In case you hadn’t already figured it out, this is the shape of things to come for U.S. Persons abroad: relentless bipartisan attacks on the Foreign Earned Income Exclusion in the name of “simplifying the tax code” and “cutting subsidies to favoured groups”, because the “non-partisan” Joint Committee on Taxation (which is composed entirely of Homelanders) classifies it as a “tax expenditure”. The latest effort in this direction: Dennis Ross (R-FL)’s HR 6474, which purports to implement the recommendations of the Simpson-Bowles Commission regarding territorial taxation. It contains provisions to phase out 20% of the FEIE every year until it is fully eliminated in 2017:
SEC. 271. FIVE-YEAR PHASEOUT OF CERTAIN TAX EXPENDITURES.
(a) In General- Effective for taxable years beginning after December 31, 2012, the amount allowable as a credit, exclusion from gross income, exemption from taxation, or deduction for the taxable year under the tax provisions specified in subsection (c) (determined without regard to this section) shall be reduced by the applicable percentage of the amount so allowable …
(c) Specified Provisions-For purposes of this section, the tax provisions specified in this subsection are as follows:
(1) Section 911 of the Internal Revenue Code of 1986 (relating to citizens or residents of the United States living abroad).
Boom! Right there on top in pole position, the very first “tax expenditure” they propose to cut. That in itself should tell you volumes about Congress’ attitude towards U.S. Persons abroad.
“Tax cuts”?
Ross’ bill also proposes lowering the personal income tax rate to 10% for incomes under US$100,000 and 20% for incomes above that level, and the capital gains tax rate to 0% for capital gains under $1,000,000. At first glance, this would seem to be a significant benefit to U.S. Persons abroad as well as Homelanders (if those reduced rates prove to be realistic — which, given the U.S.’ massive budget deficits, they do not appear to be). There’s “only” two problems.
First, Ross’ bill does not eliminate any of the ridiculous red tape that U.S. Persons abroad are expected to file with regards to “foreign” bank accounts, “foreign grantor trusts” (also known as our retirement plans, educational and medical savings plans), and “passive foreign investment corporations” (mutual funds, index funds, corporations owning a rental property to provide for limited liability in case of a tenant lawsuit). This means the continuation of $3,000 tax return preparation costs for middle-class Americans who exercise their human right to leave their country of origin — made even more complicated by the elimination of the FEIE. Instead of the comparatively-simple Form 2555, U.S. Persons abroad will have to wrestle with multiple copies of Form 1116 (one for each category of income, each bringing with it the struggle to figure out which tax paid in which local tax years corresponds to which U.S. tax year).
And of course, the IRS would reserve the ability to levy five and six-digit fines against people with three digit tax deficiencies, or use the threat of those fines to herd Canadian grandmothers into the OVDP where they can “volunteer” to be fined a mere 27.5% of their assets. In otherwords, Homelanders who fall behind on their taxes get a tax rate of some small multiple of 10%; we U.S. Persons abroad get a tax rate of 10,000%. How do you like that tax cut?
Second, in addition to the paperwork, Ross’ bill retains all of the “Internal” Revenue Code’s punitive booby traps on income from CFCs or PFICs, which result in capital gains being treated like ordinary income or even worse. Phil Hodgen outlines the godawful mess that is PFIC taxation. Other, more obscure provisions — like 26 USC § 1248 relating to treatment of income from the sale of stock in a CFC — remain lying in wait like snakes in the underbrush to bite ordinary Americans abroad selling small businesses. Homelander corporations, well advised by expensive international tax lawyers the rest of us cannot afford, will effortlessly find their way around these punitive taxes — meaning in reality they apply only to us little folk.
“Territorial” taxation?
Now, here comes the “territorial” part of Ross’ bill: it uses the taxes and penalties raised from U.S. Persons abroad to cut taxes on Homeland corporations, allowing them to repatriate their foreign profits with a waiver of 85% of the U.S. tax that would be due,
SEC. 206. RENEWED TEMPORARY DIVIDENDS RECEIVED DEDUCTION.
(a) Election- Subsection (f) of section 965 of the Internal Revenue Code of 1986 (relating to election) is amended to read as follows:(f) Election- The taxpayer may elect to apply this section to–
(1) the taxpayer’s last taxable year which begins before the date of the enactment of this subsection, or
(2) the taxpayer’s first taxable year which begins during the 1-year period beginning on such date.
