Thinking of taking the IRS up on their offer of “simplified” compliance procedures for U.S. Persons abroad? Well if you have a “foreign” retirement or purpose savings account, you should be warned that the paperwork is so complicated that even the IRS doesn’t understand it — and thanks to how the U.S. taxes “foreign trusts”, you may end up classified as a “high risk” taxpayer simply for having a retirement account like every one of your neighbours, especially if the U.S. dollar has fallen against your country’s currency during the recent financial crisis.
From a blog post by Brian Dooley as well as a comment by badger, we learn of a recent letter by the American Institute of CPAs to the IRS complaining of grossly inappropriate automated penalty letters being sent out to multiple taxpayers, Canadians among them, in response to accurate, complete, and timely Form 3520 filings — filings which the IRS erroneously classified as incorrect, incomplete, or late because the taxpayers left some blank spots on the form for items which the instructions correctly told them not to fill out.
Overview
As Mr. Dooley describes the situation:
Here is what happens. Americans receive a gift or bequest from a family member who is a non-citizen. Being tax compliant they hire and pay a CPA to prepare Form 3520 …
The taxpayer receives an penalty notice for 35% of the gift or bequest. They or their CPA writes to the IRS, but the IRS computer continues to send out the penalty letter. The letter has no contact person or telephone number. Eventually, the computer starts the collection process.
The taxpayer receives repetitive terrorizing letters, until it goes to collection. Now, the good news is that for a few $1,000 dollars you can hire an attorney to stop the collection process. Until then, expect sleepless nights.
The confusion comes from the fact that Form 3520 has a bunch of different purposes. Most of us are familiar with it in the context of reporting “foreign trusts”, the ridiculous IRS name for bog-standard retirement savings plans like Hong Kong MPF or ORSO accounts, Swiss Second Pillars, and more which we and all of our neighbours have, or other kinds of purpose savings accounts like Canadian RDSPs and RESPs or Singaporean Medisave accounts. However, for some reason known only to the people who designed the stupid form, it is also used for reporting gifts and bequests from non-U.S. Persons.
The taxpayers who received these threatening letters from the IRS had filed Form 3520 for the second purpose — a non-U.S. relative had given them a gift, or left some property behind for them after passing away. That means that among the six fun-filled pages of Form 3520, there are certain trust-related items that these taxpayers did not have to fill out. There is no “trust” involved and so these questions were clearly inapplicable to their situation — questions like “did you make any transfers to the trust and receive less than fair market value?” or “enter the gross value of the portion of the foreign trust that you are treated as owning”, and the like.
Of course, the IRS was unable to tell the difference between the two use cases for the form, and so sent letters to the taxpayers in question telling them they hadn’t provided all the information the form asked for and so their filing would be treated as late and incomplete and would be subject to giant penalties.
Form confusion
This is a lot like the old State Department “Questionnaire: Information for Determining U.S. Citizenship”, which was used both by people who had relinquished citizenship voluntarily, but also by people against who wanted to contest a finding of loss of citizenship which State had made against them. Naturally this produced huge workflow confusion and incorrect processing of cases, until State realised that it might be a good idea to redesign their forms to separate out the two use cases. How long do you think it will take the IRS to get the same clue?
Don’t hold your breath. The IRS doesn’t care about making these forms understandable or easy to complete. As Mr. Dooley points out:
No income tax is due on a bequest, inheritance or gift … So, why is the Form 3520 required? As far as I can tell, merely to assess a penalty.
The purpose of these garbage forms is primarily to give the IRS a handle on honest and law abiding people who live outside the U.S. or have relatives there — so that it can terrorise them. If you haven’t been filing your forms, the IRS can threaten you with life-altering penalties, and use the threat of those to herd you into some so-called amnesty on terrible terms. And even if you are one of the minority who have been filing all your paperwork, the IRS can find something “wrong” with your filings and terrorise you anyway.
Unfortunately, in the case of “foreign trusts”, unlike “foreign” gifts or bequests you may owe some U.S. tax. How much tax? This has become a very crucial question under the recent “streamlined” compliance procedures. There’s a ceiling of US$1,500 per year in tax owed for each of the past three years if you want to be classified as “low risk”. It’s far easier to hit that threshold than you imagine.
