I just spoke with Congressman Pocan on Thom's show. He and Thom asked me to send them information in writing about the issues I was calling about. Here is that information (which I also sent to Congressman Pocan)

FATCA (Foreign Account Tax Compliance Act) is a law intended (at least ostensibly) to target non-compliance by US resident taxpayers who hold foreign bank accounts. FATCA requires foreign financial institutions to report to the IRS information about financial accounts held by US persons and by foreign entities (companies, notably) in which US persons hold ownership interest (over 10%, if I’m not mistaken).

Citizenship-based taxation (CBT) is the principle by which US citizens are taxable upon their worldwide income, regardless of where they live in the world. This means that US citizens residing outside the US are liable to pay income taxes both in the country where they as well as to the United States. (Green card holders are also taxable on their worldwide income, even those green card holders who reside outside the United States). CBT is a very old law – it was enacted during the Civil War to punish men who left the country in order to avoid being drafted. However, before the implementation of FATCA in 2010/2011, it was only sporadically enforced (and it was pretty much never enforced against “Accidental Americans,” a special category of US citizens I explain below).

Many people read what I’ve just written and they instinctively (if in some cases not entirely consciously) think one or more of the following:

- Americans who live overseas necessarily are rich because only rich people can actually go overseas. Since they are rich, who cares if US banking and tax laws complicate their lives? They have plenty of money to deal with it

- America is the greatest country in the world. Any American who voluntarily chooses to live outside the US is stupid and/or unpatriotic and deserves whatever bad things happen to them. “You made your bed by choosing to live outside the US, now lie in it.”

- Just because a US citizen lives overseas doesn’t mean he/she shouldn’t have to pay taxes in the US, just like US residents have to do. If US citizens who live overseas don’t pay taxes in the US, then they are tax cheats. The fact that they are paying taxes in the country where they live is not relevant.

It is my sincere hope that Congressman Pocan and his colleagues in Congress can overcome those instinctive reactions and instead take the time and effort to fully understand the issue and all of its economic as well as political implications..

In a nutshell, this is the situation:

The problems go far far beyond the simple fact that US citizens are liable for income tax in the US even when they don’t reside there and even when they already pay taxes in the country where they reside. Here are just some of the problems:

- Because of the burdensome FATCA reporting requirements and the draconian penalties for banks that fail to comply, many banks and financial institutions outside the US either refuse US citizens as clients or heavily restrict the accounts they may hold. This makes US citizens financial pariahs. It makes it difficult for them make certain investments and carry out effective financial planning and makes them ineligible to hold certain jobs which would require them to have signature power on their employer’s bank accounts. It also makes them ineligible for certain employer compensation plans that involve investment accounts.

- Even when no tax is ultimately owed, US citizens are required to prepare and file highly complex tax declarations. The penalties for mistakes are draconian. As a result, many Americans living overseas have no choice but to pay a professional tax preparer anything from $1500 to as much as $3000 per year to prepare their tax declarations. This is true even when no tax is owed and even when the person’s income is very low. And those professional fees are doubled if the US citizen is a small business owner as the US tax returns for foreign companies owned by US citizens are also highly complex. They also have to be filed, even if the company has little to no income (such as when it’s just getting started).

- Many countries offer favorable tax treatment to certain kinds of investments, and notably (but not by any means only) those for retirement investment (the sale of certain kinds of real estate is another example). For the most part, US tax laws operate to penalize US citizens for making those kinds of "foreign" investments, with the result that the US citizen is not able to save and plan for retirement under the same conditions as the other residents of the country where they live. In fact, it makes it difficult for US citizens living overseas to engage in most kinds of retirement planning and investing. When they try to do so, the end result is that money that their country of residence intended for them to have for retirement instead ends up siphoned out of that country and to the US in the form of income taxation.

- Those referred to as “Accidental Americans” are suffering special hardship. “Accidental Americans” are people who just happened to have been born in the US but who left the country when they were very young (in many cases not even two years old) and who otherwise have no connection to the country. They don’t have social security numbers, they’ve never asked for a US passport, they’ve never heard of CBT and, in many cases, they don’t even know the US considers them to be citizens. Many of them don’t speak English. They live in an impossible situation: their banks, charged with enforcing FATCA, see that they were born in the US and on that basis simply close their accounts, or, if not, then require them to provide social security numbers and prove they comply with their US tax obligations. But they don’t have social security numbers and they can’t afford to pay the professional fees to bring them into compliance with US tax obligations that they understandably feel are entirely unjust (and in many cases they can't pay anyway). And renouncing US citizenship is possible, but carries its own complications and huge expenses.

- Because of the problems described above, more and more people are renouncing their US citizenship, managing to overcome the financial as well as, for many, emotional hurdles in doing so. You would think that their stories would end there. But they don’t. An increasing number of these persons, when they try to visit the US as tourists on a foreign passport (notably in order to see family members living in the US) are finding that immigration officials will not allow them to enter. In some cases their ETSA application is refused. In other cases, they arrive at immigration control and the immigration official sees that the person was born in the US. This leads them to ask why the person is not traveling with a US passport. When they are told that the person has renounced US citizenship, some immigration officials have simply refused entry, solely on those grounds, or without offering any reason at all. This has also happened to some green card holders residing outside the US who allowed their green cards to expire. In sum, those who renounce their US citizenship take the real risk of never being able to enter the US again. Some people can take that risk. Some cannot.

Why should people who live in the US care about what is happening to US citizens (and green card holders) living outside the US? More generally, why should they care about how the US is enforcing FATCA and CBT outside of its borders? Those are fair questions.

