Having stumbled upon this article, I had to check the date to see when it was printed because it seemed quite similar to the current situation today. Where have we heard this before? This suggests that there is no hope that the US government will ever learn from its mistakes:
Americans Abroad Angry About Tax Snare
Dec. 20, 1979. By R. C. Longworth. Chicago Tribune.After living for nearly 20 years in Switzerland, Cartoonist Hank Ketcham faced the crucial choice – either return to the United States or become a Swiss citizen. Many of his American friends in Geneva were taking Swiss citizenship, but eventually the creator of Dennis the Menance returned to California.
“I had to think about Dennis,” Ketcham said at the time. “How would it look if the all-American boy had a Swiss father?”
There are two points to this story – that Dennis’ “daddy” would even consider giving up his American citizenship, and that some Americans he knew had already done so.
This is a sharp change in the history of Americans overseas. Normally, no American, no matter how expatriated he became, ever considered giving up his citizenship.
The change is traceable to one factor – a new American tax law that can raise the taxes of Americans abroad well above what they would pay at home. At the very least, the law produces extra work and confusion. At the worst, it penalizes the American or, often, the company that sent him abroad.
The evidence that Americans are increasingly becoming ex-Americans comes mostly from informal reports from abroad. The State Department says it keeps no statistics on the matter.
But Bill William, editor of the Brazil Herald and a 20-year resident of Rio de Janeiro, wrote recently that “taxes were one of many elements” that led him to take Brazilian citizenship. He is not alone, he added.
“But almost without exception, the growing number of ex-Americans deny that taxes influenced their decisions – in fear, probably, that the Internal Revenue Service would hound them for 10 years, which it reportedly can do if suspicion exists they changed nationalities to evade taxes,” he said.
No matter what they say, he said, these ex-Americans “got a big push from their own government, thanks to their country’s unique and absurd laws taxing its citizens living abroad on their incomes earned overseas.”
What bothers Americans abroad most is the fact that the United States is the only industralized nation that taxes its citizens overseas. Other nations hold to the belief that taxes are a fee for services and should be charged only to residents who actually use the local services.
The U.S. government claims that most American taxes go for U.S. defense, which also protects Americans abroad. Since this argument implies that all persons outside the Soviet block should pay American taxes, it is not taken very seriously by nonresident Americans.
Instead, they see it as the result of a home-grown misconception of life abroad – an attitude expressed by Sen. William Proxmire, D-Wis., who sneered at overseas Americans as “mink-swathed, high-living jet-setters living at the taxpayer’s expense.”
Most Americans abroad, in fact, are hard-working businessmen, teachers, or other wage slaves. They are bitter, and some are taking out their bitterness by trading in their passports.
Many American companies are bitter, too. Most companies pay tax-equalization that can add $5,000 or more to the annual upkeep of a middle-management employee. The trouble is that these allowances are taxable, too, producing an allowance-tax-allowance-tax cycle. for a top management man earning $150,000, the tax-equalization allowance could rise to $434,000, according to Business International, a research firm based in Geneva.
The result is that many are returning home – the number of Americans overseas is believed to have shrunk from 1.7 million to 1.5 million in recent years. Others, like Williamson, have stopped being Americans. And companies are replacing Americans in their overseas operations with other nationalities.
What this means, of course, is that export business that depends upon national ties is going to other nations.
“One of the indices of a great international power is the number of quality of its expatriate citizens in their international marketplace,” American lawyer William Havemore wrote from Rome. “To discourage multinational enterprises from staffing their offices with Americans is just plain stupid.”
So, there you have it, folks. Political activism is hopeless. Americans abroad have 3 choices:
- Be a good slave and loyally serve your master.
- Move to the US and sign up to collect food stamps.
- Renounce and become liberated from American insanity.
Obviously people need to renounce! For the life I can’t understand why any long term expat not subject to the exit tax would do anything but renounce. This is 35 years later (after 1979). Although there may be in a theoretical sense some value to US citizenship, the value is far outweighed by the costs. In 1979 there was no FBAR, FATCA and an administration with a hatred for Americans abroad.
Thank you for finding that @swisspinoy.
Would @Victoria say “plus ça change, plus c’est la même chose “?
http://en.wiktionary.org/wiki/plus_%C3%A7a_change,_plus_c%27est_la_m%C3%AAme_chose
Like you, I had to check and double-check the date. Uncanny how on this issue, the US appears to be frozen in time – but now, thanks to FATCA, the updating of the BSA, and other developments, – things are much worse.
