My last post was in early July 2025 and I ended with:
My next post will discuss the “Trauma” that continues to be experienced by individuals living outside the United States when they are forced to deal with the U.S. tax system. (In fact, as recently as yesterday I spent two hours talking somebody “off the edge”.)
Prologue – August 2011
Today is August 25, 2025. This coming weekend is Labour Day weekend. It was almost 14 years ago to the day that many U.S. citizens (and some former citizens) in Canada and around the world were feeling pressure to enter into the 2011 OVDI (“Offshore Voluntary Disclosure Initiative”). Additional information about the 2011 OVDI program is here. The deadline was August 31, 2011. Because of hurricane Irene, the deadline to enter OVDI (and the time to make the difficult decision) was extended to September 9, 2011.
What exactly was the decision to be made? The IRS, the Media and the tax compliance community were sending the message that:
- U.S,.citizens (regardless of where they live in the world and regardless of their filing history) were on the verge of receiving enormous, life altering penalties (and possibly more) for the failure to comply with laws that they didn’t know existed (example FBAR, Form 5471, Form 3520, etc.)
- They could save themselves from these enormous life altering penalties by agreeing to offer a substantial percentage of their net worth to the IRS in exchange for the IRS not imposing penalties that would facilitate the confiscation of a substantial percentage of their net worth.
To put it simply: Americans abroad were being offered the opportunity to commit suicide to avoid dying!!
The problem was that OVDI WAS a program for U.S. residents who had been hiding assets outside the United States to avoid U.S. taxation. The beauty of U.S. citizenship taxation is that it equates U.S. resident tax cheats with Americans abroad who pay full taxes to their country of residence. The only difference between Americans abroad and homeland tax cheats was that for Americans abroad ALL their assets were foreign to the United States (and therefore deserving of special punishment). Shockingly, many Americans abroad who entered the OVDI program agreed to penalties that were completely disproportionate to their noncompliance. (Interestingly, many who (1) entered the program and (2) used the opt out provision paid little or no penalties. Clearly, many people entered the OVDI program with NO IDEA how the program worked or what the cost to them would be.)
The obvious question is: how could something as ridiculous as this have happened? Why did individuals participate in the OVDI program?
The OVDI program was predicated on the generation of penalty threats from the IRS and the tax advisers delivering those threats to the individuals impacted. The nature of the threats evolved. Word of OVDI reached U.S. citizens living outside the United States. Although OVDI was clearly designed with U.S. residents in mind, the tax compliance industry quickly decided that the program was appropriate for U.S. citizens living outside the United States. When the news began to spread, the information that individuals born in the United States were U.S. citizens also began to spread. Large numbers of people living outside the United States, who were born in the USA (and therefore were U.S. citizens) were learning for the very first time about the extra-territorial reach of the U.S. tax system. Some of these people were, for the first time, understanding that they were U.S. citizens for tax purposes.
The “deals” offered to various groups evolved. Toward the deadline for entering OVDI the IRS offered “lower penalties” to nonresidents who didn’t know they were U.S. citizens. As noted by Robert Wood on August 11, 2011 writing in Forbes, the IRS agreed that individuals who didn’t know they were U.S. citizens would pay a reduced rate of 5% for the privilege of participating in the OVDI program. Mr. Wood describes this special offer to those who didn’t know they were U.S. citizens as follows:
Penalty Reduction? Some taxpayers qualify for reduced 5% or 12.5% penalties. See Q&A 52 and 53. The 12.5% penalty applies for offshore accounts or assets that did not surpass $75,000 any time between 2003 and 2010. See Q&A 53. Taxpayers who inherited a foreign account and never withdrew money or foreign residents who didn’t even know they were U.S. citizens might face only a 5% penalty.
The IRS Voluntary disclosure initiatives as applied to Americans abroad was arguably one of the most unjust instances in the IRS administration of the U.S. tax system. As noted by various commentators, in many instances, the willful paid lower penalties than the nonwillful. In effect, OVDI operated to penalize virtually ALL of the assets of long term Americans abroad and ONLY the foreign component of the assets of resident Americans. Significantly, this IRS heist of the assets of Americans abroad was aided and abetted by the U.S. tax compliance industry, who supervised the entry of middle class Americans into this program. On a purely objective level, it’s clear that the IRS had absolutely no understanding of Americans abroad in general and how the U.S. tax system actually imposes a more punitive form of taxation on Americans abroad! (A more reasoned discussion form the professional community – “Article Analyzes Counter-Intuitive Effects of IRS Offshore Penalty Structure (2/12/14)” – appeared on Jack Townsend’s blog here.)
