cross posted from Quora
NB: This title comes from the question asked
at Quora and represents that individual’s
mindframe
by John Richardson
Lawyer (1982-present)
President Kennedy at the “Berlin Wall”
How would these thoughts on mobility restrictions be viewed in the world of "Exit Taxes" – "JFK speech on wall, democracy and immigration" https://t.co/LpQ83wM6NM via @YouTube
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 9, 2018
On June 26, 1963 President Kennedy gave his historic “Ich bin ein Berliner” speech. After World War II, the administration of the City of Berlin was divided among the allied powers (Soviet Union, USA, Britain and France). In 1961, the Soviets created a wall in order to prevent their people from leaving the Soviet Sector. (The City of Berlin was actually inside East Germany). Among other things, President Kennedy’s speech included the line: “We have never had to put a wall up to keep our people in – to prevent them from leaving us.”
Congressman Ron Paul speaks about “walls”
As Ron Paul once said: “The wall could be used to keep people in!”
Ron Paul 2011: In times of economic turmoil when people want to leave with their capital there is "capital control" and "people control" – the way could be used to keep Americans in https://t.co/yol3HiWEZC
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 12, 2018
Does the United States have any prohibitions on leaving the United States?
As a matter of fact yes.
In order for a U.S. citizen to legally leave the United States, the citizen must have been issued a U.S. passport. This is a legal requirement. U.S. citizens are NOT permitted to leave the United States on a non-U.S. passport. There is an interesting history to the United States using refusals to issue passports, as way to keep people inside the United States. See for example this discussion from “Today In Civil Liberties History”:
“Some of the more famous passport denial cases involved the famed African-American singer and left-wing political activist Paul Robeson, whose passport was cancelled on August 4, 1950; the noted artist Rockwell Kent, who was denied a passport extension on August 7, 1950; and the distinguished scientist Linus Pauling, who was denied a passport on May 11, 1952.”
The United States does have a history of attempting to prevent U.S. citizens from leaving the United States. But, the United States (unlike those who tried to climb the Berlin Wall) has not (to the best of my knowledge) shot for attempting to leave.
See also:
U.S. Passport as Instrument of Control
An excellent “scholarly” review of the Passport requirement is here:
The history of the requirement that U.S. citizens only use U.S. passports to enter the U.S.
Is there an analogy between the building of the Berlin Wall and the “Exit Taxes” imposed under Sec. 877A of the Internal Revenue Code today?
First, what are these “Exit Taxes” anyway?
“Exit Taxes” are taxes that are imposed on people who sever “tax residency” with a country. For a comparison of Canada’s Exit/Departure tax and the U.S. Exit Taxes see:
The U.S. “Exit Tax” is particularly draconian. It has no equivalent anywhere in the world. In part this is because the U.S. imposes “Exit Taxes” on renouncing citizenship (in addition to the $2350 administrative fee). Other countries impose Exit/Departure taxes when one physically moves from the country. (This illuminates one of the differences between U.S. “citizenship-based taxation” and “residence-based taxation” as applied by other countries. On this point see:
http://www.citizenshipsolutions….
U.S. citizens who live in the United States are fed a steady diet of “The United States is the “Land of the Free”. Although absolute freedom is NOT possible (JFK said “Freedom has many difficulties”), even in a comparative sense, Americans have fewer freedoms than the citizens of many other countries. I have provided a Quora answer to this question before.
John Richardson’s answer to Which country’s citizens enjoy more freedoms than Americans?
How do the Internal Revenue Code S. 877A Exit Taxes Work?
Renouncing US citizenship? How the S. 877A “Exit Tax” may apply to your Canadian assets – 25 Parts
U.S. “Exit Taxes” are imposed by Internal Revenue Code Sec. 877A. They are imposed by the Internal Revenue Code on certain people “covered expatriates” who relinquish U.S. citizenship. A “covered expatriate” is a person who relinquishes U.S. citizenship and triggers one or more of these three events: (1) has certain levels of income (determined by the U.S. tax payable), (2) a net worth of 2 million USD or more or (3) who cannot certify U.S. tax compliance for the five years prior to his/her relinquishment.
Part 4 – “You are a “covered expatriate” – How the “Exit Tax” is actually calculated”
For examples that demonstrate how incredibly punitive the U.S. “Exit Taxes” are (and specifically how they operate to confiscate non-U.S. pension plans) see:
The Section 877A Exit Tax impacts primarily Americans who already live outside the United States and are “tax residents” of other countries
The U.S. “Exit Tax” is triggered by relinquishing U.S. citizenship.
Most people relinquish U.S. citizenship when they already live outside the United States.
Therefore, I would say that:
The Berlin Wall was to prevent people for leaving Easy Germany!
