"I complied with human rights-violating U.S. renunciation rules — and this leaves a bitter taste." https://t.co/H5qRkzhxxq
— Citizenship Lawyer (@ExpatriationLaw) August 24, 2016
Click on the link in the above tweet to see the complete discussion.
The bottom line is that Dr. Stephen Kish – Chair of the Alliance For The Defence of Canadian Sovereignty and plaintiff in the Bopp FATCA Lawsuit, has formally renounced U.S. citizenship. He performed this act in Iceland which is the final resting place of Robert James Fischer – one of the most famous and well known cases of U.S. citizenship relinquishment.
“I have less sympathy for those who are compliant (and thus spending annual $ to stay that way), while holding out for RBT (so they can stay US citizens) when all it would take for them is another $2,350 to end their slavery.”
Huh? Why?
I used to be compliant. In most years my US tax was $0.00. Before learning that it’s illegal to tell the truth on US tax returns, I used to tell the truth. I paid around US$800 for the 1997 tax year and around US$1,200 for the 1999 tax year. There were a few years in the 1970’s and 1980’s that I paid lesser amounts but those were refunded later. After learning that it’s illegal to tell the truth on US tax returns, I obediently and unwillingly committed perjury on ever newly filed and refiled US tax return, but even if I had declared truthfully my US tax still would have been $0.00 in all of those years.
Expenses were photocopying and postage.
For most of that time it would have cost $0.00 to end my slavery. It did cost US$450 to mostly end the requirement to commit perjury. I still had one new US return and several refiled returns to lie about after renouncing, but no further new ones.
Suppose I’d held on longer, for example if I willingly agreed to the requirement to continue committing perjury, and now it would cost $2,350, which would come out of savings since my employer pays barely enough to live on now. What’s the reason for having less sympathy for me?
“Better, than an amnesty for ‘accidentals’ would be for the USA to give renunciation from US citizenship to EVERYONE WHO DOESN’T WANT TO BE AN AMERICAN. […] That way USA gets to keep it’s unique citizenship based taxation, and the only US citizens living outside USA will be the ones who agree to being US taxpayers.”
You need to spend some time being stateless and then see if you still believe that.
“Someone who is compliant and decides to renounce because they just cannot tolerate CBT anymore (and who could blame them), exits US citizenship without a black cloud hanging over their head for the rest of their lives.”
Sometimes true but not always, let alone without knowing if the US will make an (or another) retroactive change.
The IRS isn’t even satisfied with keeping a black cloud hanging over my head. They still send bills to my wife, and she never was a US person. She demands conferences with IRS Appeals, they always ignore her demands, and the IRS still sends her bills. It might be considered that she wasn’t compliant because she also illegally told the truth when I was filing joint US returns, but this is for a year where the IRS did not require her to refile.
‘The general reality is that if tax is not owed, there are no penalties.’
That’s a general assertion but not the reality. Besides my US$1,000 penalties plus confiscation of US$11,000 of refunds owing, the IRS is still trying to get US$5,000 from my wife, all for years when no US tax was owing.
‘If one does not have enough savings/investments to report on an FBAR’
Separate issue. Someone might have received salary equivalent to US$11,000, not owe any US tax, might might have put all of it into a bank account.
‘So what does being a “covered” expatriate in this situation mean? It means nothing. Absolutely nothing.’
Unfortunately it means the US will try to grab around one-third of their CPP or pension benefits in other countries. If those get paid into bank accounts, all the US has to do is force the banks to deduct whatever the US tells them to do.
“1. He has to file an 8854. If he doesn’t then he subject to a $10,000 penalty which (because he is a Canadian citizen) Canada is not obligated to help Obama collect (as per the tax treaty).”
Canada has also said it would not sign the FATCA IGA with the US…then did.
Canada has also said that “A Canadaian is a Canadian is a Canadian” and then decided to let the US decide who is and is not a Canadian.
“None of that is going to happen to someone who hasn’t because the IRS won’t even know they exist.”
