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””

  1. @OAP (Old Age Pensioner ?, or Ornery American Person ?)

    Your examples have convinced me that I cannot retire until either (a) I renounce, or (b) US law-makers abandon “CBT on steroids”. If I wait for (b) I might have to postpone my retirement for another 100 years.

    My father was once a US military officer, and my mother qualifies as a Daughter of the American Revolution. I feel sad that renouncing the US is the only viable option. I am neither poor enough or rich enough to carry the burden. But as one person has written, it is not me who will be abandoning the US, but the US that has abandoned me.

    As some have pointed out, this issue affects many more than the 7+ million US persons abroad. My mother, and step-father, both voting Democrats, fully support my decision to renounce, and have written to their senators and congressmen in anger.

    In my own sphere of work I can do the same as Publius, who writes: Over the next few months, I will be making over 300 students aware of US government policy in this area. If they tell this to ten engineering students down the pub, so be it. If they all decide to go to Australia or Canada or Singapore instead of the U.S., so be it. Taxation without representation leads to tyranny.

    “It is the first responsibility of every citizen to question authority.” —Benjamin Franklin

  2. @ ricard

    I don’t know if this is the type of “position paper with talking points” you are looking for but John Richardson wrote a submission for the New Zealand Select Committee back in February called ‘Paying Tribute to America”. It’s a pdf so I don’t know how to post it but you can find it on this thread:

    http://isaacbrocksociety.ca/2014/02/04/a-template-for-submissions-to-the-governments-of-every-country-paying-tribute-to-america-by-john-richardson/

    He also wrote a supplementary submission and then there’s the Richardson, Yates and Kish submission to the Senate Finance Committee. Our Admins could find those for you. There is no shortage of “position papers”, it’s just a matter of picking the best fit.

  3. @EmBee. Thank you. I’ve now enjoyed reading that paper and all that it says rings true. Here’s the pdf reference if anyone else wishes to read it.

    http://citizenshipsolutions.ca/wp-content/uploads/2014/02/Paying-Tribute-to-America.pdf

    However, I think this paper would raise hackles with a US politician. No one likes to be told 100 reasons why what they are doing is wrong. Better that they should read the ACA paper which explains how a change to RBT could be a win-win for both the USG and the US citizen abroad, and also tackles the practicalities of how it can be implemented.

    The above paper is more appropriate for reading by non-US politicians. UK politicians ought to read it and be angry about how much money CBT skims from the UK economy.

  4. @ ricard
    I know what you mean. The whole world holds their tongues it seems when American hackles are threatened by the truth. The whole world knows that beneath those hackles are some mighty big guns (economic and military). Of course American politicians rarely hold their tongues when the sensitivities and sovereignties of other nations are involved. The ACA’s “RBT Residence-Based Taxation” video is probably most suitable to the learning abilities of US politicians — it’s got pretty coloured graphics.
    http //www.youtube.com/watch?v=DKFEpAWjeu4 (replace colon)

  5. Here is my letter. I can already see that it might have been better written, but at least I am sending some good position paper ideas.

    Dear ——- ,

    It is kind of you to show an interest. This is a very difficult issue on which to gain any traction. I think it is because no US politician has any personal experience in this arena, and neither do their constituents. Yet for 7+ million US citizens abroad and their families, friends, work colleagues it is at the top of the political agenda.

    You ask me for a good position paper with talking points. This monster has many heads: citizenship based taxation (CBT), US citizenship laws, FACTA, FBAR, the US tax code treatment of anything foreign, deficient tax treaties, all of which combine to make US tax compliance a nightmare for anyone trying to live an honest middle class life abroad. Unless facing it personally, it unlikely anyone would have the patience to learn all the ins and outs. But here are two things I can strongly recommend.

    1. American Citizens Abroad have a very good position paper. It’s here

    http://americansabroad.org/issues/taxation/aca-makes-progress-residency-based-taxation-rbt/

    Start by watching the cute video cartoon, then read the proposal

    http://americansabroad.org/files/6513/6370/3681/finalsubrbtmarch2013.pdf

    They explain how moving to residence based taxation (as used by every other country in the world) would be a win-win for the US, government, its citizens abroad, and US relationships with other countries.

    2. I know you have a great love of New Zealand. So you should enjoy reading this submission by a Canadian barrister to the New Zealand parliament about the effects of FATCA will have on New Zealand.

    http://citizenshipsolutions.ca/wp-content/uploads/2014/02/Paying-Tribute-to-America.pdf

    I think he sets out the issues extremely well.

    I would be very pleased if any of your friends in the hierarchy of the Democratic party would be willing to read these papers and could be persuaded to support what ACA propose.