Assuming that mere sympathy for the plight of other fellow human beings is not a sufficient reason, here are other reasons:

1. There is significant irony in contrasting the situation of DACA recipients (and other foreign citizens seeking to remain in the US) to the situation of US citizens living overseas. The former would, presumably, very much like to have US citizenship (or at least the right to remain in the country indefinitely). The latter consider their US citizenship to be a burden – they would gladly give it up if they could afford (be it financially or emotionally) to do so. There is also significant irony in numbers involved: there are about 800,000 DACA recipients as compared to an estimated 8 million Americans living overseas (not including military personnel).

2. Thom Hartmann and many others often speak about the stark differences between the way the United States taxes corporations as compared to the way it taxes individuals, and notably individuals who are not wealthy (and especially those who live from wages rather than investment income). Many have also often spoken about how the new tax law adopted in December accentuated those differences. This has notably included a discussion of a more favorable tax treatment for the foreign income of US CORPORATIONS. Such a discussion is incomplete without contrasting that favorable treatment to the continued highly unfavorable treatment of INDIVIDUALS, and notably of individuals who reside outside the US, many of whom are not wealthy by any means. They are just ordinary people trying to live ordinary lives in the places where they live.

3. The United States is often referred to as an “empire.” The manner by which the US has gone about using foreign banks to enforce a US law outside of the borders of the US speaks directly to this. Also the manner by which CBT operates to siphon money out of other countries into the US – money in the form of professional fees for the preparation of highly complex tax (and FBAR) declarations, in the form of penalties in the event a declaration contains a mistake, and, finally, in the form of the taxes themselves – taxes based upon income earned outside the US by persons living outside the US. Imagine if another country, such as Canada or Mexico (or Russia or Cuba!), tried to implement CBT and enforce it against their citizens living in the US. For the time being, Eritrea is the only other country to impose CBT, and it has been widely criticized for doing so.

4. To date the US has refused to enforce FATCA in a reciprocal manner. That is, the US has refused to provide to foreign governments comparable information about the bank accounts that the residents of foreign countries have in the US. This lack of reciprocity is an important reason why the US is becoming an important tax haven.

5. Many people in the US today comfort themselves with the idea that if things get too bad, they can always leave for another country. Most of those people have some sort of awareness of the difficulty they might have to gain the right to live legally in another country. What they are likely entirely unaware of is that they can never totally leave the US – that banks will consider them to be financial pariahs and that heavy tax obligations will follow them wherever they go, unless they are willing and able to take the irreversible step of renouncing their US citizenship.

6. Finally, there is a human interest element to these issues: Meghan Markle’s engagement to Prince Harry sparked many discussions on social media about how long it would take for her to get British citizenship, and notably whether her application would receive expedited treatment. But Americans living outside the US immediately recognized that the much more interesting and important question is just how fast she’ll renounce her US citizenship and, in the unlikely event she doesn’t, just what steps the royal family will take to shield their income and assets from the IRS. This is because as a member of the British royal family, FATCA and CBT will make Markle’s US citizenship untenable, unless she is willing to live without any significant income to her name and without having title to Prince Harry’s assets, and notably to any of his bank accounts - unless the British royal family is willing both to give the IRS information about its income, assets, and bank accounts, and for the IRS to tax them, a scenario that is very difficult to imagine.

If Markle doesn’t renounce her US citizenship before she has children, they will automatically be considered US citizens also. She wouldn’t have any say in the matter, but once they became adults they could choose for themselves to renounce.

In all probability Markle has an army of tax advisors trying to come up with a way for her to have her cake and eat it too (that is, a way for her to keep her US citizenship and have income and assets of her own yet shield royal family income and assets from the IRS). If they succeed, then what will that say about the disparate tax treatment between the wealthy and everyone else?

One thing that is sure: If Markle renounces her US citizenship, she will not have to fear not being able to visit the US. Her profile is too high and any denial of entry would of course get instant and widespread publicity. That is certainly one benefit her position of privilege would bring her.

Regardless of her privilege, Markle's case is susceptible of gaining public sympathy that is denied to ordinary Americans. This is because, going back to my list of instinctive reactions above, no one is going to think that Markle is stupid or unpatriotic for choosing to live outside the United States, given her reasons for doing so (what American woman wouldn't, given the opportunity, move to England to marry a member of the British royal family?). It's also unlikely that the public will think that Markle is a tax cheat or is seeking to become one. For these reasons her marriage seems to be a good opportunity to attract attention to and, hopefully, sympathy for, the issues ALL Americans overseas face with FATCA and CBT.

Below is a listing of links that I have collected over the course of the past few months that in my opinion best expose the problems of FATCA and CBT.

____________________________________________________

LINKS ABOUT FATCA AND CBT

Explains the problems of FATCA and CBT generally:

Explains in detail the problems and complications of US citizens and green card holders living outside the US:

https://www.taxconnections.com/taxblog/how-to-live-outside-the-united-states-in-an-fbar-and-fatca-world/#.WkvlU8anGUm. “it would be prudent for a U.S. citizen abroad to NOT marry, not have an income, not create businesses or engage in self-employment.”

