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.
“Yes we all know you were swindled out of some withholding a bunch of years ago”
TD took the withholding in the first place, from Canadian-sourced interest.
“If you were working the no loan payback scam you would not renounce. Filing returns is the whole point.”
Sure, but you can still renounce while filing returns, like I did. If you need to continue filing returns with a bunch of zeroes on them, use 1040-NR. I only wonder if that will still avoid the payback.
“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.”
The IRS says they won’t impose SOME KINDS of penalties on people who don’t owe tax. They’ll surely continue imposing other kinds. But as we’ve seen elsewhere, if she doesn’t file, if she doesn’t try to comply, the IRS is likely to leave her alone.
“It’s only a problem if you’re an idiot and file US tax returns”
Thanks for reminding me. But actually there’s another caveat: don’t put any assets in the US.
Not an edge case. Everyone I know personally in Japan is in the same situation, though they do not yet know. Others have told of other countries with similar situations. But with ID theft and data breeches and leaks worldwide epidemics, while the degree of danger differs, no one is free and clear.
And to clarify, I was referring specifically to Canadian RESP accounts. They are not reported under FATCA, per the IGA. So anyone who claims that US citizenship is a barrier to opening one misses the point that it’s purely voluntary self-reporting (FBAR forms plus whatever else to declare the investment return and government 20 percent top-up contribution) so they only have themselves and their misguided conscience to blame.
Same deal for TFSAs and RDSPs. If you report them, you only have yourself to blame, just like RRSPs, they are exempt from FATCA.
I too got PELL and other grants and scholarships. Even with these, my G.I. Bill and my state waiving tuition as I am a vet I still graduated with $33,000 of college loan debt.
I overstated somewhat. US-only citizens in Japan are an edge case from the perspective of duals resident in their home countries, who really have very little to fear, at least in countries where they aren’t losing access to banking services (i.e. parts of Europe) or having specific problems taking jobs with signing authority for company accounts.
Nor am I concerned with data breaches or leaks. Who cares if the IRS finds out everything about me – they can’t touch my money. (That being said, I’d be stupid not to take steps to ensure that they learn as little as possible – hence lying to banks about US citizenship.)
““Yes we all know you were swindled out of some withholding a bunch of years ago”
TD took the withholding in the first place, from Canadian-sourced interest.”
Seems like there are no examples of Canadian banks collecting money on behalf of the IRS except those that we choose to ignore for what ever reason.
Also, as Canadian banks convinced the Canadian gov. to sell out its own citizens by turning over their financial data to the IRS to escape the 30% fee, why would anyone rest assured that they would not collect money for the US if at some later time they were in a position of having to choose between doing so or getting hit with the fee.
To me, Candian banks havecalready answered that question.
“Nor am I concerned with data breaches or leaks. Who cares if the IRS finds out everything about me – they can’t touch my money.”
The problem with data breaches and leaks is that other criminals also get to drain your bank accounts. It’s hard to remember this, but there are some criminals outside of the IRS.
“Every single account of US persons regardless of balance IS being reported by Japanese banks.”
Banks everywhere are probably reporting USP accounts regardless of balance; the IGA doesn’t require them to apply the thresholds, and it would be more complicated and expensive to do so, so it’s not surprising that they ignore the thresholds. The fact that the thresholds have been agreed, however, does mean that the IRS couldn’t use a FATCA report of a low-value account as court evidence. And why would they want to? The threshold defines the level below which they’re simply not interested.
Also, as with other IGAs, some types of accounts are exempt from reporting, according to the US-Japan IGA Annex II:
https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Statement-Japan-6-11-2013.pdf
(Just in case the info may be useful to anyone who may be reading)
How can Animal’s wife stay hidden? Being a nondual USC she has to renew her passport sometime.
@ Plaxy thanks for that info. I am sure it is helpful for some while not for myself.
““Nor am I concerned with data breaches or leaks. Who cares if the IRS finds out everything about me – they can’t touch my money.”
The problem with data breaches and leaks is that other criminals also get to drain your bank accounts. It’s hard to remember this, but there are some criminals outside of the IRS.”
Yep. Easy for said criminals to run up IRS bills triggering passport revocation. Then what?
