John Richardson considers the question “Should Tax Residency be Based on the “Circumstances of Your Birth” or the :Circumstances of Your Life?” (posted with permission)
Panel session – US Expat Tax Conference from Deborah Hicks on Vimeo.
Should taxation be based on the “circumstances of your birth” or the “circumstances of your life”? President Obama doesn’t think (apparently) that the “circumstances of your birth” birth should determine the “outcome of your life”. Should the “circumstances of your birth” determine your tax residency?
This is a second post exploring what is the true meaning of U.S. citizenship-based taxation. In an earlier post – “Toward A Definition Of Citizenship Taxation” – I explored the contextual meaning and effect of U.S. “citizenship taxation”. The only “contextual effect” and “practical meaning” of U.S. citizenship taxation may be described as:
Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!
That’s amazing stuff! Most countries believe that they are sovereign and that includes sovereignty over matters of taxation. Yet, any country that is a party to a U.S. tax treaty has actually agreed that a subset of the treaty partner’s tax residents are ALSO U.S. tax residents! Although nobody questions the right of the United States to prescribe its own definition of tax residency, few would agree that the United States has the right to claim the residents of other countries as U.S. tax residents. Yet, this is what the U.S. citizenship taxation regime means. This U.S. extraterritorial claim of taxation is at the root of the FATCA administration problems and at the root of the the events that led to Treasury Notice 2023-11 (released on December 30, 20220).
The first post explained the meaning and effect of U.S. citizenship taxation. This second post is to argue that U.S. citizenship taxation is taxation based on “the circumstances of your birth” rather than the “circumstances of your life”.
Look what I found (on a Taiwan expat forum):
“This inquiry is on behalf of an American friend who lives in China. I’m posting here because I don’t know of any similar China-related forum.
“The friend is a recent widow in her 80s. She keeps asking me to look up forms or information from the IRS or SSA, in some cases beyond my ability to help, because I can’t always figure out what she’s talking about. I’m not in China, and she has no American friends in China. I’m thinking maybe she should find a tax accountant who specializes in Americans living in China. Since she’s a retiree, and her only income is Social Security, I don’t think she can afford a high-powered accountant who consults for business executives, etc. Maybe if there were some equivalent of an H&R Block-type outfit, who operates in China, that might work.
“Anyone know of any resources that might help an American retiree in China in this situation (or know of a useful forum for this kind of question)? Thanks in advance.”
They should just make it easy to renounce at birth (by parents) or later at majority — and free or cheap. Then the other stuff cluttering the FATCA internet wouldn’t matter for accidentals.
As to expats the issue of acquiring a new nationality is suffused with racism snd politics. Canada, England, France, Ireland, Portugal etc are easy enough. The test may be language. Teach your kids a second language as I’ve thought mine (French) and my 4 kids and 9 grandkids are Swiss.
Be lucky & happy.