The exclusion of certain foreign-earned income (up to $95,100 in 2012) and housing benefits privileges income earned out of the country and encourages the movement of United States citizens to foreign jurisdictions.
1. With respect to tax evasion and fraud, work to maximize wealth and income transparency. The Foreign Account Tax Compliance Act (FATCA), and similar laws adopted by other countries, represents an important legislative step forward in requiring foreign financial institutions to report balances, financial activities, and transactions to a taxpayer’s home jurisdiction. Communions that recognize the fallen nature of humanity support transparent financial reporting. This transparency fosters equality and fairness, and helps address tax avoidance and fraud, including money laundering.
2. Work with international coalitions and communions to oppose “race to the bottom” policies enacted by states and countries that seek to attract business investment and wealthy depositors by assessing extremely low tax rates and creating secrecy jurisdictions. These policies hurt economic competition by disadvantaging companies that do not engage in tax avoidance strategies and reduce government revenues needed for domestic social and economic development.
Badger – great argument on pre natal conspiring. It would be a great addition to submissions to the House Ways and Means and Senate committees. Seriously, it illustrates the stupidity of CBT.
“Has no-one in the US ever heard that every day, babies are born outside the confines of the US? Or did those babies conspire to be born ‘abroad’ (ex. in Canada) in order to use and abuse the FEIE? Do fetuses engineer their conception and birth outside the US? Did they arrange to ‘leave’ the US? Since US citizenship can be conferred to people born outside the US, to one or two US citizen parents, obviously there are many babies born outside the US who have never set foot in the US, and who just happened to have a US status parent. There ought to be a law. Maybe Schumer, Levin, et al will come up with the Foreign Birth Abroad Prohibition Act to stop all that pre-natal conspiring.”
Very valid point with a dash of black humour, but from another POV, did any babies ask to be born INSIDE the US? Would any babies allow themselves to be born inside the US if they knew they would be branded for life with US Place of Birth indicia?
The point is, nobody can control where they were born, whether inside the US or outside the US. We are all “accidentals” in one way or another.
I find it interesting that organizations which are usually tax exempt *churches” would chime in on this at all. Yet again a decision is made without education on what FATCA really does in practice. People paying tax where they live and use services is perfectly fine, necessary. People paying them or being sought after by the hounds of HELL to pay for what they never use is nonsense.
“The Foreign Account Tax Compliance Act (FATCA), and similar laws adopted by other countries, represents an important legislative step forward in requiring foreign financial institutions to report balances, financial activities, and transactions to a taxpayer’s home jurisdiction.”
As long as they accept that the taxpayer can have their home jurisdiction you know, where they live and not necessarily where they were born – or their parents were born – the statement isn’t actually so bad.
@Lora
“report balances, financial activities, and transactions”, and
“similar laws adopted by other countries”
Please name some of the other countries that require this reporting.
Korea has an FBAR-like reporting requirement. I believe it’s also a non-tax form (similar to U.S. FBAR; I think it’s required by old currency control laws) and thus not subject to the usual tax law protections, etc. Though IIRC the reporting threshold is about 100x the FBAR threshold.
I post this without comment on this custom, but rather found it an interesting twist in terms of banks as enforcement agents of taxation – but in this instance, sorting their accountholders by religious affiliation:
Wednesday, September 3, 2014
‘Believers Flee Pews as Germany Enforces 9% Church Tax on Capital Gains’
By Paul Caron
“…….. While the church tax had officially always been due on capital gains, it had never been properly enforced. Under the new rules, which the churches lobbied for, banks will be required to report their customers’ religious affiliations, rather than wait for customers to volunteer the information. “We’re not doing it for the additional revenue,” said Thomas Begrich, finance chief for the Protestant Churches of Germany, or EKD, defending the change. “The wealthy need to pay their fair share.”
http://taxprof.typepad.com/taxprof_blog/2014/09/believers-flee-pews-.html
Here is the original article that is referred to in the taxprof blog:
http://online.wsj.com/articles/in-germany-many-believers-balk-at-tweak-to-church-tax-1409710540
‘In Germany, Many Believers Balk at Tweak to Church Tax
As Loophole Closes, Disgruntled German Catholics and Protestants Opt to Officially Leave Churches’
It’s taken me a while, but I have written a letter to these people, reproduced below without identifying information.
