From Dr. von Koppenfels:
[See pdf’s: Univ Kent study brief and US citizenship renunciation Kent study summary]
Dear all,
As promised, here (are) two documents – cut and pasted to go here, so I hope they don’t look too strange with the formatting – that summarize the initial findings of my research from the survey “The US and You”, to which some of you may have responded. Many respondents (thank you!!) took the time to write extensive comments, and I am still working my way through those (400 pages) of data. Producing a more in-depth analysis of that may take some months, but I’ll post that eventually as well.
For now, here the initial results. And thank you to all survey respondents!!
Best,
Amanda
11 February 2015
New Survey Shows US Citizenship Renunciation Intentions Not Linked to Income
BRUSSELS, Belgium (11 February 2015) – Figures released by the US Treasury Department show 3,514 US citizens renounced their citizenship (also includes long-term residents who gave up their residency) in 2014; this is the highest figure ever, up over 2,999 in 2014.
A recent University of Kent (at Brussels) study surveyed 1546 US citizens and former citizens (from 5 December 2014 to 20 January 2015) on this topic. Of the US citizen respondents, 31% have actively thought about renouncing US citizenship and 3% are in the process of doing so. The study shows that, in contrast to what is commonly thought, income is not a key factor in their doing so.
Of those who have renounced or relinquished US citizenship (142 of the total respondents), nearly half (43%) have annual pre-tax household incomes of under $100,000 (USD). There is, similarly, very little difference in renunciation intention between those with lower incomes and those with higher incomes: of US citizen respondents with annual household incomes under $100,000 (USD), 28% are actively thinking of renouncing; of US citizen respondents with incomes above $250,000 (USD), 33% are actively thinking of doing so.
The University of Kent study shows that many overseas Americans are feeling increasingly pressured by US financial reporting requirements and that maintaining US citizenship is costly – in terms of accountants’ fees. One respondent noted: “I can’t pay an accountant 2000€ in order to pay the USA $0.00 in the end.” Fear of “draconian” FBAR (Report of Foreign Bank and Financial Accounts) penalties is also widespread, as this pensioner noted: “Annual income under $4,000; potential FBAR penalties $30,000 per annum for 3 small accounts! I am old and dependent on savings; one paperwork lateness could leave me facing starvation.”
Numerous respondents also noted severe difficulties in retaining or opening investment accounts, bank accounts and, in some cases, securing mortgages, as local banks increasingly refuse US customers – which negatively affects their ability to plan for retirement. Some 39% have lived abroad for over 20 years, and over two-thirds (67%) say they are unlikely to return to the US.
All US citizens living outside of the US are required to comply with both taxation on global income and financial reporting requirements. Certain groups of US citizens and former US citizens feel particularly targeted, as a respondent in Canada explained: “Canada is home to many border babies, born in the US because that was the location of the closest hospital, and ‘accidentals’ like myself who left the US as young children with no say in where they were born.”
This University of Kent survey – the first academic study of its kind, and the largest look at the attitudes of Americans living abroad on this topic to date – shows that income is not the key motivating factor in prompting renunciations, but that increasing reporting requirements, fears of “draconian” penalties and increasing inability to hold a bank account are factors prompting renunciation.
A longer summary of initial findings is available.
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Executive Summary:
Survey of Citizenship Renunciation Intentions Among US Citizens AbroadThe US State Department estimates that 6.8 million Americans live outside of the US. The Treasury Department recently released its official numbers on 2014 fourth quarter US citizenship renunciations. In 2013, annual renunciations rose to their highest level ever, at 2,999, and in 2014 rose still higher, to 3,514.
A new research survey of 1546 US citizens and former citizens living outside of the United States shows that 31% of the US citizens are seriously thinking about renouncing their US citizenship, and that 3% are currently in the process of doing so.
The survey ran from 5 December 2014 to 20 January 2015, surveying 1404 US citizens and 142 former citizens, living in 69 countries. The survey was an opt-in snowball survey, distributed initially via overseas American organizations. The survey included closed-ended and open-ended questions, allowing for both quantitative and qualitative analysis.
