Opened my email today to see a one from Kat Jennings CEO at Tax Connections and noticed the headline:
“Check out the top 20 Tax Blogs in 2015! “During 2015 readers of Tax Connections Worldwide Tax Blogs arrived from more than 200 countries and spent an average of 12:45 during each visit. These are mighty numbers…”
Interestingly, of the 20, at least 10 of them, dealt with issues that affect us.
Delighted to notice:
at #2) How To Live Outside The United States In An FBAR And FATCA World by John Richardson
at #4) Fighting FATCA “Tyranny” by Lynne Swanson (will include in a future post….)
I read John’s post again. These excerpts stick in my mind:
Your problem IS actually attempting to live as a “tax compliant” U.S. citizen outside the United States. It’s easy to live as a U.S. citizen abroad who is NOT “U.S. tax compliant”. What is very difficult is to live as a “U.S. citizen abroad” who IS “U.S. tax compliant”.
U.S. citizens, regardless of where they live in the world, are subject to exactly the same provisions of the Internal Revenue Code. At first blush you might think this is fair. No.
The problem is that the U.S. tax code imposes punitive taxes and reporting requirements on “all things foreign to the U.S.”. As a U.S. citizen abroad, your life is completely “foreign to the U.S.”. Therefore, your life will be subject to punitive taxes and reporting requirements. You will learn this as you become more and more U.S. tax compliant.
This situation is not about tax.
Those drawn up in this mess do not have tax problems.
They have compliance problems. Once filed, THEN they WILL have tax problems.
So what say the accountants and lawyers. You won’t owe any income tax. Unlikely to receive penalties, fines, interest. So what’s the big deal?
By governments not addressing what the tax laws actually mean–in the life experience of those affected (including their immediate “alien” families) they are disabling a whole class of citizens from participation in the normal opportunities available to other citizens, based upon nothing less than a U.S. claim of ownership; due in most cases merely for having been born there.
This is what we have somehow failed to communicate clearly enough. Perhaps it will take a couple of more years before the damage begins to be more obvious.
- It’s not the money as painful as it is to part with.
- It is the stigma of being presumed guilty.
- It is the puzzlement that people simply cannot grasp the distinction between middle-class folks living outside the US with legitimate “foreign” accounts & Homelanders with offshore accounts.
- It is the frustration of not having any truly good/effective choices.
- It is the sadness of losing the identity one was raised with.
- It is the rage at being forced to give up one’s birthright.
- It is the unfairness of having to pay so much more than a Homelander to file a NIL tax return.
- It is the unfairness of having to report government-registered tax- deferred accounts that are parallel to US equivalents; and having to pay on undistributed amounts.
- It is the confusion of not having ANY idea of what is really required & often receiving conflicting advice.
- It is feeling the resentment one’s spouse has at having THEIR financial privacy violated.
- It is the feeling of being put at extreme financial risk by having to remove a stay-at-home parent from accounts in order to avoid the spouse’s resentment
- It is the guilt at having registered a child as a US citizen, never having imagined it would involve them in a mess like this.
- It is the hopeless inability to protect a disabled person who cannot renounce. Even expats do not go near the reality that many of us will develop dementia and our families may be stuck dealing with our “US-ness.”
- It is the fear that one may be unable to return to the US to visit aging parents or be at their bedside/deathbed
- It is the isolation one feels from friends and family at realizing almost no one understands WHAT one is talking about & no one wants to hear it anymore.
- It is the betrayal of one’s adopted government who will protect the banks at the expense of citizens. And disgust that CBT simply isn’t understood or studied before these decisions were made
- It is the grimness of the financial outlook in one’s later years due to inability to save properly and possibly lose more by selling one’s principal residence.
- It is the TERROR of what the US will resort to down the road.
NEW:
- It is the incredulousness that the US can do this not having enforced FBAR or tax law for decades yet the claim “ignorance of the law is no excuse” outweighs their lack of due dilligence
- It is the cruelty of not really being American (accidentals) in any real sense of the word & yet told you are at equal risk as if you had grown up there, voted, had a passport etc
- It is the extra layer of vulnerability given the poor record of the IRS with identity theft plus the expected violation of tax information being shared with the FBI, DHS, etc (this goes against the tax treaty terms in sharing of information)
- It is the hypocrisy of telling people in spite of expatriating acts that resulted in clear and complete loss of citizenship decades ago, that they are still US citizens because the State Department did not issue CLNs-in fact, did not even mention them when people confirmed the rules with DoS and/or without their knowledge or voluntary acceptance, their citizenship was later restored (and only told once this miserable Tax Citizen situation entered the picture)
It would be one thing to do this to a few hundred or a few thousand people. But 8.4 million? Imagine the hidden costs:
- lost time at work
- need for counseling-both indivdual and couples and even the kids
- medication for psychological issues as well as for effects on physical health
- self-medicating behaviour-alcohol & prescription drugs
- addiction
- abusive behaviour fuelled by overall situation
This will cost the government, just the same as any 30% penalty for a non-compliant FFI. Bet nobody did any studies on that.
