Renouncing Your U.S. Citizenship: Is Divorcing Uncle Sam Right For You?
By Alexander Marino JD, LLM (US Tax)
The billionaire co-founder of Facebook, the only American member of Monty Python, a Civil Rights Leader with a PhD from Harvard, the founder of Carnival Cruise Lines and owner of the Miami Heat NBA franchise, and arguably the best chess mind to ever live have more in common than you might think. So what do Eduardo Saverin, Terry Gilliam, W.E.B. Du Bois, Ted Arison, Bobby Fischer and thousands of U.S. citizens living in Canada have in common? The answer is all five have renounced their U.S. citizenship.
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Surprise, surprise… The lawyers/accountants charging between $300-$550 per hour for OVDI and tax returns are warning their customers/victims against renouncing. The best course of action they say would be to keep paying them thousands of dollars annually to maintain all the “benefits” of US citizenship abroad. I know lawyers have a bad reputation, but that is really pushing the limits of sleezy behavior. Needless to say, I’ve already renounced. Anyone living abroad as a US citizen is ignoring the writing on the wall. Repatriating or renouncing are the only safe bets in the coming years.
I’m surprised that Mr Gilliam doesn’t know about the Reed Amendment, or does he not care to visit the US again?
Rather than provide me protection in Iraq, Iran, Syria and certain African countries, I would think that US citizenship is more likely to get me kidnapped or worse, killed there. Moody’s doesn’t seem to be aware that the US requires its citizens to reimburse the cost of the evacuation, not really a perk.
There is a lot of misinformation out there on renunciation. The reason we wrote the article was to bring clarity to the issue.
@Roy Berg
There is, and I think you did a pretty balanced job in explaining the pro’s and con’s. The more information the better, but what USP’s also need to concern themselves with is the fact that the current situation is not static. What we live with is the ongoing fear and uncertainty that things can get much worse much for us if we remain US citizens, thanks to the continued attacks by our friends in congress.
@Roy Berg: I see you’re with Moody’s Tax which published the article. Kudos to you for participating in the discussion. Please accept my apology for my first gut reaction to the article. As you and bubblebustin point out, on second reading, it is more balanced than I gave it credit for on my initial read. You are right that renouncing is personal decision that must be arrived at by each individual based on their specific circumstances.
While still at a young age (late 20s to early 30s), renouncing US citizenship makes 100% sense to secure one’s economic future while living abroad.
I am only 2.5 years away from acquiring Swiss Citizenship, and I am currently keeping all my finances as simple and safe as possible (cash in Swiss Francs, hence peanuts in terms of realizable capital gains of any type). I have no intention of marrying or having kids until I rid myself of my US Passport.
Once I acquire the Swiss Passport, I will immediately report my expatriating act to the US Embassy in Bern, demand a CLN, and then start focusing on the larger things in life such as acquiring property and financial planning.
@ all
Full credit belongs with my colleague Alex Marino, who authored the article. Alex has represented US citizens in the acutal renunciation hearings and has first-hand experience in this regard.
Curious, Roy and I don’t know if you will want to answer this but for all of the enquires you receive, what percentage would you say are becoming tax compliant with the intention of renouncing? My guess, it’s pretty high, which would lead one to conclude that with fewer US persons retaining US citizenship and the drop in immigration from the US because of the now known handicap of US citizenship when living abroad, US tax practitioners in Canada may become a dying breed. Make hay while the sun shines!
We all must make our own decisions based on much, what did Just Me call it? — the drudgery of lots and lots of research on which to base our decisions. It is not something that someone can do for us, even a proper law or accounting firm. That’s what this Isaac Brock site is for — besides the continuing support for one another that we can’t find elsewhere, a forum where we can gather so much information and a few different points of view.
As well, that is what this Moodys Tax Advisors post is for — another important piece for our toolboxes as we individually wrestle with what it means to the rest of our lives to retain US citizenship.