    Unfortunately, I think too many US law makers confuse the categories of “tax cheats” with “US persons having foreign back accounts”. They are not the same. The vast majority of us are ordinary people, living abroad for work or marriage, and because life is sometimes like that. Of course we have bank accounts where we live. That is innocent. We should not be made collateral damage of badly written laws which seek to aggressively chase tax cheats, most of whom are actually US residents who are hiding money in foreign accounts. Please US, you must know what you are doing is wrong. Do the right thing.

  6. http://blogs.angloinfo.com/us-tax/2014/09/19/thank-you-fatca-youve-just-busted-my-marriage/
    ‘Thank you, FATCA, You’ve Just Busted My Marriage’
    September 19, 2014

    “…Up Close and Personal

    The data revealed that marital relationships with non-American spouses are under a heavy strain because of FATCA. Twenty-four percent (24%) do not share any financial accounts with a non-US partner; twenty-one percent (21%) have or may move to separate financial accounts because of FATCA; two percent (2%) have actually separated or divorced, or may do so, due to FATCA’s financial reporting.

    Here are some of the sadder commentaries:…”

  7. @ ricard
    Correct FACTA to FATCA and press send. Then we’ll all keep our fingers crossed that your friend gets a hearing. Well done!

  8. @EmBee Thank you. Whether it is my age or tiredness with this issue, my proof-reading skills are sometimes inadequate. I have made corrections and also included a paragraph about Democratic-voting members of my US-resident relations who are very concerned about this issue. My mother’s partner, now aged 85, has been a Democrat activist all his life and always very sensitive to human rights issues. He has been sending letters to his congress contacts complaining about FATCA. God help them if they were ever to try to impose something like DATCA!

  9. @ ricard: Your letter gives inspiration. Thank you so much, to you and to all who contributed….

    May it meet with success!

  10. @ricard: “UK politicians ought to read it and be angry about how much money CBT skims from the UK economy.”

    FYI, I sent my UK MP a copy of this precise paper on Feb 5th. I don’t know if he read it or not — I have been corresponding with him over FATCA for over three years now — but there was certainly no sign whatsoever of anger, either from him or from the current Financial Secretary to the Treasury. No reaction at all, in fact.

    My read on the UK govt’s view of FATCA is that they are so mesmerized by the pot of gold that they think they will receive from the legions of UK residents hiding money in the US via the IGA reciprocity (yeah, right!) that nothing else matters.

  11. How you can get taxed at poverty level

    a) Welfare payments are not considered “earned income” in IRS’s POV.
    b) Disability payments are not considered “earned income” in IRS’s POV
    c) Employment Insurance is not considered “earned income” in IRS’s POV
    d) Worker’s Compensation is not considered “earned income” in IRS’s POV
    e) Child Support Payments are not considered “earned income” in IRS’s POV

    …need I go on?

  13. In response to a question from Neill on the “Media and Blog articles” thread:

    Neill says:
    “I don’t see how the tax treaty wouldn’t protect pensions and the state pension from US tax if the pensioner was a resident of the UK. This is the one area where the savings clause does not remove the rights of a green card holder or a citizen.
    Can you explain your reasoning?
    I have only researched my side which is my UK pension is only taxable by the US.”

    Which/what type of pension are you referring to?

    In simple terms, the US/UK tax treaty does not prevent the taxation of a company pension in the distribution stage in either the UK or the US. What the treaty does allow for is the use of tax credits to offset the tax paid in one country by allowing credits in the other country (relating to my previous example of a low income pensioner).

    If we’re discussing the taxation of contributions being made to a pension prior to distribution, then the treaty Article may come into play. For example, it is accepted amongst even the most stringent tax professionals in the UK that contributions to a ‘final benefit, UK Registered company pension’ will not be subject to reporting, although it is agreed that the individual may wish to declare annually during the contribution period (on a US 1040) all payments made by both themselves and the company in order to establish a US ‘basis’ in the pension. This may also include yearly gains made by the scheme. If all three are reported yearly whilst in the contribution phase, then the individual will have a full basis established for US tax purposes, and will not owe US tax on the pension (but will be taxed in the UK). But, most individuals don’t do this. They may declare their contributions only for US tax (IE their gross salary). This will give them a partial basis, and they will use the General Method to calculate what exclusion might be allowed.

    When we consider all the types of pensions available in the UK, it becomes much more complicated. If a person contributes to a personal pension scheme where they source and purchase a pension on their own (not company attached), then the ability to ‘cash out’ of the pension before distribution comes into play. Will the funds continue to be used for pension planning, or will they purchase a classic Aston Martin as a hedge? Is it still a pension? With the new pension rules about to be introduced in the UK, this may become an even more difficult area.

