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.
What border is this again? I may just have to go to Mexico.
Financial Post article describes the “double jeopardy” that those deemed to be US citizens/’persons’ face:
Unfortunately, it could have described FBARs, FATCA and the draconian fines for not filing ‘reporting’ forms, but it doesn’t. In fact it somewhat glosses over the ‘jeopardy’ in the headline by referring to the December 2011 fact sheet as if there was nothing to fear – love the description of the “more relaxed position of the IRS”:
….”While it’s estimated there are up to one million U.S. citizens in
Canada, many of them continue to remain undercover as far as fessing up
to the IRS and continue to ignore their U.S. filing obligations. This
despite a more relaxed IRS position announced last December that could
see some of the harsher penalties for failure to file certain forms
waived if you can demonstrate “reasonable cause.””….
@badger Thanks for that link. I left a comment for Jamie, and also tweeted him. I tried to be measured. I highlighted that exact same quote. I see Petros has also commented.
And, the Financial Post article is also a new post.
@just me. I admire your forbearance. It is so hard to be measured when the authors (like the Christiansen ones in the Winnipeg news), or in this article, take a position as if they have some intimate knowledge of the beliefs, intent and situation of the millions of US deemed ‘persons’ and ‘citizens ‘ that they pronounce on. Ex. “continue to ignore their U.S. filing obligations” – well we know it isn’t anywhere near that simple. Many people still don’t know about it. Some are still waiting for that promised alternative method of coming into compliance – promised, but now not forthcoming in time for this year’s return and forms – which the IRS knows, but has chosen not to assist with. It continues to look overwhelmingly that penalties are an evasive ‘in lieu of’ tax, to get around the FEIE, and foreign tax credits, and possibly as a deterrent to stop US residents from choosing to invest outside the US. That is the only explanation for why they have refused to exempt RRSPs from ridiculous reporting requirements. Much less the other legitimate registered savings. There is no genuine attempt to ‘educate’, or to ‘bring people back into the system’ – only to make it more frightening and punitive for as many as possible.
Won’t get any argument out of me. I just figure that I might have a better chance of getting this Jamie’s attention, if I don’t just flame him. 🙂 Don’t you just love that “fess up” language…He could have said, “come clean”. That is another favorite!
@Badger, thanks for posting the link. I couldn’t be as measured as Just Me, I’m afraid. That crap just pi&&es me off the more I read it!
*All, You guys better “Fess Up” now, what is the matter with you?? FESS UP!!
What a load of sh*t!! I am so sick of hearing it!! Aren’t we all!!
@ badger. You said “Many people still don’t know about it”.
That is true, and is mainly due to the fact that we only read about it mainly on accountant specific web sites. It is hard to find an article about it in a mainstream publication.
When I personally found out, I was angry that my immigration lawyer, neither my company mentioned it. They hire a lot of immigrants, yet fail to inform them about this serious issue.
I wanted to go to HR and tell them to inform new hires about it, and my manager got mad and told me that plausible deniability for these people was also very important… Non sense. I would have done it right if I had know that I was supposed to do report it and the possible consequences of not doing it.
@JustMe, and @all,sSorry for the rant, but couldn’t suppress it in light of knowing that there are still so many innocents out there with no inkling – and it did not have to be this way.
@Christophe, what is being done to immigrants is criminal. And you’re right – if they had really wanted newcomers to comply – they would have had to tell you before you got there – because of course people have assets and pre-existing finances before they come. And give people time to re-think, or re-arrange their affairs – which in some cases cannot be done easily, or at all.
And here, there are large pension plans, and financial institutions who are not alerting account holders in general to the existence of FATCA and what it will potentially mean to ALL clients – even though by now, I am absolutely certain that they have been asked what the situation is by clients trying to comply and gathering information for their reports. There has been absolutely nothing in annual reports mailed to members that I am aware of. If they truly wanted to stop FATCA, wouldn’t it make sense to alert all account holders and investors so that they could urge their governments to resist? And at least some financial advisors had to have finally become aware that registered accounts and investments like TFSAs were a huge problem for those deemed US ‘persons’ from the reporting point of view, but tried to sell them anyway – without attempting to issue a general advisory that might alert those affected (though I know that this might not have worked because of the general level of ignorance that any reporting was required).
*@Just Me, another really good response. My responses these days are a bit testy (probably because I’m not feeling my best at the moment). This is not good because it just turns people off and they stop listening….
You have an excuse as you are going through a lot right now. I can not imagine you even bothering to comment when you are feeling the way you do right now. BTW, GREAT blog post yet again on the Two Tales of Citzenship
and so do you, as you are personally affected. I have the luxury of this being more of an dispassionate intellectual exercise, so easier to be measured, but I really want to rant and enjoy your comments. So rant away. I understand it! I am not experiencing what you are, but I do feel your pain.