Details the problems and complications of US citizens and green card holders living outside the US, notably as regards filing requirements, taxation of investments and discriminatory treatment of non-US citizen spouses: https://www.quora.com/If-I-have-an-American-citizenship-am-I-stuck-paying-taxes-to-them-for-life-unless-I-get-rid-of-the-citizenship-How-do-you-get-rid-of-the-citizenship/answer/John-Richardson-269?srid=5rTMz

https://reason.com/archives/2018/02/12/americas-punishing-worldwide-t

This link documents refusals of service to US citizens because of FATCA. Scrool to the bottom to see a description of my own experience just last week: http://citizenshiptaxation.ca/fatca-denial-of-service-library-permanent-record/

Tells the story of Ruth Freeborn, an American resident in Canada who renounced her US citizenship due to FATCA and CBT: https://www.bibliotecapleyades.net/sociopolitica/esp_sociopol_nwo190.htm

Outlines reasons why the repeal of citizenship-based taxation is unlikely: https://www.quora.com/Do-you-it%E2%80%99s-fair-for-Americans-to-be-obligated-to-pay-U-S-taxes-even-after-leaving-the-U-S-for-good/answer/David-S-Lesperance?srid=ufVU

Argues that not just Americans living overseas but everyone should be horrified by FATCA: https://www.youtube.com/watch?v=VhxtpFBZ2tE

Exposes the misconceptions of FATCA on the part of Americans and notably on part of the “architect” of FATCA: https://www.youtube.com/watch?v=FKrbvau42Ok

Explains the consequences of the new (Dec 2017) tax law for Americans residing overseas: http://www.internationalinvestment.net/products/tax/donald-trumps-tax-cuts-jobs-act-expat-americans-perspective/

Argues that FATCA has not reduced tax evasion and that the burden of FATCA falls on persons who would be tax compliant regardless: http://www.ifcreview.com/restricted.aspx?articleId=12552

Discusses “tax traps” for people who are thinking about becoming “US persons:” https://www.youtube.com/watch?v=dAwMrGG9EbE&feature=youtu.be

Focused on taxation of foreign company’s retained earnings:

http://www.citizenshipsolutions.ca/2018/02/13/u-s-tax-reform-and-the-nonresident-corporation-owner-does-the-sec-965-transition-tax-apply/

Websites focused entirely on the problems caused by FATCA and CBT for ordinary Americans living overseas:

http://isaacbrocksociety.ca/2011/12/14/about-the-isaac-brock-society/ (including human rights complaint filed with the United Nations: https://isaacbrocksociety.ca/2017/12/15/un-human-rights-complaint-quadruples-its-signatures/)

https://purpleexpat.org/wp/about/

Facebook groups focused on FATCA and CBT:

American Expatriates: https://www.facebook.com/groups/AmericanExpatriates/

Citizenship Taxation: https://www.facebook.com/groups/citizenshiptaxation/

Accidental Americans: https://www.facebook.com/groups/accidental.americans/

Explaining why CBT makes investment and financial planning difficult for Americans living overseas:

Americans living in Canada: http://www.citizenshipsolutions.ca/2017/08/04/the-biggest-cost-of-being-a-dual-canadau-s-tax-filer-is-the-lost-opportunity-available-to-pure-canadians/

Americans living in Australia: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3097931

Congressional hearing on FATCA and CBT:

Former US citizens, Rand Paul and others commenting on FATCA and CBT in Congressional hearing: https://www.youtube.com/watch?v=eHjTEsWI2ao

Support of Democratic Party/Democratic Representatives of Residency-Based Taxation:

About Democratic Representative Jamie Raskin’s support for the repeal of FATCA: https://www.democratsabroad.org/rep_jamie_raskin_supports_americans_abroad_tax_reform

About Democrats Abroad campaign for residency-based taxation: https://www.democratsabroad.org/alexpm/residency_based_taxation_campaign

Residency-based taxation “campaign in a box:” https://d3n8a8pro7vhmx.cloudfront.net/democratsabroad/pages/11684/attachments/original/1506083107/RBT_Campaign_In_A_Box.pdf?1506083107

Support of Republican Party for residency-based taxation and repeal of FATCA:

https://republicansoverseas.com/fatca/

http://republicansoverseas.com/wp-content/uploads/Territorial-Tax-Reform-Proposal-Jan-6-2017.pdf

Explain how FATCA has turned the US into a tax haven:

https://www.forbes.com/sites/russalanprince/2018/01/08/for-many-of-the-global-super-rich-the-u-s-is-the-number-one-tax-haven/#586dcf0a5386

https://www.bloomberg.com/view/articles/2017-12-28/the-u-s-is-becoming-the-world-s-new-tax-haven

http://www.pravdareport.com/business/finance/13-02-2018/140031-europe_bank_secrecy-0/

Scholarship/law review article:

Examines the connection between FATCA and increased renunciations of US citizenship. Argues that FATCA violates the 4th Amendment of the Constitution: http://scholarship.shu.edu/cgi/viewcontent.cgi?article=1947&context=student_scholarship

Heartbreaking stories of people who renounced their US citizenship dues to FATCA and CBT:

http://citizenshiptaxation.ca/our-stories/

Accidental Americans:

Highlights the problems of Accidental Americans and argues that US citizenship is being imposed on people who don’t want it and in doing so citizenship is being used as a weapon to achieve governmental objectives: http://citizenshiptaxation.ca/the-ownership-and-use-of-the-us-person-which-includes-a-citizen-as-an-instrument-of-foreign-policy-part-i/

Testimony before European Parliament by an Accidental American, focused on his experiences with FATCA. His testimony starts at 00:32. Be sure to also listen to reaction of Sophie In’t Veld from 16:30: https://www.youtube.com/watch?v=t_Il-rL5TiI&feature=youtu.be

Accidental Americans in French media:

These are articles that expose to a French-speaking audience the problems faced by French Accidental Americans:

http://www.internationalinvestment.net/products/accidental-americans-france-looking-french-govt-help/

http://www.cnews.fr/insolite/video/le-combat-des-americains-accidentels-182918#

https://www.lesechos.fr/finance-marches/banque-assurances/0301007032722-les-consequences-etonnantes-de-laccord-fatca-2137426.php

https://www.ladepeche.fr/article/2017/12/27/2712003-dominique-decouvert-double-nationalite-2015-impression-avoir-ete-pieges.html

https://www.ladepeche.fr/article/2017/12/27/2711672-la-fin-du-cauchemar-fiscal-pour-les-americains-accidentels.html

Accidental Americans in British media:

