Category Archives: Issues regarding US persons abroad

How would you react if your home country denied you the right to participate in the political process back home if you had been resident overseas for longer than 15 years?  Your home country does not overtly have citizenship-based taxation along the lines of the US, but refuses to let you go and claims that you will be tax-domiciled for your whole life, right up until your death.  Even if you change citizenship your home country would still considered you to be a domiciled tax resident and tax your estate accordingly, as if you had never left.

Sound familiar?  None of the above is hypothetical – The country that I am describing is the UK, and the above frustration is actually pushing some UK citizens to renounce their citizenship due to lack of representation and being made to feel like subjects and not citizens whilst overseas.  From a regional Iberian newspaper (in English):
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In the past day or so, it has been interesting to juxtapose the anxieties of first-time posters with the ongoing perceptions and ruminations and strategems of longer-term crew on the Brock.

On the one side: How can this be? I don’t want this! How can I simultaneously clear this up while not stumbling into radar that will take me out? Surely there must be some solution. Where does this circle begin? Is there any reasonable way out? This is such a mess — certainly someone will have to fix it! Maybe I can just wait for this to clear up? Or keep on hiding indefinitely?

On the other side: (1) This is election year in the United States, and maybe we can make the extraterritorial predicament an issue, and maybe Romney would be better than Obama. (2) FATCA is so overreaching and fantastic, and it just has to damage the US economy, and the rest of the world will have to realize that national sovereignty and human rights can’t take a back seat, and the incredible details mean that the project just has to fail. (3) Surely Canada will have to treat US persons just like everybody else, and it will help if we work hard to lobby this or that branch of officialdom. (4) This is a big important story suppressed by mainstream media, and sooner or later it has to break anyway, and we can advance the cause by commenting and corresponding in all possible directions.
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As reported by the Guardian here:

http://www.guardian.co.uk/business/2012/jun/15/us-property-attracts-foreign-buyers

A combination of the weak dollar and the collapse in the US housing market has resulted in US property starting to look more and more appealing to foreign buyers, the majority of whom apparently come from Canada, Mexico, China and the UK.  Four in ten homebuyers apparently want to live in the US full-time, whilst the others were purchasing holiday homes or time-shares.

I was surprised to see at the end of the article a mention that many buyers knew to stay out of the US for longer than 6 months each year “for tax reasons”, but do you think that they all really understand the implications of FATCA and the FBAR, especially the 40% of homebuyers looking to move to the US?

Also, my understanding of the “Substantial Presence Test” is that staying up to six months each year is much too long and could still trap most of these homebuyers into becoming “US persons”.  Here are the guidelines from the IRS’s own website:

You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:

• All the days you were present in the current year, and
• 1/3 of the days you were present in the first year before the current year, and
• 1/6 of the days you were present in the second year before the current year.

If the above is met, then the person is considered to be “US resident for tax purposes”.  There are exemptions for foreign diplomatic staff, students, professional athletes and trainees temporarily in the US.  No exemption for holiday home-buyers.

How many people do you think are aware of this fact, not to mention the FBAR pitfalls that come attached to this?  Let us also not forget the new US government push to attract wealthy investors from overseas to purchase property in the US and be given a path to residency and citizenship, sponsored by no less than Schumer himself.  Conspiracy? Absolute indifference so long as money continues to flow towards the US?  Or maybe a bit of both of the above and total willful blindness to the damage that the US is doing to its image overseas and the goodwill that it is losing?

Canada continues to press for fair tax deal with United States, Finance Minister Jim Flaherty’s Letter to CARP Members

Minister of Finance Jim Flaherty responded to CARP’s request that he address some of the membership’s concerns with the following letter:

Canada and the United States are neighbours, allies and friends.  We share a common border and common values.  One of those values is fighting tax evasion and ensuring that everyone pays their fair share.

Recently, the U.S. government introduced legislation called the Foreign Account Tax Compliance Act (FATCA), which will require non-U.S. financial institutions to enter into an agreement with the IRS to identify their U.S. account holders and report their account information to the IRS.

…

“Today the President laid out a very different vision, one where everyone—no matter who you are, where you’re from, or how big your bank account is—pitches in together to rebuild the foundations of our country and economy.”
Did you hear the President today?

While this sounds, in theory, to be a noble idea worthy of taking into consideration, it is, in practice, troubled with a number of significant hurdles which need to be overcome.