And make no mistake about it, there will be consequences from this incredibly poor choice by governments around the world.
Badger made a comment on a different thread that puts this all in perspective:
It’s beyond evident that the US extraterritorial citizenship-based tax system seeks to force people living outside its borders, who’ve already paid their ‘fair share’ in full (and possibly higher that US taxes) to the country where they actually live, work, earn, hold their assets and enjoy ACTUAL benefits (ex. Canada) to pay unconscionable and useless sums to US tax lawyers and accountants to prove via complex (and dangerously labyrinthine paperwork fraught with bankrupting layers of penalty structures) that they owe zero annually to a foreign offshore tax and financial crimes enforcement agency (IRS and FINCEN), for the rest of their lives, and to twist or forgo or lose the legitimate enjoyment of their legal, local disability and other government derived benefits, savings and ordinary financial arrangements (e.g. avoiding anything the US levies punitive tax and penalties on – like Canadian mutual funds)is clearly immoral financial and economic warfare. It is also an unjust impugning of individuals without cause or proof – deeming them criminals before the fact (FBAR and FINCEN) which is forcing us to fend off aggressive assault and injury from afar. The assault and injury includes ALL of the NON-US taxpayers and NON-US citizens living in NON-US countries who must now pay via their local NON_US taxes to implement and defend the misguided and immoral local implementation of foreign US laws on their local institutions, agencies and fellow residents.
The fact that the compliance burden falls heavily even on people whose assets, income and means is ordinary and even BELOW the median or average – and who have no political voice or influence demonstrates that there is definitely a class component. There is nothing ‘progressive’ about it.
There is also a definite and clear US bias and added layer of assault against those with disabilities and minors living outside the US – via the US tax and penalty structures imposed extraterritorially on the disability benefits and grants and education savings, grants and other benefits provided by our local government and fellow taxpayers to provide for the material support and education of those who cannot provide for themselves.
We are under direct assault from the US – who is actively and WILLFULLY pursuing a path which destroys or seeks to decimate our legitimate activities and local savings, family homes (often our largest single nest-egg asset), ability to engage in normal financial roles as individuals and as family units, threatens our ability to act effectively as an executor, hold employment or voluntary roles with any signatory or co-signatory capacity, etc.
And, laughably and ironically, it is only those with the most significant means and thus significant opportunities, that have the resources and access to specialized assistance and avenues to work around US laws no matter how punitive and stringent they become for the ordinary masses.
The now ubiquitous fee of 2350. US dollars – both now imposed whether to renounce or to relinquish, and the denial of even that avenue of ‘relief’ to minors (until the US judges them ‘mature’ enough) and those deemed legally incompetent (denied by the US forever), or to those who cannot pay the fee, has created a burden that falls far more disproportionately on those of lesser means. The 2350. is a bigger burden proportionately to those who have less ability to pay. A family may face multiples of the 2350. in order to free all of its members.
That does not include all the compliance and financial planning costs and forgone opportunities and now growing potential denial of travel (via the newest passport restrictions passed) in order to exit in the manner that the US – with growing collusion by the State Department, demands.
May we be successful in defeating both the US extraterritorial assaults, as well as the Canadian government’s collusion with the destruction of our Charter and Constitutional rights and wellbeing by a foreign government.
This is not ‘just’ about taxation per se – as USCitizenAbroad has said, this is about ‘life control’.
My best friend married a European and moved to Europe. The day she got her European passport, having cashed in her 401(k) she burned her Social Security card and her US passport. She says the IRS doesn’t know her married name, her kids have never been registered as American, and she will “never go back”. And she alludes to her dad having burned his draft card in the day — and wishes he had stayed in Canada instead of coming back to the USA after being pardoned. It isn’t taxes she hates — she pays more where she lives. It’s that the US Government are control freaks.
Not to mention that her husband wouldn’t have it any other way.