Such election may be made for a taxable year only if made on or before the due date (including extensions) for filing the return of tax for such taxable year.
Naturally, if you’re a U.S. Person abroad, you don’t get to treat any of your “foreign” profits this way. Remember kiddies, corporations are people too — except when it’s more convenient not to be — and U.S. Persons abroad are Americans who should be proud of their full membership in the Greatest Country On Earth™ — except when it comes time to distributing the tax goodies, which are reserved solely for Homelanders.
(Technically speaking, there does exist something called a “Section 962 election” allowing an individual to choose that his or her “foreign” dividends be taxed at corporate rates. It’s so obscure and rarely-used that it doesn’t even have its own tax form, but has to be taken by attaching a free-form letter to your tax return and writing “Section 962 Election” in the appropriate parts of your 1040. However, Section 962 as written would not seem to allow individuals to opt into the benefits of Section 965’s “dividends received deduction”, and Ross’ bill doesn’t touch Section 962 at all.)
Jobs for Homelanders, not for you
Even better, in the usual display of social engineering and economic nationalism for which the “Internal” Revenue Code is famous, the benefits of this tax cut will be denied to U.S. corporations which do not maintain their “U.S. employment levels”. How exactly is “U.S. employment level” defined? Why, the number of Homelanders you employ! It doesn’t count if you employ some of those traitors living the high life in Paris and Tokyo to help you balance out America’s ridiculous trade deficit:
(4) REDUCTION IN BENEFITS FOR FAILURE TO MAINTAIN EMPLOYMENT LEVELS-
(A) IN GENERAL- If, during the period consisting of the calendar month in which the taxpayer first receives a distribution described in subsection (a)(1) and the succeeding 23 calendar months, the taxpayer does not maintain an average employment level at least equal to the taxpayer’s prior average employment, an additional amount equal to $25,000 multiplied by the number of employees by which the taxpayer’s average employment level during such period falls below the prior average employment (but not exceeding the aggregate amount allowed as a deduction pursuant to subsection (a)(1)) shall be taken into income by the taxpayer during the taxable year that includes the final day of such period.
(B) AVERAGE EMPLOYMENT LEVEL For purposes of this paragraph, the taxpayer’s average employment level for a period shall be the average number of full-time United States employees of the taxpayer, measured at the end of each month during the period.
(D) FULL-TIME UNITED STATES EMPLOYEE- For purposes of this paragraph–
(i) IN GENERAL- The term ‘full-time United States employee’ means an individual who provides services in the United States as a full-time employee, based on the employer’s standards and practices; except that regardless of the employer’s classification of the employee, an employee whose normal schedule is 40 hours or more per week is considered a full-time employee.
Republicans do not give a fig about you. They are just as bad as the Democrats. They may want to cut taxes and paperwork, but they emphatically do not want to cut your taxes or your paperwork. They do not care that the U.S. is the only country on earth that imposes citizenship-based taxation, because they do not know or care about other countries anyway. Even when they propose a tax cut, they make sure the benefits are available to Homelanders only, just like “despicable” hypocrite John Duncan (R-TN) did with his “Bring Jobs Back Home” bill.
Similarly, don’t be fooled into thinking that recent calls for “territorial taxation” are intended to benefit you. They are intended to benefit U.S. corporations. It is perfectly possible to write the tax code in such a way that there’d be a territorial system for corporations but a worldwide citizenship-based taxation system for individuals. They’d have to eliminate a few strange tax breaks that no one cares about, like the Section 962 election, but it’s easily doable. Have no doubt: the Republicans would happily trade away the interests of expats — un-American traitors who mysteriously refuse to live in the Greatest Country on Earth™ — for something that actually benefits their base, like a “repatriation holiday” for corporations or another couple of points shaved off the estate tax rate.
Hi Eric, I agree with your outrage, but I think that complete elimination of the FEIE is more fair and is the best possible step toward territorial taxation.
The FEIE is just wrong and unjust. It was set up by Kennedy as an enourmous patch job over his extra-territorial taxation. It was like a reverse bill of attainder so as write a bill that impacts 100% of a target population and then exempt the vast majority. Over time, that majority is no longer vast and, in fact, may not be a majority.
It’s painful, but it needs to go. It is an obstacle to a real conversation about global citizenship based taxation.
