GAO begins doublespeak already in the title “Economic Benefits of Income Exclusion for U.S. Citizens Working Abroad Are Uncertain ” The entire report –investigating removal of the FEIE “tax expenditure” reads like the script of 1980’s shortwave Radio Moscow—full of “some experts say” and “it can’t be shown” doublespeak. Already on the 1st page “GAO made no recommendations in this report.” . GAO doublespeak already says that “uncertain” in its title means it has “No recommendations.” The table of contents itself is full of doublespeak conclusions.
In order to fully understand what the 74 page General Accounting Office (GAO) report is saying, one really needs to have fluency in doublespeak—-to grasp the real meaning. For those who can read doublespeak, this report might best be read alone in that quiet place after having your morning coffee. Otherwise, I will attempt to provide a translation.
May 20, 2014, The Honorable Jim McDermott, The Honorable Michael Honda. The Honorable Carolyn Maloney, House of Representatives
Apparently the report was commissioned by the well-meaning, yet passively-aggressively naive Abroad Caucus, in response to repeated visits by ACA/AARO.
The immediate cause of the caucus naive error is in commissioning the study to G.A.O. –the General Accounting Office. This band of merry men has a self-interest in making as much form filing work as possible, even though its extra-territorial taxation method might never create any tax revenues.
GAO then went on to interview the normal lackeys “government officials, experts, and stakeholders, including groups representing citizens working abroad and employers”. The list (described in Appendix 1) is stacked with “experts” in creating complicated compliance law in their own interest. The last on the list is American Citizens Abroad who has been profiling itself as “THE Voice of Americans Overseas” . AARO with a similar approach. As we know, there are still no other expat organizations than these two 40-yr-old organization
As the biases are built into the report by its authors and experts, it understandably comes up with a list of options in Appendix 1, Table 7, which range from worse to bad:
-Repeal the FEIE & tax all foreign earned income.
-Reduce the maximum exclusion
-Increase the maximum exclusion
-Restrict eligibility,
-Expand eligibility
-indexed for the cost of living.
– convert the exclusion to a credit
-targeted to employees of selected industries. —(oil & gas, construction, engineering, UN work)
-Uncap the exclusion and exclude all foreign earned income from taxation (but not enact RBT).
-Impose an exit fee on U.S. citizens and U.S. resident aliens living in a foreign country & exclude all foreign income for eligible individuals living overseas (ACA proposal).
Note that well-meaning-but-submissive RBT-ish ACA proposal created some GAO interest–mostly the GAO was excited about an expat proposal for an exit tax upon its own (read closely–GAO empasis is on exit tax)
The title page already clearly states Treasury’s (GAO’s) incoming CBT given-assumption : “Because section 911 reduces income tax liability through special tax provisions, both the Department of the Treasury (Treasury) and the Joint Committee on Taxation (JCT) identify section 911 (FEIE) as a TAX EXPENDITURE. The costs and benefits of this tax expenditure have been the subject of policy and economic discussion. Some have defended the tax expenditure on the grounds that it enables U.S. workers overseas to better compete for jobs with non-U.S. foreign nationals (who typically pay no taxes on overseas earned income) and that it thereby encourages the overseas employment of Americans, who play an important role in promoting exports. However, others have highlighted that some of these claims lack evidence, or are based on outdated assumptions, given changes in the global economy over the past several decades. From a tax policy perspective, some have debated whether or not the tax expenditure provides economic and other benefits to the United States when compared to its costs.”
If the writer (GAO) already comes in with that given-assumption (that FEIE is an expenditure), it would be quite pointless commissioning that writer to produce a 78-page document which questions GAO’s own fast-held principle. Basically, it commissioned a confirmation of GAO’s previous beliefs.
I have translated some of the GAO doublespeak (in italics)
On the title page: “While about half of those GAO interviewed said that employers make overseas hiring decisions based first on the candidates’ qualifications, or that the cost of prospective employees was not a primary consideration, about half also told us the added tax costs of employing U.S. citizens could influence some employment decisions.” (We present this information at the end of a sentence to discount its importance, and early in the document so as to be able to discount its importance and validity with the rest of the document)
…”However, uncapping the exclusion could compound the challenge that IRS has in administering the tax expenditure, given the
misconception that those with excluded income do not have to file and report income to IRS. (GAO doesn’t want people to just experience RBT, it demands the right to continue demanding their tax-form slavery)
…”uncapping the exclusion could create incentives for higher-income professionals to move abroad to deliver their services” (the rats are leaving the ship!) “and to shift some investment income to be paid as earned income.”(gibberish)
…..”It would also reduce federal tax revenue (we need your money), and any perceived unfairness could erode voluntary compliance for domestic taxpayers (Homelanders are jealous over those who’ve left the plantation).