How can that be, now that our banks, insurance companies, the governments of the countries we live in, perhaps are even citizens of, are telling the IRS that we do exist and where we live and bank?
“I cannot imagine anyone not appreciating Phil Hodgen. What he has done, for absolutely nothing, was so helpful to all of us way back when. I’ve also been fortunate enough to meet him and he is really a great guy.”
He may be a great guy and well meaning, but just as I would question the competence of a doctor who asked about a gunshot wound when the Chief Complaint is the knife stuck in my back, I question P H’s understanding of the situation because of his foolish analogy.
“Meanwhile just keep filing.” Meow.
Capital gains tax starts at $0.00 assessment for a “covered expatriate” who isn’t compliant with his taxes.
That means that for a $4000.00 car and a $1000.00 account, I can get a tax bill at 40% for $2000.00 A little hard to swallow on a $24K income with 5 mouths to feed.
“Once he renounces (what a great feeling!!) and ceases to be a U.S. person for ALL purposes …
1. He has to file an 8854. If he doesn’t then he subject to a $10,000 penalty which (because he is a Canadian citizen) Canada is not obligated to help Obama collect (as per the tax treaty).
Problem is, my wife is not a Canadian citizen, and the past years that she didn’t file an FBAR are subject to $10K penalties each (which comes out to roughly $50,000
2. Say he is pressured to disclose his finances and he files the 8854. Running the Exit Tax rules does not mean that he would actually pay any exit tax. If his capital gains are less than about $900,000 CDN (at today’s exchange rate) then he has no deemed capital gains tax payable. If he has no Canadian pension, there is nothing to tax so he may not have to pay any exit tax. (There are a few other possibilities that probably don’t apply to somebody living outside the Homeland.)
the Heart Act states all your worldly capital possessions, up to and including your house, your car and anything that is considered a financial asset. For us this includes our $4800.00 car and our bank account which depending on what day of the month it is, can hold anywhere from $300.00 up to $1200.00. What’s 40% of that?
3. Okay, what about the five years of back filing? Even if they came after him he is not likely to owe any taxes. He may not be required to file any information returns anyway (Form 8938 kicks in at a threshold that he may not meet). In other words, there may be no basis for assessing penalties.
Lessee… at $2000.00 per return for an accountant including the fact that my wife received funds from Canada Student Loan (which falls under the PFIC rules as annual income deemed taxable. That’s another $10K ding right there. So now we’re at a $62,500.00 tax bill along with the $3250 renunciation of US citizenship cost just to get the CLN. That’s more than 3x my wife’s current annual income. What I earn from photography is pocket change.
4. If he is worried about the FBAR, he just files it online.”
not even going to dignify that with a response.
…and no, I’m not going to beg, borrow or steal… to get the money for my wife to renounce.
If the United States can’t do what’s right and “let them go” then I guess our choice is to be fugitives.
@The_Animal1970: “The HEART act … For us this includes our $4800.00 car and our bank account which depending on what day of the month it is, can hold anywhere from $300.00 up to $1200.00. What’s 40% of that?
You seem to be confusing the exit tax with estate taxes, and appear to misunderstand both.
Estate tax is on your entire assets, on death. The exit tax applies to your capital gains on those assets, on expatriation. So your assets are $6000.00, but unless you bought the car for $0.01 and grew the account from $0.01 via shrewd share investments, say, your capital gains are far below this. In practice you probably paid more than $4800.00 for the car and so have a capital loss.
For US estate tax, you get a $5m exemption. For US exit tax you get a $690k exemption. Either way your example $6000.00 is untouchable, even if you did leverage the $6000.00 out of just $0.02. And if you had 100 times this it would also be untouchable.
This is not to say that either tax is benign. The exit tax is particularly hateful and vile, and contains a whole heap of unfair provisions that you could legitimately raise as being rant-worthy, so no need at all to invent stuff.