For many of us who left the US to put down roots in other countries decades ago and made those countries “home”, we assumed it was our right. There are consequences even now for some of us from that era for renunciation as we are learning while being shaken from our complacency. Most of us wish to be out from under the hand of the US and wish only full allegiance to the country of our choice, not the country of our accident of birth.
Others have gone abroad for work purposes and adventure, fully intending to go back to the US — most of that subset would likely wish to retain their US citizenship — unless fate puts a marriage or something like that in their path.
How I wish there were some common-sense remedy for those of us who do not view our “home” as the US. For me, I wish there was not the “gift” we were given of dual citizenship. I’ve renounced — and I must say with the help of this law firm as I did not have tools in my toolbox to be able to do it myself. My lawyer knows very well my anger at having to use retirement funds to obtain the help I need. He also knows that that anger isn’t toward him personally. It was my fully informed choice to hire the education and the expertise I lacked to reach my goal. I indeed feel fortunate that I had those retirement savings to fall back on — or I don’t know what I would do. By the way, I was not advised to go into OVDI.
My heart aches too much for those who cannot afford the help they may, too, need as they can’t do it themselves. I don’t know what the answer is — but I do feel that this site might provide some of the tools they need or to realize the mistakes they should not make by looking at the experiences of others like me!
How I wish there were a better means for all of those “accidental” Americans we US citizens abroad brought into the world — for them to actually be able to make a choice. They should bear no adverse consequences because of their accidental places of birth. It’s too bad that their parents’ US citizenship didn’t give them a real choice rather than the consequences they automatically face — a choice whether or not to go ahead and claim a US citizen with life opportunities that might bring if it is what they determine. Theirs should be a fully informed choice, not something thrust upon them and ends up, in many cases, a ball and chain.
As well, I feel the US workers going to foreign countries need to be better educated on their US tax responsibilities before making that jump — some like the labourers needed for the Canadian oil patch who are not going to have their US taxes done for them as part of an employment package, need full disclosure as they leave the US for work opportunities abroad. That same education, of course, somehow needs to be part of the “new immigrant to the US” package. It just needs to be!!
My first wish is common sense, some compassion from the US. We who frequent this site are NOT tax evaders and we’re weary of being labelled traitors. My second wish is that our adopted countries stand up for their US Person citizens and residents who contribute to the well being of that country. My third wish is that we each come out of this a stronger person, appreciating where we are and realizing we need to pay full attention to protect our rights. I’m definitely a different person than before my OMG day. My last wish for myself and for others is that we can find a place for our anger to go — so we can get back some of the joy of living we formerly had. We’ll get there, with each other’s support.
Again, thanks to all of you who have been part of my coping with this life-changing experience.
This is Alex Marino, I’m the author of the article. All of our clients become compliant because they are afraid of the consequences of non-compliance… especially with the FATCA dragnet going “live” in 2014. Renouncing is always an afterthought. That being said, after being dragged through the knot hole of OVDI, OVDP, Streamlined, etc. ALL are interested in renouncing afterward, though not for tax avoidance purposes. Many are able to renounce at that point, however, most must engage in additional planning in order to avoid the “Exit Tax” as I discuss in my article.
Similarly, most of the individuals who have not approached us for “catch-up” filings but are interested in renouncing require additional planning for various reasons.
Your last sentence raises a very valid point: at some point all those who are interested in becoming voluntarily compliant will do so or will have renounced, or both. I agree, that when we reach that point those “self-appointed experts” (unscrupulous practitioners who view the precarious position of these individuals as “easy marks” for a “cash grab”… yes those individuals are out there, so BEWARE) will vanish with the winds…which is a good thing (good riddance!).
However, for the following reasons I disagree with your conclusion that “US practitioners in Canada may become a dying breed.”
FIRST, the vast majority of US citizens residing in Canada have not become compliant, and FATCA will expose these individuals.
SECOND, those who have become compliant, or renounced citizenship, with inexperienced advice may experience fall-out from defects in their endeavors.
THIRD, typical Canadian corporate, income, and succession planning becomes very complex when a US citizen is involved. This is so even if the US citizen is an otherwise- US tax compliant individual.
