About seven million American expatriates — nearly a million in Canada — are going through tax hell because of a sudden Congressional interest in catching tax cheats, and America’s unique citizenship-based income tax policy.
American Citizens Abroad (ACA) has called on the United States to end this citizenship-based income tax policy and tax based on residence like the rest of the world. It points out that Americans living and working in other countries pay taxes in those countries, usually at significantly higher levels than U.S. “homelanders.” The ACA is getting the Congressional brushoff – polite conversation, “I feel your pain, but nothing doing.”
But what if other countries fight fire with fire and emulate America’s citizenship-based tax policy, demanding tax compliance from America’s approximately 50 million immigrants?
For the sake of argument, let’s see what might happen if Kenya did that:
The Oval Office phone rings, and is picked up by the 44th president of the United States. White House Chief Counsel Kathryn Ruemmler says, “Mr. President, we have a problem with Kenya. Or more specifically, you have a problem with Kenya.”
“Go on,” President Obama replies.
“Well sir, because your father was born in Kenya, for a brief period back in the 1960s you were actually a Kenyan citizen as well as an American. An accidental Kenyan.”
“Yes,” says the president, “But that was very short-lived. As Kenya achieved independence from Great Britain, it voided those citizenship rights.”
“Correct,” says Ruemmler. “But a month ago the Kenyan Supreme Court overturned that, and all those revoked citizenships have been retroactively re-instated. Our Supreme Court took similar action years ago in a case brought forward by a Canadian, ruling that the State Department can’t take away an American’s citizenship without due process.”
“OK,” says the president. “But so what?”
“Well sir, the Kenyan IRS (KIRS) wants you to file tax returns for the last six years, and provide the Kenyan state department with a list of all your bank account balances. It’s all under Kenyan legislation, including something called the Foreign Unknown Bank Account Report, or FUBAR. After that, you must continue filing annual tax returns and FUBARS for as long as you remain a Kenyan citizen.
“But it gets worse. Because you are a late filer, you are subject to fines for those FUBARS up to 50% of the total value of all the accounts, per year, for as long as you are out of compliance.”
“But, but,” splutters the president. “How can they justify going after my savings accounts. I mean those are joint accounts with Michelle. They can’t go after her half, can they?”
“If your name is on the account, KIRS says its all yours. Now, we’re looking into having your name taken off those accounts and just leaving them in Michelle’s name – that might work. You two gettin’ along OK? But there’s more; it’s “all” accounts over which you have signing authority. As far as we can tell, you’ve got signing authority over the entire US of A. They can calculate penalties on annual revenues.
“Enough,” says Obama. “I want an immediate appointment at the Kenyan Embassy to formally renounce my Kenyan citizenship to stop this BS.”
“A renouncement done for tax purposes won’t be recognized until you’ve paid an exit tax,” Ruemmler explains. “Again, sir, they have mirrored the rules we passed in 2008 in the HEART Act. Their exit tax is 30% of your total assets – money, property, investments. We’re a little nervous about where they might go with that one.
“You have to pay your fair share of Kenya’s taxes before you can renounce. Now there is a bit of a break here. Kenya’s Foreign Earned Income Exclusion deducts the first $95,000 annually. Unfortunately, you make $400,000 and you’ll have to pay both US and Kenyan income tax on $305,000. Oh, and you’ll have to pay Kenyan tax on all your investment income. And you have to pay it all in Kenyan shillings – they won’t accept US dollars.
“So what if we just tell them to stick it where the sun don’t shine” Obama asks.
“You’d be subject to arrest on tax evasion in Kenya. We’re also a little nervous that KIRS might hire US legal counsel and try to slap a lien on the White House. Oh, one more thing, if you stonewall them they’ll use their version of FATCA — the Key Account Formulation Kenya Act, or KAFKA, to order your banks to declare you recalcitrant and close out all your accounts.
“I probably don’t have to remind you that this is an election year, and I’m sure the Republicans would structure some attack ads that label you a Kenyan tax cheat. You can expect this to cost you several hundred thousand dollars, but we still think your best option is to come clean. You can’t thumb your nose at the taxman, sir.”
Now, that little fantasy isn’t going to happen – much as I wish it would. Even if Obama’s Kenyan citizenship was still valid, Kenya – like the rest of the civilized world bar one – taxes people who live there, not people who were born there and left, or are “accidental” Kenyans like the president once was.
In pursuit of so-called tax cheats, the U.S. government is now terrorizing its entire expatriate community worldwide. The scenario I painted with President Obama is being played out for real with ex-Americans. The Foreign Account Tax Compliance Act, currently going through the implementation phase, demands that all foreign banks tell the IRS who among their account holders are Americans – or “US Persons” as the IRS likes to call them (they want former green card holders, too).
These people are not tax cheats, yet they are universally being treated as criminals. They used to be sympathetic Americans for the most part; now they are flocking to consulates and embassies all over the world to begin the relinquishment/renunciation process so they can get the U.S. taxman off their backs once and for all. It’s that or risk financial ruin.