The immediate and full tax on all retirement savings with no exemption or allowance, for example, is particularly repulsive (not to mention treaty-trampling) and all by itself is reason enough to refuse to fill out the 8854 exit tax form. Then there is the tax on US gift recipients where the giver is a covered expat, which is just plain bonkers.
@The_Animal1970
The facts revealed in your comments suggest strongly that you and your family can put this problem behind you for good. I strongly agree with all your points about the injustice and unfairness of this situation.
My question for you is this: Do you want to put all of this behind you so that it no longer affects you and your family or do you want to continue down this road of fear (largely based as Wathcher’s comment above reveals) is based on a misunderstanding (understandable given the complexity) of how these laws would apply to your situation.
As I suggested in a previous comment:
1. The door to emotional and financial freedom is open.
2. You are standing in front of the door.
3. All you have to do is walk through that door.
But nobody is going to pick you up and carry you through that door. This is completely up to you.
–
@The_Animal1970: “So now we’re at a $62,500.00 tax bill along with the $3250 renunciation of US citizenship cost just to get the CLN.”
To me your post looks like catastrophizing. Combining all the worst possible outcomes, even if extremely unlikely, and then extrapolating them still further. I am no shrink, but I think I recognise the signs here because it is precisely what I am prone to (and believe me when I say I feel your pain here; I really do, because I have been there too). It is a pointer towards chronic anxiety.
I found this to be an extremely difficult mindset to get out of — not least because so much of the anger and resentment feels righteous and just — but it can be done, and the relief is tremendous. This article offers several pointers; it is a tad superficial, but a good start point. For what it is worth, I found I was resistant to most, but #2 and especially #6 worked. They take time though, months not days, so you will need some determination, but it is soooo worth it to press on.
In tandem with learning to handle the present, I second USCitizenAbroad that it seems you could move forward and yet be entirely unscathed. Your outrage at the situation is completely valid, but I think you can get out of it and, with a bit of patience, learning and application, avoid all costs apart from the execrable renunciation fee. And once you are out, I am sure your life will be much cheerier.
Thanks for that article, Watcher. I too tend to catastrophize. Unfortunately the combination of having a US birthplace and residency outside the US is a catastrophic event – especially when one’s country of residence also catastrophizes and throws those of us with the same status under the bus.
I have a great deal of admiration for Israel’s Supreme Court right now. September 12 will determine whether there’s any country on earth that’s willing to stand up to the almighty Oz.
http://www.americanthinker.com/blog/2016/09/israeli_government_enjoined_from_disclosing_personal_account_information_to_the_irs.html
@The_Animal1970
I have been thinking a lot about all these comments. I can totally identify with all you describe; the anger, the refusal to accept what is being thrust upon you.
I wonder, would it be helpful to you if I did a draft set of U.S. returns, not to file, just to clarify what is what? I am certain, from your descriptions, that there would be no U.S. tax owing. I also am fairly certain, that your wife would not be required to file any information reporting forms. Again, not promoting compliance, just a demonstration to get clarification.
I will see if I can find a way to demonstrate as well, that even if, your wife was a so-called “covered expatriate” by not filing 8854 etc, it would not apply in the ways you have described.
I would so like to be able to do something to help alleviate your state of mind.
@Norman,
Your responses to these comments of mine:
‘The general reality is that if tax is not owed, there are no penalties.’
‘If one does not have enough savings/investments to report on an FBAR’
So what does being a “covered” expatriate in this situation mean? It means nothing. Absolutely nothing.
were meant to apply ONLY to what had been communicated by The_Animal1970’s situation. As such, I don’t understand why you’ve replied the way you have.
Could you kindly provide some reference(s) to your claim that the U.S. will try/be able to confiscate CPP via a bank account? Thanks.
“Could you kindly provide some reference(s) to your claim that the U.S. will try/be able to confiscate CPP via a bank account?”
Taxing a huge proportion of pensions of covered expats is somewhere in the instructions for Form 8854.