Government transfer payments into purpose savings accounts are one problematic case. Consider, for example, Canada’s Disability Savings Grant payments into an RDSP. These kinds of payments are not taxed by the local government — meaning that they do not generate foreign tax credits. But of course, the U.S. government claims the right to impose taxes on the tax dollars of other countries, so these transfer payments are attributable back to the taxpayer as ordinary income. The small mercy tends to be that the amount of the payment is not large enough in and of itself to bring you to a US$1,500 tax liability. All you have to do is spend thousands of dollars filing the paperwork. (Of course, when the IRS finds non-existent errors in that paperwork, they’ll probably put you in the “high risk” category anyway.)
Retirement accounts may be problematic as well since these accounts often receive employer matching payments to supplement employee contributions. If those matching payments are considered the income of the “foreign trust” rather than the U.S. Person who owns it, they do not get the benefit of the Foreign Earned Income Exclusion. Furthermore, this matching contribution is ordinarily tax free under local law, so again there is no foreign tax credit available either to reduce the U.S. tax owed.
Smashing the US$1,500 threshold with currency movements
And of course, both of these kinds of accounts tend to have gains from investments. Account holders who were not aware of their U.S. tax filing requirements will likely have allocated the savings in these accounts to various asset classes without regard for how the U.S. taxes them. Thus they may be holding index funds and mutual funds — which as many of us have learned the hard way are U.S. PFICs and result in mark-to-market gains being attributed to the “foreign trust” — and most likely the U.S. Person accountholder personally as the tax owner of the “trust” assets. Worse, the mark-to-market gains include currency movement. This is where it gets ugly — the U.S. dollar has had some very bad years within the three-year period covered by the Streamlined Filing Compliance Procedures, for example against the Canadian dollar in 2009 or the Swiss Franc in 2011.
To give a simplified example, (edit: I modified the numbers in this example to account for the fact that you are generally supposed to use yearly average exchange rate for the current year against the last year, rather than the year-end rates), imagine you moved to Australia in 1980 and started out at a salary of AU$12,000 per year. You resolve to save 10% of your income into some kind of Australian tax free account (in reality, “Super” thresholds are more complicated than this, involving employer and employee contributions, but let’s ignore that). For further simplicity, let’s say your salary increases and your investment return are both a constant 4.5% per year — not even keeping up with inflation over the same period. This means your salary is below the Australian average for the entire time — you are not some “fat cat” living the high life Down Under. By the crucial year of 2010 you’d have AU$129,025 in your account.
Here’s a historical AUD/USD chart for your reference. The Aussie dollar had some very good times: it bought US$0.69087 on 1 January 2009, and by the end of the year it bought US$0.89439. The IRS’ yearly average AUD/USD rates are 0.751 for 2009, 0.882 for 2010, and 0.992 for 2011. In otherwords, the amount in our account would have seen a phantom currency gain of more than US$16,000 in 2010, not even counting the investment gains. If all the assets of that account were in PFICs (or worse, if you cashed out the account to pay for some expenses), that “gain” gets marked-to-market and attributed back to you, the account holder.
Even if you excluded your wage income with the FEIE, thanks to Chuck Grassley’s “stacking” provision your investment income will end up in the 25% bracket — and even after taking out the personal exemption of US$3,650 and the standard deduction of US$5,700 from that ye5r, there would still be enough “income” to push you over the US$1,500 tax threshold. Congratulations, the IRS thinks you’re a “high risk” taxpayer. (For all you Homelanders like Andrew Leonard who think this is just desserts for having such an impossibly huge amount in a “foreign account”, keep in mind that this is someone’s life savings and they have to use that amount to survive a two or three decade retirement — and in fact that amount is well below the U.S. median household net worth for people over 55.)
Coincidentally, you will note that the name “Streamlined Filing Compliance Procedures” has the exact same acronym as “Stealing From Canadian Pensioners”. I’m sure this is entirely unintentional.
I know there is an undercurrent of despair beyond what many of us post here, me included. I am constantly talking myself out of feeling the way I do.
