You may remember Ambassador Jacobson’s “70 year old Grandma” speech on October 18, 2011:
“When I read all of this I was concerned. So last week I called the Commissioner of the United States Internal Revenue Service to see what we could do. I explained the problem to him.
The result is that both he and I are sympathetic to the concerns. We are going to work together to see if we can’t find a way to accommodate grandma — and others — here in Canada. But we have to figure out a way to do it without letting the person who is trying to evade taxes in the Cayman Islands off the hook.
My message on this one is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.”
Tonight, November 2, Ambassador Jacobson provides responsible education about the U.S. electoral system on the Agenda.
Update – November 3:
1. According to the Agenda you should be able to see the interview online.
2. The comments on this post are directed to the continuing disappointment and betrayal that U.S. citizens abroad feel at the hands of the US government. Specifically how Ambassador Jacobson promised relief and clarity. Relief in the sense that US citizens abroad should NOT be subjected to massive penalties for “footfaults”. Clarity in the sense that direction would be provided in terms of how to come into compliance. I wrote a number of posts last year on the topic of how US citizens abroad cam come into compliance with US tax laws. It has since become clear that the IRS is not offering any reasonable way to come into compliance. Furthermore, the silence of the IRS and failure to address this issue suggests that the IRS would rather operate through threats of penalties. The September 1, 2012 guidelines are useful to such a small percentage of people that they are meaningless. US citizens abroad now fall into one of two groups. They either renounce US citizenship or they do the full ostrich. On a personal level I have simply come to terms with the fact that the Government of the United States as represented by the IRS is:
Unreasonable, unsympathetic and irresponsible.
The worst thing is the realization that many of the things we believed about the United States – “land of the free and home of the brave” – are just simply wrong. Margaret Thatcher used to refer to the United States as “That great citadel of freedom and justice“. Right, this is a country that levies huge penalties on US citizens abroad who invest in Canadian mutual funds.
Lioness, comments on the penalties she has received from the IRS. I note that she was using a US based CPA firm. The more I learn about the experiences of people using US based professionals, the more I think you should consider using professionals in your country of residence. See the following comment thread from here to here on this topic.
Finally, don’t forget about one of Ambassador Jacobson’s 70 year old Grandmas.
And, thanks to Calgary411 for your great comments on this post.
There are times in life when bad things happen to good people!
*renounceuscitizenship- thank you for your comments – I appreciate all the help I can get. there is so much information to absorb and I am just realizing this.I still do not underatand how this can be happening to all of us. I moved to canada because I married a canadian and made a life here in Canada.
I really dont understand why they did not tell us about the tax situation when we renewed our passports. thank you for being here.
*lioness, that’s sad and crazy. In the 20 years that I lived abroad, I never heard of form
3520 and never filed it. A $57,000 fine for such just sounds endlessly insane. It is truly unbelievable that those with little or no representation are treated in such an outrageous manner!
*lioness, absolutely disgusted to hear about the treatment that you have received from the IRS. It’s exactly as I had envisioned that the IRS was going to treat people. This is nothing but a cash grab. I am a Canadian citizen, born and raised here. My wife is a US citizen (landed immigrant in Canada) in the same boat, only she hasn’t applied for RRSPs or any sort of investment. We don’t make enough to do that. We are planning on filing her IRS tax returns through H&R Block this January of 2013. At least 5 years of it so that she doesn’t have to worry about renouncing; that she can renounce as soon as her Canadian citizenship is in place. She’s going through the application and testing process right now The catch is still that the IRS requires 5 years of tax filing to renounce your citizenship. That’s where they trip people up, under this new “helpful” filing process. If you want to renounce your citizenship, you have to stay on the IRS rolls for 2 more years. My wife figures that she’ll file 5 years of documents and be done with them as soon as she gets a green light from the Canadian citizenship ceremony. My wife does not want to be the purveyor of handouts to a debt-ridden economy that went into that debt with their own misspending of finances.
US citizenship is like an anchor to one’s life abroad. It’s absolutely unnecessary and a hindrance to establishing oneself in a foreign country where you’ve established your life and livelihood.
*@lioness, in all fairness the following information is printed in all US passports: “All US Citizens living and working abroad are required to file and report on their worldwide income. Consult IRS Publication 54 “Tax Guide for US citizens and Residents Abroad.”
The internet address to acess this publication on-line is also included. I am not sure how long this has been appearing in US passports but in mine, which was issued in 2007, it is shown as Note D.
