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.
Incidentally, what is that paper that you supposedly have to sign during renunciation verifying that you are current on your tax filings for the past five years?
I would love for my wife to be able to renounce NOW but unfortunately the process is such that she will not be able to get her citizenship before the whole damned thing blows up. So her only alternative is to get compliant while she is doing the whole damned “get Canadian Citizenship” process.
@ The_Animal
There is no paper required during renunciation which asks about tax filings. After you get the CLN you are supposed to send the IRS form 8854. That’s the one which asks about 5 years of tax filings. At least that is my understanding of how it all works.
pacifica777 above says: You can renounce before backfiling.
Phil Hodgen says: I think you could renounce first then run around and fix all of your tax problems for the prior five years, just so long as you got it all done before you filed your exit year tax returns. That’s living dangerously.
I’d subscribe to Phil Hodgen over pacifica777 any old day.
@ The Animal,
You don’t sign a paper at the consulate verifying that you’re current on tax filings. As Em says, you do that on the 8854, due the following June. So, you have til then to be tax compliant. The consulate doesn’t ask you about it either. I think you may be referring to the Statement of Understanding of Consequences, Form 4081, on which you swear/affirm that you understand that renouncing “may not exempt me from US taxation” and that you must contact IRS “with regard to tax consequences.” The exact text is at item 10 on the link.
@Em et. al — I thought for people who have a CLN date after June 3, 2004, and someone doesn’t file a 8854–that the IRS considers them *not* to have expatriated. That is if you have filed an 8854, the IRS says they get to tax and assess you forever until the date you file an 8854.
The 8854 instructions state:
Date of Tax Expatriation
For purposes of filling out Part I, the
date of your expatriation is the later of
the date you notified the relevant
agency of your expatriating act or the
date Form 8854 was first filed in
accordance with these instructions.
Apply the rules of section 7502 to
determine the date on which this form is
filed. Generally, the postmark date is the
filing date.
Caution:Until you file Form 8854 and
notify the Department of State
or the Department of Homeland
Security of your expatriating act, your
expatriation for immigration purposes
does not relieve you of your obligation to
file U.S. tax returns and report your
worldwide income as a citizen or
resident of the United States.
Renouncing is the talk of those who chat on these pages. It is not an option for most of the people. These people who can’t renounce likely read this site but don’t contribute. There is no blog site available for anti FATCAts who can’t renounce.
*@Benedict
The statute that conditioned effective TAX expatriation on notice to the IRS (on Form 8854) was repealed in 2008.
It continues to appear on the instructions to Form 8854 because it technically still applies to expatriations and/or tax expatriating acts that occurred during the roughly 4-year period of the statute’s validity (2004 – 2008).
@ Tom Benedict
That may be true but how do they confiscate a CLN when you have it in hand? I know you are considered to be a “covered expatriate” unless you submit an 8854 but if you don’t go to the USA and if you have no assets there and if you don’t expect to receive a big inheritance from someone in the USA and if you don’t want anyone in the USA to inherit from you then I’m not sure they can collect. Lots of “ifs” there and everyone has to decide what they are willing to risk. So far Flaherty says the CRA will not collect on behalf of the IRS — neither taxes, nor penalties, as long as you were a Canadian citizen at the time they occurred. Of course, we only base our decisions on what conditions are at the moment and I am not going to predict what will happen if the USA gets away with its world wide FATCA attack. I know I don’t trust the USA at all and I don’t completely trust the Canadian government either. There are a lot of possible curve balls both could throw at us.
*@WhiteKat
The lawyer you spoke to must eat.
You are lawyer food.
In the cross-border tax area, the lawyer captures its prey with ignorance and fear.
For all its good intentions, too much of what you will read on this site plays directly into the hands of the fear-mongers.
Fundamentally, no one in the IRS gives a rat’s hairy hindquarters about persons living in Canada who are technically US citizens and FATCAT is unlikely to change that.
So go and renounce if you really haven’t got anything better to do with your time and then forget about the tax and FBAR crap. No one at the IRS is likely to notice or care.