    Some respected US/UK professionals say any pension is just that…a pension, and therefore meets the definition and treatment of a pension in the contribution phase. Others would have an individual in a company defined contribution scheme complete form 3250 each year and declare all three (self, company, and gains) yearly. “You pays your money and takes your chances.” It worthy to note that the IRS agents at the London Embassy subscribe to a general acceptance that a pension is a pension, but of course, any comment by an agent given to a taxpayer is non-binding on the IRS.

    It’s a very complicated and ill defined area, whether you’re discussing the treaty or the US tax code in particular. Confusion abounds, and no two tax professionals or IRS agents agree 100% of the time. Go to the IRS site and enter “foreign pension” into the search engine. The very limited number of references that come up have only been added in the last 18 months, and none explain how to handle a “foreign pension” for reporting purposes.

    It’s also interesting to note (and this is only my understanding and I’m not a tax pro) that in the US/France treaty, a French company pension paid to a resident in France is only taxable in France and not the US. View the AARO site “Tax Seminar 101”. Welcome to the varied world of treaties.

    Imagine the fun when you’re a US citizen, resident in the UK, benefiting from a French pension which is taxed by the UK. US/UK treaty; US/France treaty; UK/France treaty; or a combination of all three?

    The UK State pension suffers from very poor language written into the treaty. Most agree it is taxable both in the UK and the US, but tax credits may be used to offset US tax per the treaty. An even more tricky area is the British expat in the US who can continue to contribute to the UK State pension via Class 2 and Class 3 contributions. Some argue since this establishes a basis in the pension, they can use the General Method to reduce US tax in the distribution phase. It’s much more difficult for someone paying Class 1 contributions in the UK. They pay NI, which can be used for various government programmes and it is impossible to establish a basis amount.

    No example, such as mine previously used in this thread for a low income UK person can be used universally as an example. Everyone’s situation is different, and the tax situation for each individual will vary. The above situation can exist, but under certain prescribed circumstances only. My guess is that it is representative of a certain number of people. Others may have a different result.

  14. @OAP and Neill

    Tax treaties, schmax treaties. There are many expats who live in countries that don’t even have them, thus making any kind of normal life impossible.

    The bottom line for long-term US expats/emigrants is that CBT has to be abolished, or US citizenship has to go. Its a basic matter of survival.

  15. @Animal

    “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.”

    Even African Americans slaves had some “token” benefits, like food and shelter room provided by their slave masters. But when compared to their loss of freedom, such benefits amount to nothing more than an insult.

    CBT is a modern form of slavery. FATCA and FBAR are the equivalents of Fugitive Slave Laws.

  16. “Tax treaties, schmax treaties. There are many expats who live in countries that don’t even have them, thus making any kind of normal life impossible.”

    More like, “making any kind of normal life MORE than impossible. Even expats who live in Tax Treaty countries cannot have normal lives without having a small army of lawyers and accountants at their disposal.”

  17. @From the Wilderness. “perceived benefits”

    If you hold a “top rate” other passport like Canada, any EU Passport, Australia, Japan……… there is no benefit and little value to also being entitled to carry a US Passport.

    If my sole passport was from Sudan, there would be huge benefits of having a US Passport.

    But holding lets say an Irish (EU) Passport, there is little benefit of having a US Passport.

    Further, many dual US/EU Passport holders solely travel on a EU Passport because of the real fear of being attacked if you are a US Passport holder.

  18. @OAP,

    I don’t think what your saying is correct. The tax treaty is very clear that a pension payout if not a lump sum can only be taxed in the country of residence. So a UK resident pensioner drawing from the UK state pension will pay tax on that only to the UK government. If they pull money from a US pension then they will be taxed by the UK but not in excess of what they would have been taxed if they were a resident of the US (so a Roth IRA for example stays tax free).
    You haven’t presented any evidence that what I am saying isn’t correct. It’s in black and white in the tax treaty.

  19. Ricard:

    Excellent letter to your well-connected friend. Thank you for doing that!

    It wouldn’t hurt to send a P.S. suggesting that he/she let Nancy Pelosi, et al. know that a Human Rights Complaint against the United States and its practice of CBT was filed with the United Nations Human Rights Commissioner on August 7. We await news of its acceptance (or not) and until that time we are unable to share the text publicly. That’s a pity because it describes in detail how CBT violates over half the Articles in the UN Declaration of Human Rights. It would have been an excellent document to have been able to cite in your letter. I think that mentioning that the Complaint has been filed would underline the seriousness of the situation.

  23. @Neill at 10:20 am

    Whoa, whoa, easy lad, you’re doing it again. Apples, oranges, peaches, pears, and watermelons.

