The issue of tax residence has gained so much attention since the “crackdown” on non-resident US Persons began in 2009. It is commonly understood that you pay taxes to the country/state/city-town that you reside in. (For an interesting comparison of differences between countries please see this incredible list compiled by the OECD). It simply does not occur to anyone that they would be required to pay taxes to a foreign government.
However, the United States claims jurisdiction due to citizenship. One does not even have to have touched foot in the U.S., according to U.S. law. Of course, due to the viciousness of the U.S. “FBAR Fundraiser” many people began to resist whether of anger or fear.
Not much has changed* , in spite of all the factors that have contributed to this debacle (and debacle it is, what could one expect when a country tries to take what is someone else’s, based on an idea of fake residence?).
For a detailed discussion concerning the determination of tax residence and related factors, please see here.
In this interview, John Richardson speaks with Olivier Wagner about tax residency and how a seemingly simple concept has become so terribly important in the 21st century.
In a #FATCA and #CRS world – the most interesting thing about a person is where has @taxresidency ESPECIALLY when he has > one. @Expatriationlaw interview with CPA @1040Abroad: ‘Episode 1 of: "A Tax Residency Primer"- Tax, Residency and #TaxResidency" https://t.co/6swfQmJO7i
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 8, 2018
- *DOS says 9 million US citizens live abroad
- *from 2009-2016, 100,000 taxpayers came into compliance via OVDP and Streamlined
- * in 2011 449,277 Forms 2555 (FEIE) were filed; see breakdown by country;
- * in 2011 3,921,628 Forms 1116 (FTC) were filed; see breakdown by country
- *in 2015, 1,163,229 FBARs were filed
- The numbers above strongly suggest that a large majority of non-resident Americans are not tax compliant
Harrison – “plaxy you stopped filing after you left US and never filed from outside USA. That is the best option they never know where you are at now.”
They knew exactly where I was. They sent a refund for that last partial year I worked in the US. I lived at that same address for the next fourteen years.
They’re not looking, Harrison. They weren’t looking then, and they’re not looking now. People naturally thought that must be the purpose behind FATCA, but that now seems not to be the case.
FATCA is based on the same notion as the “John Doe summons:” haul in information on all members of a sub-group (such as USC foreign-account holders) in order to be sure of getting information on those who are suspected of crime. It’s not supposed to be used as a fishing expedition, and the available evidence suggests FATCA isn’t being used as a fishing expedition. The evidence I’ve seen suggests to me that the purpose of FATCA is to locate unreported foreign accounts held by US-resident US taxpayers. Most of whom will have been born in America.
@plaxy. That’s really interesting info. I guess you are right but once you are living in HK unfortunately you can’t escape as banks want to see your passport with visa entry plus HK ID. The banks here are the ones who are scared of US related accounts. HK, Singapore have become a favorite IRS hunting ground as well as Switzerland, Cayman etc. Actually most of HK residents with US passport gave up their US passport in 2010 from news. They were not US residents but HK residents living their lives here when they found about FATCA got scared and renounced. They were not US residents but may have been born in US or left US after residing there.
Harrison – yes, that’s one of the great wrongs done by America to its citizens. I don’t know if they just didn’t care about the consequences of making US citizens look like unexploded bombs to foreign banks. Or if they just didn’t think it through.
Whichever it was, the damage is done and USCs will always make foreign banks nervous. The Honk Kong residents were sensible to ditch the citizenship.
Honk Kong should be Hong Kong – apologies.
@plaxy
the plans to make US citizens look like unexploded bombs to the banks was well thought of as they were fining the banks at the point of closing a few banks and they wanted to make noises so that either the citizens rat out on themselves or banks offered to reveal them to escape heavy fines. If you read all the news from 2009 even before FATCA was passed it is quite obvious they knew what they were doing. The banks are still scared to accept US citizens. It is tyranny of US govt to punish offshore banks on keeping even resident USC’s. All the brokerages here are scared of US citizens as well as the banks. As I received several letters of closing the accounts it was really unnerving that in spite of all these compliances I am putting up with this nonsense. I am dual national too and I am now renouncing my US citizenship asap. I don’t even know why I didn’t leave it in 2010 waiting in a long line outside the US consulate in HK . I even told my wife at the time in 2010 that these people are so scared since they did not probably file their taxes. I am now eating my words as banks here have shut me off completely.