The 10% and 20% tax rates might actually reduce the extraterritorial tax burden on many USPs abroad IF the FTC (foreign tax credit) is not also eliminated. This would certainly work for some in high tax countries in Europe, Canada, Australia, etc, and also in countries like Switzerland where tax rates are not much lower than in the US. However, as the threshold for taxable income and standard deductions as well as other deductions for cost of living and insurance and pension contibutions is different (often higher) in many of such countries (and the types of deductions differ as well), such a measure might actually destroy the lives of lower-income people– especially at income levels where, for example, the rate of tax is currently higher in the US than in Switzerland (most recent proposed minimum wage in Switzerland was USD4400/CHF4000, and even with that wage, life is nearly impossible here unless one has a subsidized appartment–and the subsidy might also be a target for the IRS). Other examples in Switzerland: high transportation costs in Switzerland and the deductions offered by many Cantons and the Federal government for commuting expenses (not recognized by the IRS as far as I know)–coupled with the federal unemployment insurance requirement in Switzerland that people look for jobs up to 4-hours’ round-trip from their domicile, deductions for mandatory health insurance (and the high cost of such insurance itself, there is no equivalent to medicare in Switzerland, only social-security pension and social-security disability, hence lower tax rates here coupled with individual minimum health insurance mandate).
As far as I know, the FEIE does not currently recognize unearned income (certainly pensions, but probably also unemployment and welfare benefits). Welfare benefits are currently not taxed in Switzerland as far as I know (though there have been proposals to change this). Imagine someone on welfare (with the FEIE or the proposed system after phase-out of FEIE.) They earn more than 7000 US (I forgot the exact figure) so they have taxable income according to the IRS. Their income is not taxed in Switzerland. and even the threshold where income tax starts being assessed is much higher than in the US (if the person worked). Welfare benefits, though they could easily total CHF 30’000 or more with various health-insurance and housing subsidies, provide only a minimum level of existence in Switzerland. There would be nothing left over to pay US tax on the “unearned” income.
If the FEIE is eliminated and the current tax brackets maintained, the result would most likely be to destroy the lives of people from low through middle income in Switzerland. With the proposed 10% and 20% tax rates, IF the FTC is kept, lower income people would be screwed, and middle and higher incomes imposed a reduced burden, or even effectively spared.
Who knows? Perhaps the FEIE would be phased out and the new tax brackets not accepted either? Congress has a way of amending, tweaking and patching bills to the extent that the resulting legislation creates situations never intended by the drafters.
I disagree with @zuludogm: the FEIE should be increased to infinity for bone fide wages earned abroad, as well as specifically extended to unemployment, disability, welfare, and pension benefits. This would effectively eliminate the double taxation on mandatory and optional pension contributions as well–they come from earned income. FATCA and FBAR must be excluded from accounts containing bona fide proceeds of work abroad held by bone fide residents abroad. FBAR and FATCA must be eliminated for pension funds and IRAs abroad. Better yet, eliminate FATCA and FBAR entirely, they are extraterritorial ursupations upon the sovereignty of nations!
While disagreeing with zuludogm, I see what he is implying “It is an obstacle to a real conversation about global citizenship based taxation.” If FEIE is eliminated, it would produce additional outrage and bring more USPs abroad into the anti-citizenship-based-tax/reporting movement of ACA/AARO/IBS/Maple/etc. But given their track record, would congresscritters really pay attention to additional outrage? Or would State simply be overwhelmed with people banging on the gates of their embassies for CLNs?
What about the rest of you? I gave a quick interpretation of the proposal’s potential effects on USPs in Switzerland above, but what do you think the effect would be in your country?
*Yes, low paid workers will be screwed in countries such as the UK which have more generous personal exemptions than the US in spite of a higher starting rate of income tax. I can earn around 15,000 dollars before owing any income tax in Britain but start owing at just under 10,000 bucks to the US with my standard deduction/personal exemption as married filing separately.
Doesn’t seem right that a minimum wage earner could wind up owing more US tax than a high earner who’s built up sufficient foreign tax credits. At least this system wouldn’t affect pensioners and those relying on dividend income. Also, abolishing the FEIE would more like raise expat awareness of citizenship-based taxation and thus result in more pushback abroad at the unfairness
@Jefferson
I can’t pretend to fully understand the ins and outs of the FEIE and its various interactions. This is despite the fact that I would ordinarily consider myself to be extremely financially literate. I can only speak from my own personal experience and perceptions.
I am resident in the UK. According to Wikipedia, the income tax rate is 20% from about $13k, 40% from about $54k and 50% from about $240k (different rates apply to other forms of income).