8.4 million Americans abroad? If that’s true, IRS statistics say that most of them must be acting like my friend. You cannot imagine her hatred for America. And yet, and yet: isn’t that the same hatred that a certain fraction of the American Right Wing have for that government? Intrusive, controlling, scary?
Thanks for this truly descriptive post on the effects, Patricia.
I would also add that…
**************
I’ve joined the IBS commenters there to suggest how to make it more so:
Continued respect and thanks to John Richardson and Lynne Swanson for your responsible and helpful journalism that gives the reader the other side of what our MSM portrays!
Patricia, thank you for listing so concisely in one place the reasons for our rage. I’m copying it into my file of useful resources! Thank you!
I’ll echo the kudos to Patricia. This is the most useful, concise, well-worded, and accurate forum post I’ve seen in a long time. Cuts to the chase, very clear, and responsibly and calmly worded. Bravo.
Sora: hopefully your friend doesn’t have a US birthplace, because if she does she may have a hard time banking under her own identity.
@Sora,
What a description! So sorry though, sounds lke you’ve lost a really smart friend. Actually we CAN imagine her hatred for the U.S. Because we are not nearly as invisible (i.e., we are not separated by the pond…..) as she can be and have been forced to either take direct action like renouncing or hedge bets hoping not to be outed by a bank.
Interesting parallel I never would have thought of. Having something in common with the American Right Wing. Will have to put some thought into that.
@Calgary, Muzzled and Schubert
Thanks for your kind comments. I wasn’t too sure about all this….I had started it from a completely different angle and it was simply so depressing I coudn’t write it. Perhaps it should be added….PLEASE find things that are missing
“I woke up in a rather bleak mood this morning, with the full negative expat situation swirling around in my head:
Unsuccessful Summary Trial (ditto for Bopp)- Government of Canada simply continuing
Owe $$$ to Arvay for ST and stay
Media not interested-Add via Calgary: FEAR MONGERING & continue spreading
the cliche of “tax cheats”
General public thinks we’re all yanks and we’ve earned it
Banks couldn’t care less
CRA will give the IRS whatever they ask for
Creeps like Schumer who will keep at it
Creeps like Koskinen who claims Streamlined will end
Compliance industry scaremongering:
*still going on about Reed Amendment,
NB: with regard to the Expatriot Act, the statement in parenthesis attempts to pass on the way this idea was communicated; I have NO knowledge of nor am I saying, that this is going to happen. I started checking into this today (Jan 4) and will report back what I am able to find out regarding any immigration bills passed etc. But I do not believe at this point, that this is a true statement.
*Expatriot Act (soon to be a reality, no question about it they claim-definitely will be stuck
into the immigration bill)
*past relinquishments without a CLN don’t count…
*877A is retroactive &
*you need to pay expensive lawyers to accompany you to a scary one hour
(not in Toronto, I spent less than 1/2 hour for TWO appts) interview at the consulate-ADD:DoS is clear that Consulates should stop this yet people are
paying $12k and folks at other consulates not asked any of these
trick questions designed to trip one up and expose omg…renouncing for tax purposes of all
things………
hmmmmm I wonder if this could destroy the *insurance* of covering every last detail, making
sure the taint of US-ness is wiped forever clean (otherwise the US could just insist you were
still a USC) this certainly brings up the question of influence/interference and for goodness’
sake, in whose best interest is this? Everyone everywhere else manages without lawyers present
and certainly manage DoS 4079, 4080, 4081 &4083 without shelling out $12k
ADD ““So, it’s not the IRS that may be coming after you, it’s ‘Dog the Tax
Bounty Hunter.” For God’s sake……….
The renunciation/relinquishment fee is US$2350 ACTUAL CAD
$3,255.45
appts in Toronto not available until October 2016 (no excuse for limit of 8 pr week)
Family friend was just told it is a 2 year wait
The passport thing
No movement on renunciations for those incapable of determining on their own;
the frightening prospect of those who wait may develop alzheimers, dementia in the
process….
Issues to protect our tax-deferred vehicles should be negotiated into the tax treaty
Ditto pensions
Situation of our kids
Possibility of “covered” and tax on US heirs etc…..
Effects of this on marriage/family members
We all know we are victims of a great wrong BUT to step forward increases the probability that we will be “tagged and bagged” by the IRS and then being wronged in what had been a virtual sense becomes being wronged in reality. Doing the right thing in a effort to get justice for all could end up being the wrong thing for the safety of ourselves and our families. This conundrum is, in itself, another harm which should be listed but in better words than I could find.