Initial key findings of the study are:
Quantitative Analysis:
1) 31% have actively thought about renouncing US citizenship and 3% are in the process of doing so; 32% have never thought about renouncing US citizenship. Another 33% have given only a passing thought to the idea, however, they have no immediate or even long-term plans to do so. Many hold strong feelings of American identity and express pride in being US citizens.
2) More than one-third (39%) of all respondents had lived in their current country of residence for 20 years or more. The primary reason (33%) for moving to that country was to be with a spouse or partner, followed by employment (26%). 21% left the US as children. Over half (54%) are aged 50 or older, and 58% are female. 88% have at least a four-year college education. 45% have annual pre-tax household incomes of under $100,000 (USD) and an additional 18% between $100,000 and under $150,000.
3) Of those who have renounced or relinquished US citizenship, nearly half (43%) have annual pre-tax household incomes of under $100,000 (USD). Of those who have renounced or relinquished, more than half (56%) have lived at least 20 years in the United States, and three-quarters (75%) more than 20 years in their current country of residence.
4) Renunciation intentions are not linked to income: 43% of former citizens have annual household incomes under $100,000 (USD). Of US citizens with annual household incomes of more than $250,000, 33% have actively thought of renouncing and 4% are in the process of doing so. This compares to 28% of those US citizens with incomes under $100,000 (USD) having actively thought of doing so, and 3% currently in the process, and to 31% of all US citizen respondents who have actively thought of doing so and 3% who are in the process.
Qualitative Analysis:
5) US citizens who have renounced or relinquished their citizenship, or are thinking about doing so, mention several key factors. They note that financial reporting requirements are increasingly onerous and intrusive, and, second, that they are likely to remain overseas.
6) US citizens living overseas are affected by three sets of financial reporting requirements: first, they must file tax returns on global income – unlike nationals of any other OECD country living abroad; second, they must report all bank accounts with a combined total of $10,000 (USD) or more, or the so-called FBAR (Report of Foreign Bank and Financial Accounts) and, third, they are affected by FATCA (Foreign Account Tax Compliance Act) requirements, a law which came into force 1 July 2014. All three factors play a role in individuals’ thoughts on renunciation:
a. In open-ended responses, analysis shows that it is not payment of taxes which prompts renunciation, but rather primarily costs associated with complying with US filing requirements – particularly FBAR, which many respondents only learned about recently, and the recent FATCA law. These can be as much as $1000 to $5000 per year – as one respondent, with a household income of between $50,000 and under $100,000, put it, “I can’t pay an accountant 2000€ in order to pay the USA $0.00 in the end.” This person, who renounced citizenship, would have had to pay nearly 10% of annual income in such costs: “To maintain tax compliancy with my pension account I was going to have to pay my accountant at least £1500 per year and I only earn £18 to £20,000 per year.” Maintaining US citizenship is costly – in terms of accountants’ fees. There are, moreover, no pre-tax retirement savings options for overseas Americans – unlike their US-based counterparts.
b. FBARs are now e-filed via the Financial Crimes Enforcement Network, a phrase which riles many. The primary concern, however, over FBAR filing is that of many non-working spouses, as expressed by this woman, who has renounced her US citizenship: “Hated being treated like a criminal and filing FBARs on money earned solely by my UK only husband.” Others speak of stress created in their mixed-nationality marriages, especially those who are home-makers with income-earning non-US spouses, because of US filing requirements.
c. FATCA reporting requirements, also requiring reporting on joint accounts with non-US spouses, have further ramifications: numerous respondents also noted severe difficulties in retaining – or opening – investment accounts, bank accounts and, in some cases, securing mortgages, as banks increasingly refuse US customers. Numerous respondents reported great difficulties and stress in planning for retirement – with investment accounts increasingly closed to them in the countries they live in, as well as in the US (where many investment funds now require a US address).
7) Many respondents offered a “wait and see” response, noting that that if FATCA, in particular, is not changed, they feel that they will be “forced” to renounce US citizenship.
