Nobledreamer’s comment to this article about renouncing U.S. citizenship is worth a post and that is exactly what this post is. One of best descriptions of the problem I have seen. It’s in language and a format that anybody can understand it. Thanks!
Thank you for outlining main points of tax requirements involved in expatriation.
I feel it is extremely important to make a clear distinction between those who live in the US and decide to expatriate and renounce/relinquish their citizenship and those who already live abroad and decide to renounce/relinquish their US citizenship. I do not know anyone who has left the US for tax reasons and then renounced their citizenship. So I cannot speak to any aspect of this particular situation.
As to Americans living abroad who decide to renounce/relinquish their citizenship, the issue primarily, is not one of taxation but rather, of onerous penalization for not filing the Foreign Bank Account Report (FBAR). FBAR is part of the Bank Secrecy Act (1970), designed to track money of US Homelanders who have foreign accounts to money launder, support terrorism etc. It was not enforced for 40 years. Virtually no one living abroad had ever heard of it. Once the IRS achieved success with breaking the bank secrecy laws in Switzerland, in 2009, this little-known form was added into the pot of the US government’s misleading campaign against tax evasion.
Americans living in foreign countries pay taxes to the governments of those countries. Along with FBAR, most were unaware they were required to file/pay US taxes as well. This is in no way, equivalent to Homelanders who purposely seek out places “offshore” to avoid tax. However, IRS has gone after honest Americans abroad who had no knowledge of their obligations. Instead of encouraging them to come forward in a reasonable way, the IRS has engaged in a vicious cycle of fines, penalties, interest and whatever else they can think of to persecute those who are simply presumed to be guilty.The stories of those who have tried to comply by entering the Offshore Voluntary Disclosure Initiative are truly horrifying, many enduring 2 years of confusion, being threatened with penalties equivalent to their entire retirements. These are people who by and large, owe no tax to the US.
Some of the reporting requirements defy any level of reasonable logic. A US citizen, stay-at-home mother for instance, who likely has no income and is signed onto her non-US citizen husband’s accounts, is required to report HIS bank account numbers, balances and so on. I doubt any US Homelander would be willing to do the same if living in the US, married to a foreigner with a government who demanded the same, or else be prepared to lose a considerable portion of savings, retirement plans, etc.
Now FATCA promises to be even more punishing. Financial institutions across the globe will be required to report their American clients’ personal banking information. The US government will coerce this by reporting by withholding 30% of an institution’s entire US holdings if they do not comply. Banks in Switzerland have begun to close those client’s accounts without notice, including the renewal of mortgages. Congress and the IRS are fully aware of this and do nothing to mitigate this truly destructive practice. There is no excuse whatever, for this gross misapplication of power. A recent article pointed out that terrorists will be able to pinpoint identification and location of Americans living abroad, thus putting them in harm’s way. I cannot imagine any American, abroad or not, feeling that this is the way a government should act toward it’s own citizens.
The numbers of Americans abroad renouncing is higher than the government will admit. The “Name-and-Shame List’ published in the Federal Register is hardly an accurate representation of how many are doing just that. Look to the long waits at European embassies and consulates, the number of expatriates banding together in Canada and Switzerland trying to get their message out via online forums and you’ll get a much better sense of how widespread this “trend” is.
Not about tax, nor political discontent, the larger issue is the complete betrayal by one’s country in an attempt to gauge for money to make up for the horrific debt the US has. Add the cliches of “tax cheat,” “traitor,” and the guaranteed reaction such labels produce, and those who expatriated for reasons such as marriage, education or employment can count on being treated in the same manner as those who may leave the US for tax purposes.
It is high time that Americans learn that the country they grew up in, no longer exists. The “American exceptionalism” that we were taught to believe in, needs to be seen for what it has become, an excuse for the government to do whatever it wants with no concern for the consequences. ALL Americans lose in this process.