FOURTH, the Canadian economy and job market is very strong and the US equivalent is.. well… enough said. This is why, US immigration to Canada is at an all-time high.
FIFTH, the US estate tax will continue to apply to Canadian citizens/residents who own “US situs” property.. which includes US stocks and bonds AND US real estate.
SIXTH, the US and Canada are each other’s biggest trading partner. Cross border issues resulting from international trade will exist as long as this remains to be the case.
Like the IBS readers, I look forward to the day that “catch-up” filing is a thing of the past and the focus shifts away from a “contrived problem” (which is how I view the IRS crack-down) and to real issues. Until then, however, we will continue to shed light on these opaque issues and offer a professional perspective when there when there is precious little of this available elsewhere.
Keep the Faith,
Alex
Let me refute those five benefits:
1) Protection of U.S. Citizens Abroad – Sorry to poke a hole in that wonderful bit of fiction: but unfortunately, you end up being stuck with the $50,000-70,000 bill for your removal from “danger”. Of course in the heady relief of being uplifted from danger, you end up forgetting that you’re going to be on the hook for the evacuation.
2)Consular Services Offered to U.S. Citizens Abroad – Consular services are available to U.S. citizens living abroad and include assistance in situations of detainment by foreign governments, passport issues, and cross border legal affairs. – The Canadian consulate offers the same thing to Canadian citizens abroad; the US consulate is not exceptional in this.
3) The Right to Vote in U.S. Elections – My wife wants the ability to be able to vote in Canadian elections – she is not interested in voting for a Senator or Congressman who will not represent her. If you go through the IBS site, you will see many instances of congressmen or senators who will do absolutely zero to listen to any of the expatriate citizen concerns. Why if we American expatriates get zero representation in government should we want to retain the right to vote in any American elections?
4)Access to the U.S. Job Market – Why would I want to access the US job market. My wife works in Canadian retail, my kids all plan to work in Canada? The only reason why access to the US job market would even be on any American expatriate’s radar would be if he wishes to repatriate to the United States. Many expatriates have chosen lives outside the United States because a) they have family there – they have married non-resident aliens. b) they want to have a life outside of the United States and have no interest in going back.
5)Travel to the U.S – This shouldn’t even be considered a problem unless there are overly zealous INS border services guards. A United States ex-citizen should be able to enter the United States with a Canadian passport as a visitor. There should be no problem other than INS agents overstepping their bounds. The only reason why my wife would be interested in entering the United States would be to visit her mother in Louisiana and she is pretty much resigned to the fact that the US has decided to become overly paranoid thus necessitating her to stay north of the 49th parallel. She does not want to enter a country that is completely paranoid and restrictive of freedoms.
What I find is that the United States proclaims its so-called “exceptionality” at every possible opportunity. There is no benefit to being an American citizen any longer. And with the current “entitlement attitude” of American homelanders to expatriates’ legally earned income without compensatory representation, one starts to feel that a repeat of the “Boston Tea Party” is well-considered a great idea. I wonder if anyone remembers the reasons why the 13 colonies seceded from Great Britain – lack of representation and excessive taxation. A pity, because those same principles for secession from Great Britain are the same reasons why American expatriates are incensed by American “entitlement” to the fruits of the “expat’s labors” in foreign countries.
So how’s them apples for ya? My wife will be glad to renounce her US citizenship. My point as a Canadian citizen and solely a Canadian citizen is that the United States has absolutely NO RIGHT to her income when it has all but abandoned her. Canada gave her an education, Canada gave her a job and Canada gave her a life beyond a continued “life of destitution” that would have been her situation in the United States. I don’t think the United States has a right to demand anything from her!
@Calgary
Your wishes are mine too and that we all eventually find some kind of peace. But that seems so far away and dependant on the the actions of others right now.