From a discussion regarding counselling, the cost entailed on top of our other costs and our conclusion that it wouldn’t be money well spent:
If you’re anything like me, you want your life back; you don’t want your relationships dictated by this nonsense; you want to give yourself to your life as it was before the OMG moment.
Idealistic I am, but if this is you too, I wish you the return of joy in your lives:
I (We) Need to Get Back to Living Our Lives with Gratitude
That’s beautiful, Calgary and I do appreciate and am grateful for so much. But I will never find peace knowing that I am the means by which the US government can take what should remain in the country I call home. Revenue is my only value to them as a US citizen, and it is because of citizenship based taxation.
‘God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.’
I think many of us know that the source of our grief, citizenship based taxation, can and should be changed for the better of all US persons and so we continue in our rebellion against it. Lately I’ve been listening to those at Brock who’ve renounced US citizenship and still there is intense anger. Renouncing hasn’t lessened the outrage, in fact I think it’s maybe fuelled a greater rage resulting from the reality that a near and dear part of their identity has been sacrificed because of an unjust law that does not benefit the nation as a whole. I worry that my seething will never end either way…
@Calgary 411
@Bubblebustin
https://renounceuscitizenship.wordpress.com/2012/03/10/collective-psychotherapy-u-s-citizens-outside-u-s-not-what-they-take-from-you-its-what-they-leave-you-with/
Once did a post on this topic, that included:
March 10, 2012 at 9:36 am
So what am I trying to say?
1. There is no way the IRS can understand the effect of their
conduct on honest, hard working people, who just happen to live outside
the United States. They cannot understand it and never will.
2. Your job is to get through this and have the life you deserve.
@renounce, @bubblebustin, and All,
I appreciate you bringing forward that post, renounce. I’m sure I speak for others when I assure you that that particular writing of yours has helped many, many in trying to come to terms with what we are going through. It is THE validation that we are not crazy.
This site has been and, hopefully, will continue to be valuable, not only for the resources that we’ve collected from far and wide for our education, but for the support and understanding we can get only from each other. The fact that people have gathered here and contributed their expertise, their stories, their support so unselfishly is an antidote to the poison.
You have my heartfelt respect. Every word you put out there resonates with me and I hope with so many others. With each other’s help, we won’t give in and will get through this. Our job description is clear. Reminders now and then help considerably.
Thank you, everyone, whatever your stories, for your contributions. I contend that, with Petros’ help and coordination, we have built something of appreciating value.
@calgary, renounce, bubblebustin and all contributors
When my daughter died many years ago, my family and friends sympathized. They could not empathize because they did not walk in my shoes.
When my husband died, much too young, my family and friends sympathized but could not empathize because they did not walk in my shoes.
Eventually I joined a network of other women who walked in my shoes. At last, I felt people really understood. I felt their empathy and came to believe that I had many reasons to continue to live my life.
Brock is like that network. Thank you all.
I’m thinking of a plan B in case my bill doesn’t go through, so I’d like to ask your opinion. Would you accept having to file forms 1040, 2555 and 1116 every year and paying residual income tax to the US, if that meant no more FATCA, FBAR, forms 8938, 3520, 5471, 8891, etc?
@Shadow Raider
I seek an end to citizenship based taxation, either the US government’s or mine.
@Tiger
I’m sorry for your losses. Thank you for your valued contributions also. Enjoy another magnificent sunset on the coast!
@tiger,
You’ve certainly made the analogy very clear by illustrating your life experiences and grief — more than your share. I hope you have peace from the latest sooner rather than later. Thanks for all of your input for us! Take care.
*Shadow Raider, that’s a tough question. I’d lean in the other direction. I’d rather file FBAR, FATCA than 1040. I don’t care if the US knows how much I have in my account, but I don’t want to be penalized or for my account to be closed as a result of being taxed by the US.
This could actually make some sense. By filing FATCA and FBAR, the US government would know for sure that we are not hiding money for those stateside Americans who are evading taxes.
@ShadowRaider;
I am grateful for the efforts you have put into your project. Thank you, I do very much appreciate your work. What follows is not a criticism of your bill, or your plan B, but is an indication of how dire the situation is.
