I wanted to post this fact situation and generate some thoughts on how this problem can be solved.
Facts – Altered slightly to protect their identities:
Financial Assets: Last week I met with a couple in their 50s. They have been married about 25 years. They have lived in Canada all of their married lives. They have two children. The older is graduating from University this year. The younger is in her third year of high school (expectation that she will go on to University). It is not clear to me what is the citizenship status of the children. But, I think (since the US born mother lived in the US until the age of 18 and then moved to Canada) that they are both US citizens. If the children are US citizens I don’t think the US has ever been notified that they exist. The couple own (free and clear) a home (in both their names) with an approximate value of 1.4 million. They paid $245,000 for the home when purchased. They each have an RRSP. The husband’s value $450,000 and the wife value $200,000. They also have a brokerage account consisting primarily of Canadian mutual funds. The account is in the husband’s name (but both parties acknowledge that the account is jointly owned). The wife claims that she had some kind of signing authority (power of attorney perhaps) over the brokerage account (not sure whether she still does in view of the husband’s reaction to Mr. FBAR).
Citizenship status: The wife was born in the US She moved to Canada at the age of 18 to attend University where she met her Canadian husband. She has lived in Canada ever since. She became a Canadian citizen around 2000. Both children were born in Canada and have always lived in Canada. The wife has always filed US tax returns and believes that she is up-to-date and accurate with her U.S. taxes (is it possible for a US person to be completely tax compliant?). She always filed as a “married person” and simply noted that her husband was a NRA (Non Resident Alien). (Meaning that the IRS knows that she has an alien husband.) She doesn’t know what an 8891 RRSP form is, but since her taxes have been prepared by a U.S. tax professional I assume that she has filed the 8891. I don’t know whether she filed a form 8938. She had NOT been filing her FBARs. But, upon learning of them she filed 6 years and wrote the usual reasonable cause letter. She is NOT expecting further difficulties over the FBAR issue. But, the family accounts were disclosed to the IRS which enraged the husband. What happened at the point of the FBAR discovery and the fact that she filed the FBARs, was that her husband simply refused to have any more joint accounts with her. (As she put it: “All hell broke loose in my marriage.”) She is nervous about this because it has destabilized a fundamental assumption of their marriage – i.e. that family was run from a family/joint account. This is causing her great anxiety. Her husband will NOT allow her signing authority over any financial account that includes his money. This is a big problem and is related to the next problem.
Both the husband and wife had been employed by separate companies up to a year ago. Each of them lost their job. (Job market is NOT kind to people over 50. This of course has exacerbated the other difficulties.) Although, they are feeling a bit unanchored, they see this as an opportunity to work together to create their own business. (They are thinking of buying a franchise that will require financing.) This is actually a dream that they have had for years. They plan to use the money in the brokerage account to finance the business and to “carry them over” until the business is profitable.
Knowledge of issues caused by U.S. citizenship:
Until recently, (like the rest of the world) they knew nothing about the problems of U.S. citizenship. Their knowledge began whey they were introduced to Mr. FBAR.
They are now concerned that they may not be able to operate a business together.
Here is why:
1. The husband is adamant that he will NOT allow any of his financial information disclosed to the IRS.
2. The wife is scared out of her mind. She is already in the US tax system and is determined to file her tax and information returns according to US law.
3. They want to keep the business as simple as possible. They do NOT (at least at the moment) want the expense of creating a corporation. This means that the only real option is to operate as a partnership.
Now, here are some of the issues they are trying to work around:
A. If they carry on business as a partnership, the wife will have to file the relevant foreign partnership form to the IRS. This is a “deal breaker” for the husband.
B. If they were to create a corporation, then then she would have to file the 5471 and incur the other usual costs associated with the U.S. wife owning part of a CFC (Controlled Foreign Corporation) in Canada. Again, the husband is unwilling to have any of his business information included on an IRS information return.
C. The husband will not enter into any business where the the financial records are disclosed to the IRS. Therefore, he won’t allow the wife to have signing authority over the bank accounts of the business. This is an extension of the family bank account problem and is a real concern to the wife.