“In terms of good tax policy, there is room for debate regarding how potential revisions to the current tax expenditure may affect choices about where to work and who to hire. (Don’t forget that it is the U.S. government who shall decide where you should live). The current tax expenditure (just slipping it in that FEIE costs us money) may have positive and negative effects on both the efficient allocation of labor resources and on equity. The magnitude of these effects is unknown, making it unclear whether the tax expenditure provides any net economic benefits. (our “experts can’t prove that their FEIE gift is beneficial). These uncertainties also make it difficult to draw definite conclusions about certain policy alternatives. Repealing the tax expenditure (eliminating FEIE) would reduce the tax inducement for U.S. citizens to relocate to lower tax countries (leaving the plantation), but would also make U.S. citizens more costly for any employer to hire than citizens of most other countries, which do not tax foreign earned income. Removing the maximum limit ($99,200 for 2014) for the exclusion would eliminate the tax cost differential with other countries, but would allow high-income individuals to avoid U.S. taxes on foreign earned income (the entire expat policy is driven by the progressive chase after the 1%’ers). Targeted tax relief may be justified for extreme cost of living areas, and the design of any alternative would affect the complexity for taxpayers and the Internal Revenue Service (IRS), as well as the federal tax cost.” (we could try to recognize that some low-tax countries are also high-cost of living, but that would be too much work for us)
Regarding the GAO desire to unfairly tax citizens abroad, which begins on p 67: Is the Tax Expenditure Fair and Equitable?
……….. “In order to apply any of these equity principles, it is necessary to identify individuals who benefit from the exclusion. This identification is complicated by the fact that the individual or business that is legally obligated to pay a tax—or that receives a tax benefit—is not always the one (or, at least, not the only one) that bears the ultimate burden of the tax or receives the ultimate benefit. The ultimate burden or benefit is known as the incidence of the tax policy, and it depends on how various individuals and businesses respond to the policy. For example, in the case of the tax expenditure, even though individual employees claim the exclusion on their own tax returns, the resulting reduction in their total taxes may make them willing to work abroad for a lower pretax income than they would have accepted without the tax expenditure. As a result, the foreign employers may share in at least some of the benefit by being able to pay lower salaries than would otherwise have been needed to hire U.S. citizens.” (This isn’t really hurting you, this is hurting your corporation)
….”In terms of the benefits principle, some of the experts we interviewed noted that U.S. citizens working abroad for the long term receive significantly smaller benefits from U.S. government services than those living in the United States, and that this difference may justify some tax relief for the former. Other experts noted that a large portion of federal revenues pay for services—such as national defense, foreign affairs, income maintenance, and basic research—that produce social or humanitarian benefits that are not directly apportioned to specific individuals. U.S. citizens living abroad likely benefit from some of these services. Many of those citizens also benefitted from years of public investment, for example, in their education, the cost of which is typically recaptured from citizens over their lifetimes. (your American education makes you an indentured servant.) Moreover, some observers note that the choice to retain U.S. citizenship while living abroad provides some insurance with respect to being able to return and live within the United States whenever one wants. They maintain that citizens abroad should be willing to pay some tax for this insurance.” (“Some of the experts” say that homeland research and the wars in Syria Ukraine, Somalia, Yemen, and Libya are for your benefit)
….”Citizens living abroad benefit from services provided by their hostcountries’ governments to which they pay taxes. Given that credits for
foreign income taxes paid reduce the amount of tax that these citizens pay to the U.S federal government, any attempt to quantify discrepancies between federal benefits received and federal taxes paid should account for the foreign tax credit.” (You got the foreign tax credit crumb, now go eat it and be happy)
Appendix 3 analyzes 3 different tax situations — implying that each situation represents 33% of the situation. But, the 0% tax example only represents 2.2% of the expat population. And the 10% example represents less than 2.2% of the expat situation. (we “analyze” by looking at 4% of the population and make it look like it is 2/3rds of the population)
We could go on and on.