I think the benefit of the FEIE for me is marginal. Basically, I think I get a credit from the US for what I would have paid in the US on $92,900 at the blended rate for the first $92,900 of income but I lose the benefit of a foreign tax credit on $92,900 at the average rate of tax I paid on all my income in the UK (the full value of which I probably wouldn’t be able to apply anyway). Because the UK tax rates are higher earlier and higher overall I get credit from the US on FEIE that is smaller than the amount of tax I paid on the $92,900 at my average tax rate. Despite my perception that I am losing out , my tax adviser says I am better off by a couple hundred dollars claiming the FEIE. There must be other interactions I am not picking up on.
My big issue is the requirement to treat passive income as a separate category of income. Thankfully, interest income in the UK is treated as general limitation because it is subject to 20% withholding at source. But dividend income is taxed at up to 52.5% in the UK (excluding the 10% dividend tax credit) yet I still have to pay up to another 35% plus interest to the US because, in some cases, it comes from a PFIC.
Generally, I feel very much shortchanged from the foreign tax credit regime. Conceptually, you’re supposed to pay the higher of US or local taxes and the double taxation treaty is supposed to ensure this is the case. Yet I live in a very high tax country (without even touching on the 20% VAT which, bizarrely, treats tax prep fees as value added) but still have to pay US taxes.
I have significant foreign tax credit carryforwards and these are expiring worthless. To me, this suggests that I am paying very significantly more in taxes on my income than I would if I were living in the US and receiving that same income there. The only reason why is because I live outside the US. The interaction of two or more tax systems invariably produces a result I like to call the “worst common denominator”.
The above may not be particularly on point but I do feel better now.
@monalisa1776 So you see, similar situation for earned income in UK as in Switzerland at the lowest (zero) tax bracket, and possibly the one above as well, as the cost of living in the UK is higher than in the US given current forex rates? Probably, if the FTC were maintained in absence of the FEIE, and only if the 10% and 20% proposed tax brackets were passed, higher earners wouldn’t pay anything in the UK like in Switzerland.
But pensioners would possibly be hit just as hard in the UK if their income was very low. What I mean is that the proposal wouldn’t help pensioners either. The FTC would still protect them to some extent as it does now (again, they can’t currently claim the FEIE as pension income is unearned, although I bet many do), but they would still feel continued adverse effects if their UK tax burden was lower than the US one. Question: does the UK tax pension benefits received during retirement? If not, then pensioners would really be in a bad way— they couldn’t even try to illegally take the FEIE and plead ignorance if they are caught with the FEIE completely gone. By the way, as far as I am concerned, pensions ARE EARNED INCOME, despite what the IRS says. They are part of the package and are provided to workers by company policy and often laws of sovereign nations that want to ensure that their constituents are encouraged to work, save, and provide for themselves.
Ok, there have been many proposals to kill the FEIE, and none have passed recently (since the debacle in the, was it the 70s?). With a democratic House and republican Senate, lets hope this 10%/20% pseudo flat-tax gets killed. But the worse case would be that the two get decoupled and the democrats push through tax increases while saying “why not” to the republican FEIE-phase-out proposal.
As Eric mentions in the main post above, neither democrats nor republican congresscritters are our friends, with the exception of a few in the AA Caucus, and a few others who might lean towards us from time to time.
I just wonder what other ways congress could try to mess up our lives. At least they didn’t impose Obamacare personal mandate on US, that would have also destroyed many of us who pay high taxes for healthcare, or already pay into Obamacare-like schemes in places such as Switzerland.
But on the other hand, with the US trying to tax USPs abroad, and NOT extending the possiblity of Obamacare to those that might want it (if they live somewhere that does not have an affordable health care system, or does not have the protections againt preexisting conditions like the provisions comming into effect with Obamacare in several years), we have another example of discrimination against USPs abroad. Pay up slave, indentured servant, you pay, but don’t get benefits = 13th amendment violation. See http://en.wikipedia.org/wiki/Thirteenth_Amendment_to_the_United_States_Constitution#Involuntary_servitude
So, when I think of “threatened or actual state-imposed legal coercion” I think of the proposed passport confiscation laws, threats of 8th-amendment-violating excessive fines, and certainly in the case of the “mentally incompetant”, I think of several of you at IBS who have disabled family members who cannot renounce but are nonetheless subject to this involuntary servitude, dragging you with them, because, God Bless You, you try to take care of your own. What about the burden imposed on non-US spouses and family members as well? Indentured servitude, and the non-US person didn’t even sign a contract to get money to go to the US in exchange for indentured labour.