I second bubblebustin; “I seek an end to citizenship based taxation, either the US government’s or mine.”
The evidence continues to mount – ex. the computer generated 3520 threatening penalty letters, and as the newest compliance initiative – for unicorns only, confirms, the continuation of the unethical and punitive actions of the IRS and Congress continue unabated, and ensures that there is no other choice – if I want to survive, I must sever any ‘relationship’ with the US as completely as possible. No US ‘relationship’ is acceptable to me, no matter how much ‘simplified’. I can never forgive what has happened to others, and to my self – and my non-US family, and the needless and entirely useless waste of huge expenditures of time, emotional energy, mental health, wellbeing and savings (that we could not afford – eating away at money carefully scrimped and saved for education and family emergency). I almost gave up on living as a result. And I owe no US tax. I feel like I am imprisoned, and I am suffocating. As a result, I cannot and will not accept any future that includes US citizenship, with or without US citizenship-based taxation. The US has here fostered a lasting enmity through its greed and arrogance – and not only in me, but in the eyes of my Canadian family and friends who know about this.
The US had an opportunity to try and make this right, and instead offered up narrow guidelines that only fit imaginary creatures, and may be full of new types of pitfalls. Neither Romney nor Obama gives a flying fig. The IRS continues to oppress and punish – witness the latest fiasco with the computer generated threatening letters re 3520s. And the TAS is not able to cope with the numbers of those ‘abroad’ that the IRS is punishing needlessly.
This site has on it the only people I know who really understand the situation, and as calgary411, and others have said, provided support when it was (and is) sorely needed. I believe that lives have been saved or salvaged through this resource, and the associated blogs of others who participate here.
OK, no plan B then.
@badger, @calgary411 and others, I can’t totally understand your situation because thankfully I haven’t experienced it myself, but I can imagine what it feels like by reading what you write in this blog. I believe that the stress and despair that you describe is real. I feel bad that you are being forced to renounce your US citizenship, it seems to me that you would keep it if this taxation and reporting insanity didn’t exist. I also see that a few, like monalisa, are reluctant to renounce. Although I like living in the US, I’ve learned about other countries, I’m aware of the disadvantages of the US and I don’t promote it (or any other country) as the “greatest country in the world”.
An update on my project. I contacted ACA, sent them my bill draft, and they expressed a great appreciation for it. Marylouise Serrato (ACA’s director) is moving to Washington, DC later this month and she wants to meet me to discuss the options for trying to get the bill introduced. She also referred me to Jackie Bugnion (ACA’s tax director), who exchanged many long emails with me, discussing the details of the bill. She thanked me for my input and said that ACA is now preparing a more detailed proposal for a bill.
The main problem, as you can imagine, is that ACA has no idea of who would agree to introduce such bill in Congress. Apparently not even Carolyn Maloney agrees with ending citizenship-based taxation completely. I don’t know who to ask either, but I think that Republicans are more likely to agree as they tend to support any reduction in taxes. Four Republican senators are now against FATCA. Bill Alexander was a Democrat but that was 20 years ago. I can imagine Republicans defending less paperwork and more US exports, and Democrats accusing them of supporting “rich Americans living in tax havens”. But it could also be the opposite, Republicans could promote “American exceptionalism” and Democrats could propose aligning the US with the rest of the world. In the end it’s not really about taxes and it’s not a partisan issue.
*Shadow Raider, I don’t want to renounce. Yet, so far, two candidates who are campaigning to represent me have stated that they don’t have any time to do anything for Americans abroad and I am waiting for my congressman to recommend that I renounce my citizenship. If my congressman won’t even do that, then there is no way in the world they he/she will do anything for Americans living abroad.
Calgary411 – That was a useful item to share, on the perpetual undercurrent of despair and of wanting the undeserved mess just to go away. I offer these thoughts as encouragement, literally giving heart, and hope that they are taken that way.
I doubt that much of anything is unprecedented in human history. But a great deal may be unprecedented in individual experience. US pursuit of its extraterritorial citizens for taxation and reporting is merely one instance of a nation state setting requirements on the individual subject to its power that radically affect the life and livelihood of the individual, and which the individual experiences as injustice.
