US expats given hope of lower tax bills
Republicans edge towards eliminating need to pay levies overseas and at home
published in the Financial Times
by Demetri Sevastopulo and Barney Jopson in Washington
You can read the article by answering a simple question that appears when the page loads. I cannot post the entire article due to copyright restrictions.
Here are some excerpts:
Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US.
Kevin Brady, the Republican head of the House ways and means committee, which is drafting a tax reform bill, said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world.
“It is under consideration. They have made the case,” Mr Brady said in response to a question from the Financial Times at a Christian Science Monitor breakfast. “Lawmakers representing that area of the tax code have made that case.”
The US Chamber of Commerce, a business lobby group, has urged policymakers to consider US-only taxation for individuals, too, arguing that taxing foreign income hurts American managers at the overseas affiliates of US exporters.
Mark Mazur, who was the top tax official in Barack Obama’s Treasury department, said he supported the change, arguing that it was necessary to address the “inequity” of an expat paying tax on the same income to both the US and a foreign government.
“If you take two people, one works in London, one in New York, working for the exact same US multinational — if they make the exact same amount of money you might think they should be taxed exactly the same,” said Mr Mazur, who heads the Tax Policy Center.
Solomon Yue and Michael DeSombre are also mentioned in the article.
There are quite a few comments with JC doing Yeoman’s Duty.
@Zla’od and Barbara
The country in question is Austria. Based solely on duration of residency, citizenship is only attainable after 30 years. However, that can be reduced to 15, 10 or 6 years if certain other criteria are met, such as marriage to an Austrian citizen or certain proof of meaningful integration (i.e. volunteer work by the Red Cross or in public schools…). Proof of income plays an important part as well.
@Japan T
What took 3 years? Two are down to the IRS. Once I became aware of my filing obligations, I used the Streamlined program to get compliant. Then I filed normally for 2015 and 2016, thus achieving 5 years of returns for renouncement. The third year was spent collecting all the documentation necessary to apply for Austrian citizenship, which required freshly issued documents from the US with apostilles and notorisation. A lot of time was also wasted waiting for snail mail forms and appointments – e.g. waiting 3 months for a slot to take the civics test after handing in my application for citizenship.
Austria doesn’t allow dual citizenship except in specific cases, for example, my daughter, so for me to receive the Austrian, I first had to renounce the American. This means I have been sort of stateless in the meantime (neither a US passport nor Austrian). I relinquished on 9 August and my new citizenship was just finalised a couple of weeks ago. I was able to apply for a new passport yesterday and can hardly wait to get it!
BTW I relinquished in Vienna and my CLN arrived in 3 weeks. Quite fast, really.
I also have a tip for any expats requiring US notary services. Consular offices charge $50 per notorisation and are oftentimes far away and inconvenient to reach. I needed to get the request form for my US criminal record notorised and was able to have it done immediately at the US military base near my home – for free!
@Petlover
“To clarify, it took three years from the time I made the decision to change citizenship”
These are the 3 years I was refering to.
@Japan T
I became aware of my filing obligations and had my OMG moment simultaneosly. I couldn’t believe all the BS they were asking for when I didn’t even owe anything! The motivation to get rid of US citizenship went hand in hand with learning about CBT and realising how it was going to affect my future, most importantly retirement (I’m 43 so it’s an issue). Getting compliant was the prelude to relinquishment. So I found out about this whole nightmare situation and decided to utilize my quickest options to change it, which took almost 3 years (2015 to present).
And that’s the time frame everything in your last post happened?
I ask because I am up to my eyeballs in tasks for my various employers and trying to gauge just how impossible renouncing is, without considering the Japanese side of this.
@ Japan T
Yes. I learned about my predicament in mid-2015 and then spent months working on my streamlined submission in addition to the regular tax year forms.
Perhaps I am misspeaking when I say 3 years. From start to finish my time-frame SPANS three years, however, in duration it was roughly 28 months. (I am counting from July 2015 through November 2017 (because it’s only official for me once my new passport arrives!)).
Hopefully this time-line is more precise and helpful for you.