Mr. Townsend observes:
“As the authors note, “the GAO Report indicates [that] taxpayers with little or no criminal or civil fraud exposure were punished proportionately in higher amounts than those who participated and had true criminal tax exposure.” The authors break these categories into Bad Actors and other actors, referred to as Benign Actors. That Bad Actors would be treated better than Benign Actors is a counter-intuitive result.”
The 2014 article – “The 2013 GAO Report of the IRS Offshore Voluntary Disclosure Program” – written by Patrick Martin and Michelle Ferreira offers some explanation of how the unconscionable application of OVDI to Americans abroad occurred. The article includes:
“One key question that the GAO Report raises, is why would so many taxpayers enter into the Offshore Voluntary Disclosure Program if they were not at least as liable for income taxes or penalties under the law? The authors think the answer to this question can be simply answered. Neither taxpayers nor many of their tax advisors understand how tax penalties actually apply under the law, particularly because some penalties are not in the Internal Revenue Code. Instead of understanding what the requirements are under the law, taxpayers simply relied upon the Internal Revenue Service to inadequately explain how penalties could apply in and outside of the Program. Based upon only the Frequently Asked Questions (which were published subsequent to the Program’s announcement), taxpayers and their advisors had to make swift and uneducated determinations as to whether a taxpayer should participate on the Offshore Program at all and many feared all would be criminally prosecuted, as the IRS continuously led them to believe.”
(For more analysis I suggest reading the complete Martin and Ferreira article.)
From OVDI To The Isaac Brock Society
Arguably, the 2011 OVDI program planted the seeds that grew into the Isaac Brock Society. The history is detailed by a classic post by Patricia Moon titled “Never Forget What Happened In 2011“. Those who forget history are doomed to repeat it!! It would be a mistake to forget how the tax compliance industry and the IRS partnered in an extraordinary assault on U.S. citizens living outside the United States. There are many posts on Brock detailing the history of OVDI. A post of particular interest is here.
Present Day Time – August 2025
So, here we are – “The Trauma Of U.S. Citizenship Abroad” continues. The “trauma” experienced by people is far more damaging than any other aspect of living as a dual tax resident U.S. citizen outside the United States.. Many years ago I explored the trauma is a post titled “Men are not prisoners of fate, but only prisoners of their mind – RIP @Marciovp – @ADCSovereignty“. That post began with:
“Dr. Pinheiro was a “naturalized U.S. citizen” who was living in Brazil. There is NO DOUBT that the attack on Americans abroad, which was orchestrated and prosecuted by the Obama administration, made the last years of his life a “living hell”. Marcio Pinheiro was a victim of Obama administration policies that began in 2009. These policies shaped the finals years of Marcio’s life. For those who are NOT aware of the origins of the fear and anger experienced by Americans abroad, I invite you to read: “Never Forget What Happened in 2011” and the comments (also by Trish Moon).”
See also the series of videos made in 2015 exploring trauma and Americans abroad:
https://www.vimeo.com/citizenshiptaxation
LIfe Under Suspicion: The Anxiety, Trauma And Instability Of U.S. Citizenship Taxation Continues
This past week I have been on the receiving end of a tidal wave of U.S. citizenship induced trauma. Examples include (but are not limited to):
– a Green Card holder who feared he would become a “long term resident” because a line was not completed on a tax return;
– a U.S. citizen who inherited an IRA and was worried about IRS problems (in what universe is a large inheritance a bad thing?);
– a person who committed the cardinal sin of (1) having a TFSA and (2) having mutual funds in the TFSA;
– another person who had never heard of FBAR and was convinced he had committed a serious crime for not having filed FinCEN 114;
– a person who failed to report a pension on Form 8938 (the trauma of filing a U.S. tax return);
– a person frightened to set up a business as a U.S. citizen; and
– a person who was trying to decide whether a streamlined procedure should be filed for the estate of a parent.
This is a small number of examples that play out every day around the world. All of these people experience fear, worry, uncertainty contributing to trauma.
What does this mean in understanding U.S. citizenship abroad?
The first reality of “U.S. Citizenship Abroad”, is that U.S. citizenship taxation converts normal financial and retirement planning initiatives (and normal life events) into sources of fear and anxiety. Americans abroad are probably the only people in the world who:
- experience fear and anxiety associated with NOT investing and planning for retirement; and
- experience fear and anxiety associated with investing and planning for retirement because of their U.S. citizenship
The second reality of “U.S. Citizenship Abroad” is that the restrictive and punitive tax rules have turned U.S. citizenship into a disability. (U.S. residents won’t understand this unless they have attempted to live as a U.S. citizen abroad in a post FATCA world.)