====================================================================
Advisory Committee on Social
Witness Policy
100 Witherspoon Street
Louisville, KY 40202
USA
Dear Sir or Madam:
Let me introduce myself: I am XXXXX. I consider myself a progressive, and I have supported progressive causes and political parties my entire life.
I am writing in response to the ACSWP report, Tax Justice: A Christian Response to a New Gilded Age.
First of all, let me say that this is a fine piece of work. I am not part of your communion and I cannot comment on the theological aspects, but your work is well thought-out and comprehensive.
For myself, I have become interested in tax justice only in the last several years. Tax justice is social justice, and if one cares about a society that is fair and just it is necessary to address how we finance the modern democratic state. I might add that I am a member of an organisation, Canadians for Tax Fairness, that addresses these issues in Canada. (I speak here for myself only, not for any organisation.)
With that understood, I wish to call your attention to an egregious injustice in the American tax system as it pertains to great many people, perhaps several million, living outside the United States. I hope you will consider these matters in any future work. Most of this has to do with so-called “US persons”, many of them with little or no connection with the US, and the US Foreign Tax Compliance Act (FATCA). As you are aware, FATCA requires foreign financial institutions to report accounts held by “US persons” to the IRS; institutions failing to do so face severe financial penalties.
I beg your patience, as I try to explain the situation as simply as I can. Here is the story:
Most countries, including Canada, tax on the basis of residence. If you live in Canada, you pay taxes to Canada based upon your global, worldwide income. This is the norm around the world. The United States is one of two countries in the world that taxes on the basis of citizenship (as well as residence). If you are a US citizen you are obliged to file and pay taxes to the US government, wherever in the world you happen to live.
The problem is that there is a huge discrepancy between the people the US claims legally to be citizens with tax-paying responsibilities, and the facts on the ground about the real lives of these people, many or most of them with little or no actual ties with the US. Many of them in fact have no idea that they are US citizens under US law. How can this be?
Anyone born in the US is automatically a US citizen. This creates a great many “accidental” Americans. These include persons born in the US to Canadian parents while they were temporarily in the US, e.g. as students, or tourists, or in some cases due to medical emergency. In 1986, there was a doctors’ strike in Ontario; for the duration of the strike most Windsor, Ontario babies were born across the river in Detroit, Michigan. These persons are US citizens, whether they know it or wish it, with obligation to file taxes in the US their entire lives.
There are other people caught up in similar manner. In most cases, a person born outside the US with at least one parent who is a US or dual citizen inherits US citizenship, even if he or she is a citizen of the country of residence, and even if the individual never sets foot in the US. Individuals who have moved from the US to Canada and taken out citizenship have faced bewildering flips in US law, giving, then removing, then restoring citizenship, mostly based upon US court decisions.
Even more important than taxation is the US treatment of “foreign” financial assets. It is perfectly legal for US citizens to have bank accounts or other assets outside the US, but they are required to report them annually to the US Treasury. Failure to do so is considered evidence of tax evasion, and the penalties are severe: up to 50 percent of the value of the assets per year for up to eight years, and up to ten years in prison. The problem is that the US makes no distinction between a wealthy individual living in Chicago who moves millions of dollars to the Cayman Islands to avoid paying taxes, and a retired school teacher in Toronto with ordinary savings and pension. They are equally criminal in the eyes of the US government.
About three years ago, the US government decided to go after these “US persons” living in Canada and other places, using a two pronged approach. First, there is an amnesty program called the Overseas Voluntary Disclosure Initiative (OVDI). Under this program, the offender reports all undisclosed savings, pensions, investments, life insurance, etc. The penalty formula is complicated but is a minimum of 28 percent of these assets, but could be much higher, easily 50 percent or more.
Second, armed with FATCA the US government intends to identify unreported accounts and impose the penalties described above, which will amount to outright confiscation. It is unclear how they will collect these penalties, as the Canadian tax agency has said that they will not collect them on behalf of the IRS. The major Canadian banks and insurance companies have operations in the US, and it is possible the US courts will support the IRS in collecting penalties on foreign financial assets through branch operations in the US. The US Treasury recently published a report investigating how to more effectively collect taxes from outside the US, in part utilizing services of the Department of Homeland Security.
When this situation first broke three years ago, it was met in Canada with panic and fear. The then US ambassador, Mr. Jacobson, asked people to remain calm while the problem was worked out. He said, “So far as I know, we are not going after seventy year old grandmothers.”