@alex marino
Thank you for your response and professional insight. I’m sure you’ve helped many people through this difficult time as you have Calgary 411, and have provided valuable expertise where it is needed. I’ll grant you that there will probably be a significant need for your services as long as US citizenship based taxation continues to exist. Market share probably isn’t much of a concern to you either, due to all of the reasons you’ve stated and as they exist today. But no situation is static. It would seem that you have a vested interest in FATCA being implemented, although it’s future is not entirely certain, and even though your clients loathe it. FATCA however may prove to be the first step toward the end of citizenship based taxation, or it will at least bring an awareness to the still predominantly unknown and insurmountable handicaps that face the majority of Americans when living abroad. Do you have any data on how many of these recent immigrants to Canada from the US know about their tax filing obligations? If Canadians are eager to renounce US citizenship because of tax issues, reason would have it others would be deterred from emigrating for the same reasons-if they are aware of them. The tax difficulties and the second class citizenship that the US’s citizenship based taxation brings hasn’t been an impediment to American migration only because most Americans don’t know about it.
I fail to see how the life altering repercussions of ‘catching up’ for many can be a result of a ‘contrived problem’, unless of course you look forward to the day that the compliance mill runs like a well oiled machine with an endless supply of clients, which isn’t likely to happen.
Hi Alex, thank you so much for writing the nice article! If you don’t mind, I have one minor question concerning:
What do you mean with “fall-out from defects in their endeavors”? Is this more directed at those with wealthy savings? Minnows have nothing to grab and thus nothing to fear, in my view.
Maybe there’s a tiny bit of hope for the future of the US. Kurt Rademacher, tax lawyer at Butler Snow, pointed out on WSJ that not all Americans abroad are tax cheats and that the US is pushing away valuable citizens. They argued that everyone who joined the OVDI was a tax cheat, though.
Law Targets US Taxpayers Hiding Money Abroad
http://live.wsj.com/video/law-targets-us-taxpayers-hiding-money-abroad/6CB43435-19D8-4ADA-A80C-920601D6D53E.html#!6CB43435-19D8-4ADA-A80C-920601D6D53E
@swisspinoy….that not all Americans abroad are tax cheats and that the US is pushing away valuable citizens. They argued that everyone who joined the OVDI was a tax cheat, though…… wow ,oh realy absolute rocket science directly from Pensacola. There is a tiny bit of hope ? Are you serious ?
…What do you mean with “fall-out from defects in their endeavors”?…… the emphasis is on “inexperienced“ and bad advice which usually costs more money and LCU`s because it needs to be corrected at some point regardless of Whale or Minnow ..
As I see it, for Americans abroad the reasons for not renouncing are dwindling continually. Any so-called “benefits” of US citizenship clearly do not hold up to scrutiny. In light of the consequences one has to deal with in keeping US citizenship, the only compelling reason I see for not renouncing is having the option to move back to the US for family reasons. For most expatriates, the existential risk of retaining US citizenship far outweighs the financial burden which may be incurred by renouncing. Like many other expatriates, I feel a deep sense of betrayal on the part of the US government, which has willingly caused grave problems for honest, hard-working citizens abroad, making “normal” life all but impossible. It is truly reprehensible, and completely unacceptable. Only now that I am no longer a US citizen have I come to enjoy what it means to be free.
“Name and Shame Game (Consequence): Section 6039(G) requires the Secretary of the Treasury to publish the names of individuals who have been determined to have renounced U.S. citizenship or abandoned long term permanent resident status under section 877 or 877A. From 1996, when names first began to be published, through 2011, 11,184 names have been published in the Federal Registrar. It is important to remember that this list includes only those individuals covered by section 877 or 877A. Thus, individuals who renounce their citizenship and do not exceed the net worth and tax liability test, as discussed below, and who certify on Form 8854 that they have complied with U.S. federal tax obligations for five years preceding the date of expatriation are not included. (IRC § 6039G(d).)”
What about this from the Moody’s article? There have been cases of people who do not meet the “covered expatriate” criteria, but who are on the list, so that cannot be it.
@notamused ……. yes good point , many things seem to be very random here.
