Taxes and the american citizen...

[nun]

Interesting article going over the tax issues for folks living abroad.

Wealthy Americans Queue to Give Up Their Passports - Bloomberg

The attached video clip is annoying as it again assumes that US citizens or expats with foreign accounts are "tax dodgers". Unfortunately that's what the Congress and the IRS assume too. Until the US drops taxation based on citizenship the situation won't really improve. I'd love to see that as part of tax reform.

 

[MichaelB]

The attached video clip is annoying as it again assumes that US citizens or expats with foreign accounts are "tax dodgers". Unfortunately that's what the Congress and the IRS assume too. Until the US drops taxation based on citizenship the situation won't really improve. I'd love to see that as part of tax reform.

It may be more of a media assumption than an IRS belief. That said, it is indeed far to easy to presume the worst for most people when in fact they are in full compliance, and it makes for great slogans.

Regarding your suggestion of tax reform, my preference would be for an OECD agreement to produce auditable records for all financial accounts and transactions and share them among all the governments. This is because too much economic activity is now financial and can be transacted anywhere, and this can (and is) lead to wealthy individuals simply relocating their financial assets outside of tax jurisdiction. Our approach to taxation has not kept up with our economic evolution. By itself, however, FATCA is a clumsy approach.

 

[bondi688]

By itself, however, FATCA is a clumsy approach.

At this time, only a handful of countries have agreed to the IGA. Now it looks like FATCA is actually very one-sided, and had created some hard feelings around the world. While the US government requires all financial institutions around the world to provide information on US clients, the present laws and practice in the US would not allow US banks to disclose information on customers from other countries to their governments. The irony!!

Full Reciprocity Under FATCA Is a Work in Progress, IRS Official Says - Bloomberg Law

 

[brett]

A friend of mine recently gave up his US citizenship primarily because of the IRS issue. He had become a Canadian citizen and planned to remain in Canada.

He told me that there was an entire room full of people at the US consulate in Toronto where similar minded people were taken through The ramifications. Most of them were dual citizens who had no intention of returning to the US and who did not want to file with IRS, let alone pay any tax. He, and I assume everyone, had to obtain clearance from the IRS prior to being permitted to renounce US citizenship.

 

[Texas Proud]

A friend of mine recently gave up his US citizenship primarily because of the IRS issue. He had become a Canadian citizen and planned to remain in Canada.

He told me that there was an entire room full of people at the US consulate in Toronto where similar minded people were taken through The ramifications. Most of them were dual citizens who had no intention of returning to the US and who did not want to file with IRS, let alone pay any tax. He, and I assume everyone, had to obtain clearance from the IRS prior to being permitted to renounce US citizenship.

I wonder why these people got citizenship in the first place...

 

[Alan]

I wonder why these people got citizenship in the first place...

Brett said that his friend was a Naturalized Canadian giving up his US citizenship, that I guess he had by right of birth. Many of the other folks in that room could have been in the same position.

Those of us that choose to become US Citizens I would suggest are less likely to want to give it up since it was hard earned and certainly can not be done on a whim.

 

[nun]

Brett said that his friend was a Naturalized Canadian giving up his US citizenship, that I guess he had by right of birth. Many of the other folks in that room could have been in the same position.

Those of us that choose to become US Citizens I would suggest are less likely to want to give it up since it was hard earned and certainly can not be done on a whim.

I don't agree. I can well understand that US citizens by birth see renunciation as a thing they'd never contemplate. Likewise I would never give up my UK citizenship.....or passport and I have actually turned down very good job offers that required security clearances because of that. However, I would consider giving up my US citizenship if there were practical benefits. I have little emotional connection to it and for me it was a step I took to make living in the US easier. If I move to the UK and the burden of tax filing becomes too high I might well give up the US citizenship.

I believe that the reason many US citizen expats contemplate giving up US citizenship is not to avoid US tax, but to avoid the complexity, fear and potential for IRS fines associated with their tax returns. If you want to have a pension or invest any money it's complicated as a US expat.

 

[meierlde]

I wonder why these people got citizenship in the first place...

There are a number of accidental citizens where their mother happend to be in the US when they were born, but feel no attachment to the US, in particular from Canada, if you are in that category renouncing ones us citizenship only makes sense. Of course I sometimes wonder if you never go to the US what could the US really do to you if you just ignored the IRS (and made sure you had no money in the US)

 

[marko]

There are a number of accidental citizens where their mother happend to be in the US when they were born, ...

Then again, a lot of moms do this deliberately....more to come likely.

 

[nun]

Then again, a lot of moms do this deliberately....more to come likely.

But those aren't "accidental US citizens". The problems arise when someone is unaware of their US citizenship and the unique taxation rules the US applies.

 

[Alan]

I can't see a breakdown of at-birth citizens against naturalized citizens who give up their citizenship. I think those that do are more likely to be wealthy.

Why give up U.S. citizenship? « Bankrate, Inc.

Approximately 1,780 expatriates renounced their U.S. citizenship in 2011, up from 235 in 2008. Why? Money, honey. Bloomberg reports that rich Americans are giving up their nationality in higher numbers since the crackdown by the Internal Revenue Service on tax evaders who try to hide their money offshore.