The U.S. Exit Taxes are designed to punish those who have ALREADY left.
Furthermore, the Berlin Wall was to prevent EVERYBODY from leaving. The U.S. “Exit Taxes” are to punish only SOME (“covered expatriates”) who leave the United States.
Therefore, although both the Wall and the Exit Taxes are/were bad things, the are not the same.
A more relevant comparison “might” be between the German “reichsfluchtssteur” and the U.S. Exit Taxes. Both of these taxes are (at their core) ways to prevent capital from leaving the country. It is described in the above Wikipedia link as:
“The Reich Flight Tax ( German: Reichsfluchtsteuer) was a capital control law implemented in order to stem capital flight from the Weimar Republic. The law was created through decree on 8 December 1931 by Reich President Paul von Hindenburg. The Reich Flight Tax was assessed upon departure from the individual’s German domicile, provided that the individual had assets exceeding 200,000 RM or had a yearly income over 20,000 RM. The tax rate was set at 25 percent. In 1931, the Reichsmark was fixed at an exchange rate of 4.2 RM per USD; 200,000 RM was equivalent to $47,600 USD (equivalent to $766,000 in 2017).”
Although not triggered by tax non-compliance, note that (like the U.S. Exit Tax) it was triggered by both income and asset levels. The “Reichsfluchsteuer” was apparently a 25% tax. The “U.S. Exit Tax” (when applied to pensions) could very easily exceed 25%. Furthermore, the “U.S. Exit Tax” is largely a tax on non-U.S. pensions and other U.S. assets (making it the only known Exit Tax that effectively imposes confiscatory “taxation” on foreign pensions” and other foreign assets).
That said, (in fairness) it is possible to physically move from (or otherwise leave – provided you have a U.S. passport) the United States and NOT be subjected to the U.S. “Exit Tax” (it applies on relinquishment of citizenship). Therefore, the U.S. Exit Tax although harsher when applied, applies to fewer people AND is NOT a physical barrier to leaving the United States (although it is a clear barrier to creating a life in another country).
Possible conclusion:
How is the IRS levying taxes to renounce US citizenship different from the Berlin Wall?
U.S. Exit Taxes are more like the German Reichsfluchtsteuer than like the Berlin Wall (but financially more punitive than the Reichsfluchtsteur).
The Berlin Wall was designed to punish people who tried to leave East Berlin.
The U.S. “Exit Taxes” are used to punish those who have already left the United States.
Both, are designed to punish those who attempt to sever relationships (physical or political) with their respective “Homelands”.
But, considering the future …
It is interesting that the United States is now considering building it’s own wall. Those who don’t learn the lessons of history are doomed to repeat history.
Ness Hicks from Quora is going to be along shortly to tell us all that TurboTax is the answer and for those who’ve noticed that it must be paid for with a credit card with a U.S. billing address, his answer is that the guy in France who doesn’t even speak English and has never set foot in the USA should have a U.S. PO box.
Then there’s no problem when your local bank kicks you out or the USA introduces a tax that ruins your business.
Over to you, Ness.
‘See for example this discussion from “Today In Civil Liberties History”:’
“(Trivia: Shipley was the brother A. Bruce Bielaski, an official in the Bureau of Investigation during the repression of dissent during World War I.)”
Was she? Which one was Big Brother and which one was Big Sister?
‘That said, (in fairness) it is possible to physically move from (or otherwise leave – provided you have a U.S. passport) the United States and NOT be subjected to the U.S. “Exit Tax” (it applies on relinquishment of citizenship). Therefore, the U.S. Exit Tax although harsher when applied, applies to fewer people AND is NOT a physical barrier to leaving the United States (although it is a clear barrier to creating a life in another country).’
If you don’t relinquish, diaspora taxation and FATCA take care of what the exit tax doesn’t.
It was easier to escape from East Berlin: https://www.youtube.com/watch?v=SOHFPgoBs_o
‘Those who don’t learn the lessons of history are doomed to repeat history.’
Nah. Those who study history are doomed to repeat it. Those who don’t study history get to experience it for the first time.
“the “U.S. Exit Tax” is largely a tax on non-U.S. pensions and other U.S. assets (making it the only known Exit Tax that effectively imposes confiscatory “taxation” on foreign pensions” and other foreign assets).”
(Should “other U.S. assets” be “other non-U.S. assets”?)
The big difference between the Berlin Wall and the US exit tax is that trying to cross the Berlin Wall meant risking one’s life, which is not the case with the US exit tax.
Exit taxes can be imposed, and collected, by the primary taxing authority, but the US can’t tax NRAs on non-US assets/income.
Fear of the exit tax keeps some from renouncing but that’s surely more of a mindset than an actual barrier.
