The United States of America – A Nation of Forms
As it stands, there are a number of normal investments prohibited to U.S. citizens living abroad. U.S. citizens living abroad will likely find it much more difficult to find an accountant or tax prep person to help them with their taxes. There are at least three reasons:
1. Paid Tax Preparer Registration Required – Effective for the 2011 tax year, the IRS is requiring all “paid tax preparers” to register with and pay a fee to the IRS. For many this will require the taking of an exam.
(Whether this can be applied to preparers outside the U.S. or not, it will certainly reduce the number of people willing to take this on.)
2. Professional liability – Who would want the risk of making a mistake? I know at least one Canadian CA who will not take American clients. Who would want the problems? In addition to the 1040, there is the problem of the FBAR, the new 8938 form, the appropriate RRSP election form, and a host of possible other forms (see below).
3. Too much work for too little money – The work is so substantial that, that I expect the minimum fee will be in the range of $1000 (for somebody who has no assets or issues). Although this I small change for some taxpayers, it is clearly too expensive for most taxpayers.
In other words, who would want the hassle of dealing with a U.S. citizen? U.S. citizens in Europe are having trouble getting banking services. The Canadian Bankers Association has suggested that Canadian banks may cease dealing with U.S. citizens. Non-U.S. citizens are reluctant to enter into any kind of arrangement with U.S. citizens (who wants the IRS around?). I predict that U.S. citizens will have difficulty getting accounting services (and possibly legal services). Why would any tax prep person want the hassle of dealing with a U.S. citizen? I don’t blame them.
Therefore, I suggest that you get started on your taxes immediately. Those of you who have the money to use the professional accounting firms will have no trouble finding a professional to take your money – expect to pay big bucks. But, those of you who don’t, you have a big problem. Make no mistake:
U.S. citizenship is a problem that needs to be solved – and a big problem it is!
Here are some great articles that may get you thinking about certain tax issues that might apply to you:
– Common circumstances where U.S. tax is payable – more than you might think
– Feeding the Nation of Forms – Some forms that may have to be filed – more than you could imagine
– Tax Planning and Dual Citizenship – how can you reconcile the IRS and Canada Revenue Agency?
– Tax Implications of Selling Your Principal Residence (not tax free) – you may not be able to afford to “move up”
– Further details on TFSA, RESP and mutual funds (only read if you are sitting down)
Finally, this doesn’t address the problem of the past. If there are any people with past compliance issues (taxes and FBARs) you might take a look at this post about the IRS Fact Sheet for U.S. Citizens and dual citizens living outside the United States.
It is clear that the primary obligation of U.S. citizenship to fill out forms. You will probably have to devote the next few months to this task. What is the value of U.S. citizenship? Well, I guess you get the protection of the U.S. government (or do you need protection from the U.S. government?).
There are only two groups of people who can survive this tyranny of the U.S. government (assuming you want to) – the very rich, and the very poor with very few assets that require reporting (note that it is NOT just being poor). For the average middle class type who is is concerned with retirement planning, the situation is hopeless. You are owned “lock, stock and barrel” by the IRS.
You have only two options:
1. Spend all your time on IRS compliance issues.
2. Renounce U.S. citizenship and rejoice!