Highlights the problems of Accidental Americans for a British readership: http://www.telegraph.co.uk/tax/income-tax/i-had-to-pay-8200-to-escape-draconian-us-tax-system/

Accidental Americans in Dutch media:

https://www.youtube.com/watch?v=8jgD9yW-sJw&list=WL&index=23

https://www.youtube.com/watch?v=BtZEdPQLhvo&list=WL&index=24

https://eenvandaag.avrotros.nl/item/amerikaans-nederlands-zijn-kost-een-hoop-geld/

Meghan Markle:

https://www.washingtonpost.com/news/worldviews/wp/2017/11/28/meghan-markles-u-s-citizenship-could-cause-tax-headaches-for-british-royal-family/?utm_term=.e241ab7b8987

http://www.independent.co.uk/news/uk/home-news/meghan-markle-us-citizenship-royal-family-finances-tax-leaks-obligations-america-dual-prince-harry-a8082236.html

https://www.inc.com/suzanne-lucas/prince-harrys-marriage-to-meghan-markle-means-irs-gets-a-look-at-royal-bank-accounts.html

https://www.forbes.com/sites/robertwood/2017/11/30/meghan-markle-prince-harry-filing-taxes-separately-heres-why/#533b52ae6fce

https://danieljmitchell.wordpress.com/2017/11/30/as-prince-harry-and-meghan-markle-are-about-to-learn-americas-worldwide-tax-regime-is-a-royal-pain/

http://legalbroadcastnetwork.com/the-lbn-blog/2017/12/12/why-would-the-irs-care-about-prince-harry-and-meghan-markle-rob-wood-explains

Former US citizens denied entry into US after renouncing citizenship (these are higher profile persons. Lower profile persons denied entry don’t make the news but they tell us about their experiences on social media):

http://www.telegraph.co.uk/technology/news/11330558/Millionaire-Bitcoin-Jesus-denied-entry-to-the-US.html

https://www.billboard.com/articles/business/7990197/jazz-drummer-alvin-queen-denied-entry-us

Images

Think you can leave the US? Think again!

Comments

Petlover's picture
Petlover 22 weeks 3 hours ago
#1

Fantastic summary, laurainparis, of the Orwellian situation US expats find themselves in. As someone personally affected, I was put in the terrible position of having to relinquish my US citizenship due to many of the factors mentioned. It is extremely challenging to be compliant when subject to two completely different systems of taxation, and in most cases can only work if you don't commit any of the deadly sins, such as earning income, having a roof over your head, saving money or owning assets. In other words, normal day-to-day life is nearly impossible, nevermind preparing for your future or retirement. The draconian treatment of anything foreign to the US is another horror; if the US insists on taxing based on citizenship alone, then it must recognise that expats' assets in their various countries of residence are local to them. It has been pointed out that most expats don't owe any tax anyway, but still face mounds of extensive and invasive tax forms that are insurmountable without expensive advice from professionals. It cannot be that Americans resident outside the US (especially those with no US-source income), who pay taxes in their counties of residence, should have to file copious amounts of paperwork to prove zero tax owed. This situation is unique to the United States; it isn't a question of patriotism or paying one's fair share. The rest of the world (minus Eritrea) operates on the basis of paying taxes where one lives. This extraterritorial taxation scheme is plainly an example of American exceptionalism and provides nothing but an excuse to slowly erode the tax-bases of other nations (e.g. the punitive taxation of Australian superannuations). The effects of the horrible CBT/FATCA regime are also not just felt by the American expats. Non-resident spouses suffer from increased scrutiny and loss of privacy due to reporting obligations if they share any assets with their American partner. How is that justifiable? It isn't. Americans have become toxic because no one wants to deal with the nightmare-ish compliance issues caused by any association. Companies won't hire US persons if they would have any signing authority or become shareholders. Just last week I read that, at a convention in Paris for entreprenuers, warnings were being issued to the attendees about the dangers of hiring Americans. Is this really how the United States wishes to be viewed by the world? Any US expat watching the consequences of CBT and FATCA unfold can attest to the utter havoc these have wreaked on their lives. Great hope had been placed by the global American expat community in diverse organisations campaigning for reform through the Tax Cuts and Jobs Bill. Unfortunately, the pleas of expats fell on deaf ears and only the large, multi-national corporations benefitted by a move to territorial taxation. Indeed, the individual US taxpayers that operate small, incorporated businesses may only have been further harmed by the legislation. Untenable is truly the best description of the deplorable conditions US expats are up against. If a person has made their life abroad and wishes to remain there, in the long-term they will have no choice but to give up their US citizenship, which harbours its own challenges. Ridding one's self of American citizenship is time-consuming and costly. In fact, at $2350, the price of renouncing is more than twice that of the next most expensive country (and yet we were reassured that 400% price hike was merely a reflection of the real cost for the State Department!). Additionally, there are the costs of being US tax compliant and the peril of becoming a covered expatriate when it comes to the exit tax. So, not only does the IRS get you coming when you comply, they also get you going when you choose to leave - and in between they get you over a barrel in the form of high penalties for footfaults. The United States was founded, in part, because of issues of unfair taxation practices and taxation without representation. I would say that those who choose to expatriate because of CBT and FATCA stand in solidarity with those founding principles and are true patriots.

laurainparis's picture
laurainparis 21 weeks 5 days ago
#2

Petlover and John Richardson -

I would like to thank you both for your highly informative and insightful comments.

You've both brought needed attention to important points that my post did not sufficiently address.

For the moment, I'll just add this: It is estimated that 8 to 9 million Americans - excluding military personnel - live outside the US. That is 3x the population of Chicago. It is 11x the number of DACA recipients.