*This message is for The Animal and anyone else considering using the popular store-front tax firm mentioned in his post. I have been in a dispute with them for the last 5 months regarding my parents IRS 2011 return. They made several mistakes which forced my parents to pay a great deal of taxes mistakenly. It took them almost six months, and six of their so called “US tax experts” to realize their mistake. It was a very simple return. My advice, speak to the person preparing the return to make sure they know what they are doing. Make sure the person you are talking to is the same person who will prepare the return. My parents return changed hands more than a hot potato. And finally, if you don’t agree with it, challenge it. Don’t pay them until you’re satisfied with the end result.
Marie – There can be no certainty with IRS paperwork no matter what brand of “professional” you engage. Nor can you ever evaluate the black box that the professional fiddles around with, executing routines that work more often than not, if you’re lucky. Taxation as crap shoot! But you do get to sign something you cannot understand – pause now, why was it you did not do that job yourself in the first place? – and you do get to assert that it is all OK! Being subjected to this expensive groping in the dark once a year is necessary and sufficient reason to sever the choke leash that Uncle Sam has wrapped around your unfree neck.
@lioness and Roger,
I remember checking all my US passports from 1982 onwards. That information definitely was not in the first one. Personally, I don’t think that can possibly serve as ample notification. I also wrote a post long ago where IRS outlined their outreach efforts which were pathetically limited. There was no long-term strategy, it was limited to seminars for cross border accountants in the US etc.
It would seem to me the least they could do, would be to take out full page ads in the major newspapers in foreign countries with sizable USC populations. Flaherty did this, why can’t they?
*@nobledreamer, no question that probably most persons with US citizenship resident abroad were totally in the dark about their US tax obligation. I learned about it when I first accepted employment abroad and moved to Peru in 1966. I ws informed by my US employer which had several hundred expats all over the world at that time.
I submitted US tax returns faithfully, but with the FEIE and foreign tax credits my remaining US tax obligation was not that much of a burden. It consited of the US tax on income from sources in the US and income on those few days when I was in the US on business for which I could not utilize as tax credits the taxes I paid to Peru, and later to Brazil, the foreign double taxation by those countries of my US source income. Things abruptly changed for me with the Tax Reform Act of 1976. That’s when, purely for tax reasons, I came back to the US along with tens of thousands of overseas Americans who returned for the same reason in that same timeframe. That was also the year when the US trade balance was transformed from balanced and almost always positive, to permanently negative. Starting back then the cumulative US trade balance now exceeds $9 trillion. Ask almost any US any US politician why, and they will tell you with one voice that it is all China’s fault.
But things have become progressively worse with every new piece of legislation enacted by the US Congress, to the point that is now extremely difficult for a US citizen to survive living outside of the US.
But it was something which happened gradually. When first enacted under President John Kennedy in 1962, it probably only affected a hundred or so very wealthy Americans who were living and working abroad. I don’t know how accurate it is, but the oft-repeated story is that it was aimed at a handfull of high-paid movie stars who had moved to Mexico, where income taxes back then were lower than in the US, to do their filming there.
But with the camel’s nose under the tent, over the years it has been transfeormed from affecting only a small handfull of the very wealthy into a venal poison which affects also average middle-class Americans. In fact anyone whose has income of $9,500 from sources anywhere in the world is directly affected today. The very cute newborn baby tiger has, over the years, been transformed into a viscious l and man-eating beast which has destroyed the lives of several million persons with US citizenship who happen to live outside of the US.
I still have my previous US passport issued in 1998 and you are right: It does not contain any reference to US citizens resident abroad being subject to US income tax. I suspect that this note may have been added when a question was added to the passport renewal applications used by US consulates abroad requiring applicants to state the last year in which they had filed a US tax return.
In those earlier days the State Department and the IRS hardly talked to each other, let alone exchanged any information. But legislation enacted by Congress changed all of that and today the State Department acts in many respects ans an agent of the IRS.
@Roger,
When I read your excellent explanation of the negative effects of citizenship taxation on trade, I find it difficult to understand why on earth people who should understand this (Congress) haven’t been listening. Thanks for elaborating on why JFK would have done it in the first place; I always wondered about that.
I think DOS still does not like talking with IRS. As far as I know, there are 4 pieces of info they have supposed to have been sharing for quite a while now and no substantial proof that they are doing anything more than sending names of CLN’s to IRS. I guess I’m getting older as I can’t remember if the law regarding the renewal of passports withheld if $50k lien has been filed by IRS. My memory says the proposed rules re: DOS being affected by IRS are not yet laws. The other reason I wonder is in the difference in how those two depts treat us. IRS-dreadful. DOS – at least in Toronto, wonderful. And they do know what is going on and I am certain they sympathize with us.