Three years have gone by, Mr. Jacobson has returned home, and clearly the US is going after seventy year old grandmothers. Every individual who has entered the OVDI has faced devastating punishment. Here are a few stories:
• A woman my wife knew as a child, born in the US to Canadian parents and brought back to Canada at age eighteen months. She was never financially very secure. She is now in her seventies and alone, except for an adult son who is mentally disabled and her dependent. Not wanting to leave a mess that might affect her son, she entered the amnesty and was made to pay a penalty of $15,000. She had to make multiple trips from Toronto to Syracuse to obtain a Social Security number and to deal with tax lawyers. In all, the cost to her (and her son) was in excess of $30,000.
• Patricia Anderson d’Addario, a woman born in the UK, immigrated to the US and became a US citizen. Later, she met and married a Canadian man and moved to Canada. She dutifully filed taxes every year, but did not know she had to report her savings until reading about it in a Canadian newspaper. She contacted a lawyer, who put her into the OVDI. She was fined $78,000 and subject to three years of deadlines and threats. She was unable to visit her brother in England, dying of cancer. Her submission to the House Ways and Means Committee is enclosed.
• A medical doctor in Vancouver is married to an American wife. Because of their unreported joint savings, their lawyer tells them that under the amnesty program they entered, they will likely have to pay $300,000 in penalties. (The mother of the woman is a friend of my sister.)
There are countless stories like these: ordinary, law-abiding people ambushed by the US government and forced to pay extortionate penalties on their ordinary savings and pensions.
From the point of view of the US government, they got off easy. The far larger number of individuals who have not come forward, can expect no mercy. The threat made by the US government is to inflict the full penalty under US law, which means virtual confiscation of savings and pensions.
I appeal to your sense of fairness and justice to investigate what the US government is doing in its treatment of these people. For your interest, I enclose a number of documents and articles.
There are a couple of related issues which I need to address:
Why not renounce US citizenship?
If people are unhappy being a “US person”, why not just renounce their US citizenship? This is straightforward, if expensive. (It was free until 2010, then a fee of $450 was set. The fee was recently raised to $2350.) Unfortunately, renunciation of citizenship through the State Department does not affect citizenship as determined by the IRS. For the latter, renunciation requires filing taxes for three years and paying all penalties imposed.
Who are the expatriate Americans?
There is a common perception that expatriates are wealthy Americans who left the US in order to avoid taxes. In fact, actual expatriates among the estimated seven million “US persons” outside the US are mostly ordinary people living ordinary lives. They often live in Canada or European countries where taxes are higher than in the US. Studies have found that their reasons for leaving the US are typically for marriage, for job opportunity, perhaps a sense of adventure or seeking a new start. These are much the same reasons why people move from one place to another within the US itself.
What is to be done?
The most immediate need is to eliminate citizenship-based taxation, which is a relic of the US Civil War, and is unsuited to our modern, far more mobile society. Only the small and backward African country of Eritrea joins the US in employing citizenship-based taxation. And the US successfully argued in the United Nations against Eritrea in its attempts to tax its diaspora.
Longer range, I hope the US will pursue a multi-lateral, cooperative approach to curbing tax evasion; the FATCA approach is widely seen around the world as bullying, as it turns non-US financial institutions into arms of the IRS and requires Canada and the European countries to revise their privacy legislation to suit US requirements.
The devastating impact of US tax policies on innocent individuals living outside the US is almost unknown within the United States itself. FATCA was introduced by Democratic Senators Baucus and Rangel; opposition to FATCA within the US is almost entirely in the hands of the libertarian right and individuals like Senator Rand Paul. In this polarized political atmosphere, the liberal and progressive leaders who introduced FATCA remain fixed in their commitment to it.
Tax evasion is a serious problem which undermines our societies and faith in the democratic process. It is necessary that it be addressed without harming the lives of innocent, law-abiding individuals and their families. As I noted above, I hope you will take this matter into account in any future work on tax justice.
Yours sincerely,
@nORTHERNSTRIKE……………….Superb.
@ Northern Shrike
Excellent letter and well worth the time and effort you put into it. I do hope it gets the positive response it deserves.
That’s a great letter Northershrike. I hope you get as well a thought out response. One correction. It’s five years of tax filing that’s required to extricate yourself from the IRS’s clutches when renouncing.