 

[Major Tom]

Those of us that choose to become US Citizens I would suggest are less likely to want to give it up since it was hard earned and certainly can not be done on a whim.

That makes sense. If a person wanted to work and stay in the US mainly for financial reasons, they could do that as a resident alien - no need for citizenship. I applied for my citizenship because I realized that if push came to shove and I were ever forced to choose an alliance to just one country, I would have chosen the US. Even though British citizens are allowed dual citizenship, that realization prompted me to "make good" with the country that I had fallen in love with. It's a bit like a marriage really - if you've lived with a gal for a while and know that you would never want to be forcibly parted from her, why not do the decent thing and marry her?

I grew up and lived in the UK until I was 22. I am now 49 and still feel very English, but as much as I like visiting the UK, the US is my home. There are things about the culture here that I will never fully identify with but if I'm being honest, there are some facets to the British culture that aren't my cuppa tea either

I became a citizen for one reason - love of this country and although divorces do indeed happen, at this point it would take an awful lot to make me want to renounce my citizenship.

 

[nun]

That makes sense. If a person wanted to work and stay in the US mainly for financial reasons, they could do that as a resident alien - no need for citizenship.

I took US citizenship after I'd been an H1-B and then a permanent resident for 10 years. I wanted to vote and at the time Sen. Simpson was making noises about restricting SS for non-citizens so I thought I would take US citizenship to protect that. Only after I started to investigate the possibility of retiring back to the UK did I fully understand the tax implications. Knowing what I do now, I would stay as a permanent resident and unless there are family and immigration considerations I usually advise people not to take US citizenship if there is a possibility that they might live outside the US again.

When I came to the US I had no understanding of US tax and made no plans for my UK assets.....luckily those were essentially zero as I left straight after college and brought my entire $3k net worth with me in travelers checks. Now that I understand more of the financial implications of being a US expat renouncing US citizenship is definitely an option.

 

[Alan]

That makes sense. If a person wanted to work and stay in the US mainly for financial reasons, they could do that as a resident alien - no need for citizenship. I applied for my citizenship because I realized that if push came to shove and I were ever forced to choose an alliance to just one country, I would have chosen the US. Even though British citizens are allowed dual citizenship, that realization prompted me to "make good" with the country that I had fallen in love with. It's a bit like a marriage really - if you've lived with a gal for a while and know that you would never want to be forcibly parted from her, why not do the decent thing and marry her?

I grew up and lived in the UK until I was 22. I am now 49 and still feel very English, but as much as I like visiting the UK, the US is my home. There are things about the culture here that I will never fully identify with but if I'm being honest, there are some facets to the British culture that aren't my cuppa tea either

I became a citizen for one reason - love of this country and although divorces do indeed happen, at this point it would take an awful lot to make me want to renounce my citizenship.

Nice summary and sentiments. I was older when we left (32) and still have strong family ties and love of the old country as well the new. Since the UK and US have a tax treaty in place then it is essentially tax neutral, and it is only the aggravation of having to deal with the tax code that is a problem. (I don't have tax shelters to hide income from the IRS or HMRC).

TurboTax doesn't deal with Tax Treaties but the TT Community Forum has good info for the many of us living in the USA and receiving UK private and state pensions, and explain which forms to fill in for reporting of such.

We may decide to become resident of both countries in future so we can summer-bird (?) to the UK for 5 months each year, and that will involve some more complexity in filing in each country, but so be it. (That will actually mean 3 tax returns each year as Louisiana taxes me on my pension from my previous company there even though I don't live there).

 

[nun]

I can't see a breakdown of at-birth citizens against naturalized citizens who give up their citizenship. I think those that do are more likely to be wealthy.

Why give up U.S. citizenship? « Bankrate, Inc.

I have no understanding of the numbers either, and you'd think that the wealthy wouldn't want to advertise their reasons for renouncing, but on the expat forums I've encountered a growing frustration and fear from regular US expats about their tax returns. They want to be US tax compliant, but the rules make it almost impossible for them to do that without employing expensive tax professionals. The IRS has offered various programs for them to become compliant, but that does nothing to help them with the complexity of future returns. Those with no assets in the US often wonder why they are bothering and renunciation becomes an option.

 

[Alan]

I have no understanding of the numbers either, and you'd think that the wealthy wouldn't want to advertise their reasons for renouncing, but on the expat forums I've encountered a growing frustration and fear from regular US expats about their tax returns. They want to be US tax compliant, but the rules make it almost impossible for them to do that without employing expensive tax professionals. The IRS has offered various programs for them to become compliant, but that does nothing to help them with the complexity of future returns. Those with no assets in the US often wonder why they are bothering and renunciation becomes an option.

I can understand folks who have repatriated to another country, and believing that they will never go back to the US to live, who consider doing so, but I could never bring myself to burn that bridge just to avoid the IRS. That's why I was hoping to see some sort of breakdown of the numbers.