And also thanks @Joe Smith, for providing the link to President Carter’s letter re the current Human Rights failures and offenses committed by the US http://www.nytimes.com/2012/06/25/opinion/americas-shameful-human-rights-record.html?_r=0.
Now, I’m trying to find the 27 page full text of the Carter report “Equitable Treatment of United States Citizens Living Abroad”.
As an interesting aside related to your find above – and the sense that nothing has changed, there was this excerpt from:
http://www.leagle.com/xmlResult.aspx?page=4&xmldoc=19832020567FSupp1453_11825.xml&docbase=CSLWAR1-1950-1985&SizeDisp=7
ZAHOUREK v. ARTHUR YOUNG & CO.
567 F.Supp. 1453 (1983)
United States District Court, D. Colorado.
July 25, 1983.
All naturalized citizens of the United States while in foreign countries are entitled to and shall receive from this government the same protection of persons and property which is accorded to native-born citizens.The “equitable treatment” provision on which Zahourek relies is an uncodified law, drafted and sponsored by Senator George McGovern. Pub.L. No. 95-426, Title VI, § 611, October 7, 1978, 92 Stat. 989. It was first passed in 1978 and expressed the sense of congress that there should be equitable treatment of expatriates in such areas as “taxation, citizenship of progeny, veterans’ benefits, voting rights, Social Security benefits and other obligations, rights, and benefits….
” As initially passed, it required the president to identify and evaluate “all United States citizens living abroad …,
“…and to recommend appropriate remedial legislation.I recite this somewhat obscure legislative history only to point out that congress appears [567 F.Supp. 1456]
vitally aware of possible discrimination against Americans working abroad, not only in comparison to other Americans, but also in comparison to other foreign nationals living and working abroad. ……
The first report studied in excess of 30 laws and regulations, ranging from naturalization and taxation to congressional representation for Americans abroad.
Under “Employment,” four areas of concern were identified: unemployment compensation, Department of Defense overseas
hiring practices, 3 outside employment of Department of Defense personnel, and life insurance standards.4
Appendix B of the Committee Report contains a paper submitted by American Citizens Abroad, a Switzerland-based, expatriate lobbying group. The ACA paper identified 63 discriminatory provisions, some important (the naturalization of alien spouses), some picayune (the nonavailability of toll-free telephone access to IRS help when abroad).”……
From footnotes at same source:
“This report will be found in U.S. Law Affecting Americans Living and Working Abroad, A Report to the Committee on Foreign Relations, United States Senate, August, 1980, Government Document No. Y4.F76/2:Am3/5.2.
The Second Presidential Report will be found in the above Committee Report at page 23. The Second Presidential Report focused exclusively on the tax treatment of expatriates.
“As President Carter put it, in his letter
of transmittal: “It is clear to me that the phrase `competitive
disadvantage’ refers primarily to Federal taxation.” Committee Report at 23.”
Worth reading the full page, and would like to see the sources mentioned in the footnotes, as well as the “Equitable Treatment of United States Citizens Living Abroad” by Carter.
And, as another aside, (possibly of interest to @Michael from the DemsAbroad thread) I underscore that as it says above; “The “equitable treatment” provision was drafted and sponsored by (Democrat and) Senator George McGovern. Pub.L. No. 95-426, Title VI, § 611, October 7, 1978, 92 Stat. 989. first passed in 1978″.
I was allowed to stay up late into the night with my father, at home here in Canada, to watch the outcome of the 1972 Democratic National Convention. http://en.wikipedia.org/wiki/1972_Democratic_National_Convention .
@swisspinoy
Great find. I was looking for other sources for the infamous William Proxmire “mink-swathed, high-living jet-setters living at the taxpayer’s expense” comment when I found the same article in an issue of the Boca Raton News.
Just to put the timewarp into some perspective, here’s one of the ads that accompanied the article:
This has been going on for quite a long time…
That’s fascinating to read that insight from the beginning of what developed into the chaos our lives are in. It’s absolutely eerie to see those observations made so long ago.
One sentence, not specifically about tax, not about tax at all, struck me personally:
That’s not so! was my first reaction — of course, people gave up their US citizenship, long before this 1976 tax law! But maybe I’m wrong. It may simply have been more common in Canada than elsewhere for sociological reasons because US-born people were comfortable giving up their US citizenship (similarities of lifestyle, stability of the country, etc.).
At any rate – this is bizarre – what made it inevitable for me was that growing up in the US, I got the impression that people living in the US were supposed give up their former citizenship – that it was the right thing to do, really be committed to their new life – and their new country. So, when I moved permanently to my new country, I never gave a thought to do otherwise.