A 2015 (so, pre-Trump) survey by Transferewise reported that 35% of Americans would consider leaving the United States to live in another country. That number shoots up for millenials, to 55%. https://www.cnbc.com/2015/06/30/survey-says-35-percent-of-americans-would-expatriate.html.

In sum, many many US citizens live outside the US and even more would like to do so.

On either his Thusday or Friday show (I can't remember which one) this past week, Thom Hartmann asked in seeming exasperation: "Why don't more Americans leave the country?"

Thom - please look at Petlover's comment above for one response to your question. In reading it, does it motivate you to move overseas or to encourage your children to do so? If you are sincere in your question then you can't, on the one hand, ask your question, yet, on the other hand, ignore the problems created by CBT and FATCA. They are intimately and inseparably connected.

In asking his question Thom demonstrates the importance of how the United States treates it citizens when they leave the country. He demonstrates that this is an important question not just for Americans who live outside the US, but for ALL Americans, regardless of where they live. Because anyone who thinks they can leave the country, anyone who comforts themselves with this idea - anyone who asks the question "why don't more Americans leave?" - they are deluding themselves. There is no freedom for Americans. Americans are not free to live normal lives outside the US, unless they are financially and emotionally prepared to STOP BEING AMERICANS (that is, renounce their citizenship). The word "ironic" doesn't begin to describe the situation. The words "impossible" and "tragic" do.

John Richardson's picture
John Richardson 21 weeks 5 days ago
#3

Laura, you conclude your last comment with:

"In asking his question Thom demonstrates the importance of how the United States treates it citizens when they leave the country. He demonstrates that this is an important question not just for Americans who live outside the US, but for ALL Americans, regardless of where they live. Because anyone who thinks they can leave the country, anyone who comforts themselves with this idea - anyone who asks the question "why don't more Americans leave?" - they are deluding themselves. There is no freedom for Americans. Americans are not free to live normal lives outside the US, unless they are financially and emotionally prepared to STOP BEING AMERICANS (that is, renounce their citizenship). The word "ironic" doesn't begin to describe the situation. The words "impossible" and "tragic" do."

A tragic situation indeed.

What's most interesting and tragic is that:

The ones who try the hardest to comply with the U.S. rules are the ones who ultimately are forced to renounce. I have assisted a very large number of people in renouncing their U.S. citizenship (and thereby ending U.S. jursidction over them). A high percentage of people I have assisted are people who:

1. Have tried for years to comply with the "alphabet soup" series of laws and reguations that govern the lives of Americans abroad; and

2. Realize that compliance is no longer possible.

The only remaining Americans abroad will be "noncompliant" Americans abroad

In the long run, the only Americans abroad who will be able to retain their U.S. citizenship are those who do NOT attempt compliance with these laws. There is something fundamentally wrong with a country where compliance with its laws forces you to (eventually) renounce your citizenship. This is a problem that has escalated over time.

U.S. citizens abroad are living under siege.

A wonderful expression of the evolution of the problem comes from Jackie Bugnion in her submission to the House Ways and Means Committee on Tax Reform. Writing in 2013 she said:

"In 1776, the United States declared independence because the mother country on the other side of the ocean was imposing taxes on the colonies for the benefit of England. Resentment started when Britain tried to enforce the Navigation Act after 1763. Resentment increased with the Stamp Act in 1765, a way for Britain to tax the colonies. The British Tea Act of 1773 led to the Tea Party and we all know the outcome – the American Revolution and independence crying out “no taxation without representation”.

Today, the estimated 7 million Americans resident abroad, of whom the majority are long-term overseas residents in high tax OECD countries, face a comparable situation. Their representation in Congress is non-existent in reality. Americans abroad amount to only 1 to 2% of the votes in any particular state; Congressmen and Senators have ignored their tax issues. The unjustified myth that Americans abroad are wealthy and disloyal restricts a rational approach to the problems because of political image issues.

Citizenship-based taxation (CBT) has existed ever since the federal income tax was adopted. Despite CBT being an anomaly involving double taxation, taxation of phantom gains and explicit tax code discrimination, it was grudgingly tolerated by Americans abroad because it was essentially voluntary, most often involved little tax or no U.S. tax liability and basically was not enforced. In particular, the FBAR filing requirement was so obscure that even the big four accounting firms were not aware of the filing obligation dating from 1970 and failed to inform Americans abroad of the need to file the FBAR.

Since 2001, a series of legislative events have radically changed the situation:

 In 2001, the Patriot Act made anything foreign suspect, including Americans residing overseas.

 In 2004, Congress, under the Jobs Act, drastically increased the FBAR civil and criminal penalties to confiscatory levels, creating a disguised form of taxation on assets held overseas.

 In 2006 administration of the FBAR reports was transferred to the IRS for enforcement.

 In 2006 the Tax Increase Prevention and Reconciliation Act (TIPRA) extended the Bush tax cuts and included a compensatory revenue raising provision that reduced the benefit of the foreign earned income exclusion, limited the foreign housing allowance and pushed Americans overseas into higher tax brackets, thereby increasing U.S. tax liabilities for many Americans abroad.

 In 2008 the law relating to renunciation of U.S. citizenship was revised under Section 877A and introduced an Exit Tax on wealthy individuals (defined as “covered”). The law also provided that Americans who inherit from estates of former “covered” U.S. citizens are subject to U.S.
inheritance tax with no exclusion. This outrageous discriminatory provision aims to discourage renunciation of citizenship, but in fact penalizes children of former U.S. citizens for an act they did not commit. In practice, it encourages the children to also renounce their U.S. citizenship.

 In 2009 the IRS launched its initiative against tax evasion linked to foreign assets through the Overseas Voluntary Disclosure Programs and a threatening public relations campaign. While it justifiably targeted U.S. resident tax evaders, it simultaneously trapped Americans abroad who necessarily have foreign assets. The IRS’s one size fits all policy and bait and switch tactics led to abuses of Americans abroad which inspired sharp criticism from the National Taxpayer Advocate.