Americans abroad live with the fear of CERTAIN penalty for UNCERTAIN conduct!!
Nobody can comply with the rules as interpreted by the tax compliance industry. Best efforts, sleepless nights and thousands paid to tax accountants lead only to various degrees of noncompliiance.
For many (but not all) Americans abroad, U.S. citizenship is largely about fear and trauma and living with the disability that U.S. citizenship has become. It is the fear, trauma and disability that causes them to consider renunciation.
The identity of many people is premised on being in compliance with the law. Those who desire compliance pay a particularly heavy price for being U.S. citizens. They are also the people most likely to renounce. After all, for Americans abroad who are dual tax residents, compliance with U.S. laws is somewhere between difficult and impossible.
Since 2011 the Isaac Brock Society has played an important role in providing comfort and a path forward to those who are anxious. It’s now 2025 and very little (if anything) has changed on the tax and anxiety front.
As goes the trauma of being a U.S. citizen abroad, so go the renunciations!
People are NOT renouncing because they want to. They are renouncing because they are forced to comply with a set of rules that they simply cannot comply with.
Renunciation and Voluntariness
As discussed in a previous post, on November 1, 2024 the DS-4079 was changed. Prior to the November 1, 2024 version, the DS-4079 was a form that was intended to be used, in a pre-FATCA world, to determine whether a U.S. citizen had committed an expatriating act (to strip people of their citizenship). Since, November 1, 2024 the DS-4079 has been redesigned to focus on whether the expatriating act (including renunciation) is performed voluntarily and with the intent to relinquish U.S. citizenship.
When completing Form DS-4079 you will be asked to answer Question 11 which reads:
11(c) Describe whether you feel/felt pressured by any person and/or circumstance to take the oath of renunciation.
Heads up: In Canada it is required that the answer to this question must be in a complete sentence! In other words, the word “NO” is not sufficient! (If you can find something in the directions to the DS-4079 that requires this complete sentence, please put it in a comment.) Those of you who are requesting appointments to renounce in Canada should put some thought into how to answer this question. Perhaps: “No I do not feel and have never felt any pressure from any circumstance, experience or person to take the oath of renunciation.” (Interestingly, for a renunciation to be valid it must be voluntary. Could it be that some people do NOT acknowledge that they are in effect “traumatized out of their U.S. citizenship?”)
It’s now 2025 – Has Anything Really Changed”
When thinking trauma, I remembered that in 2015 I did a presentation in London, UK. The presentation was for a group of U.S. tax return preparers. It was a two day conference. The presentations (although good) were dry, technical and compliance focused. (What would you expect?) I gave a different kind of presentation. The presentation was called:
I went back and found the presentation. Interestingly I would say exactly the same things today. The trauma continues on and is the reason that people are renouncing U.S. citizenship.
As a matter of interest I created an AI podcast based on my 2015 presentation. You might find it interesting. You can listen here.
I am interested in your comments and suggestions for my next Brock post.
Sleep well and “trauma free”!
John Richardson
P.S. As many of you know, for years I have been involved in advocacy to end U.S. citizenship taxation. Republicans Overseas continues their efforts and is asking for testimonials to explain how “double taxation” affects you. For more information see:
This piece really resonates with me as my OMG day was in August ’11. Biggest crisis of my life.
Re the “renunciation and voluntariness” section of the 4079, it’s sad (and maddening) that they’ve made it more complicated. For “voluntariness” on my CLN application years ago, a simple “No” sufficed. I think today, with an explanation required, I’d put something like, “No, it’s the logical choice for me, given my life has no connection to the United States.” But, I’m thinking, for pete’s sake, up til now, DoS was content with if the consulate officer had doubts, they’d just ask you some questions to ascertain if you’re voluntary. BTW, I can’t off-hand think of case where non-voluntariness came up, so it must be pretty rare,and I’d suspect a reluctant or confused individual would be fairly obvious. IMO, if it ain’t broke, don’t fix it.
Re the 4079 in general, even before the current revision, by 2011 it was much more complicated and convoluted than other countries I’m aware of. As well, I’ve seen the 4079 from a few decades ago and it was 1-1/2 pages, simple and straightforward, similar to these other countries.
Their limiting renunciation appointment availability here in Canada in recent years also bugs me as it draws out the stressful period between OMG day and closure.
This recent article skins over the issue of renunciation: https://newswire.net/us/how-to-renounce-u-s-citizenship-a-step-by-step-investigative-guide-with-global-case-studies.html