8) Two groups of US citizens and former US citizens feel particularly targeted by US financial reporting requirements, as well as by US citizenship policy, as explained well by this respondent in Canada: “Canada is home to many border babies, born in the US because that was the location of the closest hospital, and ‘Accidentals’ like myself that left the US as young children with no say in where they were born.”
These individuals – or their parents – believed that they no longer held US citizenship, having naturalized or held Canadian citizenship or not been aware of legal changes in US nationality law. Many realized only recently that the US Government still considers them US citizens, often after having been assured by US officials that they were not citizens, as this respondent said: “I was horrified to find out this year that the US is still claiming me as a citizen” – having relinquished US citizenship at the time of naturalizing as a Canadian. This person is not alone. Either not having been aware they were US citizens, or having been assured, many years ago, by Consulate officials that they were not, such individuals now face the cost of filing five years’ tax returns – even if no tax is owed – and potentially a $2350 renunciation fee, which for many is “prohibitively expensive”. They feel caught and targeted by US policy.
9) For many other respondents, a strong sense of anger and feeling of “being targeted” also emerged: “It is not a crime to live abroad and the US should not treat its expat citizens like criminals. I would never consider renouncing my US citizenship if the US treated me respectfully. As it is, I may end up renouncing, and that is a sad situation.” One person who renounced noted “What upsets me the most is the attitude by most US people that everyone outside the US is a tax cheat” and another noted “FATCA treats families like mine as suspected criminals until proven otherwise all because one family member is American who dared to marry abroad.”
10) Many expressed strong pride in being American, noting they would never renounce citizenship. Nonetheless, even some of those who have given no thought to renunciation still note, as this person did, “Folks upset about taxation without representation is what created the US.” A respondent with no intention of renouncing notes that “1. I’m an American. 2. I deeply resent being treated like a tax fraud or a drug lord.” This respondent, also with no intention of renouncing, said: “I find it tragic that many Americans living abroad are finding it necessary to give up their US citizenship based upon primarily taxation and banking problems. I think the IRS has to revise the code.”
11) Another person who has actively thought of renouncing, although does not intend to go through with it, said: “I do think that the mass media representation of this issue neglects to capture how difficult this decision is and how heartbreaking and frustrating it is. It’s like being in a cage.”
12) Many of those who did renounce or relinquish their citizenship expressed the pain of doing so, as this woman did: “It’s a bit like having a mastectomy because giving up my passport was traumatic for me.”
13) A very high degree of stress and even fear was expressed by a number of respondents, as expressed by this person “When I found about FBARs and the penalties involved I was unable to eat and sleep properly for weeks”. Many fear that inadvertent filing errors will wipe out retirement savings.
14) Numerous respondents mentioned their frustration with a lack of political representation of overseas Americans. They noted that they do vote in US federal elections, but also noted a lack of response concerning their concerns. Above all, respondents strongly felt the lack of representation of overseas Americans per se, as these two people did: “Double taxation without representation, without services, but with onerous ‘Orwellian’ compliance” or “I don’t feel that I have any representation within the US, so I might as well start forging links elsewhere.”
15) For many, American pride remains strong and a key factor in not renouncing, despite costs associated with remaining a US citizen (accountants’ fees, no pre-tax retirement savings options). On the other hand, frustration and resentment over US government financial reporting policies emerge strongly as well, even among those who feel they may return to the US at some point in the future.
Dr. Amanda Klekowski von Koppenfels is the Director of the MA in International Migration at the University of Kent in Brussels (www.kent.ac.uk/brussels). She is the author of Migrants or Expatriates? Americans in Europe (2014; Palgrave-Macmillan).
“They don’t seem to do anything though, when non-US-residents stop filing.”
Did I miss where this was discussed?
What can they do? Write an auto-generated letter?
I stopped filing when I left America. I’m not alone. Many, many USCs have stopped filing on moving to another country. What happens? Nothing.
“The US can’t tax non-US-source income.”
I see now that my wording here was ambiguous: ‘They can when payers cooperate. FATCA is designed to make more payers “volunteer” but some already volunteered decades ago.’