Anyway – back to main topic — Mr. Longworth’s analysis of the tax impact, written so long ago, is so timely, it’s eerie!
@all, and @Michael the implied emphasis via the excess of underscores above was inadvertent. I tried to get rid of the formatting – but was unsuccessful.
@Michael, I thought you’d be interested that at least two Democrats – particularly President Carter, (and also in this instance above, McGovern), demonstrated understanding of the ways in which US extraterritorial citizenship-based taxation, US domestic laws and US stateside incomprehension collide with the reality of how we actually live outside the US – with tragic – but entirely predictable consequences. Unfortunately, they seem to have been in the minority. Currently we have the efforts of Carolyn Maloney http://www.youtube.com/watch?feature=player_embedded&v=kHHjv2HJ4pw but where are her other brethren?
Here’s some info on the author of the article.
Richard C. Longworth is “Senior fellow at the Chicago Council of Global Affairs and author of Caught in the Middle: America’s Heartland in the Age of Globalism … For 20 years was a foreign correspondent for the Chicago Tribune … United Press International, and was the Tribune’s nbsp;bureau chief European correspondent.”
OK, I found the full William Proxmire “mink-swathed Americans” story here.
And here’s a transcript of the page, since there was no readable text:
The Free-Lance Star – December 14, 1977
Proxmire derides tax break for those abroad
By Jim Luther, Associated Press Writer
WASHINGTON (AP) – Sen. William Proxmire today accused the Treasury Department of catering to the whims of jet-set Americans living abroad in supporting what he called a $400-million-a-year tax loophole.
The Wisconsin Democrat, who presents an “award” each month to the federal agency that he thinks displays the biggest, most ridiculous or most ironic example of government waste, saved his “Fleece of the Year” prize for Treasury Department officials.
The department supports a move to delay until the 1978 tax year a change Congress originally approved in 1976 to scale down a tax break for Americans who live in foreign countries. Proxmire has stymied Senate action on the delay this year.
The old law allowed an American living abroad to avoid U.S. taxes on the first $20,000 earned each year. People living abroad for three years received a $25,000 annual exemption. About 150,000 Americans benefit from the tax break.
Congress voted in 1976 to reduce the exemption to $15,000 ($20,000 for employees of charitable organizations), but later delayed the date of the change to Jan. 1, 1977. Now the Treasury Department has asked-and the two tax-writing committees of Congress have agreed-to change the effective date to Jan. 1, 1978. That would retroactively restore the higher exemption for the current tax year. Proxmire says his opposition drew a strong response.
“When it was learned I was blocking this end run for the rest of the year, I was besieged by top officials of this and previous administrations, by an intense mail campaign and by expert lobbyists all dedicated to continue this gross injustice,” Proxmire said. “It was a perfect object lesson in why tax reform gets clobbered.”
Treasury officials had no comment on Proxmire’s statement.
Proxmire said the tax break makes absolutely no sense because 90 percent of the benefits go to persons earning more than $30,000 a year.
In seeking another one year of life for the full tax break, Treasury officials “have succumbed to the moans from the mink-swathed Americans abroad who now pay no or few taxes but will have to begin paying taxes (of course they moan), and to the arguments that the provision both creates jobs and stimulates business abroad,” Proxmire said.
***
Well, there you have it kids.
@ Badger, let me know if you’d like me to try to get rid of the underscores. I’m presuming you’re referring to the the final two paragraphs?
*Proxmire tended to get into a lot of trouble during his career.
http://www.oyez.org/cases/1970-1979/1978/1978_78_680
The biggest difference between then and now? FATCA jihad.
Well, giving the choice of being a good slave to your master, moving back to the US and collect food stamps, and renouncing, I agree. It really is a no-brainer.
First off, I never really considered myself a good slave, anyway. Besides, there is no way a slave can ever rise up to the level of his/her master just by simply working hard, and keeping their nose clean. In the end, you’re still a slave until you die. Why even kid ourselves?
Secondly, there isn’t much opportunity left to be found in the USA these days, and who wants a meaningless life of collecting food stamps while working for peanuts? (if you’re even lucky to work, that is) I can’t think of too many things in life more degrading than that!
But, I suppose it’s ‘the devil you know….’ with some people. As for myself, I don’t lose much by relinquishing my US citizenship, once I become Canadian. Therefore, why not make the leap?
*Sooner or later this issue will have to be dealt with. Let’s keep at it in all levels.