Thanks.
Re timing of renunciation and tax filing, which is being discussed here, I’d like to mention that one can renounce before filing with IRS and also that, although Streamline requires 3 years of back filing, one can submit 5 years back in Streamline. I’ve read about filing 5 years in Streamline on a couple of tax blogs (sorry, I don’t have the cites handy) and Iota has reported having done that (Iota’s comment is 13 April 2017 at 6:06 pm).
Tax compliance is not a condition for renunciation. You are not asked to provide tax records in order to renounce.
The five-year-tax-filing requirement is that to avoid covered expatriate status, the person must affirm in the IRS 8854 – which is due June 15th of the year following renunciation – that they have filed for the five years preceding renunciation.* So, that gives a person up to that point to file for those years.
If you want to renounce, but are not up to date on US taxes, you have three options:
(1) You can file 5 years back in Streamline (before or after renunciation);
(2) You can just send in 5 years back forms – not enter Streamline – (before or after renunciation);
(3) You can never file at all.
To keep this comment short, I’ve prepared a lengthier document, with details on the above and links to sources, at this link.
*Edit: I’m adding this sentence to make that sentence more accurate. On the 8854 you have to affirm, not that you filed for the past five years, but that you “complied with all your tax obligations for the 5 years.” As Norman Diamond pointed out in his comment below, it’s possible a person’s income was below the threshold which triggers an obligation to file.
Thanks for that clear summary, Pacifica.
Most of the long-timers are aware of this, but some of the newer people might not. I (personally – just myself) have nothing to fear from the United States Government (I was born to two Canadians (one born in Canada; one naturalized) – outside of marriage, I have no ties to the United States. If I were to “divorce” my wife, I have nothing to lose (other than alimony). I wouldn’t be investigated by the United States. I would not lose my bank accounts. In fact, I would walk away from this free and clear.
My wife is the American citizen who moved up to Canada to be with me and we had children (born on Canadian soil) who are now tainted by US citizenship by “blood”: My wife is the one who is suffering, my kids are the ones who will not be able to save for their college education without having to lie about what one of their parents is – an American Tax Slave. Instead of banking at the same bank and having a joint bank account, my wife and I have separated bank accounts and banks. If I am so lucky as to win the $50M Lotto Max (with my wife’s money), I will be the one redeeming the ticket and basically locking the money away in MY non-joint bank account where the United States cannot touch it along with a giant FUCK YOU to the IRS and to the United States government. And since I am not a US citizen or even want to be…the USG will have no way of getting MY money (no matter how little or much, depending on fortune’s favours), short of annexing Canada which is one of the reasons why I am absolutely enraged at Harper and Trudeau’s actions in suborning Canadian Sovereignty to United States Laws.
Why do I care, if nothing is going to happen to me? Why shouldn’t I stick my head in the sand like every other Canadian who could care less about what their government is doing in ceding sovereignty, Why should I care that Canadians and other nationalities of American descent are being targeted by the USG and the IRS? The reason why is because when I held my bride’s hands 17 years ago, I recited the words spoken to me by the wedding officiator: “In sickness and in health; for better or for worse.” It is for that reason that I AM the one doing the fighting and exposing all the anger and frustration that my wife feels but cannot express and believe me I’m enraged at the United States. I will shield my family from the unjust overreach of the American government. It is that reason why I say “You will get MY WIFE’S and MY CHILDREN’S FUTURE over MY DEAD BODY!”
My anti-Americanism has been never higher than now.
FUCK YOU, USA!
@The_Animal
Your kids are fine. They don’t have a US birthplace. They can ignore this. It’s what I’ve told my daughter – keep your mouth shut but otherwise don’t sweat it. (I’ll cheerfully pay for renunciation if she wishes, but have suggested that she wait until it’s certain she won’t be going to grad school in the US.)