I meant that when payers of income (banks etc.) cooperate, the US can tax non-US source income. FATCA is designed to make more banks etc. “volunteer”. The ways for a human to avoid it are to renounce or to lie to banks etc.
Norman Diamond – “when payers of income (banks etc.) cooperate, the US can tax non-US source income.”
Actually, they can’t. Maybe you’re confusing theft with taxation?
“FATCA is designed to make more banks etc. “volunteer”. ”
FATCA is designed to strong-arm non-US banks into identifying and reporting accounts held by persons born in the US. It’s discriminatory, unfair, and extremely annoying, and in some countries causes serious bank access problems for USCs, but it doesn’t and can’t give the US the power to tax non-US income.
See http://federaltaxcrimes.blogspot.co.uk/2018/01/nyt-article-on-stefan-buck-offshore.html for a link to a New York Times article about the inability of the US to get a conviction, even in a US Court, against Swiss bankers who didn’t report USC accounts.
Outside the US, FATCA does not have legal force but an IGA implementing modified FATCA-type rules does.
No IGAs allow non-US banks to “withhold” from payments of non-US-source income to USC accountholders..
Model 2 IGAs impose limited withholding obligations in certain circumstances, but only in relation to US-source income.
The wretched parasitical compliance industry does its best to create the impression that USCs living outside the US have no option but to pay whatever the US demands, regardless of source/residence. It is not true.
“The US can’t tax non-US-source income.”
I’ve stopped filing twice. The first time was many years ago when I moved permanently out of the US. The second was recently when I realized (after panicking and filing for a couple of years) that the ” wretched parasitical compliance industry” was full of shit and I decided I wasn’t going to put up with either the US government or the “WPCI” any more. In both cases there was never any response from the IRS.
I’ve happily lied to the odd financial institution on occasion but even if they found me out at some point and started reporting my accounts to the IRS I’d still continue to ignore the whole thing. Besides, even if the IRS claimed some amount was owed, our government wouldn’t collect it on their behalf. The US government still sends me a small SS cheque every month. If the IRS had some problem with me I’m sure that would have been stopped a long time ago.
maz57: you raise an excellent point. I stopped filing in 2002 approximately, back from the US in 1997. 2002 was the year I exceeded FEIE and would have had to us the tax credit, but I was busy to try and understand it and neglected to file. Absolutely nothing happened for 12 years or so. In 2014 I was FATCA’d from Deutsche Bank Belgium (bank that later decided to stop discriminating after intervention of local mediating agency) and decided to start filing, despite the wisdom of my wise elderly parents. I did so because I was expecting my other banks to ask me about my US birthplace. So I filed 3 back years of returns, and forward since (idem for FBARs). However I have lately, before even reading your comment, begun to wonder why I am doing this. If push comes to shove and a bank should insist I give them my US information, I could very well give them what they want, SS number and all, and just let them forward whatever they want to the local gov who will then forward whatever they want to the US. Wh
This is good to hear maz57 and Fred (B).
Should the “WPCI” insist that the corporate repatriation tax applies to non-resident individuals with corporations outside the US, I suspect many will find out what happens when they stop filing.
… What the consequences would be … most likely, as for you, zero. This is a really important point. As has been noted here many times, this is a big compliance-industry problem. Up till now it feels obligated to point out what the law is, and attempt, to the point absurdity, destruction of personal finances, and comfortable billing, to comply (case in point is a friend with a non-US birthplace, a non-US spouse, businesses, houses, retirement funds, etc — tax preparer quoted several thousand dollars to become compliant — I stood up in their living room and told them to FORGET EVERYTHING – DO NOTHING).
A physician may use a medication to help someone, even off-lable, based on such and such evidence-based sources. They may also decide not to run tests or treat high cholesterol in a patient with a limited life expectancy. Many tests and procedures risk doing more harm than good. Sometimes doing nothing is best, or at least a very good option which must be presented to the patient.
Doesn’t the compliance industry have an ethical obligation to point out that doing nothing is an option in many cases, including not filing returns, not filing FBARs, ignoring bank letters, etc. That doesn’t mean they should condone this or encourage it, or promise it is the best way. It does mean they should let their clients know it’s an option.