“the plans to make US citizens look like unexplored banks was well thought of as they were fining the banks at the point of closing a few banks and they wanted to make noises so that either the citizens rat out on themselves or banks offered to reveal them to escape heavy fines. If you read all the news from 2009 even before FATCA was passed it is quite obvious they knew what they were doing.”
They were after US-resident USCs who were operating unreported foreign accounts. Genuine off-shore accounts being used for purposes of tax evasion.
They weren’t after USCs holding legitimate local accounts in their country of residence. We just got swept up in the net, like krill that get swept up along with the salmon and then thrown away.
@plaxy
“They weren’t after USCs holding legitimate local accounts in their country of residence. We just got swept up in the net, like krill that get swept up along with the salmon and then thrown away.”
Read my comment on this thread:
http://isaacbrocksociety.ca/fatca-and-australia/comment-page-45/#comment-8140047
Care to backup that statement. One example and I’ll eat my hat.
@UnforgivenToo. I fully agree with your statement. They were after everyone salivating over anyone holding offshore accounts both residents and non residents as it was a potential bonanza to make money through penalties as interest paid by banks has been really low since almost more than 16 years now. They knew that too. It was very planned and thought out law to capture everyone everywhere as banks quivered all around the world and still shaken by compliance costs. The compliance costs to banks are more than the total revenue accumulated by IRS. They were stating billions stashed but that was just to get their laws pass through congress. Still they drum up these figures every now and then to this day but data obtained shows a different story,
@nononymous – Sorry for not replying, I hadn’t realized I had an existing WordPress account with this email address and was scrambling to email the site moderators to get my comment deleted because it could be linked back to me. I deleted a bunch of stuff, so I feel more comfortable now.
I’m planning to renounce because the situation makes me anxious and resentful and it’s affecting my life, but the fact that so few people renounce makes me worry I’m overreacting. Does everyone want to keep the option of living in the States open, or have they just found an anxiety cure I don’t know about?
@ Cee,
Re:
The official numbers of people renouncing on the quarterly Federal Register lists seems to be a *lot* lower than the real numbers and some people report they’ve never turned up on the list. There is more information about this at this link, Data and Analysis of US Government Statistics on Number of Renunciants
For information on people’s personal experiences and their general feelings about how things went, we have an ongoing collection of people’s renunciation stories in our Consulate Report Directory, currently 265 pages, arranged by consulate location.
@cee
I’m not currently planning on renouncing for two reasons, and neither of them have to do with wanting to move to the US.
Reason 1 – I’m not giving those bastards $2350 if I can just ignore their stupid tax laws. In other words, renouncing doesn’t seem necessary because at the moment there doesn’t seem to be much risk or downside to being dual if you live in Canada, lie to your banks and remain non-compliant.
Reason 2 – It’s possible, though very unlikely, that one day in the future my daughter might “activate” her latent US citizenship and move south of the border. In which case I would do well to avoid covered expatriate status, either by renouncing and doing the exit tax procedure (which might cost me money though probably not if I fudged the numbers) or by doing nothing whatsoever and staying non-compliant. (Though I need to figure out the implications of the latter for inheritance.)
Do I have an anxiety cure? No, I’ve just realized that there’s nothing much to be anxious about. Personality might have something to do with it – when this first hit the news in 2011 my first instinct was “they haven’t found me yet, they’re not likely to find me in the future”; my next step was to become better informed about non-compliance. Perhaps I have an overly optimistic – in a larcenous and cynical way – nature.
You do have a few Cassandras here on this board but they tend to fall into one of a few groups: people who voluntarily attempted compliance and had something bad/expensive happen to them; people living in countries where banks take FATCA seriously and don’t want US person customers; US expats who don’t have the protection of a local or second citizenship, for whom passport revocation or FATCA spell potential doom.
But for your basic dual citizen accidental in Canada, I really think there’s not much to worry about. The only way you’ll be harmed is if you attempt compliance. The risks of non-compliance are zero. Seems like a straightforward calculation to me.