If every other nation implemented citizenship-based taxation and followed it up with its own FATCA, global tax chaos would ensue. For example, more than one million Canadians are living in the U.S., and would not be very happy if Canada Revenue Agency hunted them down in California and hit them with a bill for back taxes. This is not an outlandish suggestion; in order to get other nations to cooperate with FATCA the U.S. is offering reciprocity — you know “I’ll show you mine if you show me yours. ”Five European nations, including the U.K., have signed on and others are negotiating.
If other nations parrot U.S. tax policy, President Obama might not be on Kenya’s list, but nearly 50 million other residents of America would be on somebody’s list, and I bet there’d be some very high profile folks fingered. Consider what kind of cash outflow from the U.S. would result if 50 million immigrants, some of them well-to-do, suddenly had to start filing tax returns and paying taxes to a plethora of other countries.
The rest of the world fully understands how hard it is to get the U.S. to admit it made a mistake, and to do something quickly about its byzantine tax policy. Perhaps the quickest way to get relief for millions of expatriates worldwide is for Kenya to step up and do the right thing — go after that accidental Kenyan in the White House, reinstate his lapsed citizenship, and give him a tax bill. The world would be ever-grateful.
Don Whiteley is a Vancouver-based writer.
(This article appeared first in the Vancouver Sun and is reproduced here with the permission of the author).
Further Reading:
What would happen if Indonesia reclaimed its most famous former citizenship?
*
@Petros, you are doing a tremendous service to the overseas American
community by publishing this information. This community has virtually no power
to make things happen in Washington with respect to this issue, but if anything
is ever going to happen to abolish this Imperialistic American imposition of US
tax laws on citizens of other countries, who for any one of a number of reasons
are also dual citizens of the US, it is going to be because foreign governments
become furious that the US is subjecting THEIR citizens to extraterritorial
taxation within the borders of those countries, and the taking of millions of
dollars out of the economies of those countries for the US Treasury as payment
for services it does not render..
I feel strongly that nothing will happen to change this until and when
governments like Canada stand tall and face off eyeball-to eyeball with Uncle
Sam, grit their teeth and clearly state “our patients is at an end. Stop it!”
Do you remember when President Obama went to Europe some months back and
apologized for America having imposing its will on other friendly countries?
FBAR, FATCA and citizenship-based taxation are most certainly examples of what
President Obama was condemning, although I am sure this was not what he had in
mind. He needs to be reminded of that in no uncertain terms now that the IRS is
continuing to plunge ahead in demanding that foreign banks supply account
information to the IRS “or suffer the consequences,” as they are required to do
by FATCA. Americans abroad are helpless in accomplishing this by themselves. It
is the placing it on the front burner by foreign countries that it will take to
make anything happen.
Good to see that you got permissions to publish the entire article here….. Thanks
And….what would happen if more Americans suddenly discovered that other countries around the world decided to model the US citizenship taxation model and claimed them as their citizens for tax extraction purposes? The “What Ifs” are endless.
Think of the poor person with 3 citizenship identities or maybe 4 conferred on them by birth, or generational ties over which they have no control, ie the corollary to the accidental American that the IRS only wants 5% of their world wide assets to “come clean” in the OVDI. QD is not recommended! It would be a disaster for the world’s community with bickering between Treasury offices over who had the jurisdictional right to tax this person or that, almost like citizens were a commodity.
You almost have to take the examples to absurd levels to make the point to Americans who have never thought about it how silly and illogical the US Citizenship taxation system is. FATCA, in someways, is really helping us highlight those absurdities.
Let’s face it, it didn’t matter to most of us, or the world before now. That was until Congress and the IRS started down this offshore jihad effort 3 years ago. Now the issue has finally started to become a center focus for 6/7 million Expats around the world. You can’t buy that type of PR if you wanted. Too bad it is negative, but maybe we should thank the IRS for their misapplication of stupid U.S. policy around the world. They created a new industry, like Isaac Brock to help amplify the message of how ridiculous it is that the U.S. practices Citzenship Taxation.
Great article. Best quote:
“Enough,” says Obama. “I want an immediate appointment at the Kenyan Embassy to formally renounce my Kenyan citizenship to stop this BS.”
Renunciations of US citizenship among the ex-pat community are about to soar. This will be a major embarrassment for Uncle Sam and his claim to be the model system of governance for the rest of the world.
Perhaps then the US will finally wake up and “stop this BS” of citizenship-based taxation.
But I for one, won’t be holding my breath.
To extend the metaphor in this article further: in Kenya, cattle are assets, and represent a form of wealth. How does this parallel US citizenship-based taxation? US citizens abroad are being treated as chattel, moveable property – to be owned, herded, and milked like cows – wherever they may be. Does that mean that if we are citizens, taxpayers and permanently residents of another country, that the US is like a cattle rustler – moving across borders – rounding us up to claim our persons, regardless of our actual home range outside the US?
*Brilliant! Well done describing it in a manner that even a regular Joe American who hasn’t experienced the injustice himself could understand.