The sin that the US exit tax tries to prevent and/or punish is not renunciation of US citizenship; it’s the sin of a US-born individual investing money earned in their residencecountry, in their residence country, instead of “repatriating” it to the US.
Or rather, a US Person that has been brought into existence by US birth or US incorporation.
I bought Turbo Tax with a Canadian credit card/billing address in a local store.
Fear of the Exit Tax is quite a lot more than a mindset. It is a reality that many face; we hear from people potentially affected by it on a regular basis. They may not post on this site but that does not make them non-existent.
While we are all observers (over time) that the US cannot necessarily collect on non-US assets and income, that is a position taken by many people who don’t really have anything to be collected. It is a different story for people who will pay out of fear and/or because they believe it is the law. More so if they have family remaining in the U S.
One of the reasons some compliance companies are hauling in the bucks is that people go to them to restructure their assets to get them out of “covered” territory when they do decide to renounce.
These are real people with complicated issues. Their situations are not reducable by nice and tidy ideas. We may find that hard to understand but it is reality nonetheless.
Patricia Moon:
I agree it can be difficult for a US citizen to decide whether to renounce or not renounce. I don’t see that fear of the exit tax need be a determining factor. If a USC wants to keep the right of entry, or the right to claim US tax breaks, or the right to use a US passport, or just wants to conform to US tax law, renunciation may not be a practical solution.
Those whose only reason for not renouncing is fear of the exit tax can best be helped by helping them to understand that there’s no need to fear – provided they understand and accept that by renouncing they’ll lose the right of entry, right to a US passport, right to US tax breaks, etc.
“These are real people with complicated issues. Their situations are not reducable by nice and tidy ideas. ”
Knowledge is power.
For instance: if a USC doesn’t really want to renounce, but wants to continue to comply with US tax law and keep USC benefits, and now finds that impossible due to e.g. the transition tax, lobbying for a change in US law might be a better path than renouncing. If the US refuses to get rid of the transition tax they sure aren’t likely to get rid of the exit tax.
Another USC faced with the transition tax might not care about US benefits and they might choose renunciation without paying either the transition tax or the exit tax.
@plaxy
Fear of the exit tax is based largely upon giving up actual sums of money. It doesn’t matter to people in this position whether you or I or anyone else for that matter, think that fear of that tax makes renouncing an issue.
Knowledge is power – of course. The people I am thinking of/referring to need a different kind of knowledge. It is not helpful to them to hear that they can just not comply and that the US cannot collect. They need to learn how to restructure their assets and so on. Many people now seem to already know what is involved in renouncing. At least the ones I talk to; they appear to have read up and so on. There is a lot more info available than when I came to all this in 2011.
I am only referring to people who left the US already and who don’t have any tangible benefits other than the right to return. And who would not choose to renounce without complying.
“I bought Turbo Tax with a Canadian credit card/billing address in a local store.”
I found a link that said a U.S. billing address was required.
But whatever, it’s not really here or there.
Getting your business killed by U.S. taxation is though.
Yes indeed, I agree.
I would say it’s definitely helpful to all USCs living outside the US to understand that they don’t have to worry about the exit tax unless they need or wish to comply with US tax law. It’s not at all like the Berlin Wall and I’m baffled as to how it’s helpful to compare it to the Berlin Wall, even as a thought experiment.
People who want to comply with US law while not paying the exit tax can find a lot of helpful advice on Phil Hodgen’s site. Hodgen always advises people to comply with US tax law down to the final jurat, and keep the proof of posting.
@plaxy
My point is that the issue can be/often is more complex than the advice that has become prevalent here. That compliance is not necessary and that no enforcement is possible. If I am not mistaken, when you renounced, you did file did you not? Please correct me if I am wrong. I seem to recall 2015 which would place you roughly in the middle of the 6+ years I have been involved in this. If you did comply, I am curious to know why you chose to do it.
There are others here who have not renounced and regularly promote not filing and so on. This begins to make Brock appear to be a tax evasion site. (I actually hear complaints about it.) While we have always been about finding out what is possible and trying to protect ourselves, I don’t think we have been about evasion and I have concerns about what is projected here. I am finally just putting this out here; it has bothered me for some time.
The comparison to the Berlin Wall has been around for some time. Not just with regard to the exit tax but the increasingly punitive approach to expats across the board. I suspect the author’s point is to “undo” if you will, the association as an exact analogy. The similarity is in making it impossible for people still in the US to make the choice to leave as we all did many years ago ( and remain US citizens). And this post actually takes the position that the exit tax is more comparable to the Reich tax. Capital controls and so on. Dont know if that is helpful but I believe it is the point.