Of course the situation could change one day and everyone who didn’t renounce when they had the chance will bitterly regret their misplaced optimism. Anything is possible.
@Nononymous, I felt that way too earlier but now I am serious about renouncing asap. You might regret too keeping this yoke any longer. I only kept it for my children but now I am regretting daily.
@Harrison
It’s not a yoke. I fill out no forms, I pay no money.
No one knows the future what will happen as we did not know in 2010 all this will start
@cee
I think the question of whether to renounce or not depends a lot on where you live. As Nononymous pointed out, we here in Canada have no problems doing nothing. In other countries people report more issues and doing nothing may not be an option.
The annual tally of renunciants is artificially low for several reasons:
1. As Pacifica mentioned, the list is known to understate the actual numbers.
2. The exorbitant US$2350 fee is a purposeful barrier and is a deterrent for a lot of ordinary people. (Just imagine the cost for a family of 4!)
3. US State Department intentionally limits the number of available appointments to make sure the numbers never rise to the level where it looks like a stampede for the exits.
4. Those who have committed a relinquishing act (as defined by the US’ own rules) are no longer US citizens if at the time they committed the act it was their intention to lose their US citizenship. A CLN is merely a document which officially recognizes that fact. These so-called “self-relinquishers” are able to live their lives as non-US citizens with no problems whatsoever as long as there isn’t a pressing reason to produce a CLN.
Conclusion? The annual numbers don’t represent reality and shouldn’t be considered when deciding whether or not one should renounce.
@nononymous @maz57 Thanks for this. I know we’re somewhat safe in Canada but the IRS knows about me. I doubt they’d hunt me down, but I can’t stay non-compliant because I’m not non-compliant to begin with.
I’m not an accidental American – I have a U.S. birthplace and I lived there long enough that the US could foist citizenship on my future kids if they found out. I don’t know what the odds of getting outed by an overzealous border agent or bank employee are, but it doesn’t seem fair for a kid to live in hiding of a foreign government.
I know I lean toward the neurotic end of the spectrum, which is why I wanted to make sure I wasn’t missing something huge. If losing $2350 lets me sleep, that’s worth it.
@cee
If you’re inclined to worry and paying US$2350 means you sleep nights, then it’s probably money well spent. If you’re compliant anyway, I’d consider going through the whole exit procedure to make the “clean” exit. (Though I’m increasingly coming to the view that it doesn’t matter one way or the other unless you have kids in the US to whom you’d leave money, in which case you want it tidy to avoid covered expatriate status in the event of inheritance.)
And on the subject of kids, there are a couple of different interpretations of how the US looks at this. One is that the children *are* automatically US citizens if you meet the residency criteria (which apparently you do) even if you never contact a US consulate; the other view is that they aren’t citizens until you register the birth and claim it and all that. There’s a bit of debate on this, it’s not really clear. However, in practical terms if the kids are born outside the US and they are careful to conceal the fact of their parental citizenship, they will never be identified as US citizens so effectively who cares? The only mildly stick point comes when a parent on a US passport enters the US with kids on Canadian passports – it’s possible that customs might ask a question or two. That’s one of the reasons I choose to travel on my Canadian passport and trust them not to notice my US birthplace – so far it has worked.
Unfortunately, you’re renouncing will have no bearing on your kids’ status – it won’t somehow magically undo their theoretical US citizenship. The best thing they can do (assuming of course they were born in Canada) is simply say nothing ever about their parents’ place of birth or citizenship. It will never be an issue, banks or border agents will never know that they are anything other than Canadian only. That’s the advice I’ve given my daughter.
@Nononymous. You are really lucky Border Patrol or Immigration if you are flying in does not notice you are born in USA as this is the first thing most of my friends who are dual nationals of Canada/US or UK/US get asked why are you not entering US on your US passport if you are born in USA. As per law one has to enter US on a US passport if US citizen especially in the case of born citizen. Once a born US/UK citizen was held up by immigration at the airport for several hours asking him why he did not have a US passport to enter the country. He said he did not get one renewed as it had expired. He was told he is supposed to enter the country only on US passport if US citizen. He was also told he would be deported if he tried it again.
