Liberty and justice for all United States persons abroad

The Isaac Brock Society

Tag Archives: Exit tax

How is the IRS levying taxes to renounce US citizenship different from the Berlin Wall?

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cross posted from Quora

NB: This title comes from the question asked
        at Quora and represents that individual’s
        mindframe


 
 
 
 
 
 
 
 
 
 
 
 
 
 
by John Richardson
Lawyer (1982-present)

President Kennedy at the “Berlin Wall”

On June 26, 1963 President Kennedy gave his historic “Ich bin ein Berliner” speech. After World War II, the administration of the City of Berlin was divided among the allied powers (Soviet Union, USA, Britain and France). In 1961, the Soviets created a wall in order to prevent their people from leaving the Soviet Sector. (The City of Berlin was actually inside East Germany). Among other things, President Kennedy’s speech included the line: “We have never had to put a wall up to keep our people in – to prevent them from leaving us.”
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Amid #IRS Abuse, Record Number of Americans Give Up U.S. Citizenship – #FATCA

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This is a great post about Americans renouncing citizenship which cites a number of interesting sources.

McClatchy news highlighted the plight of Oklahoma-born Ruth Anne Freeborn, who has lived in Canada with her Canadian husband and son for over three decades. Because of FATCA, her foreign bank was required to hand over all of her family’s financial information to the Obama administration, which her husband, of course, opposed. So, after carefully considering her options, Freeborn eventually decided to renounce her U.S. citizenship in September rather than subject her family to intrusive prying by the IRS and the federal government.

“My decision was either to protect my Canadian spouse and child from this overreach or I could relinquish my U.S. citizenship,” she told the news service, which reported that growing numbers of Americans were “ditching their U.S. passports out of frustration and fear” over FATCA. “It was with great sorrow I felt I had to relinquish, but there was no other choice for me and many like me…. My husband cannot understand why Americans are so offended by having their personal emails and phone calls monitored by the NSA yet are very comfortable requiring a Canadian to hand over their bank account data.”

The increasingly byzantine and oppressive regulations, along with more aggressive government efforts to enforce them, have also led a growing number of banks and financial institutions around the world to refuse to do business with anyone subject to Uncle Sam. As The New American has been reporting for years, Congress and the IRS have essentially made U.S. citizens into pariahs around the world in many respects. In some cases, the U.S. government has even gone so far as to terrorize and threaten governments and nations that refuse to bow to the will of Washington’s political class. Switzerland and the Swiss were among the most recent victims.

For Americans living overseas, it is becoming increasingly nightmarish. “Many banks, foreign financial institutions, are just turning Americans away — it’s easier for them not to have American clients,” explained Marylouise Serrato, executive director of the group American Citizens Abroad, in comments about the effect of FATCA and IRS regulations. “For some people it [renunciation] becomes a solution. But it’s done with a very heavy heart.”

This of course makes one wonder:

Why is the United States so cruel to U.S. citizens abroad?

 

Relinquishment has same tax consequences as renunciation for new ex-U.S. citizen Tina Turner, contra Washington Post

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Coincidentally, on the same day that the latest Federal Register “published expatriates” list finally came out, the Washington Post “In the Loop” blog reports that Tina Turner has finally visited the U.S. embassy in Bern to sign her DS-4079 to confirm that she naturalised as a Swiss citizen with the intention of giving up U.S. citizenship. (No doubt the latter news will overshadow the former, and I fully expect that in the coming days some newspapers will mix up the two news items and erroneously report that Tina Turner appeared in the list.)

Anyway, the news of Tina’s relinquishment comes straight from the horse’s mouth — an embassy “activity report” (but not a public one?) — and is likely to be quite accurate, but the Washington Post wrote something else that comes from an anonymous and entirely misinformed reader:

The key word in the embassy report apparently is the term “relinquishment.” That means, a knowledgeable source told us, that she did not “formally renounce her U.S. citizenship under 349(a)(5) Immigration and Nationality Act, but took Swiss citizenship with the intent to lose her U.S. citizenship.” As opposed to formal renunciation — a much more complex process, we were told — there are no “tax or other penalties for loss of citizenship in this fashion.”

Writer Al Kamen was probably anxious to get the news out, but he was right to hedge this un-fact-checked quotation with “apparently” and “we were told”. (Update, 14 November: he has since issued a correction.) A reading of the actual text of 26 USC § 877A — the portion of the Internal Revenue Code which imposes the “exit tax” on newly-minted ex-citizens — confirms that the “knowledgeable source” is incorrect: the tax consequences are the same whether you renounce citizenship, relinquish citizenship, lose citizenship by court-ordered denaturalisation like an ex-Nazi, or even give up your green card when you were never a citizen at all.

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#FATCA Hunt, fluctuating exchange rates, #Americansabroad and the #Expatriation Game

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Introductory thought 1:

Based on current tax law, for Americans living abroad, currency fluctuations create U.S. dollar capital gains or losses even on daily transactions as well as on movements of short and long term investments done in local currencies.  The exchange rate on the purchase date and the exchange rate on the sale date determine the capital gain for the U.S. Treasury.

