Psychologists describe 5 stages of grief based on the Kubler-Ross model introduced by Swiss psychiatrist Elisabeth Kübler-Ross in her 1969 book, ‘On Death and Dying’. Although originally ascribed to the emotional stages experienced due to death of a loved one, the model can also be useful to understand the responses to any subjective trauma that a person may go through, for example a relationship breakup, a job loss, or a ‘OMG! I am a US taxpayer’ moment.
The key here is ‘subjective trauma’. Many ‘US persons’ know what it is like to have people roll their eyes, yawn, or wonder why we are so worked up, just because we discover we are subject to FATCA (what’s the big deal? You ARE an American!), or because we discover we are US taxpayers (if you don’t like it why don’t you renounce?). Typically, we do not get the sympathy one would get if we had a serious illness, or lost our job, or divorced our spouse.
Non-US persons for the most part, just do not ‘get’ the ‘US person’ curse, because to be FATCA’d and CBT’d is not within the realm of normal human experiences. We are unique and special in the world that way – thanks to USA’s exceptional treatment of those it deems ‘US persons’. Nevertheless it IS traumatic for those of us who have lived most or all our lives in countries other than the USA, and who have never had a clue we were US taxpayers on our non-US income, to be FATCA’d and CBT’d.
The following are the 5 stages of grief as outlined in the Kubler-Ross model. Keep in mind that these stages are not necessarily linear. One day you may feel like you are angry beyond belief, and the next day you may feel that it just is what it is. Hopefully, at some point, most of your days will fall into the latter category.
Denial.
The first reaction to hearing one has a terminal illness, or their house burned down, or they are subject to the tax laws of a foreign country, is denial. This just CANNOT be for real. It makes no sense. This has got to be wrong. How could I have lived all these years and NOT known I was a US taxpayer? There must be exceptions for people like me who don’t live in the USA. They surely cannot be referring to ME.
Anger.
Once the initial shock wears off, anger follows. We want to blame someone or something. We may be angry at the doctor who gives us a bad diagnosis, at the driver who caused the accident, or at ourselves for not doing something to prevent whatever bad thing happened. We are angry at the Canadian government for not standing up for us, at our spouse who thinks we are over reacting, at our neighbour who doesn’t want to listen to our rants, at ourselves for not figuring out years ago that we were US taxpayers, or at the American government for acting like it owns us.
Bargaining.
This is the stage where we play games with ourselves, and with others, desperately trying to ‘work it out’ or ‘fix things’, so that we can go back to the way things were before. The person whose romantic relationship is at an end may promise to change their behaviour – anything to not have the relationship end. The dying patient may promise God he/she will be a better person or take better care of himself/herself – anything to not have to die. The newly aware US taxpayer searches for a way to work out their non-compliance: streamlined program? 5 years tax compliance catch-up? – just please don’t penalize me for my ignorance.
Depression.
Reality is setting in now. There is no easy way out. We are not going to bring our loved one back. Our job is gone forever. The relationship is definitely over. No matter which route we take to solving our ‘US taxpayer status’ we are going to pay – whether that be in taxes, compliance fees, penalties, loss of privacy, loss of US citizenship, or by being forced into hiding. It sucks no matter how you look at it, and this just makes us sad. 🙁
Acceptance.
Psychologists and grief counsellors say you are lucky if you get to this point. Many people get stuck in anger or depression for years or even a lifetime – the widower who becomes a recluse when his wife passes away, the mother who mourns a lifetime for the child she lost, the aspiring athlete who never made it to the big leagues and seems forever lost in his former glory years, the ‘hidden’ US person who cannot shake the mental chains of his unwanted ‘US taxpayer status’ even if he has logistically found a way to deal with it. The luckier people at some point accept the reality of what has happened and find a place to put it so that it does not interfere in their daily lives anymore. The widower finds peacefulness alone, or maybe finds new love. The mom, whose child is gone, remembers the happy times she spent with him/her and stops dwelling on what was lost. The US person, finds a way to deal with his/her own particular situation – stays hidden, or becomes tax compliant, or renounces – and moves on with his/her life.
@Duuchesse
You should read Phil Hodgen’s blog on this site. He is a tax lawyer who has some useful advice on how to gift assets to a non resident alien spouse before renouncing.
@Duchesse, Schedule D is still just part of the ‘simple’ way of filing; I doubt if they’re going to start demanding 8621s. I bet you’ll be fine. You’re honestly declaring your gains and income, after all. I wouldn’t have known about PFIC had it not been for my specialized accountant; I’d only learned about it by accident after reading about my FBAR problems.