@Nononymous: I think there are a heck of a lot more “edge cases” like Japan T and me (I don’t live in Canada) than you believe. In fact, I would bet that the number of Americans abroad who don’t qualify for dual citizenship far outnumber those of you who do. Americans resident in Japan, Korea, most Middle East countries, Hong Kong, China, India, Iceland, and many, many other places, either find it near-impossible or extremely unattractive to take out local citizenship, even though we choose to remain there. Then there are the vast numbers of retirees in Latin America. We’re not “edge cases”, except perhaps in the context of the majority-Canadian IBS. We’re the ones most threatened by this whole situation, and much more attention really ought to be given to such people in formulating solutions to these laws.
@JapanT
Vulnerability to ID theft and fraud etc. is a separate issue from tax compliance. Maybe a big concern, maybe not, but CBT isn’t directly the issue (yes online FBAR forms are insecure, and might marginally increase risk).
I suspect the odds of ID theft ultimately leading to passport revocation are exceedingly tiny, particularly if the victim said “hey, that wasn’t me” and challenged. But whatever, in the case of duals, particularly accidentals, so what? I don’t need the thing, probably won’t renew it.
Per The_Animal’s wife, not much evidence to date that passport renewal gets any IRS attention. In fact the State Department seems to be pretty clear that they don’t like doing the tax collector’s bidding – they changed the little declaration on the application form a few years ago, remember.
Of course it could all change in the future. Yes it’s theoretically possible that Canadian banks and the Canadian government will cheerfully turn over the funds of Canadian citizens. It’s also possible that they won’t, and that FATCA will wither away, an unenforced zombie law. Many different possible outcomes, but in my view other things are likely to kill or impoverish me before the IRS does. But that’s my personal risk calculation. I really don’t see much reason to worry about this any more.
“Vulnerability to ID theft and fraud etc. is a separate issue from tax compliance. Maybe a big concern, maybe not, but CBT isn’t directly the issue (yes online FBAR forms are insecure, and might marginally increase risk).”
FATCA reporting?
As I owe no US income taxes due to low income, it is the data reporting that is by far the biggest concern for me. Actually, what is the basic problem with CBT? Money? I do not think so. From what I read here and elsewhere, it seems the basic issue is not being able to live as we choose, where we choose because of US law.
Losing passports due to ID theft is a very real concern.
“I suspect the odds of ID theft ultimately leading to passport revocation are exceedingly tiny, particularly if the victim said “hey, that wasn’t me” and challenged. But whatever, in the case of duals, particularly accidentals, so what? I don’t need the thing, probably won’t renew it.”
As far as I have found, you can not challenge it until AFTER you have paid whatever they say you owe, which would be a minimum of $50,000. IF you somehow found out early enough you may be able to challenge it, sorry do not recall the names of the different steps on this process, but how would you find out. Yes, if you are a dual citizen or accidental no worries about passport revocation. What would that do to Animal’s family, losing his wife, their children losing their mother? My family?
“they changed the little declaration on the application form a few years ago, remember.” Yes they changed the wording. Have they changed the practice?
I am a three time victim of ID theft and data leaks in the US and one here in Japan. Those are the ones I know about. Are there others? As I have lived outside the US for decades, I have no way to know if my ID is being used in the US, not that those living there find out easily, just that the normal ways to find out are closed to me. Has someone secured a homeloan in my name? I have reason to suspect they have. Sorry, I can not give the details here but I have very good reason to think so.
As the first passport revocation letters were set to be sent just this past March, a bit too early to say that the State Dept. will not follow the law. A lot of the reasons given to not be concerned rest on laws protecting us being followed despite evidence that they are not and on laws that harm us not being followed despite evidence they are.
Plaxy tells why FIs are reporting accounts that are below the reporting threshold. A couple of years ago, I warned here on IBS that that would be the case and yet people replied that as lond as I had less thannthe threshold amount, my accounts would not be reported, so I should just relax and stop worrying about it.
“Of course it could all change in the future. Yes it’s theoretically possible that Canadian banks and the Canadian government will cheerfully turn over the funds of Canadian citizens. It’s also possible that they won’t,”
Given their recent history, it is more likely they will. One should plan on them doing so.
“The fact that the thresholds have been agreed, however, does mean that the IRS couldn’t use a FATCA report of a low-value account as court evidence.”
Sure they could, especially if the value is $10,000.01.
“And why would they want to? The threshold defines the level below which they’re simply not interested.”
The threshhold seems to be a political game, pretending that the IRS doesn’t want to penalize poor people, but surely we know better by now.
“The threshhold seems to be a political game, pretending that the IRS doesn’t want to penalize poor people, but surely we know better by now.”
Apparently, not all do know better now.
@JapanT
“Yes, if you are a dual citizen or accidental no worries about passport revocation. What would that do to Animal’s family, losing his wife, their children losing their mother?”