It seems the courts these days are all hung up on “standing”. They want to see the blood on the floor before they will accept that a plaintiff has standing. What a huge challenge it will be for Joe Arvay to convince the judges that the potential for blood on the floor is also “standing”.
I think the reason the U.S. government is not sending out the IRS swat teams in full force just yet is because it is waiting for judges hung up on “standing” to completely clear the path. Governments around the world stepped aside, choosing to protect their banks instead of their citizens. The media continues to pick away at resisters with its repetition of “tax cheats”. Previous advocates against FATCA are drifting away to other issues. All that remains is the court system. If it fails us, the path will be cleared for the IRS. Blood will begin to flow across the floor and even though standing will then be unequivocal, it will also be irrelevant because the trials are over.
If we can’t join Ginny and Gwen in the courtroom then we can do our part by making sure they don’t have to worry about the funding too.
@Fred, Schubert, Patricia and friends……we are all on a road to clarity. Most of you know I live in Europe. When my family is in public, I absolutely stress that they do not “dress like an American.” Though many Europeans “dress like Americans.” Why do I do this? Relatives have had a habit of posting to them glaring American shirts……and frankly why attract the risk of being a terror target.
Expats just as they should not dress like Americans in the capitals of Europe because of risk of life must also now “hide” their Americaness from all others.
Happy New Year everyone! I so apreciated the bullet points made above…very succinct and yes, depressing too. As an aside, does anyone know if the capital gains on the sale of one’s primary dwelling is taxed even if one’s new abode is of equal or greater value? There is no gain “gained” there, and anyway, the proceeds from the sale would be in and out of the bank at laser speed to pay for the new place. Excuse my ignorance on this…I bow to the wide experience of Brockers!
@ Lake Superior Guy
The answer might be here …
http://listingdoor.com/the-irs-home-sale-exclusion-how-the-real-estate-commission-reduces-it/
However, I don’t know if that is up to the minute information … the IRS traces its regs with a stick in quicksand.
Re the renunciation / relinquishment fee … latest Foreign Exchange is US$2,350 equals CA$3,255.455.
http://usd.fx-exchange.com/cad/2350-exchange-rates.html
Patricia,
Excellent post — thanks for putting it all in one place.
I find the reaction of most of the USCs I know here in Australia particularly frustrating. They either assume they are too small/poor for the IRS to bother with, or they think I’m exaggerating the dangers. Until we have our own Boris Johnson, I fear they will continue to be ostriches.
And… there’s the issue of identity. Just today as I was buying groceries, the clerk, noting my accent, asked where in America I was from. Five years ago I would have happily chatted with him about the state I grew up in. Now I am quick to point out that I’m an Australian citizen and have been for sixteen years. I feel uncomfortable being identified as an American.
Why no mention of the extremely draconian penalties? Who ever heard of 300% maximum penalties on anything? So they lowered it to 100%. Does that actually help any? But it isn’t only this- for those who go through streamlined and get off easy- then they are confronted with a 20% late interest charge. That alone can eat up much of their savings.
@Karen; ” Just today as I was buying groceries, the clerk, noting my accent, asked where in America I was from.”
Bravo for stating “I am Australian.” I hope you leave it at that because such a comment is inherently racist.
Do you ever get; “How long are you on vacation?”
On the accent thing sometimes I respond, “If my skin was black would you ask where I am from in Africa?”
Next time you get the accent remark and after stating you are Australian, simply add “My parents sent me to school in North America.”
@Embee…thanks for the tip! I’m moving soon so another house is required. Happy New Year to you and yours!
Very aptly out, Patricia, Badger. This why I seethe all day.
@LakeSuperiorGuy
Here’s some up to date information on capital gains on the sale of a principal residence. Had I had prior knowledge of a potential tax liqbility on the sale of my home in Canada, I would have found some legal way to avoid paying tax to the US government when I sold it in 2008.
http://www.theglobeandmail.com/globe-investor/personal-finance/taxes/the-longer-you-stay-in-the-us-the-more-youll-pay-to-the-irs/article22418714/
Something to explore is the notion of treating your home as a principal residence in Canada and as an investment property for US tax purposes (a “like-kind exchange”, as I believe EmBee is referring to). This concept of treating your home differently in each country may be worth exploring with an accountant prior to selling:
https://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031
For some, volunteer hours contributed to other former important pursuits in our communities are now, because of time or stress of this issue, no longer contributed, or at any rate lessened, to our communities. As well, our donations may have had to lessen for other issues important to us in order to have sufficient funds to donate to ADCS-ADSC litigation.