Will not be able to continue for hours. We are expecting possible ice storms/loss of power which requires shopping. I have to practice several hours and take James for a walk followed by the inevitable bath. (They don’t use salt here but sand which is a nightmare when it comes to dogwalks.). At any rate, if we continue to discuss just want you to know nonresponse is not avoidance….
Yes I can see that could be a concern, and I agree it’s complicated. USCs and former USCs who point out that US tax laws like the transition tax and the exit tax are not really taxes, but more like a confiscation; and USCs and former USCs who mention that there are three options, may indeed seem to some to be implying that tax evasion is acceptable.
It seems like a good idea to voice the concerns and perhaps draw up a set of rules as to what the IBS site considers acceptable for commenters to say. Most forums do this, and there seems no reason why the IBS site shouldn’t do likewise, even though technically it’s a blog rather than a forum.
Good luck with the ice storms.
It is a “punishment” and further, a final “Rape of assets” to deter Citizens from considering renunciation / relinquishment that causes one to incur a liability on a non taxable event, which has nothing to do with income (Except a threshold to trigger the criteria for 26 U.S. Code § 877A – Tax responsibilities of expatriation) put on the fair market value of everything in a person’s name as if it were sold on the day of renunciation / relinquishment. It is a slice out of one’s Balance Sheet or Net Worth Statement, if they are worth > $2,000,000, in the final computations, most “Losses” are disallowed, netting the most $$$ for the IRS!
(ABSURDITY ^ 1040) is the formula!
https://www.law.cornell.edu/uscode/text/26/877A
Why is evading an immoral foreign taxes so objectionable and to whom?
Why not hsve two web sites . One for those wanting to comply and one for those who don’t. This way ,each site preaches to its converts.That way no one gets offended.
Evading suggests criminality. Ignoring is much better word.
@Stephen Arvay
If you “considered ” yourself an american and behaved like one ,I entirely agree. But ,if I’ve lived most of my life totally diisconnected from the US, there is no way on this God’s earth ,that I am going to pay extortion to relinquish. The Choice /consequence for not relinquishing/ complying should be laid in evidence,especially if the consequences are small or nonexistant rather than just pushing for extortion.
“Why is evading an immoral foreign taxes so objectionable?”
Evading tax is usually against the law of the land where one resides, and personally I do see that as objectionable, not only because it’s illegal but because it’s wrong, not to mention shortsighted.
Ignoring US laws that claim a right to tax income earned elsewhere, just because the person was born in America, is, as you say, not illegal and isn’t tax evasion.
But it’s a question of perception. Some USCs won’t want to go anywhere near a website that (in their eyes) seems to be implying that not paying US tax is acceptable. It’s understandable that the IBS site may want to avoid offending those USCs, since they won’t be able to be helped if they don’t stick around to read the posts.
But I do think personally that it would be a good idea to let people know where the line is to be drawn. It’s complicated, as Patricia Moon said.
@plaxy
Now, who are those” USCs won’t want to go anywhere near a website that (in their eyes) seems to be implying that not paying US tax is acceptable”. I doubt they are accidentals or duals who have never paid or had at some point stopped paying US taxes. DIscounting them,who are left ? Homelander Abroad who really should be on another site or just plain americans living here ?
Are they the only ones or am I missing something ?
What does it matter? If the site owners want to avoid being seen by some as a tax evasion site, they’re obviously entitled to take that position. If you don’t agree with it, take it up with the site owners, not me. It’s not my site, and I myself am not worried about being seen as a tax evader, since I’m not one.
Evading taxes?! My word, what will these nihilists think of next? Sex before marriage, I’ll wager.
Anybody remember Mr. Mister from the 1980s?
“Pledge allegience to the flag / Whatever flag they offer
“Believe in me, I’m with the High Command
“Can you hear me running, can you hear me calling you?”
@plaxy
But is it a legitimate question?
And not to be impolite, if it doesn’t matter ,then this site isn’t to be taken too seriously.
I always thought that IBS was for “americans” and sites like ACA for Americans..
Sorry, Robert Ross, you’re talking to the wrong person. I’m just a commenter. If you want to discuss the site’s policies or aims or wishes, you may want to address your comments to the site owners, as there’s nothing useful I can tell you.
On the other hand, if you want to know what I think about US CBT/FATCA, I’ve already said quite a lot about that. 🙂
@plaxy
“Most forums do this, and there seems no reason why the IBS site shouldn’t do likewise, even though technically it’s a blog rather than a forum.”
Unfortunately Brock is neither, as it’s now disintegrated into more of a chat room where if you don’t read 3/4 of the comments you don’t miss much (including this one) 🙂
BB – see http://isaacbrocksociety.ca/2018/04/13/how-is-the-irs-levying-taxes-to-renounce-us-citizenship-different-from-the-berlin-wall/comment-page-1/#comment-8196813