U.S. citizenship-based taxation: Bad for the U.S, Bad for U.S. citizens, Bad for non-U.S. citizens, Bad for the world!

Note: This post is heavily based on comments on the Isaac Brock Society site. It is an attempt to consolidate some of the important ideas and lucid comments in one post.

Phil Hodgen once commented that “U.S. citizenship is a problem to be solved“. He was referring to the plight of U.S. citizens living outside the U.S. The truth is that “citizenship-based taxation” is a problem to be solved by U.S. citizens, non-U.S. citizens, the Government of the United States and governments the world over.

A recent post appeared at the Isaac Brock Society which described how Alberta is seeking U.S. workers. It noted that:

Alberta is launching a new recruitment drive to get skilled US workers to move to Canada. At a purely economic level it makes a lot of sense for Alberta is they have an unemployment rate that is starting to drift toward 4% at which point labor shortages start to occur.  However, I can’t help but notice no mention is being made by the Alberta government of the US tax and filing requirements that these prospective US Citizen migrants to Canada are subject to.

A comment to the post, questioned whether Alberta knew what it was getting into. Is it a good idea to accept U.S. citizens as immigrants? The comment stated:

This is a big mistake on the part of Alberta. U.S. citizens are economic threats to the stability of the Canadian economy and the Constitutional integrity of Canadian life.

This is a point that is worth considering.

The Plight of U.S. Citizens Living Outside The United States – As Captured in this letter to Minister Flaherty:

Furthermore, if the IRS is allowed to monitor the income of the legal residents of Canada, there is no assurance that the minimum income/assets threshold would not change, thus at some point potentially leaving American expatriates living and working in Canada with a US tax liability. This kind of uncertainty leaves the US government with unlimited opportunities to extort Canadian residents and citizens of a sovereign nation with threats of tax liabilities and penalties. Expatriates would of necessity have to divide their attention between US and Canadian politics and policy changes; such a bifurcation would weaken people’s relationship to Canada. Were Canada to agree to such a faustian bargain, there would be significantly less incentive to reside in Canada; American expatriates would, in effect, not have actually left the US system and its threat to the inviolability of the individual’s freedom of choice and movement. Those among us who have become citizens of Canada would conceivably become targets of suspicion and reprisal.

Excerpt from a letter to written to Canadian Finance Minister Flaherty

Obama/IRS Induced Tyranny

All of this IRS-Obama induced tyranny involves mainly U.S. citizens, but the new rules have ensnared thousands of Canadians, many of whom were not only ignorant of IRS rules, but of the fact that they were U.S. dual citizens.

Americans who are being subjected to this unjust IRS-Obama persecution are real people like you and me – U.S. citizens married to foreigners who left the U.S. decades ago, retirees whose lives spanned multiple countries, dual-taxpayers trying to do their U.S. taxes themselves in foreign places, where accountants that know U.S. tax laws are few.


It is a bad time to be a U.S. citizen living outside the United States. Actually, it’s an impossible time. You have two choices: either move back to the U.S. or renounce U.S. citizenship. (Few people can afford the ongoing costs of compliance.) In the past year, person after person has described the agony of being a U.S. person. Once burdened with U.S. citizenship one becomes economically and socially disabled and risks transmitting these characteristics to the non-citizens around you. (For a humorous take suggesting that U.S. citizenship is like a disease, see the comment here.) Furthermore, you risk the transmission of U.S. citizenship to your children.

Dual citizens in Canada (and possibly other countries) are seeking  protection from the government where they reside. In a new blog – OutragedCanadian – the author joins the number of dual citizens who have asked the Canadian government for protection from the U.S.  The U.S. (in its treatment of U.S. citizens abroad) is behaving like gangsters in a thugocracy.  Those threatened by thugs typically call the police. In the case of dual citizens being threatened by the U.S. government, they  seek the assistance of  the Government of Canada. The IRS attack on U.S. citizen and dual citizens living in Canada is becoming a diplomatic issue.