Your gravatar (or what I think of as a “little quilt swatch”) changed. Now I have to readjust my visual recognition program for your new pattern and colour … not that the new one doesn’t look just as good on you. 😉
BTW, I am emailing Jamie too at Jamie.Golombek@cibc.com and email@example.com
Yea, I am being nice, measured, but critical. I want to be sure he gets the message. So between comments, tweets and email, that should be enough! Will he pay attention, who knows? He is trying to generate business, so encouraging folks to “fess up” gets them in the door. I hate to think that this article is that self serving, and maybe the intention is more lofty than that. Will watch for any followup articles he may do, and we shall see.
A couple follow ons.
First, just want to note, that Petros also referenced this article here… So will cross post to tie the two threads together…
Secondly, I decided to do a follow on post in response to one Dev4. I was just adding some information as feed back on his assertions (which are true right now) that there are lots of people willing to buy the US citizenship or Greencards. My point being that for new immigrants, it is a Buyer Beware world , as there is no such thing as full disclosure in a State Department Immigration package when it comes to taxation, FBARs, etc.
Finally, I did send off an email to Jamie with some commentary and links back here. Don’t expect I will hear anything. A lot of these guys are too lazy to even bother with an acknowledgement. So it goes.
A discussion of some reasons to emigrate and explore life outside the US – illustrating lots of reasons that one might choose to live ‘abroad’ and never come back. US ‘persons’ who decide to study, work, and live outside the US are just average people trying to figure out how best to use the time given to them on our planet:
by April Salchert,
Master’s Student – Uppsala University
“Decision 2012: U.S. vs. Everywhere Else”
Posted: 06/12/2012 3:00 pm
“My Swedish significant other and I have been looking for
opportunities to work internationally. We’ve discussed moving to the
U.S. (where I’m from), moving to Asia (where I’ve worked before), or
staying here (Sweden). It’s our Decision 2012.
I have a dissonant feeling about moving home. I have spells of
homesickness, which are frequently interrupted by anxiety and nausea….”
Your story about hunkering down in Egypt when everything went pear shaped is interesting. If you had allowed Uncle Sam to evacuate you to a nearby country via a commercial flight you would have been stuck with the airfare afterwards. And who knows what the cost of the hotel stay in that country would have been. From my experience in similar situations, the US has a tendency of over-reacting. So good decision on your part.
Yet another way in which we are discriminated against as US deemed ‘taxable persons’ ‘abroad’:
“parents cannot claim dependency exemptions or child care credits for children who aren’t U.S. citizens. Plus, that’s true even if the children become U.S. citizens in later years.”
7/26/2012 U.S. Citizens Can’t Claim Non-Citizen Kids As Dependents
So, as deemed US taxable person parents, we can ALL be assessed, taxed and penalized in confiscatory ways, and our kids can be deprived by the burden the US forces on our households, but our kids don’t count as dependents for tax credits if they’re not US citizens. Isn’t recognizing the care of dependents one of the most basic considerations when assessing the tax of a household?
We can’t use any of the US education savings incentives either. BUT, as deemed ‘US taxable person’ parents we can still be penalized if we took out an RESP for their tuition, or a TFSA to help them save for post-secondary studies. And, must report their little birthday account if we’ve got co-signatory powers on it. All of the obligations and life-altering penalties, and NONE of the benefits.
@badger, Incredible. I had no idea (my kids are US citizens so I never gave it a thought).
I think there is a post here that would be worth writing listing all the ways the U.S. tax code discriminates against citizens abroad. Another one: I was told by my accountant that I could not write off donations to my local church. Couldn’t understand it – a church is a church whether it’s in France or the U.S. (and I’m Catholic so it’s the same org in any case). Could someone confirm that this is true?
@victoria, ACA and AARO have lists, but I’m not sure if they’re definitive- and whether they include those two benefits (education grants/tax credits, and deductions for dependent children – or other family members).
Worth checking, and then adding to.
The Swiss Federal government is reviewing changing the citizenship naturalization process to:
1) Reduce the number of years of required continuous residence in Switzerland from 12 to eight years.
2) Require that applicants have a “C” permanent status (Niederlassungsbewilligung).