About the community service case where the court decided that community service as part of high school diploma was OK, I think this is probably fine as long as there are enough choices and nobody required to participate in an activity that would violate their religion (serving pork or some other forbidden foodstuff to the homeless, doing clerical work in an abortion clinic, etc). After all, many university degrees require or encourage some internship.
This all just seems to confirm my suspicion that things will just get worse and worse for expats as time goes on. They may abolish the FEIE, but I see no indication that territorial taxation is even being considered. How can people who in some countries already pay high income taxes and high VAT be expected to additionally pay full US taxes on top of that? Renunciation coupled with protest seems to be the only viable alternative to this madness.
@notamused, but renunciation brings with it increased IRS scrutiny especially for those that thought that if they paid their taxes and earned their living where they lived, the IRS could not touch them. Many are afraid to go to the consulates for renunciation for fear of being arrested (if the consulate is in a compound embassy “sovereign US territory”). Wouldn’t be the first time the US did an “extraordinary rendition”. So they spirit the person off to the US, pummel them for information, eventually release them onto the street, and they have a huge IRS tax debt, and they can’t work or get welfare because they haven’t worked in the US in a long time, their home state tells them to jump in the lake because of that, and employers will see the 388% penalty amounts on their credit report or even criminal charges for “tax evasion” and tell them “sorry, can’t trust you”. WTF. I payed my taxes in Switzerland and didn’t go back to the US in the last 25 years!
Some have pulled off renunciation through much personal effort and bravery without being completely destroyed (BRAVO PETROS!!) but it may not be possible for everyone. There are many who left the US for a foreign country because they were abused back home and found refuge in a country of their ancestry or some other country willing to let them have a work permit. They left and never looked back. Now the IRS, through FATCA can get a hold of these people and destroy any semblance of existance they were able to build back up.
Renunciation and relinquishment for those who can pull it off, resistance for those who cannot see clear to. And please, renouncers and relinquishers, stay with us and help us resist.
I thought this was interesting http://edition.cnn.com/video/?hpt=hp_t3#/video/us/2012/11/17/valencia-secession-petitions.cnn
Could USPs abroad be a sovereign entity? Could we get 25’000 signatures together just to see if we get a response from the white house? We are not a state, but we are already not counted in the census so we should be considered a seperate sovereign from the US… no proportional Congress representation now. We should set up our own shadow Intercontinental Congress of Tax Slaves here at IBS.
*Yes, @Jefferson, this is why I’m frightened to attempt renouncing, at least while my statute of limitation are still open for my amended returns and even 2011 which could be well over 200 pages long as I’d unwittingly invested in a large number of foreign mutual funds which resulted in both huge accounting bills and double taxation on what were phantom gains. These funds were perfectly legitimate to the UK tax authorities.
I studied for a year in the UK where I subsequently met and joined my husband as a young woman in my early 20s. I naively assumed that I could invest like a Brit as I am a lermanent resident there. Haven’t lived in the US for over twenty years so have spent all my adult life abroad. Never started filing till I was already living in England. Had misunderstood that there is a saving clause in the tax treaty that still allows for double taxation…had naively believed that my whole income was covered by the FEIE and that tax free retirement accounts didn’t need to be declared to the US, especially as they don’t need to be declared to the UK tax return. So I fear that I have unwittingly created a perilous situation that will probably be OK if I hang tight but could raise red flags if I tried to renounce (especially with the Reed Amendment). The whole situation makes a mockery of the notion of America being fair.
I am just trying to survive. Looking back, I almost regret that I ever came to the UK because I have made my life so complicated. Staying compliant will cost me thousands per year. I regret so much with hindsight that I didn’t seek professional advice before I started investing but up to 2009, I don’t think any of this was even an issue except for the wealthy.
It seems like entrapment to me. Caveat Emptor.
All I can pray for is that the next several years will go smoorhly and that things will have either improved by then or that I’d feel it was then safe enough to renounce. But by then, I’m afraid that even more stringent laws will have been passed to make renouncing even more expensive and fraught with peril.
@Edelweiss thanks for your comment, so in your case the FTC might mean you pay less if the US rates were 10%-20%… but what about people in the lower bracket? Do the percentage figures you paid cover all fo the payroll deductions?