As far as I know, the Article 1 Section 2 lack of proportional representation argument was not made in Cook v. Tait, thus rendering the decision inadequate.
The lack of a Census invalidates the authority of all three branches of government. The house (mandated to be proportional by the Constitution) must certify the election of the president, therefore there is no legitimate president, he was not elected according to the constitution. Therefore, since there is no president, the IRS does not legally exist (noone has been appointed by anyone with constitutional authority to do so), and there is no federal court system either, since no legitimate president has appointed any judges to the courts. There is no house of representatives. The Senate is possibly the only legitimately constituted body, although this might be put into question because some counties do not allow some Americans abroad to vote at all.
Therefore any bank or foreign government that implements FATCA or any other such policy is acting on behalf of USURPERS in addition to committing treason against their own country.
NO TAXATION WITHOUT REPRESENTATION!
GET IT? HOW CAN THE REBPUBICANS AND DUMBOCRATS AND EVERYONE ELSE CARRY ON IGNORING THE VERY REVOLUTIONARY PRINCIPLES OF THE UNITED STATES OF AMERICA? WHAT PLANET WERE THEY BORN ON? WHAT WERE THEY DOING DURING THEIR 5TH GRADE HISTORY AND CITIZENSHIP LESSONS? THEY ARE EITHER IDIOTS OR CRIMINALS.
@Jefferson D. Tomas: THEY ARE EITHER IDIOTS OR CRIMINALS.
Or both. These categories are not mutually exclusive. 🙂
@Whitekat
Just to throw another opinion in the mix, my lawyer (who by all accounts is not a vulture) said that to renounce before taxes are settled is like waving a red flag in front of the IRS. The Animal makes a good point about the consideration of reasonable cause should you choose to file later, as well there’s been some discussion as to whether you lose some of some rights as a USP that would be to your advantage in the filing process should you need them. Seems to me that deciding not to file may be a life-long commitment.
@Duke of Devon,
Re:
I actually think you’re probably right. When I wrote, “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.” I wrote that based on the what the law says.
In reality, I think it’s quite likely they’re not going to follow up on every person who got a CLN (which DOS notifies them of) has filed 8854 or not. But I don’t know.that of course, just my gut feeling. (It’s also always possible, though, they’ll have some new, currently unimagined tool to come after you 10 years from now if you haven’t filed 8854.)
And of course for people who’ve been off the radar for decades, the “don’t wake the sleeping bear” seems to make a lot of sense (although experts are divided on that). There’s no official word that pre-2004s are in the clear, but unofficially a couple of practitioners have written here that they’re heard it unofficially from IRS sources.
In the comment you refer to, I don’t remember writing about contacting the revenuers in the post you’re referring to. But my take on that is — In the 4081 (10), the person acknowledges that “with regard to US taxation consequences, I understand that I must contact the US IRS.” I read that as “I understand that to learn what the taxation consequences are, I know I must get that information from the IRS (not DOS).” Some people feel it means you need to contact them in the sense of inform them that you’ve renounced (I suppose that could be read as filing the 8854 is how you “contact” the IRS, but I don’t.) And then that relates back to the original point in the first paragraph.
So, that’s my 2c (which is probably worth less than 2c when it comes to US tax law). The law says you have to file 8854 by June 15th of the next year, but in terms how things probably work out in the real world, I see what you’re saying. I think the best thing is to know what the law is, but do a lot of reading, and make decisions based on your facts, common sense and risk tolerance.