What to learn from all this? Recognize that GAO and other lackeys will always respond in its interest and against ours (we already know that) Recognize that the GAO stacks the cards against us. Recognize that other small groups have tried but with little success. More resistance, stronger resistance organization, litigation, flight, and voices louder than the big machine are needed.
I ran across this work of fiction while searching for something else. Hope that it hadn’t been posted by someone else when it was first fabricated. Or not. Sometimes you read a fiction one year, forget it, and need to read it over again later.
I do think it’s important to bear in mind that the only thing the US is interested in is capital flow. The purpose of the FEIE is to encourage US citizens abroad to put up with CBT, because CBT facilitates the movement of capital from foreign countries into the US through taxation of passive income and general US-nexus economic activity. Considerations of equity have absolutely nothing to do with the FEIE.
If the FEIE were to be removed, it would likely increase renunciations and non-compliance. So it’s probably not going to be removed, or if it is, some substitute “concession” will be put into place to try to keep people filing.
@Japan T:
Technically speaking, you don’t need to be caught up on your tax returns to renounce. You could simply renounce without filing any taxes, in which case you would become a covered expatriate. This would mainly affect the taxes your kids would have to pay on any inheritance from you, assuming they are still US citizens when they inherit. But you would be free from further filing obligations, and from the risk of loss of passport, which might make it worthwhile anyway. At least, it would be a better option than taking J’s way out.
Just something to think about. You do have options.
“Repeal the FEIE & tax all foreign earned income”
They did that in the Carter years. It left people, particularly English teachers in Japan and contract teachers in Nigeria at the time (with overvalued exchange rates and free housing and, in Nigeria, sometimes a cheap car) owing more in tax to the IRS than they earned.
Imagine the new passport revocation rules: only those with a second passport should take the risk of working abroad, incurring penalties.
@foo
Japanese law requires me to sever citizenship with the US with in two years of my gaining Japanese citizenship. Can I gain my freedom from the US, gain my CLN, without filing tax and information returns?
@Iota
That’s just it. I DO NOT have the money to pay any body anything to free myself from the requirements CBT places upon me. Nor do I have the time.
While I can’t speak to the specific situation in Japan, it is important to remember this: When you look at the published totals for US tax returns and FBARs filed from abroad, they show that the majority of US expats are either still unaware of or are ignoring their IRS obligations. Even with FATCA nothing bad is presently happening to these people. The IRS is unable to effectively deal with their US resident taxpayers and fraudsters; they have absolutely no resources to go after expat minnows.
Japan T,
Yes, you can get a CLN without being caught up on your tax filings.
@JapanT – It’s horrible that America puts people in this position by arbitrarily charging such a huge fee to escape US citizenship.
I wonder if perhaps the Japanese nationality law might actually help. ( I know nothing about Japan or Japanese law, so please forgive me if this is completely wrong.)
The webpage at http://www.moj.go.jp/ENGLISH/information/tnl-01.html says:
This seems to say, that all you have to do, to satisfy the Japanese requirement, is to make the declaration, and you will then be considered by Japan as having renounced your US citizenship.
If that is correct, maybe you could rely on that Japanese declaration as your renunciation? Provided you have no US income or assets, the IRS can’t tax you as a US citizen without the assistance of the Japanese authorities. And the IGA allows you to self-certify your non-USness, for FATCA purposes. You have to provide a “reasonable explanation” for not having a CLN – to which you could simply say that you couldn’t afford to pay the fee.
What do you think? Apologies again if I’ve got it all wrong.
@andy05
Could you tell us how long it was until the FEIE was restored? Was there a sizeable reaction that caused the change? Are there any resources one can read about this?
@maz57
I think it is premature to assume FATCA will not have an effect.
Unless I am mistaken, the first exchange only took place last September and no one seems to know if there are other countries other than Canada and Australia who submitted. Given IRS’ lack of funding and employees and their dismal equipment issues, it seems it still may have some impact. More on this in a post hope to put up soon.
However, that said, I think they will have very limited abiity to go after minnows.
Roger Conklin spoke about that FEIE removal in all of his submissions
http://waysandmeans.house.gov/UploadedFiles/Retired_International_Sales_and_Marketing_Executive.pdf
Here’s the report mentioned by Roger Conklin.
“Impact on Trade of Changes in Taxation of U.S. Citizens Employed Overseas.”
Published: Feb 24, 1978. Publicly Released: Feb 24, 1978.
http://gao.gov/products/105138
Highlights:
@Patricia Moon – “I think it is premature to assume FATCA will not have an effect.