One of the court cases discussed in other threads on this site involved the IRS’s attempt to collect from someone’s account at TD. A Canadian court stood up to the US in those days, but that doesn’t mean banks will. TD Waterhouse already threw its Canadian customers under the US’s bus, so I wouldn’t bet the farm on TD Canada Trust not joining them some day.
@Norman Diamond: “Taxing a huge proportion of pensions of covered expats is somewhere in the instructions for Form 8854.”
I see what you meant now. Yes, taxing pensions immediately is a part of the exit tax. Arguably one of the very worst parts. In this case though, it would be extremely tough for the IRS to do it in the way you describe.
The point of the 8854 is for you to self-declare your pension savings and then, if over the asset limits for being a covered expat, pay around 35% or so of it over the IRS. That’s a problem if you’re above the asset limits, but not otherwise. If you don’t fill out the 8854 then the IRS considers you covered anyway, but they won’t and can’t know about your pensions because you didn’t file the 8854. If you have been scrupulous about FBARs and FATCA forms they might from those, but if you’ve done that all fine in the past then there’s no reason to refuse the 8854 and clean exit anyway.
So for anyone under the asset limits for covered expat but who ‘chooses’ that anyway through refusal to file 8854 and other forms, the IRS would first have to find out where you held all your Canadian pensions, then find out which banks you have them paid to, then strong-arm that Canadian bank into withholding and remitting to them. I’m not sure if that’s technically feasible, but it seems logistically nightmarish, likely very expensive, and politically highly dubious. If you hold any assets in the US then it is these that would most likely be at risk. Hold nothing in the US and it seems extreeemely unlikely you’d run into this problem.
For anyone over the asset limits, retirement savings are a very real nightmare when it comes to for 8854. My strategy in this case would probably be to either a) just leave them off the form, and (silently, to myself) tell the US to spin on it, or if that’s not an option then b) include them but refuse to pay any immediate tax on them under protection of the non-discrimination treaty clause and possibly other clauses too. What to do here is going to be unique to each expat’s circumstances, though.
It’s all utter crap though, isn’t it?
I seem to recall an option to get screwed on pensions immediately or defer it to get screwed by withholding from pension benefits when received, where the latter withholding is a fixed high percentage not graduated like income tax.
@Norman Diamond
If you are a “covered expatriate”:
When it comes to “deferred compensation plans” AKA “pensions” there are ZERO options.
1. It is is qualified pension (which is a US pension) then and only then is there the withholding requirement (30% and you have to waive all treaty benefits which means you are NOT eligible for the full foreign tax credit in Canada).
2. Non qualified (meaning it is a non-U.S. pension including Canadian) in which case the present value is simply included in your income for a “one off” confiscation. Understand that although there is a tax deferral option for deemed CAPITAL gains there is NO tax deferral option for pensions.
The “pension” problem is a much bigger problem than the capital gains problem.
Finally understand that what the USA is doing is:
Using the S 877A Exit Tax to confiscate:
– assets that are located in other nations; and
– assets that were earned when the person did not live in the USA.
Watcher and USCabroad have it exactly right. That is why, if you are going to file 8854, it is mandatory to get your declared assets under 2 million. Do it anyway you can. By hook or by crook. Otherwise they steal 1/3 of the value of your pensions.
@USCitizenAbroad
For what it’s worth, I think that both the qualified and non-qualified pension parts of the US exit tax may be vulnerable to tax treaty challenge. I’ve already mentioned the non-discrimination clause, but some treaties — UK, for example; I think Canada differs though — reserve all pension taxing rights solely for the state of residence, so a possible second route of attack there for some.
For non-qualified pensions a treaty claim is perhaps easier in practical terms. Here you just refuse to pay the US the 35% or whatever it demands in your final 1040 using an 8833 treaty claim. For qualified pensions, you would get payments (probably many years later) with 30% deducted and then have to reclaim this by filing a 1040NR again with 8833. I would imagine it is easier to get the IRS to swallow non-payment than to get them to issue a refund; they have very sticky fingers. And the existence of a W-8CE for expats to “voluntarily” waive treaty rights is a further sticky thing in all of this. And all this is no help for residents of non-treaty countries. And I’m not a tax treaty lawyer.