@Mark Twain, re “Renouncing is the talk of those who chat on these pages. These people who can’t renounce likely read this site but don’t
contribute. There is no blog site available for anti FATCAts who can’t
renounce.” I know. It is true that renouncing and relinquishing are currently a viable remedy only for some with the right circumstances. Or who are prepared to pay a larger ransom – if they can afford it – in exchange for freedom. And we have been preoccupied with exploring the limits and mechanics of how and for whom that might be achievable. The continuous interest (even if only wishful) expressed here, and the numbers tracked are valuable evidence of the seriousness of the situation for those abroad – and the level of perceived threat. I am personally of a mind to warn as many as possible – so that they can get into a better position if they can (ex. simplify finances if possible, don’t do anything in panic), do any groundwork that they haven’t already (ex. obtain another citizenship if possible, get some professional advice to establish your options, consider threat level of compliance going forward) don’t complicate their situation further ( ex. don’t invest in any of the ‘toxic’ registered ‘foreign trusts’ or non-US mutual funds if you haven’t already) – avoid as many of the pitfalls as possible ( ex. don’t get or renew a US passport, don’t enter into any POAs, or co-signatory arrangements unless absolutely necessary), and also to get those who might be in a position to renounce or relinquish to carefully consider not putting it off – because I don’t believe that it will get any simpler, or any less desirable than it is now.
I know it is a dream for many who currently can’t renounce or relinquish. We do need to hope. It is a goal, for some of ourselves and others, who might – given more time, planning, and the right circumstances. For all of us, and on behalf of those unable, or left behind – what can we do but try political remedies – to forestall or limit any, or any further collusion by our own home country governments like Canada? The ones who have been able to renounce, and can come forward more publicly, I would argue, have an ethical obligation to help those left behind – many of whom will be their family and friends. The more that are freed – by renouncing or relinquishing, with CLN in hand, the more to stand up in public, the better and stronger we are.
I am experiencing this as a hostage situation; where the US is holding us and/or family members captive against our will, and trying to extort and extract ransom money from us, and our non-US family. The hostages that escaped or were freed can help detail and publicize their experience, the crimes of their US captors, the burden and obstacles to winning their freedom, and the plight of those still being held in shackles.
What else can we do?
@Badger
This is why Minister Flaherty’ glee over the US’s announcement of a ‘streamlined’ path to compliance angers me. First of all, he is encouraging Canadians take a path to US tax compliance that the CRA itself wouldn’t inflict on its own citizens. He supports a remedy that offers nothing more than anyone would have without it. Even if the IRS had announced an amnesty that was on a ‘go forward’ basis, with no threat of penalties arising from the past, still what’s the incentive for the majority of those effected Canadians with no real connection to the US to comply? I know it’s hard to believe, Uncle Sam, not everyone on the planet is tripping over themselves to land on your shores.
@WhiteKat
Without reiterating the specifics of some of the replies to your comment – it sounds to me like you were born a dual citizen. You should confirm whether this has implications on any exit taxes … Also, would it be worth investing in some professional advice? As you can see there is (understandably) confusion on this blog. Goal: put this issue behind you once and for all!
Note this comment from Bubblebustin:
http://isaacbrocksociety.ca/2013/01/23/a-cold-war-emigrant-from-romania-reflects-on-exit-taxes/comment-page-1/#comment-156070
@WhiteKat
I would investigate what USCitizenAbroad just mentioned, although I think you mentioned that you wouldn’t be subject to the exit tax. You may be a Canadian through descent:
http://www.cic.gc.ca/english/citizenship/rules_2009.asp
I enquired into this, because I was born in the US to a Canadian parent. Although naturalized as a Canadian in 1996, the laws changed in 2009 to allow me to declare myself a Canadian at birth, and with the application forms Citizenship and Immigration sent me I am in the process of doing.
*@all I just quickly read all the comments related to my query, and appreciate all the varying opinions. I will have to go back and read everyone’s posts again.
Just to add a couple of points regarding my particular situation, I am definitely Canadian. My parents registered my birth abroad with the Canadian government, and I have a Canadian citizenship card along with a Canadian passport. My father still lives in the USA, and my 3 daughters and I are expecting a fairly significant (to me anyway) inheritance some day which I presume adds another wrinkle into my dilemma.
Tomorrow, I may think differently, but at this moment, I am inclined not to do anything to wake up the sleeping bear. However I would love to have a ‘CLN’ in hand, and am not going to rule out renouncing in near future depending on how the Canadian government responds regarding the IGA, and how the banks actually implement their search for finding ‘US persons’.