Introductory thought 2:

We all know that US tax liability is computed in US dollars. We also know that exchange rates can play in rule in creating profits and losses. It would be interesting for people to comment on their experiences with how changes in exchange rates have created “phantom gains” for them. I think this could be very helpful evidence in working on how to get this whole thing (citizenship-based taxation) reversed. So, if anybody is reading this, please comment on your experiences.

In addition, the issue of exchange rates and a falling US dollar is extremely important on this issue of expatriation? Why?

As the US dollar falls, almost everybody will become a “covered expatriate”. That two million dollars will seem like nothing.

Obviously this is one more reason why you need to get on with the job, painful as it is, of expatriation and freeing yourself from this nightmare!

Since the election of Barack Obama the world has  been introduced to two new sports/games.

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5 strategies for weight reduction and a better life for #americansabroad – Lose your covered expat status

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This post appeared on the RenounceUScitizenship blog.

My recent post discussed the importance of renouncing U.S. citizenship before becoming a covered expat. For those who need a reminder (and this is not a substitute for careful legal advice) a “covered expatriate” is one who meets any of the following tests:

1. The Income Test – Has the composition of income hat has resulted in a U.S. tax bill of approximately 140,000 for each of the last three years (this is a paraphrase, look it up yourself);

2. The Asset Test – Has a net worth of two million dollars or more

3. The Compliance Test – Is unable to certify compliance with U.S. tax laws for each of the five years prior to expatriation. Note that this is intended to include having filed all relevant information returns. (I would argue that since FBAR is a Title 31 requirement it is irrelevant to Title 26 compliance). Interestingly, if you do not meet either the asset test or the income test, you have a huge incentive to ensure that you have five years of tax compliance.

When it comes to U.S. tax compliance:

The only thing worse than the fear of non-compliance is the certainty of compliance. Why?

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Orrin Hatch (R-UT) hates emigrants too

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Orrin Hatch, as you may remember, was one of the first Republicans to speak out in favour of the Ex-PATRIOT Act in 2012; Bloomberg News quoted him as stating, “it always bothers me when somebody renounces his citizenship in the greatest country on Earth just to save money, save taxes” (or save themselves from emigrant-only $13,000 fines on $21-per-year tax deficiencies). Now, not willing to be outdone by the Ex-PATRIOT Act sponsors who are once again proposing permanent exile for people who dare exercise their human right to move to another country and live there until they qualify for naturalisation, Hatch made the following comment in a speech on the Senate floor. At page S4389 of the Congressional Record for 12 June 2013:

When a citizen decides to leave the United States and renounce their citizenship, they often face taxes on income earned in the United States and on any gains from appreciated assets. Is it punitive to apply a similar standard for those seeking U.S. citizenship? Think about that: When a U.S. citizen decides to leave the United States and renounce their citizenship, they often face taxes on income earned in the United States and on any gains from appreciated assets. That is not punitive. The answer, of course, is that it is not punitive.

The context of Hatch’s comments was a speech claiming that his amendments relating to taxation and healthcare coverage for registered provisional immigrants were also “not punitive”. Hatch’s facile description of the exit tax is not accurate, making one wonder whether anything else he says to justify his policy proposals is: under the half-decade-old HEART Act, the tax on ex-citizens is applied not just on “income earned in the United States”, but current unrealised non-U.S. capital gains, including capital gains on a house whose purchase was funded in the first place by non-U.S. wages used to qualify for a mortgage from a non-U.S. bank protected by a non-U.S. mortgage guarantee scheme, all under the laws of a non-U.S. government. I suppose he thinks that punishing people who renounce citizenship to save their mortgages is entirely appropriate anyway. Apparently Hatch hates anyone who dares to leave his birth country and pursue a better life elsewhere, whether they move to the United States or away from it.

Judicially-denaturalised ex-Americans are subject to exit tax but do not have names published in Federal Register

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Here’s a small extra piece of the puzzle for those of us trying to figure out exactly who gets listed in the expat honour roll Federal Register “name-and-shame” list of ex-citizens. There are indeed some people who have to pay the exit tax but don’t have to have their names published: naturalised citizens who are stripped of their citizenship by U.S. courts, usually for naturalisation fraud or war crimes committed prior to naturalisation.

This post is not particularly useful to most Isaac Brock Society readers contemplating relinquishment or renunciation — unless you’re in need of some comic relief and would like to read about a mildly amusing drafting error in the exit tax statute.

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@Bloomberg: “Cost of Dropping Citizenship Keeps U.S. Earners From Exit”

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Just posted by Innocente here.  It needs to be called out for special attention.

Bloomberg: “Cost of Dropping Citizenship Keeps U.S. Earners From Exit”

In the past most clients who renounced citizenship were green-card holders, dual citizens or those who had been living abroad for many years, Christensen said.

Comment section is open!