost of Retaining U.S. Citizenship
Simple you are treated like a criminal and with the advent of FATCA you are required to live under supervision. You can’t live a normal and productive live. Plus you have to continue to think and worry about this.
Sure U.S. citizenship can be viewed as an “asset” (in limited circumstances). The question is whether the costs outweigh the value of this asset in any signigicant way. This is for you to decide.
Finally, unless I am missing something, there is no way to renounce without being in tax (and probabaly FBAR) compliance.
The very existence of discussion about renouncing U.S. citizenship assumes that people want to be in compliance. Many of you seem to be worried that you are not in compliance because you became Canadian in the 70s or early 80s and have not been filing tax returns. This has been the subject of numerous discussions. I suggest:
If you have committed an expatriating Act (becoming a Cdn citizen for example or being a justice of the peace) prior to 1986, a clear reading of s. 349 gives you ample grounds to argue that you are not a U.S. citizen. If you are in this situtation your time would be much better spent working on the “state of your U.S. citizenship” (no pun intended) instead of filing tax returns. If you are not a U.S. citizen, then you should not be filing U.S. tax returns.. Furthermore, unless you can find something in s. 349 of the INA that says that loss of citizenship is conditional on the issuance of a CLN then …
So, there is a logical and financial analysis to this issue.
As Phil Hodgen says: “U.S. citizenship is a problem to be solved”. That may be a way to view the solution.
I offer this as non-emtional logical analysis. But, it is of course not legal (or any other kind of advice).
@ Victoria, this a great read, and not only so, I think a useful meditation on the question of whether an expat can remain a US citizen. I’ve therefore made a link to it on the side bar under “Our Resources”. Hopefully, you will get the readership that you deserve.
@Petros, Thanks so much. I hope it makes people stop and think – just for a moment – about how complex a decision like this one really is.
Bises,
Victoria
In a twist, here’s an instance in which the US border patrol berated and detained people to get them to swear that they were NOT citizens:
http://www.brownsvilleherald.com/articles/hours-140955-customs-vazquez.html
‘Woman fights to assert citizenship’
June 02, 2012 10:01 PM
By MADELINE BUCKLEY/The Brownsville Herald
@badger, poor woman, but my eyes are tearing up thinking about how funny it would be to see a border agent and an IRS agent in the same room together conducting a similar interview??? I’d be slamming my head against the table. Oh wait, I already am!
@bubblebustin, it seems that they want to have it both ways? Bizarre.