I still believe you’d have a very strong case for reasonable cause and so why open Pandora’s Box. My case was more difficult to avoid because I had not even declared the income because I didn’t need to declare it on my UK tax return, being in ISAs, which are tax-sheltered government-registered accounts here; I’d naively assumed that because I didn’t need to declare them where I actually lived and paid taxes, that the tax treaty meant I didn’t need to worry about the IRS.
As you’ve always declared the income on both tax returns, I still believe you have very little to worry about though acknowledge that FATCA reporting could raise the stakes; I’d tackled my problem back in 2011, before my investments would be reported.
@MonaLisa, ” I’d naively assumed that because I didn’t need to declare them where I actually lived and paid taxes, that the tax treaty meant I didn’t need to worry about the IRS. ”
It is NOT naive to read the tax treaty and believe that is the position!!!
You can read the treaty today again and still believe that!!
Employees with HMRC believe that to be the case.
Employees with HMRC believe the tax treaty means that tax filing and paying UK residents have no further obligations to the USA solely and unless they have certain US source income!! When you read through the tie breaking rules for determining residence of which nationality is a question, the ONLY logical conclusion is that you are a resident and filer in one country, nothing else makes sense.
You were not naive.
You are not naive.
And to be honest the way that damn document is written, you may be correct and a UK Court in theory with the right judge and solicitor would agree.
I say all this with greater emphasis after seeing the clever legal work of Joe Arvey with the summary trial.
@MonaLisa…..there is also one other component of your problem.
What was your citizenship when you consider yourself non-compliant?
To be honest, the decision matrix also includes nationality as but one component.
Sole card carrying USC are and remain screwed.
Acting Duals have problems, meaning they have passport et al….
CLN carrying and non CLN relinquishers each have different problems but the weight of those problems is close to equal. The decision is to exit quietly or exit banging a drum…..
@Blaze, “Canada was not able to get a better deal is because it is literally pay back time. There are Vietnam and other vets working at IRS and US Treasury.”
I disagree with your assumption…….
Most who would have had a grudge, right or wrong, have now put that behind.
Its like not buying a Toyota because of Pearl Harbour.
The last hold outs for a grudge on Vietnam, I believe gave it up because of the last fifteen years.
@George, I was already dual when I discovered my ‘gotcha’ predicament. It’s a racket for the compliance industry; even my accountant admitted to such!! I concluded that keeping both citizenship would be cancerous. I have till July 2020 before my Sols all close and am hopefully finally ‘free.’ But as I’ve mentioned before, I still worry that they may pass retroactive punitive legislation.
@MonaLisa, ” I still worry that they may pass retroactive punitive legislation.”
I can easily envision the US Supreme Court ruling that all these CLNs granted in the last few years were “under duress” and retroactively restoring USC to everyone.
Though this would be a curse it would actually be viewed by the Court as being generous.
Its like that person whose birth was not recognized as a USC because the father had not lived in the USA for x number of years and that was discriminatory because a mother does not have that requirement to give USC. That ruling is going to screw over a lot of folks and what will homelanders say? Just renounce if you dont like it.
@MonaLisa, ” I have till July 2020 before my Sols all close and am hopefully finally ‘free.”
The UK is not party to any collection agreements with the USA so its somewhat moot. But you have a possible US inheritance and travel needs so its complicated for you.
@Duchesse
i guess I just dont know enough about it. I thought that if you had been up to date on your taxes, the PFICs would have already been included. But I don`t live in Canada either. What I would think extremely important is a CLN- because otherwise your liability just continues. If you are subject to an exit tax by doing so, please remember that about 650000$ are exempt. But I think to really be free of the beast, one has to give up citizenship.
@monalisa1776: Your words helped me sleep last night, big help in quelling panic. Could you kindly tell me what you mean by “a strong case for reasonable cause”? I shall see how this filing goes and then start the renunciation process.
@ Blaze: Some here imply that your ‘payback’ notion is not valid but I can tell you that I have, more than once, been aggressively questioned by US Customs about why I have never moved back to the USA. I always answer, “I married a Canadian” which stops them-but my fearless friend Roger answers “Why the •f—• would I do that?”
@Duchesse: Yes I remember the criminal feelings when amnesty was granted.
@George: The feelings may be less intense than they were 40 years ago, but they are still there among many Vietnam vets and others of our generation. Most of our parents are now deceased, but many of them never forgave draft dodgers after their sons were killed or maimed in Vietnam. I know some who lost brothers who feel the same way.
In any case, to many in Congress, IRS and U.S. treasury, we are all considered traitors deserving to be punished for having the audacity of choosing to live outside the U.S.