Good you mentionned the 20% VAT… much higher than sales taxes in the US. Yet we can’t deduct it even if we opt not to deduct state and local taxes (most of our home states don’t tax foreign income, NY is one of the exceptions I know about). http://taxes.about.com/od/deductionscredits/qt/Sales-Tax-Deduction.htm
Unfair, UK tax system is structured differently and one cannot offset the US income tax with the total taxes paid for income and consumtion. Like you say, dual-country tax requirements invariably create situations where people get squeezed. That is why I say, eliminate them.
Everyone should write their own personal written manifesto about how double taxation screws them in their tax bracket or one they might be going into… I personally am unemployed, have been refused various banking services for years both here at home and in the US, have been told by potential employers to go away because they don’t want a USP in their midst, benefits ran out, and I am now trying to get on welfare. Tax laws limited my economic activity and equal oppourtunity even when I worked, and now even the FEIE will not protect me in the case of my unearned and untaxed welfare income. Great! Does Barry really want to tax the poor abroad to help the poor in the US? What did I do to deserve this? I never asked for any benefits while I was in the US.
We need to make the structural differences that render double taxation onerous with or without FEIE evident and clear to our legislators in the US and abroad.
@Jefferson D. Tomas:
Neither consulates nor embassies are sovereign territory. In simpler terms: the US has no lawful authority to detain you if you go to one of their diplomatic missions.
http://www.businessdayonline.com/NG/index.php/analysis/columnists/16176-embassies-are-not-sovereign-territory-
I liked Zulu’s suggestion. But it could backfire. They could raise the fee to get a CLN up to $10,000. What’s to stop them? The feeling I get from Resident US Citizens is that we don’t pay anything (they think!) so we don’t deserve anything. I feel nothing but indifference from them. At least we still have the option of relinquishing upon getting a new passport. Based on the cost and from what people have said on here by it being “easier”, that’s my preferred route. But I still think you’re not going to get people really paying attention until you have thousands of people a week besieging consulates around the world.
FATCA minus FEIE = EXPATS COMPLETELY SCREWED!
Renounce / relinquish US citizenship while it is still possible!
*@Declare, I almost regret having been so open on here because am concerned that some our IP’s could be being closely monitored on here. I desperately want to believe that the US will see sense and become more reasonable. In spite of my many criticisms I still love America and find it heartbreaking that I may have to renounce but am beginning to conclude that it might be an act of survival even if itmeans being harassed either by the IRS or border guards. I just feel that to do so with open statutes of limitaion would invite unwanted scrutiny. So agonizing…
The UK has thrown us under the bus as they’ve entered into agreements with the IRS. All our assets in separate names so can’t blame spouse…also feel it’s too risky to come out of closet. I need to stay as anonymous as possible and alrwady fear that my IP address could be being monitored.
@monalisa1776 Could you use the “innocent spouse” arguement to the IRS that you were at the mercy of your UK spouse and didn’t know that what he was doing or having you do that exposed you to IRS penalties? Blame your husband, who will say “go away, I am British” when the IRS tries to contact him, if they would dare. That might get the attention of the UK government.
Also, If I were you, file for deductions in the UK carried forward for subsequent years on anything you paid in penalties for the US. There must be a place for “other deductions” on your tax return. Even if the UK refuses, get it on the record. Paper trail for the future. The UK government, like Switzerland, must be put on record for failing to protect their citizens and the sovereignty of their countries. Maybe someday they will indemnify your children or grandchildren.
The paper trail is important for the future. Record all of this in history, speak out. Maybe someone will listen to us in a more enlightened future, and avoid the same mistakes. Free speech in this regard is both our right and our duty.
You could even argue discrimination against women, write your MP, Congresscritters, the ACLU or whomever. Even as a man, it also took many years before I understood the tax structure of Switzerland and I was at the mercy of my Swiss wife for much of the time. Banks, employers, Swiss tax authorities and my Swiss wife advised me that I had no tax liablity to the US on my salary, nor any duty to report my savings, pensions, or IRA assets to the US, as I was NOT UNDER THE JURISDICTION OF THE UNITED STATES. If the IRS comes after me with an audit, I am an innocent spouse. When they go after my wife, she is not a US person, nor ever was. Let’s see how far the IRS dares go.
I don’t want you to end up paying a single penny. What you have earned legally and paid taxes on in the UK is yours, you are a British Subject! Both you and your husband should receive an indemnity for all of the time the US has wasted you.
