London Mayor Boris Johnson to renounce US citizenship

[MichaelB]

So, I'm adding Punishment #3 to my post above:

You have to work around the penalty for not having US-based health insurance per ACA. Duh! If you have a foreign address shouldn't that be self-evident.


Feel free to add more

If you meet either the Bona Fide Residence test or the Physical Presence test you are exempt from the ACA individual mandate.

 

[Free_at_49]

If you meet either the Bona Fide Residence test or the Physical Presence test you are exempt from the ACA individual mandate.

Yes thank you, I read about that. It simply adds to the compliance burden. Also calling the US for help/info from EU with 6 hours difference can push one over the proverbial edge.

 

[itsmyparty]

I have been told, unoffically, that time spent in the airport in a country also is counted...eg. Even on a layover if you are just passing thru but for some reason leave the secure area and have to reenter thru customs. Can't imagine that happening often but guess is the layover was long enough and you left for a few hours to sightsee or visit with family and friends.


Sent from my iPad using Early Retirement Forum

 

[brett]

If someone has dual citizenship, I do not see what the big issue is in revoking US citizenship.

Most especially for tax/financial reasons.

It seems to me that US citizenship is no better and no worse than citizenship in many other western countries. And if you do not plan to reside in the US again or you are just fine with your other citizenship then why bother with all the onerous IRS nonsense.

I do not blame Boris one little bit. I would do exactly the same. People are lining up at the US embassy where I live to start the revocation process for exactly the same reasons.

 

[youbet]

If someone has dual citizenship, I do not see what the big issue is in revoking US citizenship.

Most especially for tax/financial reasons.

Exactly! A person with dual citizenship maintains the citizenship status with the secondary country because it is to their advantage to do so. It the situation changes and the advantage evaporates or is offset by a disadvantage, dissolve the secondary citizenship. Why is it such a big deal?

I do not blame Boris one little bit. I would do exactly the same.

I don't blame Boris either. Actually, I don't understand why he would want to maintain the dual citizen status. His life is obviously in the UK. His change to single country citizenship will be detrimental to neither him nor the USA. Everyone wins......

People are lining up at the US embassy where I live to start the revocation process for exactly the same reasons.

Canadians lining up at the US embassy to revoke seem to be doing the obvious thing too. Their lives are in Canada. The ability to own winter homes in the USA, vacation in the USA, etc., will not be eliminated by revoking USA citizenship. Seems like the thing to do and neither they nor the USA will be the worse for it.

As you say, why is it such a big deal? My guess is that the headlines are caused only by the media looking for things to sensationalize and attract listeners/viewers/readers to gain market share and therefore increase profits.

 

[theOAP]

As you say, why is it such a big deal?

I’ll attempt to keep this brief. I’ll likely fail.

Someone living outside the US may observe threads on EarlyRetirement concerning ACA, the marketplaces, etc.. They also read reports from abroad that ACA solves the problem of health insurance for everyone in the US, and everyone will have health insurance. That outsider may wonder “what’s the problem? When I last worked in the US, in 1980, I had BCBS through my employer and it was fine. Just sign up for the insurance. What is the big deal?”

Whilst comparing ACA to renunciation may not be a fair comparison, those suggesting that one “just renounce” may also be equally lacking in facts concerning renunciation, as the above outsider lacks a true understanding of the details of ACA.

In a nutshell , many cannot afford to renounce. Here’s two examples.


A retired professor, living in Toronto, Canada having moved there in their late 30’s, with the following assets:

A pension from the university of $50,000/year, with an asset value (for 8854) of $900,000, a home purchased in 1985 for $100,000 (the current average price of a detached home in Toronto is $1million+), an RRSP worth $500,000 (a Canadian government sponsored personal pension plan), and 500 common shares in a company with a mark to market gain of $10,495.
They are a “covered expatriate” with total assets over $2.3million. In short, they will owe the IRS $363,945 in tax, which is due immediately upon filing their 1040.

The RRSP cannot be sold and the university pension cannot be sold. The $10,495 will not begin to cover the tax due. That only leaves selling their home and moving elsewhere, simply to renounce US citizenship.