CBT is not about taxes. It’s about punishment and control. FATCA is a WMD (Weapon of Monetary Destruction).
@ Portland PLC: You wrote, “You could put every thing in your spouses name… That would make your non-compliance wilful- all the more reason not to tell them a thing. I don’t like this option- better to simply stop filing.”
Question: If I am headed into renunciation is it not better to move mutual funds to spouse, as I have to provide list of investments I own? (Canada allows unlimited gifts but a lawyer advised to do it in US-limit tranches of below $147K).
Renunciation requires submission of tax return, so not filing seems to be unworkable. Your thoughts, please.
@Duchesse: Good for your friend Roger. I have never been asked such a question on entering the U.S. but since 1973, I have always entered the U.S. as a Canadian citizen only.
Since my mother’s death last year, I plan to never again cross the border even though it means I may never again see cousins, lifelong friends and my hometown.
Oh Blaze, I will so miss NYC! I don’t live far from there, and deeply enjoyed the cultural events, just walking around, music and art. Wondering if I should make a “farewell tour” or if would just feel too sad and angry. The situation is so bizarre. But a jaunt to NYC is the least of my worries, right?
@duchesse
You will receive a lot of conflicting info on this site as we all come from varying situations. It is perfectly legal for you to transfer assets from yourself to your husband. In fact many tax lawyers will recommend this. PLEASE read the Phil Hodgen blog on this site to see the limit you can transfer to your non resident alien spouse. You can also gift to your children to avoid being in the covered status.Heis blog deals with all aspects of pre renunciation situations. Do not rush into anything, read, read first.
@ Duchesse,
(1) Dept of State
Renunciation itself doesn’t require submission of tax returns. DoS basically doesn’t care about one’s tax status as the citizenship itself (and the issuance of the CLN) is not dependent on one being tax compliant.
Dept of State’s involvement/connection with tax is the following:
(a) At the consulate the person signs DS-4081, Statement of Understanding of Consequences; one of the 12 items on it is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”
(b) The questionnaire, DS-4079, at q. 13 (e) asks “Do you file US income or other tax returns?” The tax question on the DS-4079 is there as an indicator of your ties and connections to the US, which is important if you’re claiming to have relinquished some time ago. For renunciations, it’s basically irrelevant.
DS-4079 is not across-the-board required for renunciation but DoS allows consulates the option to do so. DoS Foreign Affairs Manual, Renunciation. Some don’t, some do. But anyway if you’re renouncing, Q. 13(e) has no bearing on things
(c) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements, 7 FAM 1243(a).
(2) IRS
To log out of IRS, however, IRS requires that the person file their exit tax form (8854), their final year form, and the five years previous to renunciation forms, by June 15th of the year following the renunciation.
If a person chooses not to file, the citizenship itself remains terminated and the CLN remains valid.
@Duchesse: I can’t predict how a Farewell Tour woukd feel to you.
Ever since this nightmare entered my life in 2011, I was angry whenever I was in the U.S., but I managed to put it aside to enjoy time with my family and friends.
When I returned from my mother’s funeral, I knew I had said my final in person goodbye to people and places that had always been important to me. That was as sad to me as losing my mother.
I lived in NYC for a couple of years before moving to Canada. There is nowhere comparable.
Hi Duchesse. Lets go back a step or two. You left when you were 22 partly because of the Vietnam war and paying taxes to the US was anathema to you. (the Vietnamese call it the American War). But now, when you are almost 70, have limited funds for your retirement, have no US connections or desire to go there, you feel you should follow their rules. It doesn’t compute. I’m glad you see the irony.
You can renounce without being compliant. If you decide to gift your assets to your spouse, it doesn’t make any difference if you do it 147K at a time or all at once- in both cases it would be considered willful. See above about following their rules.
One drawback is that you then run afoul of the Canadian attribution rules. Nothing illegal but an accounting can of worms.
So what do do. Continue filing but ignore pfics. Renounce and try to finesse the 8854. Renounce and oublier to file the 8854. Don’t renounce and stop filing.
So many choices, so little time.
Take your time to figure out the best course. You made a principled decision to leave when you were 22. The fact that you continued to file US taxes means that you wanted or felt the need to keep a connection to the US. Now you don’t.
Does your FI know that you are considered to be a dual citizen? Are you willing to take the truly tiny tiny tiny wee risk that they will somehow find a way to punish you? Honestly, if you have no US connections, they cannot and would not try to touch you.
If my FI knew I was dual I would renounce and do nothing else. I might send in a bullshit 8854.
If my FI didn’t know, I would stop filing and do nothing else. Even if my FI did know i might still stop filing. See above- what are they going to do?