Many U.S. citizens are filing for divorce from the U.S. – that is renouncing their citizenship. In fact,  citizenship renunciations are soaring under the Obama administration. This is a form of defensive “self help”. But, along with it comes the possibility of paying a huge U.S. Exit Tax triggered by renouncing U.S. citizenship. For many, the tax is a price worth paying because:

– of the difficulty of tax compliance for U.S. citizens living outside the United States

– while the IRS is threatening massive penalties for non-compliance, the IRS is the single biggest obstacle to tax compliance for U.S. citizens living outside the United States

– of the fact that U.S. citizenship has been priced out of the market

– of the fact that the U.S. treats its citizens as property, as though they were cows to be milked

– of the effects of the IRS assault on the health, wealth and lives of U.S. citizens living outside the United States

– of the inability of U.S. citizens living outside the United States to do normal retirement planning

Why? It’s because of the insanity of citizenship-based taxation.

The U.S. and Eritrea are the only two countries in the world that have citizenship-based taxation. Yet, the U.S. joined a U.N. condemnation of Eritrea for using citizenship-based taxation. What? You heard right: Only the U.S. may tax its citizens living abroad the U.S. condemms the use of a disapora tax for other countries. The position of the U.S. is:

Do as I say and not as I do.

U.S. citizenship has become a disability for any U.S. citizen who chooses to live outside the United States.

When it comes to citizenship-based taxation:

We know that citizenship based taxation harms U.S. citizens living outside the United States.

We know that citizenship-based taxation harms the U.S. economy.

We know that citizenship based taxation exacerbates the trade deficit and destroys U.S. capital.

We are learning that: U.S. citizenship-based  taxation is an attack on the sovereignty and families of Canada.

U.S. citizens are not the only players injured in this game. What about their families, social relations, business partners and host governments? The time has come to explore the ramifications of citizenship-based taxation on these seemingly innocent bystanders. The “collateral damage” associated with being involved with a U.S. citizen is  described beautifully in a recent comment at the Isaac Brock Society.

As I read it, it reminded me that for every US dual/citizen/’person’ in Canada, there are also all their Canadian spouses and family members affected. This is another constituency that Minister Flaherty and Canadian politicians must be made aware of…..

‘All for one, and one for all”….

To all those single citizenship Canadians with dual/US citizen/US ‘person’ spouses, children relatives and friends, who have not been writing letters to politicians and newspapers:

We need your help!

An important angle to emphasize with Canadian officials:
Extraterritorial IRS banking penalties, and extraterritorial tax levied takes money away from WHOLE FAMILIES in Canada and elsewhere internationally – not just the individuals that the US designates as ‘international taxpayers’. I read stats re reasons for US citizens to live permanently abroad, and if I remember accurately, the results showed that at least a third are married to non-US citizens. That greatly amplifies the scale of the statistics that should be discussed anytime the injustice of the current FBAR and FATCA provisions are described.

When the IRS taxes and invades the financial privacy of US ‘persons’ abroad, the effect is to tax and invade the financial privacy of whole non-US families…and thus tens of millions of individuals who are NOT US citizens, with no US status or ties also become victims.

Any potential liability or penalties incurred by one family member, re the IRS, would be levied out of pooled Canadian family funds. In practical terms, ANY THREAT TO ONE MEMBER OF A FAMILY IS A THREAT TO ALL. When joint assets are threatened, that takes food money directly out of a Canadian child’s mouth, steals their education funds, and supports available to Canadian spouses in retirement. The same goes for estates, however modest.

We need to emphasize publicly, that in addition to the millions of US citizen/duals/’persons’ in Canada, the numbers of Canadians affected personally by FBAR, FATCA and the US extraterritorial tax regime in practical terms actually affect millions and millions more – all the sole citizenship Canadians holding joint family assets with those the IRS is targeting. Any joint family accounts disclosed to the IRS are accounts belonging to Canadians. The account privacy invaded is the privacy of Canadians in Canada.

Since duals/US ‘persons’ in Canada are being painted by the IRS as noncompliant with UScitizenship based tax laws, and as ‘evaders’ hiding funds in ‘foreign’ Canadian accounts, etc.
What does that make their Canadian-sole citizenship spouses and relatives who hold those very same ‘foreign’ (Canadian) joint assets in common with US citizens/persons (re FBARs and FATCA disclosure) – and who rightfully object to the idea of being forced to collude with the IRS because of the threat to their partners from a ‘foreign’ (non-Canadian) government? Are those Canadians then also magically transformed into criminals with ‘foreign accounts’, ‘accessories’ assisting ‘tax evaders’?