*@Nobledreamer, the “no passport renewal if you allegedly owe the IRS $50,000” bill was stripped off the legislation to which it was attached before that legislation was enacted. So that penalty is not in effect. As I recall it was atctually attached to to different bills, but ended up being stripped off both of them before the final votes.
I think we can be pretty sure that it is not dead. Certainly its orginal sponsors will keep trying to transform it into an eacted law by tacking it onto some other legislation yet to be introduced. Hopefully there is an even better awareness of what this is all about than there was when it was introduced before. But vigilance will still have to be maintaned and objections loudly expressed every time it comes up.
I recall probably 10 years ago during one of the Overseas American weeks in Washington with ACA and several other organizations representing US citizens abroad in which I participated, I ask a State Department official, Edward Betancourt, director of interagency liason, in informal conversation just as we were preparing to leave, what happened if the person renewing a US passport at a consulate overseas did not provide an answer or indicated that he/she had not filed a US tax return for several years and was therefore not current with US tax returns.
He dealt directly with US consulates around the world.and was very sensitive to the problems of US citizens living abroad. I recall that ACA once gave him and award, but do not recall what it was for.
I well remember his reply: He told me that the State Department passed this information on to the IRS “but I have no idea what they do with it.”
As you say, they still may not communicate with each other very effectively, but certainly the communication is better than it used to be just a few years ago.
@usxcanada, re; “There can be no certainty with IRS paperwork no matter what brand of
“professional” you engage. Nor can you ever evaluate the black box that
the professional fiddles around with, executing routines that work more
often than not, if you’re lucky. Taxation as crap shoot! But you do get
to sign something you cannot understand – pause now, why was it you did
not do that job yourself in the first place? – and you do get to assert
that it is all OK!”
and, Marie – re the storefront tax chain;
Even the very expensive professionals either do not, or will not, or cannot explain or illuminate the black box, – though all the while authoritatively asserting which forms they’ll file for you – at an incredible rate – warning you repeatedly that you are responsible for what you sign – and its accuracy – under penalty of perjury and that it is a serious undertaking – while producing said serious papers for you to sign – with numerous and obvious mistakes (the ones you understand enough to recognize) – when you flag the mistakes, they produce revisions – at your expense – sometimes changing a single word or sentence at the rate of 450. – 750. an hour – and then change it back again.
Some of the larger errors could cause you to go bankrupt trying to undo the even deeper pit dug – helpfully generated by the highly paid professionals – who note in their invoices that the said file and forms have been ‘reviewed’ by several members of the team – each of whom charged for the review – yet none of whom flagged or noticed any errors – which you would be held ultimately responsible for by the IRS if you signed as is.
You’re no expert – but some of the errors are obvious just through your obsessive reading of publicly available materials. You worry about the forms and concepts that you still can’t understand – after reading and re-reading – and conclude that you can’t resolve those without the experts – but now not sure that you can have any confidence in them, after finding all those smaller and more obvious errors. Asking questions and raising concerns costs an incredible amount – so you worry and research before asking – but get no useful answers, and just dig further into your savings. The casual, vague and unhelpful answers are billed at the same rate as any useful response would have been.
When you point out discrepancies/contradictions as they arise – and ask that the corrections – made through their error – be undertaken without charge – there is no response.
Any questions on the matters – to request corrections of their errors – are answered at charge to you. The favourite explanation for resolving contradictions and revisions in the plans – is that the IRS hasn’t seen fit to provide guidance.
This nightmare persists although you clearly owe no US tax, and in fact would qualify for substantial refunds – except you can’t claim them – for fear the submission will be deemed higher risk – and jeopardize the outcome.
The lawyer person who is your contact is not familiar with your file, and cannot answer questions with any specificity. You must repeatedly remind them of your individual facts and circumstance – which may be in conflict with what they have entered on the forms. The reminders and reference to these facts take time to present to them, which is also billed to you. Form e-mails pass as client updates – billed at the top rate – though referring to a publicly available material – and their own website, which advises that any responsible professional tailors their compliance advice based – (ironically you think) – on the individual client’s specific facts and circumstances.
You wonder how you will carry on – your family savings are almost gone, and this before anything substantial has been achieved. How will you go on? Will you be able to get
copies of the supplemental forms filed on your behalf – but which you’ve never seen? Or will copies you request be
billed at an incredible rate? Will the IRS accept the submission? Will
the submission lead to an even deeper pit?