Wow. I think I understand Roger’s posts better now than ever before. I could never understand why anyone would want to move back and therefore, why not go ahead and renounce. I see I didn’t have the “right understanding” of the times.
Guess I’ve been away too long. I would never consider giving up my family and my life here to go back. Never. Especially after the way we’ve been treated.
@UsCitizenAbroad,
You said: ‘Obviously people need to renounce! For the life I can’t understand why any long term expat not subject to the exit tax would do anything but renounce.’
I will give you an example of a ‘long term expat not subject to the exit tax’ who no way in hell is going to renounce. If I am missing something, please let me know, because seriously I am at my wits end here.
I was born in the USA approximately 50 years ago to two Canadian born parents who divorced when I was less than 2 years old. I moved back home (Canada) with my mother where I resided ever since, attended university, worked, married and had 3 children. Like many people in my age group, who did some planning and were reasonably responsible throughout their lives, my husband and I (just gave my gender away) built up savings in RESPs, RRSPs and more recently TFSAs. I have been a homemaker for the past 10 years, during which time my 100% Canadian spouse has been the sole bread winner for our family of five. We are very middle class, and not complaining about that. We prefer to forgo yearly vacations in favour of saving for children’s education and retirement.
Now the USA, is threatening all that we have planned and sacrificed for. In order to renounce, my understanding is that I need to be tax compliant. If I try to become tax compliant, I must reveal myself to the enemy, and be prepared to pay 1000’s of dollars in accounting, and legal fees, all the while hoping that I don’t get penalized for god knows what.
Renounce? No way! USA can go FATCA itself!
*WhiteKat, according to the description of your situation, it sounds like you should be able to relinquish without having to pay the $450 renunciation fee and without having to file US tax returns. Otherwise, since your spouse is the sole bread winner, you could free-file 2012, FBAR and snail mail in the forms for the other 5 years, filing as head of household with no tax due. I believe that you can legally get yourself out of the system while spending no more than two postage stamps plus the renunciation fee if relinquishment doesn’t work. So far, as I understand it, FBAR fines only apply to those who entered OVDI or owe taxes.
@Deckard1138 That really does put it in perspective: people have been trying to solve this problem back since J&B Rare was $10 a bottle. Now it’s three times as much (ah … inflation) and instead of getting better, things have gotten a lot worse: in the late 1990s with reporting of unincorporated foreign businesses, in the 2000s with FBAR enforcement, FEIE stacking, and the HEART Act, and in the 2010s with FATCA and whatever else tomorrow will bring …
@WhiteKat: There is no need to be tax compliant in order to renounce. The State Department does not ask about tax matters at all, they merely inform you after you renounce that you should fill out a Form 8854. The IRS will classify you as a “covered expatriate” if you didn’t file in the past five years, but unless you have more than US$600k of capital gains (inflation adjusted), you will not actually owe any tax. Yes, renouncing does mean you’ll be “announcing yourself to the enemy”, but their ability to come after you is limited – far more so once you’re no longer one of their citizens. For much more detailed discussion on this issue, see this post from back in June:
http://isaacbrocksociety.ca/2012/06/07/phil-hodgen-why-people-expatriate-a-comment-on-his-post-what-about-those-who-cannot-certify-5-years-of-tax-compliance/
*@Swisspinoy,
Thanks for your reply. Nothing is ever simple. I made an attempt at a second career into an overcrowded field about 5 year ago, which did not work out as planned, then collected EI benefits for 8 or 9 months(first time ever other than maternity leave). So, between the mutual funds in my kids RESPs and my EI benefits, I might actually owe over the 1500 limit in one of the tax years for the ‘streamlined’ disclosure program. Sucks to be me.
*@Eric. Thanks for your response and the link.
I am so confused. I thought I had to declare I was tax compliant in order to renounce.
Also, I should add that I got in contact with a lawyer recommended by someone from IBS. The lawyer told me that I had to backfile before renouncing. I don’t think I misunderstood her, and I believe I described my situation well, so do not understand why I am getting such conflicting opinions.
I guess I am not done with the drudgery yet.
@ WhiteKat
I’m the last person qualified to give advice but I will throw this out anyway. Renounce or relinquish, whichever seems best to you (no tax compliance required for that). Wait for that CLN to arrive and then you are good to go if your bank gets FATCAfied. Forget about filing 1040s or an 8854 and forget about crossing the border too because it’s possible the IRS will eventually communicate with border crossings. I think being a “covered expatriot” is not as bad as it is made out to be. Remember this comment by Petros …
“As one person said, if you don’t file 8854 you become an automatic covered expatriate. But the main reason to not become a covered expatriate is so that one can leave money to heirs living in the United States. This is not a disincentive for most of us.