Single citizenship Canadians (with no green card, US residence, US property, etc.) are under no tax obligation to the US – and the US laws do not apply to them in Canada. But, they pay the price in loss of assets if their spouse and children are subjected to US citizenship based taxation, draconian reporting and penalties. So, the very same Canadian held assets and accounts are at once both legal in Canada – according to Canadian laws, and also ‘suspect’ – according to the US….. Since the IRS acknowledges – without apology or justification – that the FBAR (and FATCA) penalties can far exceed the value of the accounts to be reported, and are not contingent on any tax owed, and are levied on legally acquired funds, then that liability can wipe out the assets of an entire Canadian family – NOT just the member with the US status …..

Emphasizing that inherent contradiction extends and underscores the size of the insult and threat to Canadians and Canadian sovereignty.

So it seems to me that we need more single-citizenship Canadian protesters to complain to politicians and write articles, etc. in order to publicly embaress the US and the IRS – because the issue of the privacy threat to Canadian’s accounts, their assets and their family’s financial well-being. Which cannot be dismissed by the US and the IRS as being the work of US ‘tax protesters’. Basically, a tax or FBAR/FATCA requirements and penalties imposed on US citizens ‘abroad’ is also a tax/penalty structure imposed on their non-US families. It is a case of ‘all for one, and one for all”.

Single citizenship Canadians should also embaress the US by pointing out that the FBAR rules deprive Canadians of the security of having their spouses and relatives – if UScitizen/dual/’persons’ act as executors for their estates, and holding powers of attorney, because the mere existence of those powers trigger the obligation to report those CANADIAN assets/accounts/estates in Canada to the IRS – without actually even exercising the powers, (or benefiting from them).

Single citizenship Canadians need to write letters from that viewpoint, because their position is unassailable – they have no obligation at all to cooperate with the US – and basically, they are being blackmailed by the IRS into allowing the disclosure of their bank accounts to spare their US/dual spouses and children. They are deprived of their own individual financial privacy – because the IRS is holding their US status spouses and children for ransom. This is also a threat to the stability of households – if a Canadian spouse is unwilling to allow a disclosure.

I have not seen this angle emphasized in news coverage…..
Canadian single citizenship relatives of US persons could also write to the US Ambassador David Jacobson – who presumably would be interested in coverage which compromises the image of the US in Canada. http://canada.usembassy.gov/ambassador.html

And I wonder if on the US side, this could be a good issue to register with the TAS http://www.irs.gov/advocate/article/0,,id=103729,00.html through the SAMS http://www.irs.gov/advocate/article/0,,id=117703,00.html and hope that it will be highlighted in any future reports to Congress – noting that this tarnishes the image of the US abroad.

Very well put. It is time to consider:

1. The damage that U.S. citizenship-based taxation is causing  to other countries (Canada for example)

2. Whether, in light of this damage, will Canada and other countries will  be willing to accept U.S. citizens as permanent residents

3. If the host country does allow U.S. citizens to immigrate, will it pressure them to relinquish U.S. Citizenship?

4. The increasing sentiments of Anti-Americanism caused by Obama administration

Re 1: The damage that U.S. based citizenship-based taxation is causing to other countries (Canada for example)

To tax U.S. citizens living in Canada harms Canada in at least four ways.

First, attacking the U.S. citizen making him a much weakened and less productive member of Canadian society.

U.S. citizenship is  a disability  – a disability that makes it impossible for people to do adequate and proper retirement planning. U.S. citizens cannot invest in normal retirement planning products. U.S. citizens do not have a tax free capital gain on the their principal residences. The list goes on and on. This hurts not only the U.S. citizen, but their families and their host government.

“There has been a lingering question about the US tax treatment of Canadian Mutual Funds in taxable accounts.  This discussion does not apply to investments in RRSP accounts.  In early 2010, the Internal Revenue Service issued a determination that most Canadian Mutual Funds are corporations for US tax purposes, even though they are organized as trusts under Canadian law.  Because they are corporations, most Canadian Mutual Funds are Passive Foreign Investment Companies (PFIC).

A PFIC investor has burdensome US tax reporting as well as potentially confiscatory taxation.  If a PFIC provides certain required information, the tax burden can be lessened, but this is not practical for must Canadian Mutual Funds.