There are examples that I would rather cite, but I will go for this one – looking not to raise too many hackles, and looking to stay clear of my own previous personal experiences. (Yes, that is plural.) Imagine that you were a person of Japanese descent living in Canada at the beginning of World War II. Imagine that for “security” reasons you and your family were forcibly relocated on short notice. Imagine that the house and/or business that you owned became a “bargain” for someone with insider connections to the authorities that moved you away. No need to go further.
See, even with this one things could be far worse! The US-Canada treaty could provide for garnishee collection and even criminal extradition.
Toxic fallout from 9/11 – welcome to living through history. At least you are not located in Iraq.
@usxcanada, I agree that other countries have done far worse things in the past. What is unprecedented is that the US is causing all this trouble for no reason. This is not about taxes. Unlike Eritrea, which collects a third of its revenue from its citizens abroad, the US collects such an insignificant amount of revenue from Americans abroad (0.3%) that no one in the US would notice if it didn’t. (Actually, the same can be said of estate and gift taxes, 0.4% of the total revenue.) The US wants people to fill in numbers in pieces of paper, punishes them enormously if they don’t, and punishes them even more if they actually fill in the numbers but late. And the US doesn’t plan to do anything with those numbers, it just wants people to fill them in. What gives? I think this is the result of a mixture of misconceptions, indifference, laziness, irresponsibility and just plain stupidity.
@shadow raider
Kudos to you on your ACA support!
@all
It’s looking more and more inevitable that I will one day renounce. When I do, I will close my heart to a country that did not see me as a valuable asset. It is their loss that what was once pride may become, if we’re both lucky, mere indifference. They will have no support from me. What a waste of a valuable asset, when the US could use more friends in this world. As renouncecitizenship so beautifully wrote:
“Now, for the first time, the Obama government has created conditions where the most reasonable, most vocal, most articulate, most justified and at the end of the day – most marketable – “Anti-Americanism” comes from U.S. citizens abroad.”
From: http://isaacbrocksociety.ca/2012/06/16/u-s-naricissism-and-its-impact-on-the-sovereignty-of-other-nations-introduction/comment-page-1/#comments
@USX, Re your observation
I agree, but I believe it’s the modalities used by the US govt are unprecedented, which makes it hard for people, including its victims, to wrap their heads around. It came out of the blue and is bizarre, in addition to wrecking lives.
I think you’re referring to this line I wrote toCalgary in discussing the emotional problems this is having on people and their families as they try to live their lives in the face of this mess:
It’s the modalities of what the US is doing that are unprecedented. I’m not saying a country never did bad things to ruin the lives of its citizens or others before. Of course they have. And, of course, I’m certainly not saying our situation is worse than anything a government has done in human history. I am saying the situation itself (not government unfairness or persecution) is unprecented.
No country has ever attacked its former citizens (or its overseas citizens) en masse in this manner unless they actually invaded the country physically. (I’m not even sure this could have been done before the internet.)
I used the fire and tsumami analogy because I am an arson victim I made reference to this in a post last winter where I said that, on a scale of 1 to 10, the “US mess” is 100 and being an arson victim was a picnic in the park in comparison.
I think I had some emotional tools to handle dealing with my arson experience because I always knew fires do and can happen. I also knew that, although the fire was deliberately set, it was the deliberate act of one person who was nuts … as opposed to government policy deliberately made by a vast number of supposedly sane people.
Likewise people who have never been affected by fire understand what it is. You get a lot of support both from your fellow victims and from others who have never even been in a fire.
I have never been in a tsunami. But I have some idea of the extent of damage a tsunami can do to a person’s life.
TheUS mess is a very convoluted situation to explain to someone, or for me, myself to understand. This causes increased stress.
Also unlike most crimes or disasters, where you start rebuilding your life as soon as the fire’s out, this US mess goes on and on and on … in which case, it’s a little bit like a war (just a little bit – not violence, simply control by a foreign government with no end in sight) with the odd difference that your neighbours continue living their normal lives, making one’s own life surreal.