As someone noted, the compliance industry has become too conservative, too fearful of underpayment penalties (or similar wording).
This transition tax is going to put the compliance industry between a rock and a hard place, should they expect foreign corporation owners to cough up money to repatriate a business that can’t be repatriated. They will surely find ways to mitigate what’s owed, but will not change the fact that the whole concept of it is absurd. I hope it’s the straw that breaks the camel’s back.
As it’s too late to renounce to avoid the transition tax, I suspect it will become a choice of poison to take for many. Let’s explore. Renounce without paying the tax and therefore become a covered expatriate, or keep US Citizenship and stop filing. What is the worse that can happen in either scenario?
I get the impression those who make a living hustling US CBT taxes are very much under the thumb of the IRS. Much more so than the USC living outside the US.
BB – there’s a 3rd alternative – renounce without filing.
I am presuming that if one doesn’t pay the tax, one hasn’t filed because no tax accountant will sign off on a return that hasn’t paid the tax.
What’s the worse that can happen either way? Are covered expatriates living in other countries getting chased down by the IRS? I don’t think so, although that can soon change if these bright lights have their way:
https://marketing.withersworldwide.com/reaction/emsdocuments/PDFs/PCT/Expatriate_Taxes_Tax_Notes_Helen_Cheng_and_Dina_Nam.pdf
And if you just stop filing? Maybe some nasty letters from the IRS? As it’s confirmed to me, the Revenue Rule, although under attack, is still alive and well in Canada. Does the IRS really want to go that far against someone who didn’t pay a transition tax, otherwise no tax owing?
As I see it, the three options are:
a – renounce, filing nothing;
b – stop filing without renouncing;
c- file for 2017, renounce, and in 2019 file 1040/1040NR for 2018 plus 8854
a costs $2350, b costs nothing, c costs a lot since by filing all those forms you would be giving the IRS the bullet for your financial execution.
BTW, our accountant said that if anyone can provide a reason why the tax doesn’t apply, he’d support it.
My attitude is find me a reason why a repatriation tax is meant to apply to a corporation that can’t be repatriated. I can’t even open a bank account in the US as a non-resident.
“the IRS really want to go that far against someone who didn’t pay a transition tax, otherwise no tax owing?”
IRS can’t collect. As you say, they might (or might not) send a few letters. My guess is not, since they’re very aware that they can’t collect.
They now have the power to revoke a US passport however.
If you have a corporation, you’d have to provide additional bullets – form 5471, but what accountant would sign off on it?
A lot of us lived as USCs for years without knowing US tax law said we should be filing US tax forms. Nothing happened.
Not because we were in hiding, or under the nonexistent radar (the US consulate always had my address), but because the IRS didn’t do anything – because they couldn’t do anything.
“They now have the power to revoke a US passport however.”
If assessed. Long before that happened you’d have the opportunity to hand over the bullets and the arm and leg in order to save the passport, if you decided keeping it was worth that cost.
Which is really the question. How much is a US passport worth?
Ms Cheng and Ms Nam seem not to have read up on the right to renounce. The US can’t make renunciation conditional on signing away one’s retirement.
Form 8854 is a very strange form, even for a US tax form.
A person who is neither a US citizen nor a US resident is asked to list all assets including retirement plans, calculate the value including expected future distributions based on life expectancy, and send the US a check for nearly half the total. In return, the person gets nothing. There is no possible sanction that can be applied to a person who chooses not to file.
It’s crackers.
“They now have the power to revoke a US passport however.”
In my correspondence a few years ago with the US Consulate in which I informed them that I had just committed an expatriating act (i.e. became a Canadian) and I was therefore no longer a US citizen, I offered to mail them my US passport. Their reply; “Don’t bother, because if you do we will simply mail it back”. (Interestingly, they didn’t dispute that I had lost US citizenship.) That passport expired a long time ago.
However, at any time going forward if they changed their minds, I’d be more than willing to follow through and send the moldy old thing to them. If the US government suddenly decided to revoke it for some phony tax offense, that would make my day.