There’s been a lot of news about moving to Mars lately. Netherlands non-profit Mars One is reported to be accepting applications for a colony to be settled as early as 2023. And Tesla founder Elon Musk, for his part, continues to work out the logistics for another Martian colony he’d like to fund: he points out that meat will probably not be available because of the difficulties of raising animals on an unfamiliar planet.
So, are you thinking that blasting off in a spaceship would be the perfect way to get the “Internal” Revenue Service off your back? Not so fast. The United States, unlike every other country on Earth besides Eritrea, taxes based on citizenship and not residency. No matter how long you spend on Mars, you’ll still be writing checks to Uncle Sam. In the mean time, all of your fellow colonists of other nationalities will be home free.
Mars is not a foreign country
First and foremost, Mars is almost certainly not a foreign country for purposes of the Foreign Earned Income Exclusion. Antarctica has already been ruled to be a foreign country — but only if you’re suing the US government and it wants to get out of paying you, not when the US government wants to tax you. And the Outer Space Treaty, to which the U.S. is a signatory, specifically states that celestial bodies are “not subject to national appropriation by claim of sovereignty”.
Normally, the U.S. has very little respect for international treaties, but they’d be likely to follow this one, since it would let them extend their authority across space and time. Even if Mars colonists decided to one-up Robert Heinlein’s lunar colonists and declare themselves independent of Earth, it’s unlikely that the U.S. government would recognise their claim of being a foreign country.
Martian income magically becomes American
But it gets worse. Not only would you be denied the benefits of the Foreign Earned Income Exclusion, it’s likely that you couldn’t even take the Foreign Tax Credit either. Under 26 USC 863(d), “any income derived from a space or ocean activity, if derived by a United States person, shall be sourced in the United States”. This of course is the “majestic equality” of the U.S. tax system — both taxpayers on the ground and taxpayers who live in space pay tax on their space activity. If that’s not incomprehensible enough for you, here’s the regulations.
And if you set up a Martian-law company in order to be self-employed on your new planet, it’ll be a Controlled Foreign Corporation for U.S. tax purposes. Not only will you have to spend more than a hundred hours per year filing Form 5471, your Martian company’s income — which is, allegedly, “sourced in the United States” — may be “subpart F” income, meaning you’ll owe immediate “deemed dividend” tax on it and won’t get the benefit of deferral the way owners of a C corporation would. (The purpose of the CFC laws is allegedly to tax multinational corporations which shift profits to tax havens — but of course it fails miserably at that purpose, leaving the tax to fall on ordinary people who actually work outside the United States and start businesses where they live.)
Paperwork and deadlines
And have you considered the logistics of trying to file your tax returns from Mars? You’re certainly not going to be sending paper returns — the journey time from Mars to Earth is almost a year. And while the IRS might respect a non-US postmark like one from the Mars Post Office — meaning you’d only have to mail out your 2023 tax return by 15 April 2024 — Treasury does not: the FBARs you need to file about your Martian bank accounts have to arrive in Detroit by 30 June 2024, meaning your 2023 FBAR would have to be mailed in the middle of 2023, even before you knew your end-of-the-year account balance.
So you’ll have to file electronically. But most of those e-file sites don’t even work for people in other countries on Planet Earth — how well do you think they’ll work when you’re hundreds millions of kilometres away? If you have problems, you could always e-mail a customer service representative, who will no doubt enlighten and amuse you with questions like, “why don’t you have ZIP codes on Mars?” So you’ll probably end up calling them or the IRS for help — but keep in mind that their toll-free numbers only work in the US, not abroad, and certainly not off-planet.
And finally, once you’re on Mars, you’ll have no hope of being able to renounce your U.S. citizenship. It’s doubtful whether the Department of State has the authority to open an embassy on Mars, meaning there’s nowhere for you to go to swear the Oath of Renunciation in person — and renunciations by letter are not acceptable. And since Mars isn’t a country, even if you took citizenship there, it wouldn’t be a relinquishing act which could set an end date to your servitude to the U.S. government (and of course, relinquishments have to be reported in person to U.S. consulates or embassies, just like renunciations do).
The unfortunate conclusion
In otherwords, would-be American spacemen and spacewomen, the message from your government is clear: please stay home and leave the Mars-colonising to the Canadians, the Scandinavians, and all the other people from the 192 countries on earth with saner tax systems. And if you still decide to go, remember: “the U.S. government, by its very nature, benefits the citizen and his property wherever found” — even on another planet!