@pacifica777
and to further exhaust us, there’s the prevailing attitude that we did it to ourselves by leaving the US! Imagine how insane it would make you if those around you suggested that you must have done something to provoke the arsonist!
*Shadow Raider, could you or someone create a letter template that we can send to our supposed “representation” to recommend your draft bill? I could try something, but I don’t know how to word it well.
@pacifica, @badger, @bubblebustin, @usx and @shadowraider,
There is a lot to address here in the conversation going on. I just want to acknowledge and thank everyone for comments to my comment. I have other things calling right now, but I will get back to this. My short further comment is, for me, badger has expressed and pacifica has analyzed the way many of us perceive and experience what is happening in regard to “US Citizens / Persons / however we are to be described.
As always, I thank everyone for my support of me, of others and opportunities to look at things in the various lights of others.
@Shadow, I very much appreciate all that you are doing, and want to make that clear, despite my own personal feelings about what I need to do for myself and my family to survive. My harshness wasn’t directed towards you. Thank you for the thoughtful manner of your posts.
re: “An update on my project. I contacted ACA, sent them my bill draft, and
they expressed a great appreciation for it. Marylouise Serrato (ACA’s
director) is moving to Washington, DC later this month and she wants to
meet me to discuss the options for trying to get the bill introduced.
She also referred me to Jackie Bugnion (ACA’s tax director), who
exchanged many long emails with me, discussing the details of the bill.
She thanked me for my input and said that ACA is now preparing a more
detailed proposal for a bill.”
Your efforts, and the work of the ACA is uplifting to read about, even if I forcefully expressed my own personal inability to bear my US status for any longer than I must.
@Shadow and all:
You might want to read this http://maplesandbox.ca/americans-in-switzerland-letter-to-congress/ See the full text letter that Americans in Switzerland have sent to Congress. I was able to read it courtesy of a post at MapleSandbox by Blaze. It makes very firm comments about the profoundly negative effects of extraterritorial taxation, FATCA, the effects on marriages and households with non-US citizens who have NO US obligation, and the refusal of IRS Shulman to comply with his legal obligations to answer the Taxpayer Advocate.
Pacifica –
No country has ever attacked its former citizens (or its overseas citizens) en masse in this manner unless they actually invaded the country physically. (I’m not even sure this could have been done before the internet.)
Wow. In the abstract, you start to convince me about “unprecedented” on two grounds. First is the history of “citizenships” and the related history of freedom of movement. Second is is the use of computerized data processing power harnessed to the exigencies of capital flows to persecute beyond specified borders. That leads me on to a potentially very offensive thought which I will word carefully. What the United States is doing to its extraterritorial citizens cannot be compared to anything else. Period. Nothing else whatsoever. To make any such comparison disrespects the unique and incomparable suffering of these U.S. persons. What we have going on right now is a worldwide financial pogrom where all 194 or whatever states in the globalized system show signs of becoming complicit in handing over their U.S. persons. A world with no place of refuge and no escape and no governmental resistance to the axis of arrogance.
@Shadow Raider,
Re:
I echo badger’s words. I am amazed at the task you’ve taken on and commend you for doing so if it will help those who want to retain their US citizenship be allowed to live anything like normal human beings. The same with all of the laudable efforts of ACA. I respect your decision and right and that of others, including monalisa, who wish to retain US citizenship and respect the work you personally have done to make that retention of better quality. I understand that it is hard to believe that others see things very differently.