Around 6.2 million American citizens abroad already pitch in together to rebuild the foundations of the countries and economies where they reside outside of America, as explained in Taxation of Americans Abroad.  Asking them to do the same for two countries and two economies puts a greater burden on them than any other group of people, with the exception of the totalitarian nation of Eritrea.

“Congress could amend the Tax Code to end the discriminatory practice of taxing U.S. citizens with a bona-fide residence abroad. However, this appears highly unlikely—U.S. citizens living abroad have essentially zero influence in Congress.”
100 Year Legacy of Expatriation Due to Taxes

In a totalitarian regime, citizens living abroad have essentially zero influence in Congress. America is likely not defined as being a totalitarian regime, and yet Americans abroad are told that they can’t vote when they attempt to register with their address or documents where they live.  To register, they have to ask someone in the US if they can use their address for that purpose. For example, the Massachusetts Voter Registration Form Request requires a US address.  The same applies to Americans abroad who attempt to get an id card or drivers license, as further explained in “Your are an Invalid Resident!”

“Approximately 6 to 7 percent of civilians living abroad voted in the 2008 election.  There is evidence that a large portion of the population was not successful in its attempt to participate. The largest problem for Americans abroad is not having their ballot rejected, but ensuring that their ballot is returned on time.”
Overseas Vote Foundation

Even if they can register to vote, they are told that they can’t vote locally, or their vote doesn’t count.  Americans abroad are further compensated with their lack of political representation with an up to 50% slash to their US Social Security benefits through the Windfall Elimination Provision.  If they lose their employment abroad, they will be denied unemployment benefits in the US.

“The U.S. Government does not offer an unemployment insurance plan in which overseas Americans could voluntarily enroll to protect themselves upon their return to the United States.”
American Citizens Abroad

The idea of  being together seems to stop at the border, such as with Medicare, or State Farm which writes:

“Each of the investment products and services referred to on the State Farm Mutual Funds web site is intended to be made available to customers or prospective customers residing in the United States. The customer’s U.S. permanent residence address must be a street address.”
State Farm

Yet, it doesn’t end there.  When Americans apply for some bank accounts abroad or even banking services in the States, they may be rejected or treated differently from other Americans.

“As a direct result of existing and newly proposed U.S. regulations, many U.S. and overseas banks have closed accounts held by U.S. citizens living outside of the U.S., and many banking institutions outside the U.S. now refuse to open any new accounts for Americans. Recently enacted legislation from the Treasury and Congress will only worsen this situation.”
Banking Services Denied to U.S. Citizens Abroad

Of course, there are other issues as well, such as Americans abroad being the target of terrorist attacks responding to US foreign policy.  Americans abroad may also be denied residential tuition rates at US colleges.  We can’t even sign up for an American Sweepstakes, get a credit report from AnnualCreditReport.com, buy an app from Barnes & Nobel, watch a video at Amazon or subscribe to Netflix.  Yet, the most serious issue is the excessive government spending on that which does not “rebuild the foundations of our country and economy”:

“Uncle Sam is like the neighborhood wastrel who buys everyone a drink and cosigns everyone’s loans even though he is unemployed. When faced with bankruptcy, he immediately goes down to the bar and buys another round for the road.”
Solving The Debt Crisis: A Military Budget For A Republic

America does not need to be a super power.  Rather, It needs to cut its spending to repay its debts to “rebuild the foundations of our country and economy”.  A 50% slash on Social Security Benefits for all Americans rather than singling out Americans abroad, would qualify under the concept of “pitching in together” and cut spending by $407 billion.  One could even work together more and stop Medicare within the US border too for all Americans, pitching in a few more billion.

Did you hear the President today?  Sadly, I heard no mention of residency-based taxation or even representation for Americans abroad in the House and Senate.  What I did hear appeared to be a collection of bipartisan chatter which stopped in relevance at the border.  Maybe the President should hear Americans today for a change?

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Cross posted from ExpatAmi

After two attempts to have Rickerby Wealth Group respond to my requests to have them cover the “elephant in the room” (FATCA) on one of their regular guest appearance on the morning news, Shaun Rickerby informs Global TV viewers of the impending US legislation. (My apologies for the low- tech recording off my PVR. Viewerrickerby2s need QuickTime Player-downloads are free).

Just read this on Jack Townsend’s site

Here is the accompanying document.

“On remand, the district judge entered an order of compulsion and contempt against M.H.”

Now what?