As for your other questions, Roger, I think it would be pretty unlikely nor have I heard of any cases where the IRS has taken one of its former citizens to court in the foreign country over the exit tax. LOL. That would prove how weak the position of the IRS is in the first place. As for trapping renunciants when they return, that’s an interesting question. Will covered expatriates have problems crossing the border? At very least, that is a violation of the Expatriation Act of 1868. It may come to that, but is that a legal battle that the IRS wants? Would they win? It seems unlikely to me. Better just to get people willing to pay the exit tax and not try to go after the rogues, because then you would have an international diplomatic incident on your
hand and a potential constitutional challenge to boot.”
http://isaacbrocksociety.ca/2013/01/08/interesting-comment-on-victorias-franco-american-flophouse/#comment-135289
@WhiteKat,
You can renounce before backfiling. You have until June 15th of the next year to file your 8854, on which you must state that you are in tax compliance for the five previous years. Several Brockers have renounced before backfiling.
People who were born as dual citizens are exempt from exit tax (still have to file the 8854, though) You didn’t mention that you were born a dual citizen. It sounds to me like you were because of your parents, but I”m not clear on the law regarding that. But other people here are, so they’ll probably comment on that.
If you were born a dual citizen, you can’t claim relinquishment under s. 349(a)(1) of the Immigration and Nationalities Act, because you didn’t gain your Canadian citizenship by naturalising here with intent to relinquish.
However, it would be possible to claim relinquishment under another sub-article if any of these apply to you and you did it with the intent to relinquish:
(2) taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state or a political subdivision thereof, after having attained the age of eighteen years; or
(3) entering, or serving in, the armed forces of a foreign state if
(A) such armed forces are engaged in hostilities against the United States, or
(B) such persons serve as a commissioned or non-commissioned officer;
or
(4) (A) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state
*WhiteKat 2 options. Both reasonable. 1. Like so many people here you don’t actually have to do a thing. You are well protected. Your banks and FFIs won’t ask where you were born. The southern reveneurs have no way to know you exist.
2. Make an appointment at any consulate except Vancouver and renounce. You probably didn’t do anything to relinquish years ago unless you held a federal or provincial gov’t job.
If you renounce, don’t mention taxes. You are renouncing because you never felt American and don’t want to be considered one. You do not need to be compliant first. This is certain in spite of what you were told. After you get your CLN you are free. In spite of what Pacifica says, you don’t need to contact the reveneurs or file their form 8854 if you don’t want to. You can’t file it properly unless you also file 5 years of taxes- a major pain in the butt. Stay away from the streamlined voluntary disclosure. You would only do that if you wanted to keep USCit.
I disagree with Em in 1 respect. There is a great fear on this site of crossing the border. So far that fear is completely unjustified. Before or after you have a CLN you are free to visit the southerners.
@ WhiteKat
I didn’t want to throw too much defiance at you but the Duke of Devon could be right about the border crossing thing. However, I disagree with him in one respect. I think it is possible the banks could someday ask you where you were born and having that CLN in hand would be a good thing at that point. You can’t change your place of birth but you can present proof that it doesn’t matter. So between the 3 of us you are completely confused now I guess. Sorry about that. 😉
The question with being able to backfile after you renounce is problematic as we don’t know exactly how long the window is open for nor do we know just exactly how long will the IRS consider “reasonable cause”. I know they say that they won’t institute penalties for late FBAR filing, however it is discretionary upon their interpretation of the facts at hand. I think the safest bet is to say if you haven’t filed yet, say that “you came across the information only a few weeks before you filed and came into compliance”. This whole damned thing is making me sick to my stomach and I’m not the one who has to worry about repercussions. It’s just the g******ed toxic fallout from this abortion of a legislation.
*Em When I studied math and physics many many years ago, we were taught to completely ignore any hypothesis with more than 2 degrees of uncertainty. Your hypothesis has 4. ‘think’, ‘possible’, ‘could’, and ‘someday’.
@ Duke of Devon
I studied physics too but it was so long ago I must have forgotten the “2 degrees of uncertainty”. I do remember Heisenberg’s Uncertainty Principle but that doesn’t help. Let’s put it this way, some Canadian FFIs are preparing for FATCA and they have those questionaires ready to go. I think getting a CLN before they have a chance to make it harder to get is a good strategy.