I am one in a different place. For me, having become a Canadian citizen in 1975 and believing at that time that I would, as I was told, relinquish my US citizenship, I lived my life in Canada believing I was JUST a Canadian and believed, erroneously, my children were just Canadian. To have seen the US turn a blind eye for decades to any “supposed dual citizen US income tax responsibility” or making any effort (besides the small print on a US passport) to educate those living outside the US, as well as turning a blind eye to our crossing the US border with Canadian passports when it is law to enter (and leave) with only a US passport, to continuing not to EFFECTIVELY WARN, but instead entrap, any of those immigrating to the US (the land of opportunity) and obtaining a green card of their then consequences with US taxes, “foreign accounts”, etc., supports my decision to renounce. Seeing the IRS time after time promise and then not follow through with easier ways for US “citizens” abroad to become tax compliant and then witness their continuing punitive instructions and their complete denial for any response to the Taxpayer Advocate, reinforces my decision. I witness the US Congress ineptedness, lack of services to/for and punitive mindset for US persons broad; Senators Chuck Schumer and Bob Casey proposing new law to deal with Eduardo Saverin and others like him — the Ex-PATRIOT Act, as well as the obvious mis-reporting of numbers of people renouncing US citizenship and even maintaining such a document as the Name and Shame List and I am apalled. For these reasons and that I as a Parent / Guardian / Trustee of a developmentally delayed son am not afforded the RIGHT to renounce the supposed US citizenship of that son (who is dependent on many of my decisions) when it is my complete wish to do so as I KNOW it to be in my son’s best interests to be “just a Canadian” in the land he was born, I will in November renounce. If the US were to give us a complete amnesty regarding past tax obligations; if the US were to allow us real choice, only then might I regain any respect for US citizenship. For me, TRUST is likely one of the most important human qualities in any kind of relationship. I have lost any trust in the US and the US has not proven to me that they want it to be any different for those of us beyond the US borders — in their mind, it appears, we remain “traitors and tax evaders”. We are not and I will not accept that description. I will soon renounce my US citizenship (again) and despite my respect for your and ACA’s best efforts to improve my quality of US citizenship, I in no way want that opportunity as I am a Canadian –by choice, not by the accident of my birth.
We all have to learn as much as we can, weigh the consequences for our lives going forward and make the individual decisions that best suit our beliefs and wishes for ourselves and our families to return to their former life paths. This has all been, for me, a negative diversion; wasted time in my retirement years with my husband and keeping me from being able to fully contribute to the Canadian society in which I live. I know I sound harsh and ungrateful; my decision differs from some, but it is my fully thought-out decision.
@badger and @ calgary411, You don’t have to apologize, I don’t think your comments were harsh. Your situation is very different from mine, since you live in Canada, so your decision to renounce makes perfect sense. I just wished that such action were not necessary.
@swisspinoy, Lately I’ve been busier than usual, but maybe I’ll write a letter template when I have some time. I also want to do some modifications to my bill, but feel free to send it as a draft to your congressman if you want.
Good news: I just received my first response from a politician. He’s independent presidential candidate TJ O’Hara.
My email to him:
Dear presidential candidate TJ O’Hara,
I would like to make you aware of a subject that is largely unknown only
because it does not concern most Americans living in the US, but which
is creating a true nightmare in the lives of the estimated 6 million
Americans living abroad and many of the 20 million recent legal
immigrants living in the US. The subject is citizenship-based taxation
and its related reporting requirements. I would also like to know your
opinion about it.
The appalling facts below are only a summary of the issue, and if you
are interested, please contact me as I have a wealth of information and
more details about it, including examples, testimonials and sound
proposals to fix the problem. You may also find more information from
American Citizens Abroad (ACA) at
http://www.americansabroad.org.
1. First of all, the United States is the only country in the world*
which taxes the income of people based on citizenship. All other 238
countries and territories, and even all 50 US states and DC, base
taxation on residence and source of income. (*The only exception is
Eritrea’s diaspora tax, which has been repeatedly condemned by the
United States itself and many other countries, including a Security
Council resolution at the United Nations.)
2. According to data from the IRS, 91% of US taxpayers residing abroad
do not owe any income tax to the US, and the rest of them owe little
tax. This is because they can use the usually higher income taxes they
already pay to their countries of residence as a credit on their US tax
returns. Still, they must file US income tax returns every year, and the
forms required of them are numerous, very complex and costly, as
foreign income is treated with special scrutiny by US tax law. The IRS
has admitted that Americans abroad are the single group that needs the
most assistance with tax return preparation, and the one that has the
least access to it.