Thanks to ShadowRaider for this link I am reposting here too:
http://www.diasporamessenger.com/index.php?option=com_k2&view=item&id=628:tax-amnesty-for-kenyans-in-the-diaspora&lang=en
Thursday, 30 June 2011 13:36
Tax Amnesty for Kenyans in the Diaspora
Written by
Administrator
Good news for Obama!! Kenya is offering a tax amnesty to expatriates of the Kenyan diaspora abroad in order to encourage them to invest at home, and to generate good will that might encourage them to come back and invest in Kenya!
When can we look forward to this in the US?
……….”The Finance Minister declared a generous amnesty to the Kenyan Diaspora
for any year of income ending on or before 31 December 2010. The amnesty
covers taxes due, penalties and interest on condition that the income
for the year 2010 is declared and returns and accounts for the same
period are filed no later than 30 June 2011.
The amnesty means well, and the minister hopes it will translate into
higher remittances from the diaspora. He noted that a number of Kenyans
have shied away from remitting funds for investment in Kenya because of
the requirement to declare income and file returns in Kenya.
The Kenyan diaspora’s contribution to the Kenyan economy is well
acknowledged. In my view, the government has to think long and harder
how to leverage the diaspora phenomenon.”……………
The story goes on to hope that the use of the word ‘amnesty’ doesn’t cast Kenyans abroad in a negative light, or imply that they’re ‘tax evaders’.
Don, would you consider a followup to your story – contrasting Obama’s treatment of US citizens abroad with Kenya’s? It would get the story back into circulation – and the irony is delicious!
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Does anyone know what happened to the link to this story on the Vancouver Sun? It is now coming back, not found? I shows up on a google search, but the link is now broken.
@JustMe, I can’t find it either. Only as reproduced here http://isaacbrocksociety.ca/2012/06/06/the-accidental-kenyan-what-would-happen-if-the-african-nation-copied-u-s-tax-policy/ .
Maybe the author knows?
Similar to what happened to the link to the story about David Alward, the New Brunswick premier being a dual caught up in this – which disappeared shortly after it was picked up elsewhere.
Possible that the fulltext of both of these are available in databases – could ask at an academic or large urban library, but problem is if they were only published in the online version – and not in print – they may not be included in a database anywhere. Can’t reproduce the fulltext here without copyright problems? So, effectively lost to IBS and other readers.
Sorry, correction – the Sun article was noted here as ‘published with permission of author”, meant to refer to the one about Alward.
Badger –
Full citation to the Alward story is provided at http://usxcanada.wordpress.com/2011/10/01/2011-oct-1-morris/
If Brock can solve the copyright issue for posting, usxcanada probably could manage to provide the text.
Thanks for the link usxcanada. No longer takes one directly to the article though, and hasn’t since shortly after the article came out and was remarked on.
Don’t know if the article is available if one tries to search for it now on the Telegraph’s website online – the link goes to the newspaper’s homepage only.
It might be valuable – as a reminder to Harper and Flaherty, that if the premier of New Brunswick was caught up in all this, then there will be other prominent people who will suffer from collusion with FATCA too.
Two years after graduating, Obama was hired in Chicago as director of the Developing Communities Project (DCP), a church-based community organization originally comprising eight Catholic parishes in Roseland, West Pullman, and Riverdale on Chicago’s South Side. He worked there as a community organizer from June 1985 to May 1988.;
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@BarackObama ‘s Half Brother, a Kenyan American in China http://content.time.com/time/video/player/0,32068,52157146001_1942506,00.html#ixzz2iU6BECB2 subject to #IRS offshore jihad, FBAR and FATCA penalties ?
Thanks, Just Me. That was an interesting interview. I wonder Mark “Obama’s” views on US FATCA and FBAR. What an interesting follow-up interview that would be. He said he wrote about domestic violence / abuse in their family, which is similar to the similar penalty abuses of FATCA and FBAR. You can certainly see that they are brothers. Alas, his wife is President Obama’s biggest fan.
And what of Obama’s own Canadian brother-in-law? Does he agree that if he ever needs to assist Canadian resident family with financial affairs or an estate, that he be subjected to the rigours of the FBAR and FATCA? Does he agree to pay thousands in compliance costs in order to file 3520s and 3520-As on any Canadian registered accounts? Does he wholeheartedly agree that all the Canadian accounts and savings of his fellow Canadian citizens and duals are a danger to the US Treasury – and so highly likely to be those of moneylaunderingterrorfundingdruglordtaxevaders simply because they are ‘foreign’=not in the US? If he and his family move back to Canada, does he agree that their Canadian Government registered education savings (RSEP) should be doubletaxed by the US, treated as ‘foreign trusts’ and require hours of annual paperwork to report to the US – in case they are moneylaunderingterrorfundingdruglordtaxevaders ?
Does he agree that any ordinary pre-existing local bank account or RRSP left behind in Ontario, Canada is automatically suspect as soon as the Canadian owner moves to the US? Or suspect just because the Canadian owner had US parents, or was born in the US decades ago, or once had a now-expired greencard long ago?
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I was lucky to have lunch with Don summer 2003. With bubblebustin and Victoria and two other brockers. It was the most memorable lunch ever to drive an agenda. He was a great writer and I did not know he had cancer at that time.
Wonderful analogy. Thank you