@Lake Superior Guy
for expats you have always at least 2 factors working against you
1. tax law of the foreign country you live in vs. US with regards to capital gains exceptions/exclusions and deductions for renovations/repair (value added vs. value maintained)
2. phantom currency gains vs USD
it becomes even more confusing when taking a mortgage into account. Thanks to Obama for 2014 and 2015 no interest deduction. I reduced the principle both times but did not declare on my 1040 that phantom currency gain (this gain would be taxed as ordinary income). If I were to sell my principle residence tomorrow I am not even sure the IRS would get it that I paid off substantial amounts to reduce the mortgage. I would take my chances in an audit if it were to happen.
But since I have a 20%+ currency gain I am thinking constantly about it how to avoid paying capital gains tax on it since my foreign countries tax laws are totally incompatible with the US.
btw. this concept of “treating your home differently in each country may be worth exploring with an accountant prior to selling”….. which would probably cost huge again and honestly I have tried this already a couple of times in an informal way and each time the accountant was not very helpful or knowledgeable in this cross-border matter.
”Just today as I was buying groceries, the clerk, noting my accent, asked where in America I was from.”
How about: A former British colony in the northern part of the American continents.
@ Bubblebustin & Scott
Thanks you two, for the advice! You‘d make bad condors, not charging for advice! Ha!
Horizontal and vertical equity and the value of Americans abroad:
U.S. Taxation of its Citizens Abroad: Incentive or Equity, 38 Vand. L.Rev. 101 (1985)
…”To examine horizontal equity, a comparison must be made between the
expatriate American and other taxpayers who, it might be argued, are
similarly situated. [FN18] The domestic taxpayer, for example, finds
that it is fair for him to pay tax because his neighbors also are
paying tax under the same system to the United States. [FN19] In
contrast, if the nonresident taxpayer looks at his expatriate
neighbors from most other countries, he finds that they are not being
taxed by their home countries. [FN20] This lack of taxation enables
the third country national to work for less than the American
expatriate, giving the third country national a competitive advantage.
[FN21] From the American’s point of view, tax equity can be achieved
only if his tax burden is no greater than the tax burden of other
workers in the same country who have similar costs of living. He
regards the obligation to pay United States taxes on his foreign
earned income to be unjust.
Tax equity also can be viewed through a comparison of expatriates to domestic taxpayers. Those speaking for domestic taxpayers might argue that the expatriate should be treated the same as a domestic United States citizen at a similar income level. [FN22] The expatriate, however, may be carrying a higher tax burden than his domestic counterpart because of taxation by the foreign state. Although the tax credit takes the income tax of other countries into account, [FN23] the expatriate may be living in a country that derives some of its revenue from taxes other than income taxes, such as the value-added tax. [FN24] These additional fiscal burdens may weigh *106 heavily in the expatriate’s overall tax responsibility, yet are not taken into account by the tax credit. [FN25]
Furthermore, expatriate families may have to pay for services that would be provided by the public sector in the United States. [FN26] Although many of these services, such as education, would be mainly provided by the states, the federal government subsidizes many local services through revenue sharing and grants-in-aid. [FN27] This benefits received approach has intuitive appeal, but is limited to those government services which produce benefits that are direct in nature; it does not take into account those services that are *107 humanitarian or social. [FN28] The United States income tax is based on the principle of ability to pay, not the principle of benefits received. Because most of the expenditures funded by the income tax provide general social benefits to all Americans, [FN29] it is difficult to assert with strong conviction that expatriate workers do not share in those benefits.”…
https://groups.google.com/forum/m/#!topic/alt.lawyers/Fxh9lJZ_nIg
“This situation is not about tax. Those drawn up in this mess do not have tax problems.
They have compliance problems. Once filed, THEN they WILL have tax problems.”
Not only that, Tricia, they’re also enforcing their so-called laws selectively. Isn’t that a violation too?
Please see this plus comments:
“Millions of Foreign Visitors Overstay Visas. Precisely How Many? No One Seems to Know. Does Obama Care?”
http://globaleconomicanalysis.blogspot.com/2016/01/foreign-visitors-overstay-visas-how.html
Think of the implications: (per their own insensate laws): non-resident taxes not paid, compliance industry documents not filed, penalties not forked over, financial privacy not forfeited, bank abroad not subject to penalties, et al.
This is an expat witch-hunt.