3. Besides income tax returns, all US citizens and permanent residents
must file a report of foreign bank accounts (FBAR) every year, and
unreported accounts are subject to a draconian penalty of 50% of the
value of the account, regardless of whatever tax has been owed and
already paid on the income generated at the account. US citizens abroad
have bank accounts where they live, and to them these are local accounts
necessary for mundane activities like earning salaries and paying
bills, not offshore investments, while many immigrants simply retain the
accounts they already had in their home country before immigrating to
the US. The overwhelming majority of these people does not file the
FBAR, simply because they don’t know of this requirement, even though
they already report their foreign income in their US tax returns and pay
any tax on it.
4. Over the past three years, the IRS has launched a virtual war on
foreign bank accounts held by US taxpayers. While the goal was to
discover willful tax evaders who intentionally hide US income by sending
it to foreign bank accounts in tax havens, the IRS has undiscriminately
applied the same penalties to innocent taxpayers who honestly were not
aware of the complex reporting requirements of their foreign bank
accounts. In most cases, the penalties were a large part of lifetime
savings, and completely disproportional to any tax owed. This practice
has been severely criticized by Ms. Nina Olson, who holds the position
of National Taxpayer Advocate at the IRS, in her periodic reports to
Congress.
5. In 2010, Congress passed the Foreign Account Tax Compliance Act
(FATCA), which was included as an amendment to the unrelated Hiring
Incentives to Restore Employment (HIRE) Act, and passed without
deliberation. FATCA is an extraterritorial US law that unilaterally asks
every financial institution in the world to report to the IRS
information about the accounts held by US citizens or permanent
residents, or face an automatic withholding of payments coming from the
US. FATCA also creates another form to be filed by US taxpayers
disclosing foreign bank accounts, a complete and useless repetition of
the information already required in the FBAR. The international
financial community has been severely complaining about FATCA, as its
implementation will cost them much more than any possible additional tax
revenue to the US. Many foreign banks have decided to avoid FATCA
completely by closing accounts of Americans abroad, because it is less
expensive for them to refuse banking services to Americans than to
implement FATCA in their systems. Americans are now pariahs in the
financial world.
6. In the last two years, the number of Americans renouncing US
citizenship has risen from about 300 to almost 1800 per year. From
preliminary data, it is expected to reach 8000 this year alone. Contrary
to what is sometimes reported by the US media, the overwhelming
majority of people renouncing US citizenship are not wealthy individuals
fleeing the US to avoid taxes, but people who have lived abroad most of
their lives, with few ties to the US, and who would probably remain US
citizens if not for the restrictions they face due to FATCA, FBAR and
citizenship-based taxation. They do not complain about paying taxes to
the US, as most of them do not owe any US taxes anyway due to foreign
tax credits. What they complain about is the requirement to file very
complex and expensive forms every year, the restrictions they face at
their local banks, and the draconian penalties they face for not
reporting their assets to a country where they don’t even live or have
money. They would gladly remain US citizens and support their country of
origin abroad if they were treated fairly, like every other country in
the world treats its diaspora.
Again, please don’t hesitate to contact me or ACA if you would like more information.
Thank you for your attention,
—
His response:
Mr. —,
Thank you for bringing this to my attention. It is further evidence
of the illogical structuring and execution of our Nation’s tax code. It
also is a demonstration of a fatal flaw in our Government’s approach to
regulatory control: it often is directed at solving an ill-defined
problem.
With regard to the latter, we need to do a far
better job of defining the actual problem. Then, we need to learn how
to clearly identify the root cause(s) of the problem. At that point, we
should explore every alternative (not just those that are conducive to
the Party-in-power’s political benefit).
The next step is to assess each alternative on a
basis of the probability that it will provide the best solution (given
available resources), in the time frame required, and with the least
negative consequences should the original assumptions prove to be
untrue.
Unfortunately, this isn’t the approach our
Government generally takes. To use a tongue-in-cheek description, our
traditional approach is more akin to “Ready. Shoot. Aim.”
With regard to our tax code in general: it is in need of a drastic
overhaul. It is far too complex to be effective; wastes far too much
money on compliance issues; and it is far too influenced by lobbying
factions to be fair.
If I am grace with the opportunity to serve our
country as President, I will work diligently to correct both of these
fundamental flaws.
Thank you again for your comment.
Best regards,
T.J. O’Hara
Candidate for President
of the United States
Campaign Website: http://TJOHARA.com