Did your wife acquire Canadian citizenship? If so, she’s protected from IRS claims against any supposed “debts” incurred after she naturalized. If she moved to Canada at a relatively young age, without complex financial affairs, there would be no grounds for penalty prior to naturalization. She can safely stop filing, assuming she still does. I wouldn’t worry about bank accounts either – I certainly have no problem keeping a joint account with my spouse. The bank doesn’t know that I’m a US citizen, and I have no plans to tell them. The IRS cannot touch your or her money.
I understand the rage, the situation is absurd, but if you have Canadian citizenship, even by naturalizing, you are protected. (Assuming per usual no US financial ties, assets, business interests, expected inheritances, etc.) Which is why I’m no longer personally upset about this – I can’t be touched, on a day-to-day level it’s not even a minor inconvenience. Just ignore it, and educate others that they too can ignore it. I’m not going to renounce because I don’t need to, and I don’t want to give them the satisfaction of taking my money for their extortionate fee. I’d rather lie and cheat.
The ones who are potentially screwed are “expats” with only US citizenship, living in countries where they cannot easily obtain citizenship, and where banks are taking FATCA enforcement seriously. They are the ones who need to be fighting the fight against their asinine government.
“The five-year-tax-filing requirement is that to avoid covered expatriate status, the person must affirm in the IRS 8854 – which is due June 15th of the year following renunciation – that they have filed for the five years preceding renunciation.”
No, to avoid covered expatriate status[*], the person must declare[**] that they have met their obligations, not that they have filed. If a person’s income was below the filing threshhold and they didn’t have to file, they met their obligation. If the IRS assessed penalties and I’m not sure whether there are additional conditions[***], then if they didn’t pay the penalties they didn’t meet their obligation, even if they filed 100% accurately.
[* This is in addition to one or two other requirements that also have to be met, as most of us know but new readers might not know yet.]
[** The declaration has to be under penalty of perjury, but don’t worry about that. The IRS and US courts actively coerce perjury, you have to sign the preprinted jurat even i you know that it’s inaccurate, and honesty brings penalties. 26 USC sections 7206 and 7207 only punish perjury that is performed willingly, not coerced perjury, so when you’re coerced, do what you have to do.]
[*** Penalties sometimes can be contested in court. The IRS has become expert at corrupting its actions in ways to prevent courts from taking jurisdiction. So if a court dismisses a case for lack of jurisdiction, the penalty remains on the books, but does the person have to pay the penalty in order to avoid becoming a covered expatriate? I do not know the answer. But I declared what I had to declare[**], so I don’t think I’m a covered expatriate[*].]
‘If I were to “divorce” my wife, I have nothing to lose (other than alimony). I wouldn’t be investigated by the United States. I would not lose my bank accounts. In fact, I would walk away from this free and clear.’
I bet the US would still investigate you if they want. If you inherit a bank account from your Japanese relatives, I bet the US could persuade the bank to turn the contents over to the US, especially since you’re not a Japanese citizen, just like Canada even assists collection from people who aren’t Canadian citizens.
On the other hand, wouldn’t you gain alimony from your wife ^_^
‘If I am so lucky as to win the $50M Lotto Max (with my wife’s money),’
Oops, you shouldn’t have said that. In order to protect the winnings, you’d better buy tickets with your own money.
Thanks, Norman, That’s a good point, that some people, due to low income, may not have had a filing obligation for one or more of the five years preceding renunciation, so no need to file for that year/s. I’ve added that to my comment.
I am a Canadian citizen. My wife is the one that is a US citizen still, because we feel that a) since all she makes is $14,500/annum (yearly) we can’t afford to file or even start the process for her Canadian citizenship. It’s either we’re able to eat or we file and end up starving.
Yeah…let’em investigate. And when it blows up in their face that they’re investigating a Canadian born citizen, shit will majorly hit the fan.
2. When cash leaves her hand and I receive it and I’m talking cold hard cash and not a bank transfer. It ceases being “HER money” and becomes my money. Ever heard of the “gift” rule.
@Nonoymous. You don’t think after 47+ years on this planet that I don’t know that? My bank doesn’t know shit, My wife’s bank doesn’t know shit. The only place I vent about FATCA is HERE (where damned near everybody is in the same boat being targeted by the IRS) and on Twitter (where I don’t give out personal details) before I got banned for being “overly abusive” to a homelander twat or can I say the C word (where the only time that twat’s IQ increases is when she has intercourse with her husband).