 In 2010 FATCA was slipped into the HIRE bill with no debate in Congress and no cost/benefit
analysis. FATCA aims to provide the door that closes the fiscal trap by requiring foreign financial institutions to report to the IRS on assets held overseas by U.S. persons. It effectively cuts off many Americans from foreign financial institutions which find it too onerous to maintain American clients. FATCA creates a barrier to free movement of capital and people.

 In 2012 S.3457 proposed to grant the IRS the authority to have a U.S. passport cancelled or not issued if the IRS determined that the individual owed $50,000 or more U.S. tax.

 In 2012 the Ex-patriot Act, S.3205, proposed to deny any “covered” expatriate re-entry into the United States, with retroactive effect for ten years prior to enactment of the law. The Reed
Amendment of the 1996 Illegal Immigration Reform and Immigrant Responsibility Act already
allows the United States to deny entry of former citizens into the United States.

 In 2013, S.268 was introduced; it compounds difficulties created by FATCA.

 In 2013 the Senate Finance Committee included in its tax reform recommendations a provision which would grant the IRS authority to cancel a U.S. passport for tax collection purposes.

This stream of legislation and proposals categorizes Americans abroad as suspected criminals seeking to escape U.S. taxes. Congress has outdone George III and has turned the United States into a fiscal prison, including legislation which is deemed anti-constitutional under the Fifth Amendment1 and is contrary to Articles of the Universal Declaration of Human Rights.2
The foundation of the U.S. fiscal prison is citizenship-based taxation. Americans working and living abroad carry a ball and chain of dual taxation throughout their entire lives up to and including death.

Americans abroad already pay taxes in the country where they reside and receive governmental services.

The additional U.S. tax obligation creates inevitable incompatibilities and discrimination and even requires Americans abroad to break foreign exchange control laws to pay U.S. taxes.

A revolution among long-term overseas residents is now underway. Five years ago, Americans abroad never talked about renunciation of citizenship. Today, it is a common topic in the press and among the community abroad. For more and more individuals, renunciation is the only solution to an intolerable situation created by the U.S. imposing its laws beyond its borders. The United States is literally destroying the community of Americans abroad, which plays an essential role in representing U.S. interests and goodwill overseas. The United States is shooting itself in the foot.

While the absolute number of renunciations, currently around 2,000 a year, is insignificant compared to the average annual U.S. citizenship naturalizations of 680,000, renunciations have multiplied seven times over the last four years. So far we have seen only the tip of the iceberg if CBT remains in force.

Today’s situation leads to serious hidden prejudice for the United States. U.S. exports are far below where they should to be because citizenship-based discourages U.S. companies from deploying U.S. citizens overseas to sell U.S. products; the law makes them too expensive. U.S. tax law and FATCA create insurmountable barriers for small and medium-sized companies to establish beachheads abroad to develop exports. The loss represents millions of U.S. jobs, hundreds of billions of dollars of exports, billions of dollars of U.S. tax revenue, and an unsustainable trade and budget deficit. Americans married to a foreign spouse, who represent about a third of the Americans resident abroad, now hesitate to register their children born abroad with the U.S. Embassy. The hot thing among young adults in their twenties is to renounce U.S. citizenship; they are aware of the impossible web of U.S. regulations that restrict job opportunities and personal freedom. Pushing away the young generation of Americans abroad is an immense loss to the United States. In prior generations, many highly educated multi-lingual American children returned to the United States, founded companies and created jobs in the U.S.

Adopting RBT will stop this revolution immediately. RBT law needs to be drafted in the spirit to allow free movement of individuals to leave and return to the United States, to reinforce the competitiveness of Americans and the United States overseas, to provide a simple, non-penalizing transition to RBT for the community of Americans already overseas, to ensure that Americans abroad are not subject to FATCA and FBAR, to adapt existing bilateral tax treaties and enter into new tax treaties so that withholding tax rates on U.S. source income are reasonable and to ensure that Americans abroad who have the majority of their assets in the United States (retirement funds, pension funds, real estate) are not disadvantaged under RBT with regard to either income or estate taxes.

I thank you for the opportunity to comment and hold high hopes that your bi-partisan efforts will lead to the constructive tax reform so necessary for Americans residing abroad.

Sincerely yours,
Jacqueline Bugnion"

Greg Swanson's picture
Greg Swanson 21 weeks 5 days ago
#4

Great article. Great comments. Spot on!

Greg Swanson's picture
Greg Swanson 21 weeks 5 days ago
#5

There are only two things that I would add to what has been said above. There are some reasons why Americans at home should be very concerned about how Americans abroad are being treated.

1) Since the end of WWII, Americans living abroad have been an invaluable resource for America's soft power. Many are very involved in local community issues, and our country has very often depended on the American expat to resolve issues for the US and promote US interests. That soft power is being destroyed. The issues that have been mentioned above, as well as the situation getting worse, has caused many to question loyalty. How can you be loyal to a country that punishes you and limits your life? Many will renounce with less guilt than before. Many will not but will gravitate to their country of residence, usually a country that treats them with a degree of dignity that they are not getting from their own country. This hurts America as a whole.

2) In the 50s, American businesses used to send expat managers abroad to learn how to do business. This was looked upon as a highly valued skill set. As a result, not only did American companies do well exporting, it did a fantastic job of bringing knowledge back to the US on how to develop products that could sell in other geographies. As a direct result of enforcement of the highly complex US tax code on top of another tax code, companies began to find the proposition of sending Americans abroad too expensive and risky. This generation of great American international business people is all but dead. We only have 8 or 9 million Americans abroad, with a country our size, that number should be double.