@Cee as your children are not born in USA and you have not registered them with US embassy or consulate you have nothing to worry that your kids will have automatic citizenship granted to them unless you register them yourself or they go to embassy or consulate and claim the citizenship based on your birth certificate. There is a guy I know who is trying to get his US citizenship through his dad living in HK ( yes there are people who would love to get US citizenship ) and as I understand the embassy is processing his request as he was born in HK but his father never registered his birth.
@cee
We in Canada aren’t just “somewhat safe”. We are very safe. It doesn’t matter if the IRS already knows about you. In fact, one of the things the IRS already knows is that they have zero chance of extracting any tax out of you because you are a Canadian living in Canada and the CRA will not collect US tax for the IRS if you are a Canadian citizen.
I’m betting that even though you file, you never owe any tax. If that’s the case, you are of no interest to the IRS and they won’t bother you. (Personally, I stopped filing after I panicked and filed for a few years because the whole scenario is such a total crock it made me very angry. I never owed any tax, That was five years ago and I have heard nothing since from the IRS. Zilch. In fact, they still send me a small amount of US SS so it isn’t like they don’t know where to find me if they want to get in touch.)
@cee I have various factors to consider in terms of renouncing. Mainly elderly parents living in the States.
I also now have US citizenship children, which is largely the result of my own stupidity in how I approached that question “are they were automatic citizens at birth”? I assumed they were and that we needed US passports to travel to the US with them. Talk about losing hours of your life compiling the mountains of paperwork to get their citizenship and then the hellish appointment itself in which I was asked to dredge out college transcripts from 30 years ago. As it turns out, the whole move of obtaining citizenship for them is a classic “own goal”. But at the point we applied for my youngest child, we were also staring down the barrel of Brexit, the Orange Overlord had not taken office yet and it was a not unappealing notion to have somewhere to go if the whole country tanks on exit day (which I still reckon it may well do.)
I’m definitely not ruling out renunciation in the long term though. I can see it being more of a necessity when I get to the age of needing to rely on passive income -although by that point I expect my parents may no longer be alive, in which case I can more comfortably just stick two fingers up and be non compliant with impunity from a safe distance.
@Alice
At least if your kids are born in the UK they can dodge FATCA and tax compliance and generally not be found. Even if you obtained US passports for them. I foolishly did the same for my daughter many years ago but given that she has that precious non-US birthplace I don’t think it matters one bit. (Incidentally the US consulate was hugely nice and helpful, the whole process was completely painless.)
@Harrison
This doesn’t make any sense: “He was also told he would be deported if he tried it again.” If he’s a US citizen, he cannot be deported, only fined for using the wrong passport (and they have probably never fined anyone, only given lectures).
I have always entered with my Canadian passport. It was a problem only once, when I was told I needed some sort of visa for a business trip. I argued that it was “meetings” not “working” and I do it all the time. He took down a lot of notes, name of employer and client, and I was about to say “fine” and walk away, when he noticed the birthplace and asked if I was a US citizen. “Yeah,” I said rather grumpily. Did I have a US passport? I pulled an expired one out of my bag. He let me in on that basis, took more notes, gave me a lecture about renewing and using my US passport. After that incident I still used the Canadian passport every time – as recently as last month – because I don’t like following their dumb laws, and I’m curious to see what happens. I have never been asked again – apparently they don’t read their notes. I did renew the US passport several years later when we were in Europe for six months and I could use a temporary address – even if the chances of hearing from them are very small, no reason to tell the IRS where I really live!
“This doesn’t make any sense: “He was also told he would be deported if he tried it again.” If he’s a US citizen, he cannot be deported, only fined for using the wrong passport (and they have probably never fined anyone, only given lectures).”
Not to mention that if they refused him entry because he tried to enter on the wrong passport (not very likely) he couldn’t be deported because he wouldn’t be in the US! I’ve gotten the same old lecture on several occasions and continue to totally ignore them with no repercussions.
@plaxy @maz57. I was given this news by a U.K./US dual citizen living in HK as he experienced it first hand. I don’t know all the specifics or legal details.
It’s not news, it’s cconfusion.
Not surprising that people get confused by America’s weird attitude towards its borders and its taxes but no need to spread the anxiety.