Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Issues regarding US persons abroad 174 Comments

Democrats Abroad has published a report of their four month study of how FATCA affects Americans. These reports have been sent to “selected members of Congress and senior officials at the US Treasury and IRS.” DA also indicates discusions with them are ongoing.

The report consists of the following (3) documents:

1. Executive Summary of 2014 FATCA RESEARCH PROJECT – “FATCA: Affecting Everyday Americans Every Day”

2. 2014 FATCA RESEARCH PROJECT – “FATCA: Affecting Everyday Americans Every Day”

3. 2014 FATCA RESEARCH PROJECT – Datapack

174 thoughts on “Democrats Abroad Publishes FATCA Research – “FATCA: Affecting Everyday Americans Every Day””

  3. @Bubblebustin,

    Don’t forget about all those ‘perceived benefits’ we get by being ‘US persons’. Someone has to pay for those you know.

  4. “Perceived” tax evasion – should be followed with – by “possible” criminals – for accuracy’s sake.

    Off topic a bit but I wonder what will happen to FATCA in Scotland if they vote “yes” today?

    I hope they do. It would be nice to see a people stand up and vote for something that is real change rather than the milquetoast variety we are generally handed by our politicians. I saw an article on independence votes over the last 100 years that estimated in referendums like these, countries vote “yes” 88% of the time. The odds makers are saying though that “yes” will fall short today but I would love to see the opposite. Nothing like a bit of real freedom to energize the rest of us.

  7. @Ricard – What would happen if you told them you didn’t have a US SSN? Or even a NI NINO? Or even entered garbage?

    It looks like you received a ‘self certification’ letter that was mentioned in the IGA. In other words the bank is taking that information at face value.

    However, the IGA gives the bank full autonomy to judge the self certification reliable. If they deem it unreliable or you don’t respond – your data goes off to the IRS.

    UK KYC regs don’t require US SSN, UK NINO, or city or date of birth. You may be volunteering the information.

    http://www.legislation.gov.uk/uksi/2007/2157/pdfs/uksi_20072157_en.pdf

    Do you have a EU or British passport?

    A legal way to get a second identity is to legally change your name on your EU passport. On my EU passport it only shows ‘USA’ on the birth place. So if I changed my name, entered a fictional birth city, false SSN number, and refused the NI number, the IRS would essentially be getting garbage and would have to resort to a manual investigation.

    It’s the rub to all this –

    On the document search under ‘self-certification,’ – if the FFI deems the information unreliable, then your account gets deemed ‘US reportable account,’ whether you like it or not.

    So the FFI has full discretion to judge whether the information is reliable.

    Real world scenario – the FFI will err on the side of caution and send off your data. What’s in it for the FFI to withhold? Nothing. They’d rather take the wrath of a powerless customer than expose the FFI to an IRS investigation.

    I’m seriously thinking about changing my legal name on my EU passport than I’ll have two identities. One for Europe and another for the US until I see how FATCA plays out in the courts.

  8. @Don You ask “What would happen if you told them you didn’t have a US SSN? Or even a NI NINO?”

    They say “If we don’t receive this information we will be legally required to report you and your account to the tax authorities”.

    However, I see no downside in simply telling them all they want to know. Since I am diligently reporting to the IRS all my financial accounts and any interested earned, I’ve nothing to gain by not answering the questions.

    I have UK and US passports, both showing my UK birthplace. I could have chosen in my initial application not to tell them I had a US citizenship and I guess there would have been no way they could know. But, again, there is nothing to gain by it. FATCA can be fought in other ways.

  9. WhiteKat, I keep hearing about those “perceived” benefits of being a US citizen. ~barf~ Does anyone know what those perceived benefits are? Can anyone list them? Because this Canadian here doesn’t see any benefits “perceived” or real to being a US citizen.

    Unless it’s just the “benefit of being taxed to death.” Frankly, I don’t need to be an American citizen to get that benefit. All I had to do was make my SIN number available to the CRA and the CRA will happily smash any income I have by 29%.

  10. @Ricard – Well you’re in the IRS system. But if someone has a UK place of birth, why bother telling the bank? Especially if you have a common name that comes up with 100,000,000 hits on Google.

    At the end of the day these are the real issues:

    The IGA, it’s reporting limits, self certification or anything else mean nothing and are just window dressing. It’s all down to the bank’s discretion and if they cock up – tough *uck.

