— U.S. Citizen Abroad (@USCitizenAbroad) August 10, 2013
This is a rather disappointing article from an author who has written on this issue before. Why disappointing? The general tone seems to equate Americans Abroad with tax evaders and terrorists (whatever those are). That said, it’s one more article reporting the increasing numbers renouncing U.S. citizenship.
The U.S. launched the tax crackdown after the terrorist attacks of Sept. 11, 2001, and ratcheted up its efforts after 2009, amid evidence that UBS AG UBSN.VX 0.00% and other foreign institutions helped U.S. taxpayers hide assets.
Some taxpayers have applied for IRS limited-amnesty programs, in which they pay stiff penalties for past noncompliance but avoid prosecution.
Tax lawyers say the crackdown has ensnared smaller violators who weren’t intentionally evading U.S. taxes.
In addition, a law enacted in 2010, the Foreign Account Tax Compliance Act, or Fatca, requires foreign financial institutions to certify they aren’t hiding U.S. taxpayer assets, which lawyers say is leading some to reject U.S. customers.
Taxpayer penalties for failing to report assets can be severe, including up to 50% of an account balance for each year.
Although there is some suggestion that renunciations are caused by the time, expense and fear of compliance burdens, these suggestions are “too little and too late” in the article (at least that’s my interpretation). Therefore, I would suggest getting over to the comment section and offer them an “IBS Educational Seminar” on the impossibility of U.S. citizenship abroad.
Interestingly there was one rather good comment from some guy named Roger Conklin (amazing how much he seems to know). He argues, rather convincingly that a move to RBT/Territorial taxation would be good for the U.S. economy.
The US is one of the two nations of the world that belong to that very exclusive club of countries that subjects its citizens to citizenship-based taxation. The only other member nation is Eritrea, a” thriving” democracy in Africa. These two nations, in addiction to subjecting all of their residents to taxation on their world-wide income, also subject their citizens to homeland taxation if they live and work abroad, as if they never left home. Both US and Eritrean citizens living abroad are simultaneously subject to the tax laws of both their country of citizenship as well as the country where they reside. Both exert their “right” to assess and collect taxes from their citizens residing within the sovereign borders of every other nation. All other nations tax the world-wide income only of their residents, regardless of citizenship.
The UN Security Council condemned Eritrea by Resolution 2023 (2011) in December 2011 on the basis that its citizenship-based taxation violates the UN Universal Human Rights Declaration by depriving its citizens of the right to freely leave and return to any country, including their to own. They can leave, but they must continue to pay Eritrean tax no matter where they go. Heaven help them if they return home for a visit not being current in their tax obligations. Susan Rice, then US Ambassador to the UN, led the charge in securing this condemnation, thus asserting the right US to be the only nation permitted to violate the territorial taxation sovereignty of other nations with impunity.
FATCA obligates all foreign banks, at their own expense, to violate the privacy laws of their countries by providing fully-detailed annual reports to the IRS on all of their accounts with any US-person ownership, including jointly owned by their foreign spouses and relatives, in English with foreign currency values converted to equivalent dollars. Prominent US citizens living abroad, having been born in the US, include the King of Thailand, the mayor of London, one dual-citizen Canadian provincial premier and 6 members of the Canadian parliament as well as the 2 adult children of recently-deposed Egyptian president Morsi, as well as all children born abroad to one US parent who speak no-English, have never been in the US or held a US passport who likely do not even know they hold US citizenship. All are subject to US taxation and FATCA. There are 16 IRS instructions for US citizens abroad with 7,332 pages, plus 667 pages of tax forms. The FATCA instruction for foreign banks has 544 pages. The middle-class US citizen abroad can expect to pay the equivalent of one month’s wages for competent professional assistance in filing his US tax return, even though foreign tax credits in very high tax countries may totally offset his US tax obligation. Citizenship based taxation is not a revenue generator for the US Treasury, but a punishment for Americans residing outside of the US.
It has become virtually impossible for the US citizen to survive living abroad, leaving them with the choice of citizenship renunciation, or abandoning their foreign spouse and family, shutting down their small business, resigning their job and relocating to the US to join the ranks of the unemployed. How this can possibly be in the best interests of the US defies explanation. No other nation punishes its citizens by criminalizing their living and working in another country.
Roger, it’s not “virtually impossible”. It’s actually impossible.
On a brighter note, the authors clearly believe that Canada is a country that is foreign to the U.S. This appears to contradict recent assumptions by the NSA which consider Canada part of the Homeland. The author’s note that compliance costs may be a factor in at least on Canadian renouncing U.S. citizenship.
The cost of complying with various rules and regulations can be steep even for people with small tax bills.
Carol Tapanila, who moved to Canada more than 40 years ago and is now retired, renounced her citizenship in November and appeared on the current list. She says her U.S. taxes amounted to about $250 last year and she didn’t take the step to avoid paying them.
Legal and accounting fees and other costs of making sure she was in compliance in recent years have added up to nearly $40,000, says Ms. Tapanila. “It is nothing but stress.”
And finally, we have the usual comments from our “friends” the cross-border professionals. Of particular interest is:
The U.S. is rare in that all income earned by citizens and permanent residents, even those living abroad, can be subject to U.S. tax, according to Bryan Skarlatos, a New York lawyer. The U.S. also confers citizenship on people who are born on American soil.
Note: the link was added by me and is NOT part of the article.
And an interesting acknowledgement from a former IRS prosecutor (could this be somebody worth reaching out to?):
The web of rules is “overly burdensome,” said Jeffrey Neiman, a former federal prosecutor who led the 2009 UBS case, which resulted in the bank’s agreeing to a $780 million settlement. He now is a lawyer in private practice in Fort Lauderdale, Fla. “You basically find yourself in this continuous nightmare.”
Note: the link was added by me and is NOT part of the article.
Your mission, if you choose to accept it, is to continue to educate these Homelanders, journalists, and U.S. based tax professionals!