I am actually surprised that nobody has dragged this thing through the US courts in the eight years since it was passed. It tramples tax treaties with abandon, and fails on practically every test of fairness that you might want to throw at it. I guess anyone really affected by this has simply picked up their football and gone home. It is far easier to just fade away than to fight it openly.
With S 877A the US indeed confiscates assets built up long before the person lived in the US. Don’t forget though, that with S 2801 it then has a shot at confiscating assets built up after the person has left the US as well. Nicely symmetrical bookends there, albeit truly appalling ones.
@Watcher
There are at least seven possible reasons why there has not YET been a court challenge – Note that is is relevant only with respect to “covered expatriates”
1. People who are “covered expatriates” based on the net worth test are busy making themselves “non-covered” by reducing their worth and the filing the appropriate paper work (demonstrating that they are not covered);
2. I suspect (but have no direct evidence) that a lot of people are just renouncing (which terminates their U.S. taxability from that point on) and then just not filing. This is more likely if they are “covered expatriates” based on the asset test (> 2million USD). If people are “covered expatriates” because of the asset test, then why would they file the 8854 if the only reason to do so is to prove that they are compliant based on the 5 year tax filing test? Who knows what will happen with them?
3. There is the issue of those who are able to get a CLN based on a “relinquishing act” prior to June 3, 2004. For those who are able to get an actual CLN indicating a “relinquishment date” on the CLN of say (June 3, 1984), and they are covered based on the asset test, why would they file anything? Admittedly there are a few law firms who seem to believe (and are advising – beware) that the S. 877A rules are retroactive. But, there are others who are not sure or believe that they are not. So, why would somebody, who might not be subject to the S. 877 A Exit Tax, assume that they are and file? Why adopt an interpretation that leads to certain destruction rather than take a defensive position that is rational? My point is that in this case the failure to file the Form 8854 doesn’t affect whether they are covered or not.
4. What about those who are clearly “covered expatriates” and are NOT U.S. tax compliant. Well again, they are subject to the S. 877A Exit Tax rules regardless of whether they are U.S. tax compliant or not. Those people are probably (but again this is just speculation on my part) just lying low. Why would they file anything? There are many accidentals who have no Social Security number.
5. As you point out, the U.S. has different tax treaties with different countries. The Canada U.S. Tax Treaty includes in Article XXVI A – Assistance in Collection :
In other words, some people may simply be saying: Too bad, so sad, not paying any exit tax. You might think I owe it, but Canada will not help you collect it.
6. The dual citizenship from birth exemption: The recent post about the “dual citizenship exemption” and South African apartheid reminds us that there are people (I suspect quite a few) who are exempt from the Exit Tax because of the dual citizenship exemption. In their case all they need to do is show tax compliance for five year …
7. Green Card Holders: We are not just talking about citizens. We are also talking about Green Card Holders. Green Card holders (because of somewhat different rules under the Internal Revenue Code coupled with treaty provisions) have more options available to defend themselves than do citizens. Those in the worst position are those who were born in the United States and have ONLY with U.S. citizenship.
In any case, I suspect that the reasons that we do not know of any treaty challenges are a combination of one or more of these reasons. Why get into into an expensive fight if there is a way to avoid it?
Defending yourself from the Exit Tax by using the Tax Treaties – Defensive position
With respect to a possible treaty challenge:
I am not sure that I would get overly technical about this. It surely was NOT the expectation of treaty slave/partner countries that they were signing a treaty that would allow the USA to confiscate the assets of citizens/residents of the treaty/partner country just because a person says he doesn’t want to be a U.S. citizen. That (in my view) is the primary defense and the rest is just gravy. The United States Court of Appeals (First Circuit) has recently ruled that the expectations of the treaty partner country are relevant in interpreting the treaty.