The naturalization process is lengthy and costly and the decision can be arbitrary, based on a non-standardized judgment of the level of integration. As a result, only around 1 in 9 of those eligible for Swiss citizenship are naturalized. Here is a discussion in English on the proposed citizenship changes:
The proposed requirement that applicants have the “C” permanent residence permit would likely reduce/ delay “facilitated” naturalizations, which can generally occur after three years for spouses of Swiss citizens. This provision, in my opinion, is aimed at reducing the ease with which citizenship is given to spouses coming from countries such as Brazil, Thailand, Russia, Morocco, etc., since it normally takes 10 years to obtain a “C” residence permit from most non-EU countries. Although 44.5% of the naturalizations for US citizens were of the “facilitated” variety in 2010, this proposed change should have a limited impact on naturalizations for US citizens since they can obtain the “C” permanent residence status at five years.
Here is a link to naturalization statistics for 2010 (English):
Article: “U.S. Citizenship To Carry An Expensive Price Tag”
…….”Starting July 30th, immigrant and non-immigrant applicants and
petitioners needing paperwork must pay the new fees. Services affected
by the price change is the application for naturalization which
currently cost $330 will be $595.
Plus, any necessary biometric services or fingerprinting
that is required will cost $80. In addition, individuals who seek legal
permanent status will see a huge jump.
Right now, Green cards cost $325 plus $70 for mandatory
fingerprinting, but in two months the card alone will cost $930 plus $80
dollars. The new total cost is $1,010, but there are exceptions.
Persons 14 years-old and under or at least age 79 would be charged less
and they would not be finger-printed.”……
Resulting in an added expense for universities and US businesses looking to hire from abroad, for visiting researchers, etc.
Already expensive for unwilling deemed ‘UStaxpayers’ aka accidental or dual US ‘citizens abroad’ to renounce, they now make it even more expensive to acquire new ones who are willing and able. Ironic, they won’t let us renounce our unwanted US status, but make the barriers higher for those who do.
And charge big fees – coming and going.
‘Cross-border issues complicate financial planning‘
Article title is a major understatement!
First article I have ever seen that even touches on the issues for families in Canada with US and non-US tax issues. Some of the information is incorrect/misleading – ex. that the US person should even consider having a TFSA (they say that for the UStaxableperson spouse it cannot be used ‘as efficiently’ – a gross understatement !). “Most residents of Canada can use tax-free savings accounts but U.S. tax
law does not accord the same treatment, that is, elimination of tax
while money is in the accounts. Paul cannot use a TFSA as efficiently as
Marianne. She can make use of a TFSA and should do so, Ms. Nalbantoglu
says.” And what if the US taxable person – Paul is ever an executor, or beneficiary of the non-US person? Or if he needs to hold a Power of Attorney for Finances for a non-US person?
They also don’t note any potential for problems with the children’s RESPs (if they inherited the US status?, or if the UScitizen parent is a signatory on the account – for FBARs, and as a ‘foreign trust’).
It doesn’t touch on the problems the US spouse in Canada will face re their estates – and passing assets to a non-US spouse, and the onerous reporting obligations and pitfalls. Or why they might be better off keeping separate bank accounts rather than joint ones (re FBARs, FATCA). Or what might happen if they sell their principle residence.
The article concludes:
……..”“There is no easy way out of cross-border complications,” Ms.
Nalbantoglu says. “Paul’s strategy has to be compliance. But Marianne
can make most investments free of U.S. complexities.””
Thanks for the link, Badger. I agree with your comments – not as simple as he makes it out to be.
But where I really saw red was the merdique comment that “Paul’s strategy has to be compliance.”
So Paul is supposed to kick back and be a good boy even though he is is screwing himself out of properly preparing for his retirement? THAT’s the message? THAT’s the best this financial planner can offer?
Paul has just become my poster child for why renouncing may be a darn good idea. What’s Paul’s reward here for compliance? In exchange for his submission the US clearly refuses to help him help himself to save for retirement and it won’t provide for him in his old age (healthcare, a pension, decent tax breaks, protection for his family and so on). So his “reward” is strictly limited to a warm and fuzzy feeling that he has sacrificed himself on the altar of compliance and has been a loyal law-abiding US citizen until he draws his last breath.
What sane person would sign up for this?
Agreed Victoria – what is the point or value of just accepting a ‘compliance burden’ – without any reward or return? And, the planner skims over that the burden is not an individual one only – it is a burden that has serious repercussions for the whole family – now, and down the road. The individual needs to weigh the future risks – as we know that even without intention, the pitfalls due to complexity, and conflict between tax systems are only increasing.
Only bright spot is that this is finally making some type of entrance onto the radar of the mainstream press – though without full knowledge of the context and background, isn’t very useful to those in a similar situation – or who aren’t able to acheive ‘compliance’ – without wiping out the very family assets they need to preserve for their wellbeing.