Having grown up during the cold war, I remember a time that we were broadcasting our freedoms into Eastern Europe over Voice of America/Radio Free Europe. One of the most important freedoms that we pushed was our "freedom of movement and mobility". We had the freedom to go where we wanted and live where we wanted. This topic is one of the biggest reasons why East Germans protested the wall. Now 30 years later, most of those countries have won over their freedom of mobility, while the US has begun to punish people for exercising the right that we used to preach. Any American that is not concerned about this needs to honestly reflect rather or not we are as free as we say that we are. We have adopted the same punishing tactics that our previous adversaries used to practice. I, as an American, find this shameful.

laurainparis's picture
laurainparis 21 weeks 5 days ago
#6

Thank you, Greg. And John, thank you again - both for your additional insights.

"US fiscal prison" - those three words say it all.

Conniesue's picture
Conniesue 21 weeks 4 days ago
#7

There are a generation of children (now in their 60s) who grew up on family farms in Canada along the border. When their mothers were ready to give birth, sometimes the closest and only hospital was across the border in the nearest, small, American town. These "children" have lived their lives in Canada as Canadian citizens, which they are. Now, since FATCA, as their "accidental" birthplace was the US, they are in danger of losing their family farms to the IRS.

There are also children born all over the world to ONE American parent. And even though these children are citizens of their birth country, where they were raised, educated, live and work, they are being denied bank accts, certain jobs and volunteer programs. (If they are in a position to have signing authority, even treasurer for a parent group, the entire finances of that organization/work place must be turned over to the IRS/Financial Crimes Unit). They are not allowed to start their own businesses, have investment accounts for their own children, or save for their retirement.

As has been stated before, US expats (dual nationals) and their children pay taxes in the countries where they live. They are not "tax cheats", and, in fact, some sources report 80% of them owe NO taxes to the US anyway. But the costs of trying to comply are crippling and the penalities for making a mistake on a tax form are ruinous.

Think about this. Who changes the rules and brings devastation and fear to innocent people?

John Richardson's picture
John Richardson 21 weeks 4 days ago
#8

Laura, this is one of the very best articles I have seen about the reality of this situation.

At the outset, I would like to explain that what most people call U.S. "citizenship-based taxation" (sounds kind of patriotic) is the U.S. policy of "imposing worldwide taxation on the "tax residents" of other countries who do NOT live in the United States" (which is what it really is). In other words, let's call it like it really is. It is NOT restricted to "so called Americans abroad". The vast majority of people impacted by this are the citizen/residents of other countries.

You explain what it means when the United States claims the right to impose "worldwide taxation" on the residents of other countries. This of course means (as you know first hand) that a resident of France must pay U.S. tax on his/her French income. In addition (as you point out) the penalty regime imposed on assets that are local to the resident of France but "foreign" to the USA are draconian and completely idiotic.

I would also like to point out that although this discussion is frequently framed in terms of "taxation", what this is really about is the United States exporting the Internal Revenue Code to other countries. This exports certain U.S. cultural values, reporting requirements and penalties on those who "commit personal finance outside the United States". In other words, this is about much more than taxation.

There was an attempt to effect change, but it failed

The previous comment above by "PetLover" outlined and reinforced many of your points. PetLover also commented on the efforts made by various groups to effect legislative change. These efforts failed.

I would like to comment on why (I believe) these efforts failed and suggest what should be done on a "going forward" basis.

Why the efforts on the part of Americans abroad failed

On an organizational level the efforts were led by "Republicans Overseas" and "Americans Citizens Abroad - ACA".

On an "individual level", hundreds of individuals affected by this wrote to the House Ways and Means Committee in 2013 and the Senate Finance Committee in 2015. I mean 100s!! In fact the largest number (by far) of submissions on International Tax Reform came from Americans abroad. They submissions were acknowledged but basically ignored.

Tax "reform" (if you want to call it that") came to fruition on December 22, 2017. It included benefits for corporations, a few temporary benefits for U.S. resident individuals, no effort to improve the situation for Americans abroad and a possible worsening of the situation for Americans abroad who are self-employed.

There is a suggestion that the new "transition tax" applies to the small businesses owned by indivdual Americans abroad. If this is true, the U.S government would (if you believe the compliance community) confiscate approximately 20% of the retained earnings of small businesses owned by certain Americans abroad. If this is true (and I do NOT agree with the prevailing sentiment in the tax compliance community), it would mean that NOT only did Congress NOT assist Americans abroad but they made it even worse for them! In my view, the possible applicability of the "transition tax" is the final straw and those who can afford to renounce U.S. citizenship need to renounce "quick time". But, back to the question, why did the efforts fail?

1. It' s about the message - After all this time, most people do NOT make the distinction between FATCA and "citizenship-based taxation" (which is the U.S. tax policiy of taxing residents of other countries). Some were urging the repeal of FATCA. Some were urging a change in U.S tax policies. FATCA and tax policies are not the same thing. In fact, if the U.S were to change its policy of imposing taxation on the "tax residents" of other countries, FATCA would be far less of a problem. This is becaue those who resided in other countries would cease to be U.S. "tax residents".

FATCA is a law that essentially "hunts" for people who are U.S. "tax residents". It's U.S. tax laws that impose "worldwide taxation" on the "tax residents of other countries. The former is an extreme irritation. It's the latter that makes life untenable for "tax residents" of other countries.

The focus should have been on changing the U.S. tax policies and less on the repeal of FATCA. But, this requires that people NOT treat "FATCA" and U.S. tax laws as being the same.

So, the message needed to be: Stop imposing U.S. "worldwide taxation" on the "tax residents" of other countriese who do NOT live in the United States!

2. Partisanship - The inability of Americans abroad to behave in a non-partisan way. FATCA may be a partisan issue. But, the U.S. policy of imposing "worldwide taxation" on the "tax residents" of other countries is NOT partisan at all. It's been around since the 1800s (as the article points out).