I was watching Millionaire while on a treadmill the other week and one of the questions was "What is longer than the combined works of William Shakespeare?". Of the choices given, the answer was the IRS tax code at over 5 million words long - and that is also 7 times longer than the Bible.

According to Wiki, Eritrea is the only country other than the USA that taxes its citizens even when they don't reside there, but they pay a lower tax rate than residents.

 

[Texas Proud]

One point is that not all US citizens give up their citizenship even if they never have plans to return, nor do they file tax returns...

Not sure how to spell his name and do not want to look it up... but the terrorist Awlaki (who was recently killed with a drone) was a US citizen... but I do not think the IRS was getting his tax return...



But, seriously... if you do not have any financial ties to the US, what are they going to do if you do not file If you do have financial ties, then you might have more taxes withheld when payments are made to you than the taxes due... IIRC, there is a withholding requirement if you are not a citizen....

 

[haha]

Of course I sometimes wonder if you never go to the US what could the US really do to you if you just ignored the IRS (and made sure you had no money in the US)

Drone strike? Thallium coated pin stick on a crowded subway?

Ha

 

[meierlde]

Then again, a lot of moms do this deliberately....more to come likely.

I suspect there are far fewer of these from Canada than from the Latin America.

 

[Alan]

One point is that not all US citizens give up their citizenship even if they never have plans to return, nor do they file tax returns...

Which is why I was disappointed not to find a breakdown of folks doing this. The Bloomsberg article above said the big increase was to do with Americans wanting to protect their offshore tax havens, but no hard data.

 

[nun]

One point is that not all US citizens give up their citizenship even if they never have plans to return, nor do they file tax returns...

But, seriously... if you do not have any financial ties to the US, what are they going to do if you do not file If you do have financial ties, then you might have more taxes withheld when payments are made to you than the taxes due... IIRC, there is a withholding requirement if you are not a citizen....

This is a good point, there are mandatory NRA withholding taxes on US source income paid abroad, but if the NRA is a UK resident the tax treaty eliminates that withholding tax on most income. You file a W-8BEN and you get any IRA etc payments with zero US tax withheld. You don't have to file any US taxes, just UK taxes.

There are also mandatory withholding on payments from IRAs, 401k etc made to US citizens living abroad and you can't use a treaty to eliminate those. So for a US citizen resident in the UK who gets US IRA income the result is 10% withholding in the US, then they must pay the UK income tax on 90% of that income (per HMRC rules), then they file a US 1040 and use UK tax as a foreign tax credit and also apply the 10% withholding to work out the refund. This all has to be done to account for the different tax years in the UK and the US too; the UK's runs from 6th April to 5th April the next year. Now if you also include SS, pensions and other income from the UK, things can quickly spiral out of control.

 

[theOAP]

I've been reading the latest comments with interest. I don't intend to take exception with any of them, we're all entitled to our opinions. I would like to offer some points which some may want to investigate further. I would like to supply some accurate statistics, but surprisingly, none exist. Anywhere.

You cannot go through either renunciation or relinquishment of US Citizenship unless you already have dual citizenship in another country. The US will not allow you to do it. In the case of relinquishment, there are very rare exceptions. You can hand back a Green Card, but in addition to notifying the DoS, you also have to complete a form for the IRS. If you don't file with the IRS you are still considered liable for US tax returns and financial reporting even though you, as a non-US person, no longer live in, or have any income/accounts in the US.

There are an estimated 1 million US Persons in Canada. No one knows the exact number. Many thought they had relinquished their US Citizenship in the 60s and 70s when they accepted Canadian Citizenship. At that time, dual citizenship for a US Person was not allowed. They have recently discovered that the DoS changed it's stance as regards those who relinquished at that time, and the IRS is now claiming for delinquent tax and information filing. The Canadian government will assist the IRS in collection of back taxes, but it refuses to assist on the collection of penalties due for not filing information returns.

 

[nun]

You cannot go through either renunciation or relinquishment of US Citizenship unless you already have dual citizenship in another country. The US will not allow you to do it. In the case of relinquishment, there are very rare exceptions. You can hand back a Green Card, but in addition to notifying the DoS, you also have to complete a form for the IRS. If you don't file with the IRS you are still considered liable for US tax returns and financial reporting even though you, as a non-US person, no longer live in, or have any income/accounts in the US.

This is an excellent point. To officially give up US citizenship you must file an 8854, declare all your accounts and pay tax on them if you are not up to date. The IRS won't let you go until you have done this. Giving up US citizenship might be a useful tactic to save on future taxes, but it isn't one that works to get out of past or present US taxation.

 

[MichaelB]

Which is why I was disappointed not to find a breakdown of folks doing this. The Bloomsberg article above said the big increase was to do with Americans wanting to protect their offshore tax havens, but no hard data.

Nor does it mention wealthy individuals from other countries requesting US citizenship or residency.

 

[nun]

Nor does it mention wealthy individuals from other countries requesting US citizenship or residency.

Yes, the US is a tax haven for many, but US banks are not required to share information on dual citizen or foreign depositors that might have overseas tax obligations. This is why so many are annoyed at FATCA, the lack of reciprocity.