*@Jefferson, appreciate your support but am frightened to come out into the open as could be viewed as a tax protestor. The UK honestly doesn’t care…all our assets are in separate names too. my spouse sympathizes but is understandably looking out for himself. Though he would never admit it, I still believe
that a part of him regrets ever having married an American due to all the problems..:'(
Elimination of the foreign exclusion will instantly raise the taxes of engineers in Dubai, Saudi, and other places such as Africa by $40,000 per year. This should successfully eliminate their participation in those countries and eliminate US interest in the area completely.
That’s why it is laughable that Barry believes his visit to Burma for 6 hours is going change around to make USA number one in the area. How would he do it—by sending in a bunch of Global Elites? I’m sure that Economic Patriotism will do wonders for that country.
We dare not forget today that we are at the forefront of the Second American Revolution. Let the word go forth from this time and place, to friend and foe alike, that the torch has been passed to a new generation of Americans Abroad –born in this century, tempered by the Homeland FBAR, FATCA and OVDI attacks, disciplined by a hard and difficult road to tax compliance, proud of our commitment to the ideals of what America was once–and unwilling to witness or permit the slow undoing of those human rights to which Americans Abroad have always been committed, and to which we are committed today in the Homeland and around the world.
Let the Homeland know, even though it wishes us ill, that, as law abiding citizens, in full compliance with the law, we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure our human rights as citizens of this world.
In order to be fully compliant (=succumb) with the income credits form 1155, one must first file US forms in the spring, prior to receiving your foreign country actual tax bill (which is typically not available til fall or winter in many locales). Then, one must understand how to make an adjustment after the true tax bill is received from your foreign (your home) country.
In order to do that properly, one needs to invest both 80 hrs of your own time, plus the $1500-$3000 tax accountant’s time. Doing it improperly used to result in a correction letter and a bill for thousands or dollars which hangs until your correction reaches the top of the IRS to-do heap. Now it results in fines, audits, and being targeted by drones.
@Jefferson
The percentages I cited are just the income tax rates. UK residents also pay national insurance which is intended to cover healthcare, the UK equivalent of social security and unemployment insurance. It is really just a cleverly disguised general income tax as the income is not ring fenced for funding those programs.
According to Towers Watson, National Insurance paid by employees is 12% between about $11.5k-$68k per year and 2% on the amount above $68k per year plus an employer contribution of 13.8% on amounts over $11.5k per year. So on a wage of $50k per year, NI (employee share) is about $4.6k and NI (employer’s share) is about $5.3k. NI is charged at reduced rates if you are part of an occupational pension scheme and opt-out. Unless two sets of tax advisers have screwed this up, it is also not eligible for use as a foreign tax credit. It’s been so long since I’ve been in the US that I can’t recall how US social security payments are treated for US tax purposes.
The UK system does have its advantages. The equivalent to a US IRA (ISA) has a very generous yearly allowance of about $18k (linked to inflation) which, while the invested amount is not deductible, is then free of capital gains and income tax (although not vis a vis the US). For UK residents, it is a fantastic source of slowly building up tax-free income for retirement. The UK also has a very generous annual exemption for capital gains purposes of about $16,000 which means the vast majority of UK residents would be able to avoid capital gains taxes entirely through careful management of sales. There has also been intent expressed to raise the threshold for paying income tax to about $16,000 which I think is a good thing.
@Mona Lisa
Since we have similar issues based on citizenship and residency, one thing you might want to discuss with your adviser is taking advantage of the ISA allowance but investing in listed equities as opposed to funds. For UK purposes, dividend income would be tax-free and for US purposes would benefit from the (at the moment) beneficial rates for qualified dividends. Capital gains would be tax-free in the UK and subject to the normal capital gains regime in the US.
I would love to revolt, I just can’t find anyone who cares.
*@Edelweisss, am already doing this but concerned that the ISA could be deemes a foreign grantor trust by the IRS.
@Eric It is good that you brought up these cases, thank
you, you do have an interesting point, and what the US courts said in what you
cited might abate the fear on the part of a potential renunciant entering an US
embassy, but not conclusively. From what
the court said, the local US police could enter an embassy in DC if the
diplomats asked them to, or didn’t object to via citation of diplomatic
immunity? Would the US embassy let the Iranian police in voluntarily? Ok that
is Iran, and there are no diplomatic relations with them now (except through
Switzerland, and that is another story), but would the Marines let the local
police in today into any embassy unless the US ambassador or the senior person
there allowed it?