There are two solutions—one short-term and one permanent.  On a short-term basis you can report income on a “marked to market” basis in your US income tax return.  This means that the change in value during the year will be reported as ordinary income.  This, of course will, require additional valuation information each year, but it will avoid potential tax and interest charges that have the potential to exceed 100% of the income from the investment.

The second solution, and the one I recommend is divest your portfolio of all foreign mutual funds and invest in individual security issues.  While this may not sound like a sensible solution for the Canadian investor, but it is the price of being a U.S. taxpayer.”

Bradley Kirschner – Seattle Based CPA

Second, by attacking Canadian citizens who are part of the family of U.S. citizens

I have been in a similar position in terms of spousal/family accounts, and felt very isolated in trying to deal with it – especially as currently I am un/deremployed and so am not able to offset any IRS related expenses through income. I am certain that there are many more faced with a similar reaction from spouses. Given that finances are a potentially stressful issue for families anytime, add in the extensive reporting, expensive accounting fees, draconian scale of the FBAR and FATCA penalties, plus IRS demands which breach the financial privacy of non-US citizens, forcing disclosures even on joint accounts and non-personal accounts (ex. voluntary, workplace, estates, etc.) and there is a very potent recipe for destabilizing relationships and families ‘abroad’.


Third, by attacking Canadians who wish to maintain business and social relationships

U.S. citizens are harder to employ (they are subjected to double taxation). U.S. citizen employees cannot be trusted with “signing authority” on bank accounts (do you want your information to go the IRS?)

I also really relate to the issue you raised about the inability to participate as a volunteer – co-signing powers in voluntary organizations triggers IRS reporting liabilities (re FBARs). This applies also to volunteer positions in professional organizations. DonPomodoro mentions this on the ‘Ask questions about FBAR thread’ http://isaacbrocksociety.com/2012/01/13/ask-your-questions-about-us-expat-tax-fbar-and-fatca-discussion-thread/ Feb 18 and 19th. Other posts have described the liability in business partnerships. In my work life, participation in voluntary roles, and governance for community and professional organizations has been key to building skills, experience, and networking – which resulted in employment and professional recognition. The related issue of FBAR reporting required for any workplace accounts we can sign on – and we’ve got multiple strikes against us that US resident citizens don’t face.

This prevents us from participating fully in the lives of our communities, and governance of our professional societies. It is an issue that would qualify as a systemic advocacy example – and it would be great if we could get as many as possible to register a complaint about it to the Taxpayers Advocate through SAMS. The voluntary governance issue appears to be an area they are actively interested in investigating.


To this I would add the following. Many U.S. citizen professionals who carry on business in Canada are required to maintain trust accounts. These trust accounts are required to be reported on FBARs. Mr. FBAR requires the retention of banking records for inspection by the U.S. government. Need I say more. These trust accounts, maintained by U.S. citizens, are reportable on FBARs, and  include information about the financial affairs of many non U.S. persons. Perhaps person who maintain trust accounts that are reportable of FBARs should advise clients that their deposits may be reported to the IRS. Real estate brokers and other professionals take note.

Fourth, by inflicting damage on Canada’s economy, laws and societal values

There will be a huge outflow of money from Canada to the US.

This will affect every Canadian, from the local economy to the entire country’s economy.

A foreign government (the United States) is attempting to force Canadian banks to discriminate against Canadian citizens.

A foreign government is attempting to invade the privacy of Canadian citizens.

If the US changes and/or reinterprets their laws to suit their needs, what else might they do in the future, at the expense of Canada, and Canadians?


Re 2:  Whether, in light of this damage, will Canada and other countries will  be willing to accept U.S. citizens as permanent residents?

Here are two interesting discussions of how U.S. citizenship-based taxation hurts Canada and other countries.

Why might a country be reluctant to accept U.S. citizens as immigrants? Here are some reasons.

Most countries consider whether an immigrant will be able to be self-supporting before allowing the person to immigrate. U.S. citizens are severely disadvantaged when it comes to retirement planning.

Question: Would you allow a person to immigrate to your country who will have a difficult time providing for his or her retirement needs? Probably not. This is the reason why many countries will not allow people over a certain age to immigrate.

