— U.S. Citizen Abroad (@USCitizenAbroad) October 7, 2014
Some of you may be aware that Kelly Phillips Erb (@TaxGirl) is running a series of “Guest Posts” on topics of interest. The above tweet references a particularly creative and interesting article on the taxation of Americans abroad. I recommend you read the article. I also recommend that you get over to Forbes and comment on this article. You may want to consider this article in light of some of the recent Robert Wood posts, including:
An excerpt from this particularly brilliant article begins with:
The Accidental Tax Invasion
By Dominic Ferszt
America’s hatred of tax evaders is at an all-time high. In recent years the media has reported that the IRS identified over 43,000 hidden offshore accounts from which they raised over $6 billion in revenue. Their hard work has elevated the tax evader to public enemy #3, after terrorists and pedophiles. Yet for every villain, there must be a hero. Perhaps now is the time to introduce America to the ‘Tax Invader’.
A tax evader is someone who uses the privileges of citizenship to generate income and then conceals that income to avoid paying tax. A Tax Invader is a foreigner who generates income offshore which they reveal, and on which they pay tax; specifically to the United States.
Owing to a unique combination of laws, the US is the only country that benefits from Tax Invasion. Principal among these is citizenship based taxation (CBT) which requires US citizens to pay tax on their worldwide income no matter where they live. Tax Invaders are distinct from Americans who have moved abroad in that they long ago severed (or never even had) meaningful ties with the US. They generally come from within three categories: foreigners who hold on to their green card; individuals born abroad to US parents who had previously emigrated (nominal citizens) and; individuals born to foreign parents who were temporarily in the US (accidental citizens).
All three groups are considered resident for tax purposes under US law, so they’re not paying tax voluntarily. However, their notion of patriotism was developed in a foreign country, so most could readily go down to their nearest US Consulate and renounce their taxing obligation along with their citizenship; an option not available to US residents.
Unfortunately all is not well with the Tax Invaders, and darker storm clouds are gathering.