I don’t say this with absolute certainty because I know relatively little about our own immigration law (don’t need to) but I suspect that she doesn’t need a US passport to keep her Canadian permanent resident status. It’s only within the last ten years that passports were required for entry into the US from Canada, so a US citizen living here legally could have happily done without one if they weren’t traveling further. Occasionally worth reminding ourselves that a passport is a document for travel, not proof of citizenship, and may not be required to maintain residence in another country. Inconvenient to lose it of course, but likely not a death sentence.
“Given their recent history, it is more likely they will. One should plan on them doing so.”
I’m willing to bet a virtual beer that they don’t. Too many duals and accidentals here, political suicide to let it happen. Agreeing to send account data south was not good, but they didn’t change the treaty provision that forbids collection assistance against Canadian citizens, now did they?
“Plaxy tells why FIs are reporting accounts that are below the reporting threshold. A couple of years ago, I warned here on IBS that that would be the case and yet people replied that as lond as I had less thannthe threshold amount, my accounts would not be reported, so I should just relax and stop worrying about it.”
It’s been the case ever since the IGAs started being implemented. It’s in the agreements – the thresholds state what banks are not required to report. It’s advisable to read the IGA and especially the Annexes if you want to know what’s required of the banks.
“I suspect that she doesn’t need a US passport to keep her Canadian permanent resident status”
That stopped being true around 40 years ago.
However, there’s a chance she could get a ministerial permit, especially since she’s married to a Canadian. I don’t know if her chances would improve by being stateless.
“Occasionally worth reminding ourselves that a passport is a document for travel, not proof of citizenship”
That depends on which country issued it. A US passport can have an endorsement that the holder is a non-citizen national. A Canadian passport can’t. Some British passports aren’t even valid for travel to Britain. However, that’s irrelevant to Canada’s requirement that landed immigrants have to hold passports.
“Too many duals and accidentals here, political suicide to let it happen.”
Oh yes, that’s how the Con artists and Fiberals both committed suicide and now the NDP rules.
I hope that is the case for Animal’s wife.
After finding what I could in English I asked my wife to check. A passport is a requirement for a visa to be in Japan. No passport means no visa. We have Bobby Fischer’s experience to tell us what happens to USC living in Japan who have their passports revoked.
I think it is more political suicidal to allow banks to take the huge financial hit for a group of people “who should have renounced” and spared all “true Canadians” all the trouble.
@Plaxy
I said that this would be the case before Canada agreed to the IGA.
Sorry, JapanT, I don’t get your point.
“The threshhold seems to be a political game, pretending that the IRS doesn’t want to penalize poor people, but surely we know better by now.”
I suspect the confusion arises because people mistakenly think it’s a threshold below which accountholders have a right not to be reported. It’s not – it’s a threshold below which banks don’t have to report an account.
I seriously doubt if the IRS loses any sleep over its image problem. Aren’t the thresholds in the FATCA statutes?
“a passport is a document for travel, not proof of citizenship”
I’m quoting more or less verbatim what a Canadian consular official told me when we flew home for Christmas with a very small new Canadian person in tow. They issued a temporary passport so she could fly with us, but a separate application was required for proof of citizenship.
As for Norman’s comment, come on, you’re telling me that for 40 years now, US citizens with landed immigrant status in Canada needed valid US passports or they were at risk of being chucked out? I find that hard to believe. Or that landed immigrants whose US passports expired were in the country illegally? I doubt that. Ten years ago nobody here had passports if they only went to the US. (Hell, thirty years ago we crossed the border without any ID at all.) But we’re getting sidetracked here, I won’t pursue the issue.
In my view, both governments got away with the FATCA IGA because it was limited to transfer of information, which didn’t do anyone any obvious tangible monetary harm. (Really it didn’t – or at least hasn’t yet. The many financial victims of compliance here essentially volunteered for it, whether persuaded by condors or their own naive sense of needing to obey US law.) If the government tried to facilitate the massive shift of personal wealth south of the border – which could certainly happen as a generation of dual citizens sold their Vancouver and Toronto houses for vast seven-figure sums – you’d see a bit more of a public backlash, I reckon.
“In my view, both governments got away with the FATCA IGA because it was limited to transfer of information, which didn’t do anyone any obvious tangible monetary harm.”
More to the point, exchange of information is in the treaty. It’s the automatic aspect that’s new. Isn’t that what’s being challenged by the Canadian lawsuit?
@Plaxy
My point is that much I have been told would not happen, has.