    Does all this transparency with FATCA affect you to live your life on a equal footing with other sole UK citizens? Certainly YES. Your denied investment opportunities, subject to double taxation at times, if you want to start a business (what non-US investors would want to invest with you?), take advantage of tax deference schemes like ISAs or Pensions (whether they’re US reportable or not), and a waste of time filing in intrusive forms and paying professional if needed.

    Should the UK government (whatever may be left after today?) support another country’s taxation policies when it puts you at a disadvantage when you pay all your UK tax?

    FATCA won’t disappear, however, there’s very important questions about autonomy (both individual’s and country’s) that need to be answered.

    Discrimination, and Equality are important issues, but FATCA takes away from your individual autonomy which other UK citizens enjoy.

    If you’re honest with a bank in Dubai working for tax-free salary why should the UAE treat you differently than other UK citizens in terms of taxation?

    I feel simply renouncing and paying $2350 for nothing other than an A4 sheet of paper is going down without a fight.

    What everyone is basically asking to happen is for the US to continue with CBT and ask local governments/EU to ‘carve out,’ resident citizens enforcing RBT reverting the reporting responsibility back on the individual rather than the FFI – or the pre-FATCA age forcing a proper debate and daring the US to start withholding 30%.

    That’s it’s that simple.

    At times this farce feels like something from Hamlet – Comply or not to comply?

    Most of my relatives came from outside the US, and I feel they didn’t come to the US to make their decedents permanent tax slaves of the US.

    If you’re compliant why don’t you challenge FATCA in the UK courts? You might even get legal aid?

  12. “Percieved benefits” Animal, ninety nine percent of my family are there. Right of a return would have been a benefit. If something happens to my husband here then I”m here pretty much alone into my dotage until death. So yeah, I percieved the right of return as a benefit. Unfortunately, the demands FATCA made on my family HERE were so onerous I had to give up that right of return. Catch 22. For some people believe it or not there ARE benefits to citizenship U.S. or otherwise. I do think however that those benefits ought to be seen as a birth right and not dependent on how much you pay which is the way most other rational reasonable nations do things. Oddly enough 50 percent of the people living inside the U.S. as citizens pay ZERO in taxes with no down side for them. Too bad if you don’t live there, there are dollar signs on your head whether you would owe tax or not. It’s all so insane who in their right MIND would think things are actually this way by law.

    @Victoria, who told you at treasury they weren’t going to do anything about the discrimination? Do you have a name because wow, that’s quite something to hear come from them directly isn’t it?

    Worst administration in my life time in power right now. The very worst and that is really saying something!

  13. The Democrats are playing a very dirty game. They are fully aware that CBT is ridiculously unfair. The increase in the number of renunciations and amount of bad press the issue is getting is forcing them to publicly acknowledge the problem, hence the no-shit-Sherlock “research” results.

    However, the Democrats will be careful to move ever so slowly towards solving the problem so not to rock the boat before they have a chance to grab a windfall of cash through at least one grand FBAR fundraising jubilee.

  14. Atticus; when my wife came up here, she did not see “right to return” as a benefit. She made a conscious choice to leave the United States and come up here; choosing her marriage and her husband as her family as opposed to the rest of her family down in the States. She is deeply resentful of the fact that the United States is trying to tax her income and she feels no ties to the United States despite the fact that she has family down there. In fact she is planning to get her Canadian citizenship (once this low-income family has the means to do so).

    “Right of return” may be a benefit in the views of some expats, but I don’t believe that it is the view of very many considering the vile betrayal of the country that they were born in.

    …and as a Canadian, I will be damned if the United States gets a chance to see my bank information. Both middle fingers are up.

  16. A well-connected “homeland” friend has read the DA survey report. He has also read “The Business of Life”. He writes, “I’m sorry it’s such a mess for you, do you know if there’s any organized effort to lobby Congress on this issue? I’d be happy to talk about this to Leader Pelosi’s Chief of Staff. Most of what the Democrats Abroad wrote about wasn’t very articulate, and it didn’t seem to propose an alternative. Surely there must be some group with a good position paper and talking points that I could use?”

    So here is an example of a sympathetic “homeland” Democrat who offers to raise the issue with Pelosi’s Chief of Staff. How should I respond to him? I know of lots of good articles, from Isaac Brock, Robert Woods, Wall Street Journal, etc. But I have only been reading around this issue since March 2014. My angry UK spouse says I should tell him about how our retirement savings are being savaged, and how my health has been damaged. But my friend asks for “a position paper with talking points”. It would be too easy to send him to much. I should be succinct. Let’s imagine that whatever I send might not just fall on deaf ears. What do others think would be the one best thing to send?