The above person is fictitious, but a tax return was prepared by a qualified US/Can. tax attorney. For anyone interested, here is their 1040-V, 1040, Sch. B, Sch. D, 8949, 1116, 8960, and 8965.
https://fatcalawyer.files.wordpress.com/2015/03/1-1040-born-us-lives-canada2.pdf

And here is their 8854 final exit tax form:
https://fatcalawyer.files.wordpress.com/2015/03/1-f8854-bw1.pdf

Info on RRSP’s is here:
Registered Retirement Savings Plan (RRSP)


The second example comes from Allison Christians, a professor of tax law at McGill University. Allison gave the following presentation at the Tax Advocate Tax Conference in Washington D.C. last month (sponsored by the IRS). It concerns another fictional character, Lisa. Here’s a few selected comments from the presentation:

“The story I am going to tell you is about a woman named Tina. She's Canadian. She is 62. Tina is nearing retirement age and has been a cautious and diligent person all her life, carefully saving for her old age following the textbook investment advice that tells us we should invest in low-load pooled investment vehicles -- mutual funds -- and hang onto them for the long term…………………

So, no matter what, Tina the Canadian her finds herself considered American, and she is going to have to get compliant……………….

I think you can understand why Tina might be more than a little overwhelmed at this point, and that's even before I tell you that the accountant is going to charge her $15,000 to $20,000 to get her compliant, and that if she had known any of these issues in advance, she surely would have made different choices over the years………

In any event, Tina didn't know any of this, and no one told her anything until she found out from her bank teller, some blogs, and an accountant in Canada that now she's at risk of losing her retirement savings because of a country she's stepped foot in only a handful of times. Tina doesn't know where to find the information she needs to confirm her status as a U.S. person, nor the proper treatment of her savings or income under U.S. tax law -- and the stories about the IRS imposing monstrous penalties on others who went through voluntary disclosure programs are terrifying.”

Tax Analysts -- Understanding the Accidental American -- Tina's Story

Is Tina able to “just renounce”?

Youbet, please don’t misunderstand. I don’t mean to belittle your comment. It’s a fair comment for many. Many are able to renounce without life altering consequences, but many are not. It’s a big deal to them.

 

[brett]

Depending on the country, renouncing can be a big deal.

A colleague recently denounced his US citizenship. He took advantage of some sort of IRS 'forgiveness' plan...even though he had not lived in the US for 20 years. He had to file with the IRS for, I think 3 most recent years. Paid a little tax plus about $500. CAD of accounting fees. In many countries, tax treaties allow you to deduct foreign income taxes from your tax return. This was the case for this individual.

Then he waited for the IRS assessment and clearance letter. He needed this in order to renounce. He was surprised when he went to the information meeting at the embassy. The room was packed with people doing the same. Could be because of the IRS forgiveness plan and the media attention. It was a fairly long process.

He was more concerned about the future. Every year that went by meant that he was not filing in the US and his situation was getting worse. So he bit the bullet as it were.

Definitely a major PITA-most especially for those who happened to be born in the US but never live there. Many do/did not even realize they had this unreasonable obligation.

 

[nun]

The OAP has described a serious problem for US citizens living overseas. It is increasingly difficult for them to organize their finances sensibly because of US tax compliance requirements and the loss of access to many foreign financial accounts because of FATCA. So many long term expats are renouncing US citizenship, not to avoid US taxation, but to try to have a normal financial life without the threat of large fines for breaking incomprehensible US tax laws. The cost of renouncing US citizenship is now $2350, but the numbers of people who are giving up their US citizenship is increasing every year.

I have considered renouncing my US citizenship if I move back to the UK, but my net worth is now over $2M so I would have to pay a large exit tax bill.

 

[youbet]

In a nutshell , many cannot afford to renounce. Here’s two examples.

Thanks for those examples. I suppose I was poo-pooing those as I imagined them to be few in number and only involving the rich.

I would propose a limited time "tax and fee" holiday. People who do not want to live with FATCA and whose lives are really attached to another country would be granted a cheap and expedited renouncement process. Then, everyone could go on as they are with no hard feelings.

Youbet, please don’t misunderstand. I don’t mean to belittle your comment. It’s a fair comment for many. Many are able to renounce without life altering consequences, but many are not. It’s a big deal to them.

Your comments are well taken. I was really speaking to the majority of situations and should have given more consideration to the outliers. Again, I'd be all for a "tax and fee holiday" so folks could cut and run with a minimum of expense and aggravation.

 

[youbet]

Depending on the country, renouncing can be a big deal......

He had to file with the IRS for, I think 3 most recent years. Paid a little tax plus about $500. CAD of accounting fees.......

Then he waited for the IRS assessment and clearance letter......

He was surprised when he went to the information meeting at the embassy. The room was packed with people doing the same......

It was a fairly long process.

Definitely a major PITA-most especially for those who happened to be born in the US but never live there.