The fact of her US citizenship is clearly eroding the “good will” in their marriage. Neither of them is particularly employable (it’s the age thing). Therefore, they must think in terms of running their own business. It appears that the desire of the US wife to be US tax compliant is making it impossible for her to be a business partner with her husband.
Assuming they both want to save their marriage and create a family business, how should they deal with this problem? The husband will have NOTHING to do with the IRS.
If this cannot be solved:
– they may not be able to operate a family business
– each of the husband and wife, if they are to have business partners, will have to find different partners. In the case of the husband a partner who is not a US person. In the case of the wife, a parter who IS a US person
– they may be talking divorce which in addition to all the other problems will force the sale of the family home resulting in a significant reduction in the living standard for each of them individually. Furthermore, the wife will have to pay a US capital gains tax on her share.
Should the wife consider renouncing US citizenship?
Until 2011 the wife had always been a patriotic US citizen. She hates the problems that the U.S. has caused her and might entertain the idea of renouncing. The only thing that holds her back is that (paradoxically) the US tax problems have destabilized her marriage to the point that, should the marriage end, she would want the option of being able to return to be with family in the US
Should the children (assuming they are US citizens) consider renouncing?
The children were born in Canada.
How can these problems be solved?
“I have heard that on the US side of things there will be a formal request made by the US Treasury Department to Congress at the end of the month for the US to pass legislation requiring US banks to comply with fully FATCA level domestic reciprocity and yes this could mean conceivably US banks having to report all “Canadian Persons” to the IRS. Now what are the odds of this passing. “
Let’s hope that that formal request does occur. If corresponding legislation doesn’t pass, all the better, since it will then be a clear matter of public record that all promises from the USA to other countries regarding reciprocity in their IGAs are worthless. That could indeed mark the beginning of the end of FATCA, at least with regards to countries demanding reciprocity.
The date I am hearing in March 25th. My guess is it will get little notice in the mainstream US press but in the FATCA world it will be a pretty big story. As such they will be an expectation that the Congress will act quickly and when they don’t it will call FATCA even more into question.
March 25th? The deadline for the USG’s shutdown is the 27th. You do all remember how this jihad all got started with FATCA being added to the HEART Act, right? Timing here would seem to indicate that hiding this in the last minute legislation to keep the lights on in Congress might be the plan. Remember, they don’t read everything. They just tack things on to existing bills.
This seems like deja vu all over again.
@Medea Fleecestealer, if Iran suddenly declared all American females as being dual citizens of Iran and then declared that all Iranian citizens (including all US females) had to report any account they had signature access to to the Iranian government, all American males would gladly submit their financial data to the Iranian regime to protect their marriages, right? I think not. Any American who supports or defends FATCA is a racist hypocritical self-hater who honors the destruction of America.
I’m certainly not defending FATCA swisspinoy, anything but. I’m saying this scenario is not unique and has already brought many couples to the brink of divorce over having to disclose account info to the IRS. I’ve just reached a similar point myself. Yesterday we received the dreaded UBS letter and W9 form so I now have to contact the bank and explain our situation re my recent renunciation. Luckily my OH isn’t freaking out (yet) about it, but I don’t think he’ll be particularly happy if we have to fill in and sign the W9.
Americans, male or female, wouldn’t be happy to suddenly be informed that their account details must be given to a foreign government just because their spouse is a citizen of that country. They are far too independent and suspicious of government control to like it one little bit. Unfortunately they are also so insular in their outlook that it would never occur to them that others might feel the same about the US doing so.
@Medea Fleecestealer, I wasn’t thinking about you in my previous comment. It was more directed at some stateside Americans who do not yet realize how strongly they oppose sharing their financial data with any nation that they are not a resident of. 🙂 Congratulations with the renunciation! I find that it is as if nothing happened other than life becoming less complicated.
I know one thing’s for sure, the USG will kiss my butt before they get my wife’s account info! That joint account is closed!
@All, Tim from Maple Sandbox, says some good news is coming from Canadian government re; FATCA soon!