The IRS is hunting dual citizens who are resident in Canada for taxes and penalties. In many cases, these taxes are payable only out of retirement savings. If these taxes and penalties are to be paid this is money that leaves the Canadian economy. Furthermore, the U.S. is competing with Canada (and other countries) to tax money  earned in that country.

Question: Would you allow a person to immigrate to your country if you know that you must compete with another country to tax them?

FATCA is imposing enormous costs on non-U.S. banks. In many countries the banks have simply made a decision to not do business with U.S. citizens. Wouldn’t it be easier to simply not allow any more U.S. citizens to immigrate?

Question: Would you allow a person to immigrate to your country if you knew in advance that the person would contribute to higher costs for your most important industries?

The implementation of FATCA comes at the expense of Canada’s privacy laws. After all, (according to the U.S. Congress) the IRS is more important than Canada’s privacy laws. In order to catch a few tax evaders, it is important the IRS be able to override Canada’s privacy laws.

Question: Would  you allow a person to immigrate to your country if the person was a threat to your country’s privacy laws?

So, far U.S. citizens have been thinking about how U.S. citizenship affects them. The time has come to think about unattractive it is becoming for the governments where U.S. citizens may be living. How much longer will countries accept U.S. citizens as immigrants?  U.S. citizens  come with so many problems.

Today, some U.S. citizens living outside the U.S., are having trouble getting and/or keeping bank accounts and jobs. Tomorrow, U.S. citizens may not even be acceptable as immigrants.

Why would any country want residents who come with the problems of  U.S. citizenship? As long as citizenship-based taxation continues, the government of Canada (and others where U.S. citizens reside) will have to compete with the U.S. government to tax these residents of Canada. As long as U.S. citizens are subjected to FBAR and FATCA, law abiding Canadians will have to live with the risk of their financial information being transmitted to the IRS. This is a threat to ALL Canadian citizens. Who would want this?

Re 3: If the host country does allow U.S. citizens to immigrate, will it pressure them to relinquish U.S. Citizenship?

Furthermore, there may be pressure on U.S. citizens living abroad to relinquish their U.S. citizenship. As was aptly stated in a recent comment:

“The foreign governments have another way out which is to simply strongly encourage American citizens living in their countries to naturalize and relinquish their US citizenship. In general we are a pretty well-educated group with a strong culture of entrepreneurship. In addition many of us are of European origin. Europe needs people. Might as well get them from the “settler colonies.” And given that Europe did not pay to raise or educate us, our migration is a net benefit for the host country”

In other words, we will let you come, but we expect you to become a citizen of only our country! This is currently being considered in Holland.

Re 4:  “The  Increase In Anti-Americanism” – This Cannot Be Good For The United States!

The U.S. can (and probably will) ignore the negative effects of citizenship-based taxation and its incredibly vicious, cruel treatment of its citizens abroad. This is a great mistake. Anti-Americanism is deeply rooted in the Canadian psyche. It has long been a staple in the diet of many countries outside the United States.  The best investment that the U.S could make in its defense would be to repeal FATCA – that is to be better liked. At the present time the U.S. government estimates that it has at least six million citizens living outside the United States. It’s conduct is turning these six million U.S. citizens  into some of the most Anti-American people on the planet. This cannot be good for the United States.

A recent sampling:

There are more reasons why it is wise for the U.S. to “play nicely in the sandbox”.

1. The U.S. is the world’s number one debtor nation. It requires other countries to buy its debt. To put it simply: The debtor does NOT set the rules of repayment with its creditors.

2. The U.S. appears to assume that the U.S. dollar will continue to be the world’s reserve currency. There is no reason to believe that this will continue and there are reasons to believe that it will not continue. A massive devaluation of the U.S. dollar appears to be inevitable.

The Solution …

“Abolish citizenship-based taxation stupid!”

All of this insanity would end if the U.S. would simply stop using citizenship-based taxation. It all comes down to the story of the space shuttle and the horse’s rear end. It really is that simple.

The U.S. should stop citizenship-based taxation and repeal FATCA.


1 thought on “U.S. citizenship-based taxation: Bad for the U.S, Bad for U.S. citizens, Bad for non-U.S. citizens, Bad for the world!

  1. Pingback: The Isaac Brock Society

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