For anyone interested, it’s no longer necessary to register a Canadian birth abroad at birth, as WhiteKat mentioned she was. From what I understand, a child born abroad to a Canadian who was born on Canadian soil can be registered as a Canadian at any time and considered Canadian at birth. No more endless lines of Canadians not born on Canadian soil.
Thank goodness that Canada doesn’t have citizenship based taxation, as it would generally be imposed on Canadians by descent elsewhere as it is on Americans by descent here.
*@bubble
Ask your ostensibly herbivore lawyer to explain to you why the IRS will get excited about something waving in front of it that may never see and when and how, exactly, you can expect that excitement to manifest itself.
Even assuming the State Department reports an actual expatriation to the IRS in the year in which it occurs, the IRS must then (re)program its computer to look for and electronically dispatch a reminder to file a return (and Form 8854) for that year from the expatriating person even when the income information reported to the computer under the ex-pat’s SSN (assuming he or she ever had one in the first place) would otherwise not reach the threshold for triggering any return filing obligation.
Reminders to file returns for a given year are not electronically generated until roughly 1 year after the original filing deadline. Thus, an expatriation in 2012 if reported at all on a Form 8854 would accompany a return for calendar 2012 that was not due until June 15, 2013. Assuming the computer has indeed been reprogrammed to look for a Form 8854, the computer would not spit out its reminder until the Summer of 2014.
Ask your lawyer if he or she is aware of a single instance in his or her own experience or that of any other lawyer on Earth of an IRS request for a Form 8854 that was only in response to a third-party (i.e. State Dept.) reported expatriation.
After listening to the answer, ask yourself if you were the main course or just an hors d’oeuvre.
@Tod
Thanks for the explanation. By coincidence I happen to be composing an email to my lawyer right now. Someone may want to fire one off to Phil Hodgen too.
Whether I’m a main course or an hors d’oeuvre, is irrelevant to the fact that I’ll one day see the door with enough flesh on my bones to enjoy the rest of my life without the IRS, thanks.
@ Todundsteuer
@
bubblebustin
Expanding on Todundsteur’s very sensible comment – two questions :
1) Asking the community of tax lawyers and accountants and related pros: can you cite any instance of the US successfully bringing to court and collecting a tax revenue claim in Canada from a long-term US-born Canadian citizen who’s earnings, assets and residence are solely in Canada?
2) Asking the community of US-born long-term Canadian citizens: have any of you who have NOT filed US returns (and statistically that’s likely +80% majority) ever received an unsolicited, direct and personalized communication from the IRS? Has anyone in this situation ever received a surprising and out-of-the-blue direct demand letter or similar communication to their home address?
No urban legends or hear-say accounts, please!
Never received a thing nor do I know of ANYONE that has so received one.
*Tod
There were several GAO and JCT published about ten years ago which said that the IRS did nothing with CLN data other than use it to publish the Federal Register list. They did try in the 1990s to use the CLN’s data for enforcement purposes but gave up after a few months of futile effort. Do I think things have changed in the interveaning ten years? Probably not. All the IRS in Bensalem, PA gets is the same exactly copy of a CLN on paper via snail mail that you get. CLN’s have no SSN or any form indentification useful for tax purposes.
@Wondering, on your first question (1)–you present a situation which is legally impossible under the current law and the tax convention. The US cannot use the Canadian courts to collect on a Canadian citizen. Full stop. If the person is a US citizen only and the liability was originally incurred in the US, the US may still have trouble collecting in the Canadian courts. Tim knows of some cases where the US government was unsuccessful.
What is more, Tim has suggested in the past, and it seems emminently reasonably, that the IRS will never go after Canadian residents in Canadian court for their Canadian source income because they have no way of knowing if the person is or is not a Canadian citizen. So they don’t even waste resources going after people whose body and income is in Canada.
What I did receive was a notice to file in 2009 because I had traded some stocks on the US market which TD Waterhouse then reported to the IRS because I had filled out a W9 when I opened my accounts. Thus, you have to be in their system and there as to be some means for them to ascertain if you have a liability.