Unless I am mistaken, the first exchange only took place last September and no one seems to know if there are other countries other than Canada and Australia who submitted. Given IRS’ lack of funding and employees and their dismal equipment issues, it seems it still may have some impact. More on this in a post hope to put up soon.
However, that said, I think they will have very limited abiity to go after minnows.”
I agree it’s early days, FATCAwise, and the IRS may eventually be able to cross-check FI-produced FATCA reports with 1040s on file. But to me it seems unlikely the FATCA reports will ever lead to targeted pursuit of individual non-filers. A foreign bank account plus a missing 1040 is just not enough evidence of wrongdoing. They’d still need to build a case, with no assurance that the time and effort expended would lead either to successful prosecution or to big penalties – especially given that they’d have no jurat to fall back on. Just my guess.
@iota
I think it’s all going to depend on how big the bank balance is for the IRS to pursue anyone. They might also be happy with what they get from just shaking the trees without actually going directly after anyone.
“Nina Olsen and TAS are there to help people.”
No they’re not. Nina Olson appears to be working sincerely at a general level but doesn’t get involved at the individual level with victims of abuse. The rest of TAS is more dedicated to helping the abusers than helping the victims. The rest of TAS aren’t necessarily all criminals themselves like Nakeisha Hall is, but they still don’t give a shit about victims.
“I WILL lose my family. Either by losing my bank account and the the ability to receive any monies (pay or assistance) or by losing my passport.”
I thought you were getting an Irish passport. Was that effort derailed?
“IRS are really just the Wizard of Oz, trying to sound big and powerful and scary, but surprisingly weak and incompetent, behind the scenes.”
Incompetent yes. Weak no. They even get to violate court orders and courts let them do it. Even when IRS exhibits contradict each other, courts blame the victims.
“The IRS don’t have the resources to look at FATCA reports and pick out an individual and decide from their bank balance whether or not they would be worth pursuing.”
Isn’t the entire purpose of FATCA that the IRS will pick out individuals and pursue them? If the IRS doesn’t have resources to distinguish whales from minnows, they’ll keep pursuing minnows like they’ve already been doing.
‘If the FEIE were to be removed, it would likely increase renunciations and non-compliance.’
And increase the number of poor people moving to the US, as discussed in news reports around 2003 or so when the US was considering eliminating FEIE.
‘So it’s probably not going to be removed, or if it is, some substitute “concession” will be put into place to try to keep people filing.’
Didn’t happen in the 1970’s when elimination of FEIE persuaded Mark Pinetree to move to the US and persuaded some of his acquaintances to renounce.
Found this at turning-Japanese.info
http://www.turning-japanese.info/2014/06/revoked.html
It tells of an American who naturalized as Japanese but did not renounce USC. He believes his bank noticed the discrepancy and notified the Ministry of Justice who then annulled his Japanese citizenship.
He thought that once he had JC that he could just ignore giving up USC to avoid the exit tax and that if caught, it would not be a big deal.
However it came about, he lost his JC and is now a USC who has not filed his US taxes for several years and may be extradited to the States for tax evasion.
Further, we now have this “my number” system. It is like the US SSN# on steroids. For my wedding anniversary three weeks ago, my parents sent an international postal money order (seems that they are still available) as a gift. The P.O. would not cash it with out seeing my “my number” card. So, I had to go back home at get it. They now require not just the number, but must actually see both the ” my number” card and a government issued photo ID. Having this information, the postal clerk phoned somewhere loud enough for all to hear and gave my name and “my number” over the phone for approval to cash a $50. money order. They also require the relationship between myself and the remitter and the purpose of the payment. I was further required to sign a form that had a statement ending with. …”for the reporting of cross border payments”. I was unable to obtain a copy of this form and this phrase was all I could remember by the time I got back in the car and was able to write it down. “Tax” was also mentioned in this document which leaves my wondering if I will be required to report it on either my Japanese or US tax returns or both and possibly pay tax on it.