Great example, thanks. It does sound like the issue isn't so much FATCA as it is an unnecessarily complicated and arduous renouncement process.

It's apparently more of a hassle for certain people to renounce than I knew. This is an opportunity for the USA to do the right thing and make the exit process quick, simple and inexpensive. Something like, if any pre FATCA taxes due are paid, "slap of the rubber stamp," you're outta here!

BTW, my "it's no big deal comments" were directed more to the emotional, loyalty, moral, patriotic, etc., aspects of renouncing. And I still think, in that light, it is no big deal. It's just business.

To those pointing out that some significant money and aggravation can be involved, thanks. I agree with you that the cost and process should be fixed so folks, even the "rich," can cut the ties quickly and easily.

 

[youbet]

I have considered renouncing my US citizenship if I move back to the UK, but my net worth is now over $2M so I would have to pay a large exit tax bill.

I completely agree that should be fixed and the process should be simplified and staffed to make renouncing as quick and painless as possible.

 

[youbet]

If someone has dual citizenship, I do not see what the big issue is in revoking US citizenship.

Depending on the country, renouncing can be a big deal.

Brett, you made these comments in back to back posts. What am I missing here?

 

[brett]

It was poorly worded.

What I meant was that on a personal level only, renouncing citizenship is not such a big deal. Typically the person is no longer living in that county and has no plans to return. Unfinished business if you will.

But, the actual process of renouncing citizenship, if required for tax/financial reasons, can be a PITA. It certainly is if one is denouncing US citizenship. It is not only the IRS filing and waiver issues but also finding a capable person where you happen to be residing that understands how to put the IRS package together. Filing if you will. For US citizenship it is not as simple as handing back your passport or signing some sort or revocation document.

 

[harley]

I completely agree that should be fixed and the process should be simplified and staffed to make renouncing as quick and painless as possible.

There is no "fix" to this. It was done intentionally to keep US citizens from renouncing their citizenship. I think it was aimed most to stop tax protest renunciations, but it hits many people, not just the rich. I have been so disgusted at recent political changes in the US that I looked into it, sort of off-handedly, and was amazed at the tax hit I would take to leave. I think the only real option would be to leave, renounce, refuse to pay and become a tax criminal, and never come back. I don't want to do that, as I have family here, so I'm stuck at this point. It would be nice if this was something that could be "fixed", but that's not going to happen.

 

[youbet]

It was poorly worded.

What I meant was that on a personal level only, renouncing citizenship is not such a big deal. Typically the person is no longer living in that county and has no plans to return. Unfinished business if you will.

That's what I thought and that is what I was agreeing with in my original post. Then things quickly morphed into comments about administrative and tax issues regarding renouncing citizenship.

 

[Neill]

I think the only real option would be to leave, renounce, refuse to pay and become a tax criminal, and never come back. I don't want to do that, as I have family here, so I'm stuck at this point. It would be nice if this was something that could be "fixed", but that's not going to happen.

As an immigrant to the US who would be a covered expat if I tried to leave the tax system now, I found my only option was to become a citizen. It made me feel pretty terrible that they forced me to do this. I needed the protection for my family of the unlimited marital deduction and the likely un-grounded fear that they could take away my green card and trigger the exit tax. Then of course my citizen children would face the only inheritance tax in the US as I would always be branded as 'covered'.
I have to just put up with all the form filling at tax time and the risk of big fines. In 4 more years I can start emptying my foreign pensions.
I didn't want to leave but it sure is upsetting to realize you can't. Of course they added all these rules while I was here.

 

[kcowan]

Just a clarification. The IRS defines a "US Person" as one who must comply. Citizenship has nothing to do with it. Born in the US and holding a green card once upon a time both count.

We have had to complete a detailed questionnaire with every Canadian FI so they can claim compliance. Penalties for being a non-compliant FI are onerous.

The main cost for the innocent is hiring a tax lawyer to file IRS returns for 3 years. No renouncing is needed.

 

[theOAP]

Just a clarification. The IRS defines a "US Person" as one who must comply. Citizenship has nothing to do with it. Born in the US and holding a green card once upon a time both count.

You've made a good point. Citizenship (nationality/immigration) is entirely separate to Code Sections 877 and 877A which defines US Persons. Most Americans don't realise this.

Some of those renouncing, especially Accidental Americans, sometimes decide to exercise one (citizenship) to obtain a CLN in order to be able to freely bank in their country of residence, and ignore the other (877/877A). That automatically leads to covered expatriate status which in addition to the exit tax regime can have serious implications,....and they last forever, even past death.