The only time I open my mouth about my personal situation is on IBS…where I know that you guys are in just as much the same boat as me. Outside of IBS, my mouth is so zipped shut that nothing regarding my wife’s citizenship leaves my mouth.
@The_Animal
There’s the other angle you can take here: work the system.
Has your wife considered filing a 1040 to collect the child tax credit? Not sure how it works exactly but with relatively low earned income she’d pull in a cheque every year for US$1000 per kid. If you can’t afford to get rid of the citizenship, you can at least profit from it. (In Israel, ultra-orthodox dual citizens with packs of kids were scamming this like crazy.)
On top of that, there’s the fun loophole whereby your kids could get an education in the US payed for with a type of federal student loan that’s part of an income-based repayment plan so dumbly organized that the payments would be zero if they came back to Canada and their income fell under the FEIE; after 25 years the loans would be excused. Free college courtesy of Uncle Sam! (Provided of course Betsy de Vos doesn’t kill the loan repayment program.)
“we can’t afford to file or even start the process for her Canadian citizenship”
It should be a lot easier to become a citizen than it was to become a landed immigrant.
“Yeah…let’em investigate. And when it blows up in their face that they’re investigating a Canadian born citizen, shit will majorly hit the fan.”
No, when they see they’re investigating a Canadian born citizen, shit will not blow up in their face or hit the fan. Neither the US nor Canadian government will do anything to stop them either, if they don’t want to stop. As long as you don’t keep any money in a bank that has a US affiliate, and you don’t visit the US, your money should be safe, but that will not make shit blow up in their face.
“there’s the fun loophole whereby your kids could get an education in the US”
Do they have to pay it back when they renounce?
@Nonoymous
a) if we even attempt to file, it’s like sticking one’s neck in the noose. There’s nothing our family wants the US to do for us, other than to go the fuck away. My wife will not be collecting anything from the United States. We will buy enough time to try to stockpile enough money (if my wife can get enough hours to facilitate enough savings) to get her Canadian citizenship…and then hope to hell that the matter gets resolved by legislation before it comes down to having to hide.
b) My kids hate the United States as much as I do. And they would much rather go to a Canadian university and get Canadian jobs – their viewpoint is FUCK THE US. When this whole shit started, My oldest was eight.. He’s now turning sixteen next year. He does not like the United States one bit. And my younger son (two years younger than my oldest) despite the computer jobs available in the States would stymie his computer career (which he wants to get into) and work in Canada rather than help the nation that tried to FUCK HIS MOM OVER.
@Norman Diamond – Since this FATCA came out, the stress over this has had a direct impact on my health. I’ve had pneumonia which sent me to the hospital – an year ago where I got prescribed a medication that screwed up my tendons and muscles so bloody badly, that I am no longer able to work. So my wife is propping up our family financially and I have “declined to apply” for disability welfare our family’s philosphy is that we “make it on our own”. ON top of that, my youngest son (of three sons and one daughter) is in a position where he cannot renounce his mother’s birthright citizenship passed down to him (of which we are choosing to ignore the US citizenship and basically giving the IRS the finger, because FUCK’EM; my son needs his disability payments more than the drug-addicted fucktards that are bilking the US welfare system or the lazy bastards that don’t want to work. And my daughter…well, she’ll learn just as her older brothers have done; about what the US is doing and she won’t want anything to do with the bastards south of the border either.
That shithole deserves to circle the toilet and frankly…I hope to hell that the US economy suffers absolute total collapse.
As Nononymous pointed out regarding US federal student loans, I confess that the single advantage I’ve taken of the US tax system is that. Against all my whining and pleading, my son decided he needed to go to an American university, a private one at that. Big bucks!