Last month a friend in Canada wired money to me through a travel agency. There was something she wanted that is only available in Japan which I bought and sent it to her and this was reimbursement for the purchase. Here too, I had to provide my “my number” card, gov. issued photo ID, relationship to the remitter, purpose of the payment and additionally my cell phone number, address and profession. As this was a travel agency I asked what would have happened if I were not a resident but a tourist and thus without a “my number”. The question drew a blank expression from the person I talked with who, after a moment asked if they could go ask someone else. They returned and said they did not know but gave me a phone number to call to find out. I did not call as it was just an interest and not a need that caused me to ask, but I thought that it should be known that things ARE changing, rapidly and with lots of unknowns. If I were back in the States, I would not be wanting my children going to Japan to study, as I did, knowing that they may not have access to money from home in case of an emergency.
I understand that the IRS is short handed but I have read that while they are leaving much undone domestically that they are also increasing their efforts with expats. While I am a medaka (a very small Japanese minnow) my spouse is not and the joint account we had most likely has been reported to the IRS as I learned of all this too late to close the account before reporting was to begin.
The knowledge that the IRS is most likely too busy to go after me is not enough of an assurance to allow peaceful sleep even without having my spouses assets at risk.
Of interest to Canadian duals. I do not know if this has been discussed here or not, but Canada has passed a law allowing the revocation of Canadian citizenship of citizens with dual nationalities.
http://www.turning-japanese.info/2015/07/c-24.html
@foo
I thought that being a covered expat was the reason I have to file five years tax returns. I truly hope you are correct but your comment differs from my understanding, what I hope to be my misunderstanding.
@Norman Diamond
Oh, if only it were Irish ancestry I was blessed with. The Irish at least speak the same language and I have studied Gaelic too boot. No, my ancestry lies elsewhere and I am really wondering if it truly is in my best interest to gain citizenship from a country I have never been to and has a language that I can not speak nor read at all. There are other issues here in Japan that have me concerned that going for another citizenship through my grandfather may not be the best way to go.
“Yes, you can get a CLN without being caught up on your tax filings.”
Yes but the CLN still costs US$2,350. Canada isn’t the only country that needs to enforce the US’s Expatriation Act of 1868, since Congress has spoken.
I should also add that the person who lost JC now has serious visa problems too.
@JapanT
If your wife has funds, why can’t she help you?
@Polly
As far as I can tell, and there are people here telling me different so I have to somehow find the time to track down where they got this different info, I must “settle my account” with the IRS before I can get a clean break from them regardless of aquiring a new nationality.
If that is true I am looking at a huge amount of money as there will be FBAR fines once they learn of the joint account we had. I am already pretty much living off her as it is right now. I have not been able to contribute anywhere near as much as I once was able to an am very far behind in my financial contributions to the family. I am very uncomfortable asking her for more help financially.
But how much am I looking at? The $2,350 for the actual renunciation, I can scrape that together especially as it will take a long time for me to meet the requirements for a new citizenship.
If I can get my new citizenship and pay only the fee, I do not need any assistance. If I must hire someone to complete only one tax and information return, I could ask her for that. But if, as I currently understand, I must enter in whatever “amnesty” program currently available or file returns for multiple years, how much money am I looking at? From what I gather, $30,000 seems like a starting point if I do not owe any taxes. If that is so, no too much.
Can I escape without paying a FBAR fine? If not, then the minimum I owe for that is $300,000. Not going to even consider asking her to cover that.
See, it is not my money with which I would be buying my freedom and my wife will need it to buy our child’s freedom when they become of age. Although, ND has advised a simply brilliant idea that may work if the US doesn’t catch on in the decade plus from now and when our child is old enough to renounce.
I didn’t read it yet, but wasn’t there a post a little while back on a different thread about someone having their request for a CLN denied?
Looking for something else I stumbled across info on the need to file five years of returns if a covered expat. Foo is correct, not filing makes one a covered expat. I think that I was concerned about not being a covered expat that I decided that five years worth of returns must be provided to get a CLN.
I was reminded of another big question I have. As I have not filed in many years, it seems that I can not claim the FEIE and thus DO owe taxes for each year I haven’t filed. Wouldn’t this need to be paid before I could get clear?
There are lots of people who have been through streamlined. There are also lots of people that just began reporting taxes and/or FBARs current year. There are also lots of people that have reported FBARs and/or taxes backwards. “didn’t know” is one of the choices for filling out FBARs late.
There are lots of people who have been through streamlined. There are also lots of people that just began reporting taxes and/or FBARs current year. There are also lots of people that have reported FBARs and/or taxes backwards. “didn’t know” is one of the choices for filling out FBARs late.
I take it you mean they have done so and received their CLNs?
Costs?