  18. @foo

    Thanks for that link. I think the video is good. It talks on points that Democrats should like. I certainly was going to say to my friend the the problem is mainly CBT. Of course there are other heads to the monster (FATCA, accidental Americans, etc), but it becomes too much to take in every aspect at once.

    As regards double taxation and CBT, I often get the query “But what about the tax treaties?”. The man in the street has heard of these and the FEIE and believes “problem-solved”, andif not then I must be doing something wrong. Does anyone know of any worked examples that can illustrate the truth of the matter to simple minds? I think it would be very interesting to take the income of someone like me, with an apartment, some savings and a pension plan, all local to me, but evilly “foreign” so far as the IRS believes, and show what is the legal total US and UK taxes that must be paid under different scenarios, (a) USC resident in the US, (b) UKC resident in the UK, (c) UKC resident in the US, (d) USC resident in the UK. How much more can (d) cost than any of the others. Which costs the least? Oh, that’s easy, (a)! Which can be figured with a $70 TurboTax program? Oh, again (a) ! Unfortunately, I already pay a month’s salary to an accountant to compute the US tax component of (d). Perhaps some student studying tax or accountancy might like to take this up as a dissertation project pro bono.

  20. @ricard
    I’ve a number of thoughts concerning the difficulties associated with a US Person living long term abroad (with no intentions of returning to the US), but I’ll start with this simple example:

    If we consider a US Person, age 66, filing MFS (as most do), living in the UK with the following sources of income: £9,500 from UK State and company pensions, £1,000 from a cash ISA (tax free in the UK), £100 from the winter fuel allowance (tax free in the UK), and the £10 December bonus from the State (also tax free in the UK), do they owe US tax? This is really a basic subsistence income in the UK.

    In the UK the first £10,600 is tax free for this individual. Aside from the already tax free status of the ISA, WFA, and bonus, their pensions are also tax free since they are below the threshold. Thus, on the £10,610 income they owe no UK tax. If we translate that amount to US dollars at the 2013 IRS average rate it results in an income of $16,021.

    All the above income is unearned for IRS purposes and therefore only FTC’s can be used to offset the income. But, there are no FTC’s, nothing has been taxed by the UK. The US Standard Deduction ($7,300 for age 66) and the US exemption ($3,900) total $11,200. $16,021 US taxable income minus $11,200 US allowances leaves a US taxable amount of $4,821.

    Do they owe the US tax on the $4,821 difference? Of course they do. It may not be a huge amount to a US Lawmaker, but it is quite an important amount to this individual.

    Note: Do to unfortunate wording in the US/UK double tax treaty, it is agreed amongst UK/US tax professionals that the UK State Pension IS taxable by the US.

    My other thoughts centre around some basic issues. Foreign (non-US) governments each decide how they conduct internal investing for retirement in order to prevent an individual becoming a ward of the state in retirement. These schemes are generally tax free within the country to encourage investing for retirement, but are taxed by the US. A US Person living in that country can not secure an expected level of retirement investments if they are paying a part of the excepted assets for retirement as tax to the US.

    The one item that I find especially capricious is the exchange rate. Little is said about this issue since it can swing in either direction, but it is devastating for at least 50% of the time. It results in uncertainty of thresholds from year to year, taxable US income one year and perhaps not the next, and we are all aware of the issue of phantom gains. Suffer a year when the exchange rate is particularly unfavourable, and you’ll be subject to NIIT at an additional 3.8% (selling a home you’ve owned for 25 years?).

    Finally, there are the interpretations of any tax treaty. Even UK professional tax advisers are in disagreement as to whether a SIPP is US tax free or not, with most agreeing it is taxable. Who knows.

  21. @foo

    I have now read the ACA’s proposal for RBT. I am impressed how it is argued and think this may be the best thing to send to my friend. I do understand that it does not address all the issues that distress people here. The ADCS legal action would be needed even if the US did not have CBT.

    @Don

    You say, “I feel simply renouncing and paying $2350 for nothing other than an A4 sheet of paper is going down without a fight.”

    My fight strategy is this. (a) speak, write to and pester those in power, where I can, (b) warn young US persons when I give career advice or interview them for jobs where I work, (c) support others who are hurting and fighting, (d) try to maximize the proportion of my total tax that is paid to the UK, (e) renounce when it is safe to do so.