I was flabbergasted to discover that, because we use the FEIE and our “declared income” therefore amounts to zero, not only did he qualify for federal-backed student loans, but also a PELL grant which is meant for needy families. I felt like a cad applying for the PELL grant, since its intended beneficiaries are poor rural and ghetto kids. But it’s the university who makes the decision about who actually gets the grants, so I plead innocent. He got a PELL grant, not large, but something. He is presently paying off the loan.
Scold me as you will, but I feel the small advantage we took is a far cry from the mental anguish and countless hours of form filing that the US government has cost me.
@Barbara and Nononymous: there have already been attempts to repeal that college stuff. I misremember the exact bill numbers, but it’s always worded in some form about tying eligibility or repayment obligation to “modified adjusted gross income” (AGI with your FEIE-excluded income added back in). I expect those will pass some day soon.
I don’t remotely blame anyone who took it in the past, but I wouldn’t recommend trying to get a kid through college on it starting today, you gotta stick your head in the lion’s mouth to take it and there’s a good chance it’ll disappear in the middle.
@Norman
Reply 1 – I believe the consensus around here is that Canadian banks can not and will not simply take money from your account at the behest of the IRS, no matter if they have US affiliates or qualifying intermediaries or anything else the technicalities of which I don’t understand. We talked about this a while ago and literally no one could find any examples of that having happened. So no, your money is not in fact vulnerable if you have an account with any of the major banks. (Yes we all know you were swindled out of some withholding a bunch of years ago; no you don’t need to repeat the story.)
Reply 2 – If you were working the no loan payback scam you would not renounce. Filing returns is the whole point. You have zero taxable income after applying the FEIE, so your payments drop to zero; after 25 years the loan goes away. At that time the amount of the loan principal would be considered a taxable payment – which is the perfect moment to renounce and disappear!
@Barbara
You might want to look into that loan thingy if your kids move back to Canada! Make sure they’re in a program eligible for income-based repayment and file accordingly. (I had US federal loans myself, back in the day, but it was mostly a convenience thing at the time. The interest rate was high and the exchange rate sucked when I started paying it back, so it wasn’t exactly a bargain.)
@The_Animal
Honestly, chill a bit. Your wife is slightly vulnerable for as long as she does not have Canadian citizenship, so that should be the first priority. But given the kind of money she’s making, alas, it doesn’t sound like she would ever be subject to any sort tax penalties. Forget about FBAR, Canada won’t help collect those fines even against non-citizens (see the Dewees case). Otherwise, what exactly is the US *doing* to her, in an active sense? I’d take the paranoia down a notch – self-induced anxiety is not healthy.
I had my little panic moment back in 2011 but then quickly figured out that I was essentially untouchable and could easily lie my way out of FATCA; I’ve been completely calm about it since, have made a fun little hobby out of telling people to relax and stay off the radar.
@Eric
Yeah, I wouldn’t plan on that loan scam lasting forever. I’d take advantage of it if it were possible but I wouldn’t finance an expensive American education on the assumption that I could get away with it for 25 years.
The broader point is, if you can’t beat the US system, you can think of ways to exploit it. Low income + multiple kids is one way.
Leaving the US and going dark is a different option, but a rather more challenging one. Vice did a funny piece on student loan dodgers in Berlin.
One thing though, I just hate when people complain “my kid is a US citizen and that means he or she can’t save for college”. Bullshit. It’s only a problem if you’re an idiot and file US tax returns and declare them. RESPs aren’t even reported under FATCA – excluded by the IGA. You report it, or refuse to open one, and you’re just hurting yourself for no reason.
If we ignore the onward march of information technology, massive data breeches and leaks , and ID theft, sure nothing to worry about.
“One thing though, I just hate when people complain “my kid is a US citizen and that means he or she can’t save for college”. Bullshit. It’s only a problem if you’re an idiot and file US tax returns and declare them. RESPs aren’t even reported under FATCA – excluded by the IGA. You report it, or refuse to open one, and you’re just hurting yourself for no reason.”
Every single account of US persons regardless of balance IS being reported by Japanese banks.
@JapanT
You’re fucked, I willingly admit. But you’re a bit of an edge case, which is no consolation to you of course.