In any case, it is becoming increasingly clear that people will have NO choice but to renounce and to extricate themselves from this abuse. I emphasize again that a CLN (which is not granted by the IRS) is all that is required to end this nonsense on a prospective basis. Once the CLN is issued, I suppose people can decide as individuals whether they choose to turn their assets over to the IRS or not.
Defending yourself from the Exit Tax by using the Tax Treaties – Offensive position
It seems to me that challenging the Exit Tax based on treaty provisions is a last resort. Perhaps (at least from a Canadian tax treaty perspective), rather than challenging the Exit Tax with the IRS, one might consider using:
This would be to use the Tax Treaty as a “sword” and not as a “shield”. Actually, this strikes me as a good idea. At least this will ensure that the Government of Canada is aware of this issue. They either will “go to bat” for Canadian citizens or will agree that Canadian citizens can be claimed by the USA and capitulate to the Obama administration. What this approach also does is puts the cost of raising this issue on the Government of Canada which makes it more doable.
In closing …
The idea of the USA going around the world and forcing the citizen/residents of other nations to pay a ransom – percentage of their net worth to the USA – to NOT be a US citizen (especially when those assets have nothing to do with the USA) is absurd and should NOT be done.
USACitizenAbroad writes to TheAnimal:
“As I suggested in a previous comment:
1. The door to emotional and financial freedom is open.
2. You are standing in front of the door.
3. All you have to do is walk through that door.
But nobody is going to pick you up and carry you through that door. This is completely up to you.”
Getting the feeling many here thinks theAnimal has lost the pilot. Reminds me of those unaffected by any of this FATCA cock up and say ‘what is the big deal, just renounce’ or ‘don’t worry they will never come after you’. $2,350 is a lot of money to theAnimal, and to many, in which case the door is closed unless USA changes the rules and allows his wife to drop US citizenship with no strings attached or maybe just a small fee for processing. That would be the right thing to do. Why force people like theAnimal’s wife to wait and hope for USA to adopt a residential tax system when what they really want is out of US citizenship cleanly and simply? Yes, citizenship based taxation is a load of tosh but at least give people a choice whether they want the citizenship part of citizenship based taxation first before you insist on making them US taxpayers.
There are two kinds of Americans in my mind, not compliant versus non-compliant as USACitizenAbroad categorizes them, but one group that wants to be American, and one group that does not. What is so hard about letting go of the ones who don’t want to be American?
PatriciaMoon, i just noticed your question to me. You wrote: ‘I am not aware of anyone here who would tell someone they were merely “an American abiding in their other country.” We all hate that, even those of us who could have been described that way at one point. Where on Brock have you ever seen someone make such a statement?’
Agreed for the most part. I think you missed my point. What I was trying to get at is that for some, the solution is to be rid of US citizenship whereas the general group think at this site from what I have seen seems to be that a move to residence based taxation by the USA is the solution for everyone. There is little or no support, and downright objection by some here, for any amnesty for ‘accidentals’ or others with long ago US connections who do not want to be American anymore. I remember how many hated the thought of the accidentals being let free in the Obama proposal as they seemed to think that would lessen the case for what they wanted – residence based taxation so they could stay American while living abroad. It was almost like accidentals were being held as hostage or bait. To the USA, those who refuse to support amnesty for the ‘less American Americans’ as I call them are in effect saying to the USA, ‘here look at these accidentals, you can’t tax them they have never even lived in the USA, so get rid of CBT.’
People who don’t think of themselves as American or are done with being American, just want out, period, and are not as concerned about whatever stupid laws USA has. They don’t want to be part of anything US. But, there is no support here for people like that, other than to tell them to help fund a CBT lawsuit. Where is the lawsuit for helping people who don’t want to be American, get out without jumping through hoops?
Again, it’s about a mindset regarding solutions to the US CBT/FATCA problem. I did not mean to suggest that people at Brock are referring to people as ‘Americans abiding in another country’, but am trying to say that the problem is not a citizenshipbased taxation problem if you don’t think of yourself as American or don’t want to be American, it is an enforced citizenship problem.