If you need another OVDI story please feel free to use mine.
“A Vancouver couple, both husband and wife dual citizens at birth, discovered they had tax filing obligations to the US only after selling their home in Canada. Under the OVDI amnesty program they were found to owe the IRS $100,000 in tax and penalties for a capital gain that is not taxable in Canada where the husband has lived his entire life, and the wife since she was 12.
Wonderful work NorthernShrike.
Folks,
Thank you for your kind comments! It is hard to address a complicated story with a complicated history in a few words. There is much that I had to leave out.
@Bubblebustin, What a terrible story. Should I have reason to write another letter of this kind, or if my letter leads to an exchange with the addressees, I will make use of it.
Again, thank you!
@NorthernShrike: Thank you!, Thank you! Thank you!
@Bubbles, I was absolutely shattered reading your account.
@George
This is such a horrible trap for so many people who were unaware of their tax filing obligations. Arthur Cockfield referred to FATCA as “gotcha legislation” in that lifetimes of saving and investing for retirement are suddenly discovered to be open to taxation by the IRS. Unfortunately for millions of people around the world, ignorance of the law does not excuse tax liabilities, only the penalties associated with it. The US government will NEVER be able to reconcile itself with its citizens living abroad as long as CBT exists. Why the continue to not see this atrocity is beyond me.
@NorthernShrike
Excellent letter. It is so difficult to make these problems understood as it’s so complex and there are so many different scenarios. You have done so well in both your explanation and your tone. We’ve all become angry at people who have said negative things about our situation, but you have remained calm and respectful. Simply amazing.
I hope the letter is received in the spirit it is being sent and that you receive a speedy and positive reply. Please keep us posted.
@ NorthernShrike Thank you for your letter, I hope it aids in the education of some of the homelanders. My story: My siblings and I are in this mess having been born to Canadian parents in the US and coming to Canada as young children. We thought we had lost the citizenship many years ago. The US government did not feel the need to inform us that the residency rule no longer applied and gave us back their citizenship. We had been told that we needed to apply for it and chose not to do so. Apparently we should have been calling the US Consulate monthly during our young adult years to keep informed of the ever changing US laws. I have confirmed our citizenship status with John Richardson. We are now living in Hell, otherwise described as US citizens abroad who have just found out about their citizenship status and tax filing obligations . We are retired or nearing retirement and face US taxation on our hard earned money to get out of this mess. It is so unfair that our Canadian Government has not stood up to the US and has choosen to help the US find us. I have no faith that our government will not cave further when pressured by the US to collect taxes and penalties from us. Had we known that our citizenship had been reinstated, we would have renounced years ago when there were no tax enforcement, penalties or fees, we were denied this opportunity. We are branded criminals for tax evasion based on a citizenship we did not know we had.
Heartsick. You may have confirmed your citizenship. But what else has changed? Why start filing now?
I agree with Duke… regarding his suggestion to HeartSick that he/she not start filing that is.
@DukeOfDevon,
Re: “…what else has changed?”, lots has changed for Heartsick.
hmmmmm…’lots has changed’, or maybe its ‘a lot has changed’.
@ Duke of Deven, WhiteKat FATCA has changed life for most of us and yes, I have donated to ADCS. The lawsuit will not happen fast enough for me. I risk being discovered by my financial institution as do my siblings. No one knows if and when they will ask for place of birth. One sibling was asked by the Royal Bank a few years ago to produce a birth certificate for a mortgage?? I have been a stay at home housewife most of my life so the savings at risk are my spousal RRSP, my savings, our RESP. My husband has moved his money to accounts that I have no access to, but they are still at risk of fines when they were in the joint accounts. I have had many sleepless nights about my situation. Some can live with ignoring the situation, I cannot, it is my decision. I am not sure it will be safe to hide anymore. For my situation filing may be the cheaper way out (mentally and financially), the US taxes are minimal, its the accounting fees that will be high because of a TFSA, an RESP and a couple Canadian Mutual Fund investments. I am still in the process of calculating the damage/taxes myself and am working with John Richardson. I do not want this citizenship, I never did, it sickens me to have it. Some time in the future things may change due lawsuits and election promises, I don’t feel I can risk the wait.
Heartsick. Fair enough. You’ve clearly weighed your options. Good luck.