P.S. You will still be able to visit NYC. P.P.S. The more you learn the more comfortable you will become and you will sleep like a baby.
@ Portland: I like your style and you are reconnecting me to my core values.
My current thinking is, file but ignore pfics, and should the fit hit the shan, stop filing. However, if I do end up on their “evader” list, how would I be able to enter US? Someone suggested using the enhanced driver’s license (does not show place of birth) instead of PPT but my province discontinued that product in 2014.
My FI does not have me listed as a US person b/c when accounts were opened in ’80s, POB was not requested. That could change if FI decides to contact all account holders for an update.
@Duchesse, when I mentioned reasonable cause, I meant that you could probably get away with filing the simple way via software. You could keep filing going forward or renounce and just file all your paperwork to the best of your ability, including 8854. Especially if your total assets are well below the two million mark.
Of course, a U.S-based. tax attorney or U.S. accountant will be legally bound to dot all the I’d and cross all the T’s to claim full tax compliance over the required five years you’d need to certify. Claiming full compliance could be interpreted by yourself quite innocently to mean that you’d honestly filed all your tax returns and declared all your accounts and income.
The average DIY filer would probably not even be aware of PFIC taxation problems. At the present time, the IRS are underfunded and understaffed so will almost certainly focus wealthier cases.
My impression is that the IRS themselves realize the legislation sucks but have their hands tied because they too are bound bythe laws Congress passes…when I went in to see them at the London Embassy, they quietly implied that they are mainly interested in whales and that they needed to see that I’d gone through the motions of complying by filing.
This is an aggressive and riskier approach but also a much less expensive way to try to get out of Dodge. As FATCA becomes more established, this would become much riskier as technology is developed to monitor everyone.
An attorney subsequently offered me this pro bono advise, unfortunately after I’d gone the whole nine yards and paid put a small fortune in accounting fees and double tataxation… but, unlike yourself, I still have US ties so still think I made the most sensible decision for my situation.
@monalisa1776: I see clearly why you chose your strategy. I’ve filed 2014 “simply” (good old paper-based form) and will see how that goes. If that is accepted, my plan is to enter the renunciation process and provide the back 5 yrs as a DIY filer. But that depends on how 2014 goes. Getting that letter asking for Schedule D was unsettling, but then I figure many people are filing for the first time and omitting forms.
@Duchese, let me state for the record your paramount responsibility is to obey the laws of Canada because you are a Canadian Citizen resident in Canada.
Whatever you do, you must follow Canadian Law.
Beyond that your desire to follow Irish Law, Saudi law or any other foreign law is your decision…but you must follow the law of Canada.
George, thank you. I have, since the first day of my residence in Canada, complied fully with Canadian law, with the possible exception of enjoying certain refreshments, in my youth. Now I am a model of rectitude 😉
@Duchesse, my only real concern here is that in some ways things become riskier once someone becomes aware of certain tax laws such as PFIC. Knowledge brings accountability. In some ways, the internet is a curse in that a lot more obscure information is now available at one’s fingertips via a smartphone. I learned about FBAR then eventually PFIC taxation via my smartphone during my lunch break; it could thus be argued that people will be held to a higher standard of compliance with technical information so easily accessible… nevertheless, I still think simplicity can be an act of self-preservation. In hi Dwight, I might have risked a more aggressive approach…but only you can determine your risk tolerance.
As for future visits to NYC, you should still be able to visit the U.S. without any trouble; I still trepiditiously visited shortly after making my quiet disclosure and also shortly after renouncing. Nothing came of the QD, though I was subsequently detained and questioned when I first arrived to Philly on a British passport… I was very nervous but held my nerve; after verifying my CLN, they warned me that I would never be able to love or work there again as an NRA without a special work visa but they still allowed me I and we’re polite to me.
As my parents are old, I still need to vet ‘home’ to see them every year and will just have to be thick-skinned if I’m hassled again.
As for old refreshments, it’s worth noting that any sort of drugs record, even for mere possession of cannibis could get one permanently barred from the U.S.; the visa waiver application even blatantly asks if you have ever had a drug convuction or even just been arrested for drugs…the more recent application asked me if I’ve ever taken an illegal substance. Lying is a felony but gelling the truth would get one barred. Times.
Duchesse. R.E. your two concerns. F.I.s are only supposed to revisit accounts with an electronic scan of their existing info for accounts between 50 K and 1 million . Registered accounts are not reportable. If you have an account >1 million they might ask citizenship. They have no reason to ask POB. Only lie if necessary.
As for an evaders list and homeland security, so far there is no such link. It could, maybe, possibly become an issue later. (much later). To be excluded one would have to be have been convicted of a crime.