Copied to me from Just Me:
We are on a roll. WSJ has just posted another story under the heading…
Washington’s Assault on American Expats
If you can not read this, go to Google News, and plug the headline into the search, and that should get you beyond the create an account page…
The new year is shaping up better than 2011 for a conversation in the public forum on US citizenship taxation/reporting issues.
UPDATE: Just Me sent me the following email:
I hope you all are reading those comments on the WSJ opinion piece.. Boy there are some good ones, and right on point… A lot of good education there on the practical impacts if US taxation policies. I could have sworn that many of them were written by Daniel.. LOL
I especially direct your attention to this one, as it had a reference to ACA…
Just Me
- Bruce Taylor Replied:
It is true that US expats may exclude a portion of income earned overseas from US income tax, and that some foreign taxes paid can be credited against US taxes owed. But this does not make the situation faced by expats “pretty fair”. There are many other ways that the US tax code disadvantages American expats.
For example, only foreign income taxes can be credited against US income taxes. Some countries raise revenue through taxes on wealth rather than (or in addition to) income. US expats subject to these wealth taxes cannot claim a credit for them against US income tax. Nor can expats claim credit for VAT paid to their country of residence, although US residents have the option of taking a deduction for state sales taxes paid..
Equally serious is the unavailability of tax-advantaged retirement plans for many US expats. If an expat participates in a 401(k)-style plan offered by a foreign employer, his or her contributions are from after-tax income, not pre-tax income as with 401(k)s. There is no option of deferring tax on the expat’s contributions to the plan. Worse, the employer’s contribution to the plan is taxable as current income to the expat – no matter that it may only be accessible on the expat’s retirement or death, maybe 20-30 years in the future.
A US resident can claim an itemized deduction for contributions to, say, a church, or an animal welfare society, or a shelter for abused women in his or her home town. An expat can almost never claim a deduction for a contribution to similar organizations in his/her country of residence.
My nomination for the most inane regulation affecting expats is the requirement for to report to the US Treasury on the “FBAR” form the details of any bank account over which an expat has the authority to disburse funds via his or her signature – no matter whether the expat owns the account or not, or has any claim at all to the funds in it. Some years ago I was the Treasurer of a community singing group located in a city outside the US. If I held that position now, American law would require me to report each year the account details, including bank name, account number, and highest balance during the year, of that minuscule account to the US Treasury. If I failed to do so I, personally, could be penalized $10,000, despite the fact that the group never earned any income from the US. What possible law enforcement purpose is served by this ridiculous requirement?
For readers who want more information on the impacts of the US tax code on American expats, I highly recommend the Web site of the organization American Citizens Abroad (http://www.aca.ch).
What about Canadians living south of the border as students, snowbirds, temporary workers, etc. who all maintain ties with Canada and which the IRS now seeks to tax / penalize via its off-shore voluntary disclosure initiative (OVDI)? FACTA is a problem, but OVDI and current IRS penalties must be addressed as well.
Agreed. Here is a post I wrote on this:
http://renounceuscitizenship.wordpress.com/2011/11/16/ovdi-collateral-damage-u-s-immigrants/
This is an unbelievable situation. It is important that you help spread the word about the IRS treatment of immigrants – another group of people with no political power. Experiences shared on the discussion boards suggests that lots of immigrants entered OVDI (probably on the bad advice of lawyer and accountants).
The immigrant community needs to join the expat community (and the rest of the world) in opposing this U.S. stupidity.
The U.S. has gone out of its mind – soon it will not have a single friend in the world (this assumes it has some now).
It`s all about FBAR penalties.
Update: Great comment from the WSJ article:
David – I lived overseas for 27 years of my life. ALL of those years I paid income tax to the country where I was resident because I was making my money in their country. I was paying their car taxes, road taxes, VAT taxes, property taxes, health insurance taxes, social security taxes and income taxes. Then the US government wanted me to pay taxes to them, too – what for? I wasn’t using their services, I was using France, Germany, Netherlands, and British services. I had a passport because it is a requirement of international law for proving nationality and identity to cross borders, for which I had to pay the State Dept. for this document. I am a citizen of the USA because I was born there – NOT because I pay taxes. Paying taxes is not a function of nationality; it is a function of buying the services of the government under whose property you are occupying, using, and earning a living.
As for “protection” of being a US citizen, during the Cold War – when I lived in Europe – ALL Europeans were also benefiting from US protection – how much did they pay to the US government for that? There isn’t even an office in the State Department to look after overseas Americans and their problems, unlike France, Italy, Germany, and Switzerland where they have members of their parliaments and/or offices in their Foreign Office specifically looking after their diaspora.
Also there are 6 million overseas Americans, and over 13 million green card holders in the USA. The IRS also claims the right to tax THEIR worldwide income because they are occupying, using, and earning a living in the USA! This is a case where the IRS wants it with both hands, and the sovereignty of the other countries be damned!
If you did live overseas, then you also know that the IRS does NOT give you credits for all of the taxes you paid inside the country; they only give you credit for the taxes that the IRS recognize as comparable to US taxes. Consequently, all that VAT you paid was non-deductible.
Finally, there are the two hidden taxes that overseas Americans are forced to bear: Foreign exchange rates and accountants’ tax. As far as the IRS is concerned individuals must bear ALL FX risks. Here’s a real example: American A bought a house in Germany for 100,000 euros in 2000; at the time the $ and euro were at parity, so the property was worth $100,000 to the IRS. In 2008, he sold it for 100,000 euros. In normal circumstances, this would mean there is no capital gains to declare. However, as far as the IRS were concerned, there was an $60,000 capital gains because the euro had appreciated by 60% over the period. Explain how that was a benefit.
The accountants’ tax is simply this: There is absolutely, positively no way overseas Americans can figure out their own taxes to the IRS, especially now with all of the new forms and rules, and threats. AND there is no way to file electronically from overseas either. AND the IRS is closing more and more overseas offices requiring individuals to write to Washington for the forms. All of this even if your net tax is “0”.
The purpose of taxation is to charge people within a sovereign territory for the services government provides within that territory. It is NOT a function of citizenship – and never has been in America. How would you feel, for instance, if you moved from, say, CA to NV and then have CA Revenue Service try to impose their state income taxes on you, claim the right for 10 years after you left, confiscated 30% of your assets at the border until you complied, and then forced NV banks to provide them with all the details of your bank accounts or be fined 30% of their transactions with CA? Would you think that’s fair? Yet that is what the IRS is doing with its gestapo tactics against overseas Americans. THAT’s why there is an outrage!
And a comment from American Citizens Abroad:
Jacqueline Bugnion Wrote:
William McGurn has hit the nail on the head. If citizenship-based taxation did not exist, there would be no problem for Americans overseas with regard to FBAR and FATCA. FATCA has put into the limelight the insidious nature of citizenship-based taxation, which leads to double taxation (Americans overseas pay taxes where they reside), to invasion of privacy (FATCA and FBAR reports), which taxes Americans abroad even though they do not receive services from the United States and which taxes them in an anti-constitutional way by imposing penalties based on capital. I recommend that readers go to http://www.americansabroad.org to find full information on the dangers of FATCA, not only to Americans abroad, but also to the United States. Congratulations again to the author for highlighting the absurdity of citizenship-based taxation.
Jacqueline Bugnion.