You couldn’t face never seeing your family inside the US again – and so undertook to jump into the abyss. Guilt about not being able to go to sickbeds, funerals and weddings prodded you into this – but risks your family outside the US. Fear and panic made your judgement clouded – as you believed all the IRS threats. You now see that you made a life altering error of shattering stupidity – but it is too late to do anything more than try to survive it. Your work and family life suffers – you try to remain calm and carry on – or fake it. Will you survive this? No-one knows, least of all yourself. You have to see it through – because you brought this burden into your non-American family.
You can’t master all the complexities, or speak with the IRS directly through the same channels – so you need the ‘professionals’, but, now, it is not certain which is the larger threat – the IRS, or the professionals, OR BOTH.…..
And, the US Ambassador Jacobson, to Canada, says that the US and IRS and Treasury are ‘not irresponsible’…….. Well, if they aren’t ir-responsible for this, then who is?
I remember having a discussion about it with someone, and we determined that US passports included the income reporting mouse print on the last page starting in 2003.
“U.S. Ambassador David Jacobson opened the event by praising his
country’s more than 200-year-old tradition of transferring power through
peaceful elections and promising that the Canada-U.S. relationship
would not change.
“The relationship between the United States and
Canada is strong,” he said. “It has been strong for generations, and
it’s going to remain strong for generations to come, regardless of who
wins tonight.
“The relationship is strong because the relationship between the American people and the Canadian people is strong.” http://www.canada.com/eyes+Ottawa+election+results/7508481/story.html#ixzz2BVmMXvbo
He rubbed his hands together, twirled his moustache, and said under his breath; ‘We intend to milk those >1 million American-Canadians for every beaver embossed nickel they’ve got – and seize all their ‘foreign’ Canadian assets – with the help of FATCA, FBARs and FEAR – and now we’ve got 4 more years to do it.
Maybe the ‘strong’ historic relationship that Jacobson alludes to between the US and Canada needs to change – as the US turns its efforts to sucking more already-taxed dollars out of Canadian dual citizen and permanent resident pockets – looking at another of Canada’s ‘natural’ resources to exploit.
People in Canada (Canadian citizen duals, green card holders, snowbirds, etc.) – and their post-tax savings in Canada are the newest ‘natural resource’ that the US seeks to exploit from Canada now.
It’s the day after we learn that Obama and his appointee/major fundraiser/apologist US Ambassador-to-Canada-Jacobson is in for another term.
Lets just revisit an infamous public address by Ambassador Jacobson more than a year ago:
Posing the question about whether things are any better
today, for ‘Canadian grannies’ than they were when Mr. Disingenuous
Ambassador Jacobson made his baseless claims: see address
‘U.S.-Canada Relations: Issues and Opportunities’
Ottawa, October 18, 2011
at http://canada.usembassy.gov/ambassador/news-and-speeches/18-october-2011-ambassador-jacobsons-remarks-to-the-canadian-club.html
“The third coffin sighting arises from recent media coverage of an
issue that has been around for about 100 years, since the United States
imposed an income tax in 1913. From the beginning, my country has taxed
the incomes of American Citizens no matter where they live, no matter
where they earn their livings.
This is different from the way Canada — and some other countries — do it.
The good news, however, for US and dual citizens living here in
Canada, is that you get a credit for taxes paid to a foreign country.
And because tax rates in Canada are typically higher than the rates in
the United States, most US and dual citizens living in Canada who pay
their taxes to Canada don’t owe any tax to the United States though they
do have to file a US return as all other American citizens do. (I might
add for the record that someone some place might have an anomalous tax
situation where they pay tax in Canada yet still owe tax in the United
States. And I’m certainly not here to give anyone tax advice.)
The situation, however, is different for American citizens living in
some other countries, particularly the so-called tax havens. In those
places with little or no income tax, Americans will owe tax to the US
since their deduction for taxes owed to the Cayman Islands, for example,
will be much lower than the taxes owed to the US.
And given our budgetary problems, the United States wants to make
sure we are paid all the taxes we are owed. American citizens shouldn’t
be able to avoid their tax obligations by establishing a residence in a
tax haven.
There are two particular problems with the operation of these rules
here in Canada. First, there are so many dual citizens, typically by
birth, probably more than a million. So this issue is much more common
here than in any other country in the world.
Second, the penalties — at least in a theoretical sense — can be quite severe.