3. If you don't ask for what you want, you won't get what you want: Neither of the primary organizations (Republicans Overseas nor ACA) made the simple and understandable request that:

"The United States stop imposing "worldwide taxation" on the "tax residents" of other countries who do NOT live in the United States."

How the organizations framed the issue:

Republicans Overseas: Did not focus on the issue of "tax residency". It did NOT ask that the United States stop imposing taxation on the residents of other countries. Rather, it asked that the United States stop imposing taxation on certain kinds of income earned regardless of residence (asking for territorial taxation for individuals). Republicans Overseas asked that income earned outside the United States be exempt from U.S. taxation. The focus was NOT on "who" was subject to U.S. taxation, but rather on "what" income was subjet to U.S. taxation.

American Citizens Abroad - ACA: Did not ask that the United States stop imposing taxation on the "tax residents" of other countries. Rather it asked that certain individuals, under certain circumstances should be exempted from "worldwide taxation" imposed on "nonresidents". (Keep "citizenship-based taxation" with a carve out for certain people.)

Don't get me wrong. I DO applaud the efforts of both organizations. It's just that neither organization asked specifically for the only acceptable solution. What is that solution?

"The United States MUST stop imposing "worldwide taxation" on the "tax residents" of other countries" who do NOT live in the United States!"

Going forward ...

I believe that the world (organizations, individuals, foreign governments, etc.) MUST unite behind this SIMPLE principle. No "carve outs". No exceptions. No confusing the issues. No suggestions that change is complicated. This is the only solution that makes sense. Furthermore, by framing the issue in this way, the real issue is being discussed. It's direct. It's clear. It's honest. It demonstrates how outraegeous the situation is. It's non-partisan. There is NOT a single individual, organization or foreign government that would disagree with this. Because the issue becomes non-partisan, the partisan fighting should stop. There will be no "divide and conquer". The message will be clear.

Individuals must commit to the overall principle even if they are not individually impacted by all of the aspects of the Internal Revenue Code

For example:

- individuals who do NOT have mutual funds should not say: I don't have mutual funds. This does specfically affect me, therefore it is not a problem;

- individuals who have not had to pay capital gains taxes on the sale of their homes should not say: This does not specifically affect me, therefore this is not a problem.

- individuals who do not have small business corporations, should not say: This does not specifically affect me, therefore this is not a problem.

- those individuals who identify strongly as U.S. citizens living abroad, should recognize the impact that U.S. tax policies have on their country of residence. They should not say, this doesn't affect me, therefore this is not a problem.

- those individuals who are not impacted by the S. 877A "Exit Tax" should not say: If I renounce citizenship, I will not have to pay an "Exit Tax". They should not say, I don't have to pay the "Exit Tax" and because it doesn't affect me, it is not a problem.

Until individuals impacted by outrageous and unjust U.S. policies, unite and support the principle, regardless of how these policies affect them individually, there will be no united voice (only isolated pockets of discontent).

Finally, U.S. citizens living outside the United States are going to have to do some "soul searching" and ask themselves a simple question:

Are they "free" individuals that are entitled to a level of dignity and human rights that individuals in other first world democracies are entitled to? Or are they satisfied to be Americans - essentially the property of the United States government. In other words, are they satisfied to have the lower level of human rights and dignity that are allowed to Americans. Sorry, in the 21st century, the United States is NOT a leader in human rights. Other counties have long since passed the USA in that regard.

The author of this superb article asks:

Q. Why should U.S. residents care? The answer is simple.

A. Because all U.S. residents need to understand their future is to see how the U.S. Government treats its fellow citizens abroad. Their only crime is to have pursued a life (often attempting to sell U.S. products) outside the United States!

Don Maisch's picture
Don Maisch 21 weeks 4 days ago
#9

From the perspective of an American citizen living in Australia since the late 1970’s I would like to point out the obvious that FATCA is adversely affecting US business interests in a globalised world. Lets take Australia for example. China is a rising economic and military power in the Asian region with cashed up Chinese investors buying up Australian properties and bankrolling major infrastructure projects. They even took up a 90 year lease on the port of Darwin in Australia! It is a fact of economic life here that Chinese investment is more than welcome. As for American investments, however, its another story entirely. Australian banks first want to know if you are a "US citizen for tax purposes”. If you say yes they will show you the exit door as it involves too much paperwork, and costs, in order to conform to FATCA filing requirements. It simply is not worth their while. Being classified as a US citizen is increasingly akin to having economic HIV - keep well away lest the disease affects you also! Not a good look for America...

From talks with Chinese investors here, the word is that the China Development Bank views FATCA very favorably as it acts as a huge disincentive for foreign financial institutions to deal with U.S. financial entities because they might be caught in the FATCA reporting web if US money is involved. Too bad that U.S. politicians seem totally ignorant in this regard.

As the joke goes: Two multi-billionaire investers walk in to the Commonwealth Bank of Australia wanting to open an account. One is American, the other is "name a nationality". Whom would the bank prefer?

laurainparis's picture
laurainparis 21 weeks 3 days ago
#10

Don,

Thank you for the additional perspective and information.

In reading your post, it's even more clear that this is a multi-facted problem that has a multitude of repercussions in a multitude of places and for a multitude of people.

It seems that there are positive repercussions for some people who are not US citizens - it helps them to gain competitive advantage over US citizens. In contrast, there doesn't seem to be any positive repercussions for US citizens, regardless of where they live in the world.

funnyjokes's picture
funnyjokes 11 weeks 17 hours ago
#11

Thank you for your sharing. Thanks to this article I can learn more things. Expand your knowledge and abilities. Actually the article is very practical. Thank you!

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