If you’ve already renounced, then there is no reason to sign the W9. Therefore, you should tell them that you’re no longer a US person, and not sign anything. You might have to show them your CLN, or anything else you may have received from the consulate in relation to your renunciation. Or, maybe a foreign passport plus a reasonable explanation might be good enough?
I don’t know what else to say, other than with my situation, I just closed the joint accounts instead of waiting around for the bank to ask her and I to sign a W9. She is protected from that shit 100%. I am still stuck with the headache until I renounce/relinquish though, but all in due course.
mjh49783, I’ve already sent them a e-mail a couple of days ago pointing out that I’ve renounced recently, but don’t yet have the CLN and I’m waiting to hear further from them as regards the various forms they sent us. They do know I also hold British nationality and have a British passport so it’s really just what will keep them happy for the near future while I sort out the tax situation re compliance. Unfortunately, the only thing I have from the embassy is the receipt for the $450 I paid to renounce.
We can’t really close our joint accounts as they’re the only ones we have here, but we could take my name off them if necessary and the bank agrees. Not sure if we can do that with our mortgage though.
I’m going to e-mail them again as the previous e-mail just has an “in progress” message attached to it so the guy may be on holiday. I’ll send this one to our branch manager as he’s pretty good in either answering or passing it on to whoever needs to deal with it. He’ll know if the other guy is on holiday and can contact someone else to follow up on it.
Good luck with your efforts to shed your citizenship collar. Hope it doesn’t take you too long to get it all sorted out.
I’m wondering how long I’ll be waiting for my CLN; the Embassy in London said probably two to three months…obviously, even with a comfort letter, nothing’s certsome till it arrives…:/
Ah, just looked at my receipt again and it does actually say on it that it’s for renunciation of USC! So some proof to hand if needed. At least you got a comfort letter monalisa, Swiss embassy doesn’t give you anything.
Medea, true. I already feel relieved, especially as they believe it will go smoothly but still nerve-wracking till it’s properly official.
Just make sure that once you get your CLN, that you don’t lose it, It may end up being one of the most important papers that you’ll have in your possession.
I almost forgot to mention….
yeah, it will be some time yet before I can get rid of this American curse, unless I want to be stateless.
Don’t worry mjh49783, I intend to keep it very safe and make several photocopies just to be sure!
Bummer about having to wait for your freedom. I was lucky being born a dual citizen and thank the foresight of my parents for registering my birth with the British embassy. I think they would be very disillusioned and sad to see how a country they adopted as their own via citizenship treats those of its citizens who happen to live outside it borders.
Yeah, I know it’s a bummer, but I just think of it in the long term and look at it as a goal. I think that if I was a dual citizen at birth, I would’ve already ditched the US citizenship at this point. But instead, I was born in the USA, to US citizen parents.
On the other hand, there is also something that can be said about earning citizenship in a place where you want to be, and I’m pretty excited to have a shot at taking this journey.
I agree. I was very proud of my parents when they did all the tests for getting their American citizenship. It meant something then, when you had to wait a number of years, learn about the country’s history, etc, before you could apply to become a citizen. These days if you have enough money or are good at a sport the US wants to win at, you’re given it without doing any of this. It’s citizenship for sale, nothing more, so why Americans should continue to think that it’s “precious” when they give it away so easily I don’t know.
The husband is right to not want the wife involved in the finance or business. I have been down that road in several ways with several business’s. The IRS will not recognize the husband’s involvement or tax strategies used like RRSP or other tax credits. My wife was “angry” not being in the first business but like him I was fearful of the hazards.
When we got into another business we split the ownership. That business was bought by a competitor and through years of tax planning etc I got her portion monetized tax free in Canada but she got nailed full fair by the IRS.
We have again entered a business and she is not a shareholder.
She needs to lose the US citizenship if she wants to own or have signing on the accounts or business.
@TiredofIRS, Why is she hanging on to the citizenship? Changing citizenship does not change ancestry or heritage, but it makes it easier to enjoy what is the most important – home.
She needs to lose the US citizenship for other reasons to. They are on the road to ending the marriage – the US citizenship is the “straw which broke the camel’s back” – who needs it.
Life is simply too short to be a US citizen!
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