Let us continue… what the
US courts say has nothing to do with how international law is interpreted
elsewhere as to diplomatic premises. For example, why can’t the UK arrest
Assange? He is in the Ecuadorian Embassy, he is not Ecuadorian, has been
granted asylum, but is also an Australian loosely under the Crown (I admit that
I never have fully understood how the commonwealth and dominion system works)
and has a warrant against him in the UK (we shall abstain here from discussing
why and how). The Ecuadorians won’t let
the Bobbies in, and the Ecuadorians can’t get him out to Ecuador because there
is no way to get a diplomatic vehicle into the embassy, because it is not a compound
embassy with a garage. But the UK
respects Ecuador’s diplomatic premises. Perhaps
because Julian didn’t commit a crime in the Ecuadorian embassy and is there of
his free will. If he were not there of
his free will, and being held there, would the bobbies storm the embassy? He is Australian, still somehow attached to
the Crown. But sort-of proto “Ecuadorian”
as well, hmm asylum might lead to citizenship.
Interesting questions.
I think that the US could
claim sovereign territory status where and when it might behoove them,
especially when US Citizens are involved (even if such citizens came to an US
diplomatic establishment to shed their US Citizen status). An extraordinary rendition could happen,
especially in the case of a compound embassy (plenty of people have escaped
persecution that way by being spirited away with their consent after entering a
compound embassy, which the Ecuador one in London is not). Do you doubt that extraordinary renditions
have occurred, if not yet documented from US embassies, through other means and
venues? And it would be hard for your
family to prove what happened afterwards.
What happens when nobody on the outside knows that a person in the embassy
wants to get out?
I do not trust the US
government. I was once upon a time told by a consular official that the main embassy
was sovereign territory, and that his consular agency was not. Maybe he was not aware of the decisions you
cited, maybe he was excusing himself for not being able to provide particular
services. But if an embassy is not
sovereign territory as you say, would the embassy security staff allow local
security or police into the embassy to accompany a potential renunciant who
feared for his life? US embassies are
often ringed with local military and police, but once past the local
authorities’ controls, the US-controlled security screeners take your phone,
your briefcase (or tell you to come back without them), and you are locked in
until somebody opens the door. Even
attorneys are rarely allowed, at least from what I have heard. The security screeners are under US
control. And the Marines are there, behind
the scenes, and even if you do not see them.
They will listen to what their commanders (even civil) say. I don’t have anything against most Marines I
have met, but they don’t take their time to get acquainted with you if they
have been given an order.
Think about this, the renunciant
goes into the embassy as a US person. She
has no way of calling for help, her cell phone is confiscated. Her family reports her missing to the local
police the next day and states that she was going to the US embassy to renounce
her nationality, and never came back. By
this time, she has been spirited away in the trunk of a diplomatic SUV and put
on a plane to the US. The police and local country foreign ministry
inquire of the US embassy if they have seen this person. The US ambassador says “well, the person is a
US citizen, this is an internal US matter, this person sought refuge in the US
embassy, and we have no further comment”.
@Mona Lisa
I’m not familiar with that concern. It wasn’t mentioned at all by my UK based previous adviser. It seems inconsistent with the UK IGA which has ISAs listed as an exempt product for which no reporting by UK FFIs is required (for now).
@Mark Twain,
Ain’t that the truth?
@ The United States is governed by children, elected by babies and whiners. A grownup takes responsibility for himself and pays his own way. Children look for other people to pay for what they want. Little whiny babies at the store crying, Mommy I want that! –[pointing at chocalate or toys] Well it’s up to us adults to tell the little whiny snot-nosed kids that run the United States government and their constituents who vote for them, that we are not going to pay for it. Hell no!
They want their benefits like Obamacare, but they want someone else to pay for it. Those who are in compliance will pay for it and I feel sorry for them, but I really don’t want to pay higher taxes in Canada so that some American living in Canada who paid his/her retirement money to Obama doesn’t have sufficient savings to care for him/herself in old age. This is really ridiculous.
I want the IRS out of Canada, period. Tell your politicians that we won’t stand for this any more. Tell them that they must abolish the United States/Canada Tax Convention and the taxation of residents of Canada. Otherwise, Canada will become a poor country paying taxes to pay for the health care and the chocolate (SNAP) of the snot-nose Americans.