An Irish I was speaking with sees parallels between the colonial rule of Ireland by Britain and the US’ current attempt to control its overseas citizens. The Irish did not consider Britain’s colonial rule to legitimate and ignored and rebelled against it. He cited an example where Irish were required to register their children’s births with the colonial government but often did so only with the church since they considered the colonial government to be the oppressor.
As a result of unreasonable requirements put on foreign banks to identify US citizens and USPs, which in turn are causing denial of basic banking services to these individuals, the US is fast losing its legitimacy with its citizens abroad.
@Animal
Very valid points. In point two you wrote:
“2) Consular Services Offered to U.S. Citizens Abroad – Consular services are available to U.S. citizens living abroad and include assistance in situations of detainment by foreign governments, passport issues, and cross border legal affairs. – The Canadian consulate offers the same thing to Canadian citizens abroad; the US consulate is not exceptional in this.”
I would also add that the prices for US Consular Services are ridiculously HIGH. For example:
http://jerusalem.usconsulate.gov/service/schedule-of-fees.html
About 10 years ago I was in an overseas US Embassy when three American construction workers spoke with a clerk about their predicament. They had come to that country to work on a project a month before, had not been paid and were out of money and did not have the funds to fly back to the US. A few minutes later a more senior US consular services person appeared who explained to them that there was nothing the State Department could do to help them with their situation. He suggested that they contact relatives and friends in the US to wire them funds for their return trip.
To the best of my knowledge, this advice was free.
@RoyBerg
I see that you are a member of “Democrats Abroad” (your bio on the Moodys site). Presumably, you of all people understand that the Obama administration have the been the ones who have unleashed this “reign of terror” on US citizens abroad. Democrats Abroad through their support of the administration are clearly complicit in “this” (what Mr. Marino calls a “contrived problem”). What is “this”? How about the complete and absolute destruction of the lives of some of the most (formerly) Patriotic US citizens on the planet. Could you shed some light on why “Democrats Abroad” is so ineffective when helping U.S. citizens abroad – seeming only to agree that they have been granted a great privilege in being allowed to live abroad.
I also would be interested in knowing whether your membership in this organization, which by definition exists to support the Obama administration, affects your ability to represent your clients. Do you share the views of the Obama administration and Democrats Abroad that living abroad is a “privilege” for which one should accept cruel and unusual punishment.
What do you think about this “contrived problem” as described by Alex Marino?
@AlexMarino
I have mixed feelings about your article. On a purely content/intellectual level I would give it a passing grade. As the comments have demonstrated, most of the things that you cite as “benefits of citizenship” are simply ridiculous. And in any case, the real issue is (assuming the benefits are real) whether they could possibly justify living under “US Tax Terrorism” for the rest of ones life.
The reasons why (at least long term expats) MUST renounce are exactly the reasons that you give as justifying the need for US tax lawyers in Canada – namely any US connection in anything is a problem (Note the earlier comment from the guy who won’t marry his girlfriend as long as he is a US citizen). Here is what you say:
Your list of reasons demonstrates the danger of being a US citizen abroad. Also, I am going to be honest here – and I would like a response. How you can possibly describe “OVDI” and its ilk as some kind of “contrived problem” is simply beyond me. How about explaining this. To me it suggests that YOU SIMPLY DON”T GET IT! People’s lives have been and continue to be destroyed by this.
The people who come to you are not coming because they have problems with the IRS. They are coming because of the emotional and financial effects on their lives and the fact that they are caught between a rock and a hard place. Here are the twin realities of US citizens abroad:
1. Any attempt to come into compliance subjects them to the equivalent of terrorism from the IRS. Remember, they are not allowed to come into compliance without the threat of life altering penalties.
2. The great “US Citizen Hunt” is beginning – this is another huge threat.
So, please understand. US citizens abroad do not really have tax problems. They are under siege. Every aspect of their lives and being is threatened.
when do we understand here that anybody who has to profit from the Obama “US Tax Terrorism” is playing good cop/bad cop depending on his current audience. What did someone say correctly yesterday : Democrats Abroad are like the Stepford wifes ?!