    Neill says:
    “I don’t think what your saying is correct. The tax treaty is very clear that a pension payout if not a lump sum can only be taxed in the country of residence.”

    What kind of a pension pay out? Yearly? Monthly? Intermittent? Each has it’s own rules. State Pension, company pension, or a ROTH? Again, different rules. Distributions, not contributions. Do they pay UK tax on the Non-Dom basis or the arising basis?

    Pensioner A) Has a £50,000/year final salary pension from Widgets, Ltd. in the UK which is paid monthly. They are resident in the UK, but are a ‘US Person’. They pay UK tax on the arising basis (important). The UK will tax their pension (@40%) and the US will tax their pension because they are a US Person (See Publication 54 and the tax treaty). They will offset the amount due to the US by 1) deducting the allowable US ‘basis’ they have in the pension, and if it does not cover the entire amount of the pension (likely), they will 2) use their UK tax credits (after deducting credits available on the basis amount) to bring the taxable amount down to $0 on that pension via 1116. The treaty is used to allow the tax credits.

    Pensioner B) Same as A except they are resident in the US. The scenario is the same. (The UK will tax the pension since it is UK source and above the basic tax threshold.)

    Pensioner C) Has a £8,000/year final salary pension from Widgets, Ltd. in the UK which is paid monthly. They are resident in the UK, but are a ‘US Person’. They pay UK tax on the arising basis (important). The UK will tax their pension only if their total UK source income is above the basic tax threshold, and the US will tax their pension because they are a US Person (See Publication 54 and the tax treaty). They will offset the amount due to the US by 1) deducting the allowable US ‘basis’ they have in the pension, and if it does not cover the entire amount of the pension (likely), they will 2) use their UK tax credits, if they have any, (after deducting credits available on the basis amount) to bring the taxable amount down via 1116. The treaty is used to allow the tax credits.

    Pensioner D) Same as C), except they live in the US. Same scenario as C) except they may not have to pay any UK tax if their total UK source income is below the tax threshold and they have filed the appropriate form with the IRS (for a fee) which is then forwarded to HMRC, allowing HMRC to allow the pension to be paid gross.

    Pensioner E) Has a US Social Security pension paid to them in the UK where they live. They MAY not be a US Person. Even if they are a US Person, the pension is paid gross to them in the UK and is only taxed in the UK by HMRC via a self assessment form. (This is a special situation via the Totalization Agreement, and is only allowed with a very few countries.)

    Pensioner F) Has a UK State Pension paid to them in the UK where they live. They are a US Person. They are taxed on the arising basis. The UK State pension NEVER has tax withheld. It is always paid gross. Tax is deducted (if total income is above the basic tax threshold) from other UK source income. THE STICKY BIT: The treaty intention was probably to only tax this pension in the UK, but not the US. READ THE WORDING CAREFULLY in the treaty. It says the pension is taxable in the US. Most go ahead and declare it on a 1040 and use the UK tax credits. But, no one has heard of the IRS voiding a return which does not include a declaration of the UK State Pension. But, who knows!

    Pensioner G) Has a ROTH. A ROTH is not taxable by either the US or the UK, regardless of where the pensioner lives (US or UK). This is in the treaty.

    NOTE on ALL of the above to anyone reading this: I am not a tax professional, and I may be wrong.

    Long story short: interpretation of the wording of the treaty is critical. You are definitely not the first person to question this. It comes up all the time on the expat sites. I have a suggestion. Rather than you and I arguing about the treaty wording, ask your question on the “TaxPro Talk” site (which I believe you have access to). The reliable answers will come from “guya” and “Lizzit”. Disregard any others where the tax pro is based in the US. It’s important to remember the answer will only be accurate for the type of pension and the location of the taxpayer you are referencing.

  24. @OAP,

    I am sorry but your not providing evidence of your claims. Let’s look at just one:

    >Pensioner A) Has a £50,000/year final salary pension from Widgets, Ltd. in the UK which is paid monthly. They are resident in the UK, but are a ‘US Person’.

    You claim this is taxable in the US. Clearly they don’t tax the pension basis. The tax treaty look clear to me that the US can not tax this pension. US person is resident in the UK. Lets shift to the technical explanation of the tax treaty to see it in clearer language:

    Paragraph 1 provides as a general rule, in subparagraph (a), that the State of residence of the beneficial owner has the exclusive right to tax pensions and other similar remuneration. For this purpose, a payment is treated as a pension or other similar remuneration if it is a payment under a pension scheme, as defined in sub-paragraph (o) of paragraph 1 of Article 3 (General Definitions). While the term “pension” generally would include both periodic and lump-sum payments, paragraph 2 of the Article provides specific rules to deal with lump-sum payments, so they are not subject to the general rule of paragraph 1.

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