We have had to complete a detailed questionnaire with every Canadian FI so they can claim compliance. Penalties for being a non-compliant FI are onerous.

Yes, I too have had to complete several of these. They always come with the warning that failure to comply with the FIs request could result in closure of the account.

The main cost for the innocent is hiring a tax lawyer to file IRS returns for 3 years. No renouncing is needed.

Not always simple if PFICs are involved. The cost can be severe, not only for the 3 years, but for the year after, and the year after that, and the next year, and on and on.

 

[kcowan]

Yes, I too have had to complete several of these. They always come with the warning that failure to comply with the FIs request could result in closure of the account...

I have an expat Texan friend who asked his FI what would happen if he refused to complete the form. They told him that they would just indicate that when they report to the CRA.

Of course, he was already filing with the IRS anyway.

 

[Texas Proud]

Wow.... did not know this also applied to non citizens.... looked in 877...

So if you lived here a long time and are going back to your country... get ready for that big tax bill....

(e) Comparable treatment of lawful permanent residents who cease to be taxed as residents

(1) In general
Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.​

 

[nun]

Wow.... did not know this also applied to non citizens.... looked in 877...

So if you lived here a long time and are going back to your country... get ready for that big tax bill....

(e) Comparable treatment of lawful permanent residents who cease to be taxed as residents

(1) In general
Any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.​

Yes, rules like this and citizen based taxation make being a US citizen or having been a long term permanent resident a real hardship when living outside the USA.

I came to the US on an H1-b and after I got married to a US citizen I applied for a green card and then citizenship to make immigration issues easier. If I was to return to the UK now I would probably just keep my US citizenship as renouncing is more trouble (and expensive) than dealing with the complications of US expatriate taxes. However, it has taken a number of years and careful planning for me to understand how to efficiently organize my finances for any move to the UK as a UK/US dual citizen. But I would still anticipate some problems with bank accounts and finances and be excluded from tax advantaged accounts in the UK due to my US citizenship. Also if I return to the UK and qualify for UK Government tax free benefits like heating allowances or disability, those payments will be taxable by the US because of my US citizenship.

 

[Alan]

My wife and I will be in a similar situation to what nun describes next May when we return to the UK. We haven't considered renunciation as we still plan on spending plenty of time in the US ongoing.

I've reorganized our finances to minimize the tax impact of filing in both countries but opening new bank accounts, getting UK credit cards, buying a house etc while being US citizens with the new FATCA laws in place is going to make things interesting to say the least. As seniors we'll get some benefits and those resulting in tangible money such as heating allowance will be taxable in the US but I don't expect to be US taxed on non tangibles such as free bus passes and free prescriptions and eye tests etc.

We'll be able to have our US investments treated as regular equities since US companies like Vanguard have most/all of their ETF's report into the UK "IRS" so they won't be treated as PFICS but the US has no such reporting system so we will avoid anything other than cash investments in the UK. (I have 2 UK private pensions and will collect UK SS in a few years)

 

[youbet]

The tone of this thread has made an interesting and informative turn.

It started as "London Mayor Boris Johnson to renounce US citizenship"

And changed to "London Mayor Boris Johnson held captive by USA"

This has been an interesting read.......

Edit: Did a bit of Googling and discovered that the infamous dual-citizen major is going ahead with his renunciation and has paid the IRS. The Forbes article also gives a simplified explanation of the costs of renunciation.

http://www.forbes.com/sites/robertw...n-paid-irs-is-now-renouncing-u-s-citizenship/

 

[MichaelB]

These regs are a burden, that's for sure. They are affecting too many individuals that don't contribute meaningfully to the tax system.

There must be someone in Treasury or the IRS looking for a way to reduce the workload. For themselves, I mean, as neither has the workforce needed to ensure compliance, and the complexity here makes that a highly skilled labor intensive operation.

 

[NYEXPAT]

I personally see no reason to renounce as I had all my "ducks in a row" before I left the USA. My two son's are citizens by default and some time in the future (8 years for the oldest and 20 years for the youngest), I will have to discuss it with them. For now they will collect their SS benefits and enjoy life here in Peru.

As an aside I think it is more of an issue for those in Developed countries. Here, expats never talk about Fatca, we have developed simple workarounds for those on tourist visa's to open bank accounts,acquire and dispose of property,etc. They only "hitch" I have heard of is they will not accept American checks down here anymore, but that too can be overcome as many SAmericans
maintain accounts in the USA (tax shelters) and are more than happy to exchange with you and avoid any paperwork.