So you could have a situation where some 70-year-old grandma:
She didn’t file a US return because she didn’t think she had to. And
because she didn’t owe any US taxes. Nonetheless, grandma could be
theoretically subject to serious penalties. To my knowledge we have
never gone after a grandma in those circumstances.
But there has been a lot of press about this lately and people are worried that we will come after them.
When I read all of this I was concerned. So last week I called the
Commissioner of the United States Internal Revenue Service to see what
we could do. I explained the problem to him.
The result is that both he and I are sympathetic to the concerns. We
are going to work together to see if we can’t find a way to accommodate
grandma — and others — here in Canada. But we have to figure out a way
to do it without letting the person who is trying to evade taxes in the
Cayman Islands off the hook.
My message on this one is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.
So what’s the point of all this?
Well, unlike Mencken, sometimes when you smell the flowers you are
actually in a garden and not at a funeral. And this is one of those
times. The relationship between our two countries is in full bloom.
And with the continued efforts of people like you on both sides of
the border we will be able to make the best relationship on earth even
better.“
See also: http://m.theglobeandmail.com/globe-investor/personal-finance/ottawa-seeks-leniency-for-canadians-in-us-tax-hunt/article557952/?service=mobile
Contrast that with this very recent (Nov 6, 2012) observation by Phil Hodgen:
http://hodgen.com/yet-another-fbar-minnow-to-the-guillotine/
…….”The government is not your friend. In any way whatsoever. If there is a
lesson the world should have learned since the whole Voluntary
Disclosure Debacle started in 2009, it is that ordinary people should
stay the f— away from it. The IRS, in its enthusiastic embrace of
procedural due process (if we process everyone through the system in the
same way, we are being fair) will impose equal penalties on the
grandmother living on Social Security and the multimillionaire tax
evader. Because equality matters.”…….
*US citizenship-based taxation is for the primary purpose of punishment of US citizens who live in a country with a tax system different from that of the US. From the latest published Treasury Department statistics only 19% of those filing tax returns from abroad actually owe anything to the US. Foreign taxes are as high or higher than in the US so with the limited Foreign Earned Income Exclusion they owe nothing and generate zero revenue for the US Treasury. Nevertheless they must file US tax returns plus all of these other obligatory reports and forms for which they must pay for the services of professional tax advisers. For the simplest tax return you can expect to pay $1000 for this service. And if it is more complex because you have foreign social security or are part of some sort of a foreign retirement plan, the values of which must be accurately reported on these tax forms, you can expect to pay several thousand dollars for this professional tax advice. And it takes a large number of IRS employees to receive, open, audit and file these mountains of paperwork which generate zero tax revenue for the US Treasury.
Only does this make sense to those whose purpose is to increase government expenditures.
If you live in a country, like the Bahamas or most in the Middle East where the governments generate their tax revenues through consumption or other kinds of taxes, rather than a tax on income, then even though you pay very high “taxes” in that country, the fact that they are non-income taxes invalidates them for foreign tax credit purposes. So you receive the additional punishment of having to pay US income tax on that foreign income which is not subject to an “income” tax by the foreign country where you live and work.
How can this possibly make any sense? Why should it be a punishable offense to live in a country with a tax system that does not mirror our own?
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Just posting a follow-up to my letter to the US Ambassador to Canada David Jacobson. Below is my response to the email received today.
I am disappointed that there doesn’t seem a way to communicate with Ambassador Jacobson.
@calgary411;
What a dishonourable piece of deliberate willful ignorance and avoidance on the Ambassador’s part.
@calgary
shameful, perfect example of what we are up against. going to tweet this
*I guess it must be below the dignity of a US Ambassador to respond to the concerns of a US citizens who lives in the country were the Ambassador is stationed.This is indeed sad.
Expats are second class citizens who “sit in the back of the bus” but are required to pay the same “fair share” or even more than homelanders who sit in the front.
Moreover, the process to pay for the “fare share” bus ride requires many more complicated forms for expats than it does for homelanders. And worse, expats have to pay even more money just to “exit” the bus.
Most expats never asked to be on the bus in the first place (born in US) and those who did (naturalized citizens) had no idea they would literally be “taken for a ride.”
*Roger Conklin, this supports my argument that Americans abroad should vote for all embassy matters. That would be democratic. Why waste a vote on the demorepublican dictator when one can vote instead on something that really matters?
*FromTheWilderness, “fair share” means that stateside Americans pay the unemployment benefits of Americans abroad. So, under existing conditions, all stateside Americans are vigorous opponents of the “fair share” argument, including those who make noise about “fair share” nonsense.