    @OAP

    Thanks for those interesting illustrations of the difficulties faced by someone who resides permanently in outside the US. I like that you give the calculation to show how a US person with a poverty level income in the UK, with no UK tax liability, can end up owing US tax. Simply unbelievable! And then she also faces a sales tax of 20% on all her purchases. What you say about retirement savings and exchange rates is exactly what I am experiencing.

    Continually since my first job, over 35 years ago, I have filed 1040, 1116, FBAR, etc as a DIY task and thought I was tax being compliant. All this time I have been paying UK tax, which has been substantially more than a US-resident person would pay on the amount of income. But then I learned about these arcane issues around PFICs, pension savings, exchange rates, deficiencies in tax treaty, etc. This knowledge has brought sleepless nights, some depression, worry to my spouse, and a first time acquaintance with eczema — and forced me to start hiring an accountant.

    Yesterday I was reminiscing that my mother’s ancestors include Benjamin Franklin and Ethan Allen. I expect that if they were alive today they would join the fight against the tyranny of CBT and FATCA.

  22. @ricard

    We both know in the UK EVERYONE, upon entering retirement, takes the 25% tax free lump sum amount. It’s a given. The UK government encourages retirees to do this so they may invest in other vehicles such as mutual funds which will give additional income during retirement. We both know UK mutual funds are a no-no for a US Person. We also know for a US Person to do this (take the tax free lump sum amount) will result in a significant tax bill to the US. It certainly would have for me (to the tune of 30% of the tax free amount), which is why I didn’t do it. Again, the constant consideration of US tax consequences defeats the efforts of the UK government to help retirees plan for their future.

    Then there’s ‘residence’.

    Grab a dictionary and look up the definition of ‘resident’. Now, close the dictionary and throw it away. Forget the definition you have just read. It means nothing for US tax purposes.

    Most say the US taxes are based on CBT. I disagree. It’s more than citizenship. Every US Person is deemed a resident of the US for tax purposes, despite the fact they may have never set foot in the homeland for years The US tax system is RBT on steroids. I prefer to call the US system ART (Alternate Reality Taxation). This is the basis of the ACA proposal. It redefines the US system to align with the world (and dictionary) definition of resident.

  23. @OAP, your example of the 66 year old ‘US person’ pensioner living in the UK was the perfect eexample of how one can suffer double taxation even on poverty levels of income. The UK may have an overall higher level of taxation than the US though the UK has a more generous personal allowance.

    And as @Ricard points out, many would also face confiscatory PFIC taxation if their tax-free ISAs held UK-based mutual funds, not to mention the burdensome record keeping and high accounting fees to ensure compliance. Many pensioners could also face US capital gains taxes on the sale of their primary residence, which like Canada, is tax-free to UK residents.

    The IRS could also consider ISAs, SIPPs, and personal stakeholder pensions foreign granter trusts. They could have a field day hitting files with fines for not correctly filing forms 3520/3520A, 8621, etc., even if FBARs are filed. They’re just too vulnerable to being hit with huge penalties even for inadvertent omissions.

    In fact, ISAs and personal pension contributions don’t even have to be mentioned on one’s UK tax return if a lower-income basic-rate UK taxpayer. I

  24. I’d imagine that a US-resident pensioner on a $16,000 passive income could also use financial planning to avoid most income taxation, especially as I was led to understand that the US social security pension is paid tax-free to US residents. But the US citizen or US person living retired in the UK can’t make use of the British equivalents because the IRS doesn’t recognize the local UK social security or its personal pension plans or IRA/401k equivalents (stakeholders, SIPPs, ISAs, etc.) We thus get the short end of the stick, and it’s the low-income pensioners or those on disability benefits who are screwed.

  25. If I had kept my US citizenship, I would have had similar issues to what both @OAP and @Ricardi have described and faced ongoing accounting fees of at least £1500 annually and probably higher; this would have been intolerable, especially as I am on a zero hours contract so have no guaranteed income. I have been averaging $25,000 to $30,000 per year but that could dry up.

    My annual self-assessment UK tax return can be filed online for about $25 and is only around 10-12 pages, whereas my US tax returns even with full compliance and consolidation would have still been an absolute minimum of 60 pages (down from over 280 pages one year!!!).

    I share @Atticus’s bitterness about having had to give up my birthright because, like her,I only have my older husband; if he predeceases me, I will have no other family here in the UK. Of course, people stateside will say that I made my bed and no one made me move abroad, etc. But life happened. Thank God I at least have some good friends over there but there is something comforting about blood which will always be thicker than water.

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