— U.S. Citizen Abroad (@USCitizenAbroad) July 16, 2013
Introductory thought 1:
Based on current tax law, for Americans living abroad, currency fluctuations create U.S. dollar capital gains or losses even on daily transactions as well as on movements of short and long term investments done in local currencies. The exchange rate on the purchase date and the exchange rate on the sale date determine the capital gain for the U.S. Treasury.
Introductory thought 2:
We all know that US tax liability is computed in US dollars. We also know that exchange rates can play in rule in creating profits and losses. It would be interesting for people to comment on their experiences with how changes in exchange rates have created “phantom gains” for them. I think this could be very helpful evidence in working on how to get this whole thing (citizenship-based taxation) reversed. So, if anybody is reading this, please comment on your experiences.
In addition, the issue of exchange rates and a falling US dollar is extremely important on this issue of expatriation? Why?
As the US dollar falls, almost everybody will become a “covered expatriate”. That two million dollars will seem like nothing.
Before the Berlin wall came down, Germany was divided into East Germany and West Germany. East Germany was called the DDR (“Deutsche Demokratische Republik,”). It was clearly not a democracy. In the Soviet Union people were entitled to vote. It’s just that no representatives of the voters appeared on the ballot. Clearly the fact that a country calls itself a democracy does NOT make it a democracy. There are many different kinds of democracies. They can have different rules, different kinds of representatives and different ways to determine the winner of elections. Yet all true democracies share one characteristic:
They allow citizens and stakeholders to have meaningful participation in the political process. Meaningful participation includes more than the right to cast a ballot. It necessarily includes having someone on the ballot who represents ones interests.
— U.S. Citizen Abroad (@USCitizenAbroad) July 14, 2013
My recent post discussed the importance of renouncing U.S. citizenship before becoming a covered expat. For those who need a reminder (and this is not a substitute for careful legal advice) a “covered expatriate” is one who meets any of the following tests:
1. The Income Test – Has the composition of income hat has resulted in a U.S. tax bill of approximately 140,000 for each of the last three years (this is a paraphrase, look it up yourself);
2. The Asset Test – Has a net worth of two million dollars or more
3. The Compliance Test – Is unable to certify compliance with U.S. tax laws for each of the five years prior to expatriation. Note that this is intended to include having filed all relevant information returns. (I would argue that since FBAR is a Title 31 requirement it is irrelevant to Title 26 compliance). Interestingly, if you do not meet either the asset test or the income test, you have a huge incentive to ensure that you have five years of tax compliance.
When it comes to U.S. tax compliance:
The only thing worse than the fear of non-compliance is the certainty of compliance. Why?
— U.S. Citizen Abroad (@USCitizenAbroad) July 12, 2013
If you sell a #PFIC (mutual fund) you have held for many years, you can"basically say goodbye to that investment" http://t.co/mu5k07xAv2
— U.S. Citizen Abroad (@USCitizenAbroad) July 11, 2013
For those who do not want to read this post. Here is the bottom line:
If you are a tax compliant U.S. citizen abroad, with a net worth of less than two million U.S. dollars, with investments (including mutual funds, pensions, and a principal residence in your country of residence), you should renounce your U.S. citizenship at the earliest possible moment. To the extent that your investments are in non-U.S. mutual funds, other kinds of PFICs or your principal residence, the U.S will confiscate large amounts of the proceeds of sale. (And you thought you were solving your problems be being tax compliant.)
Many Canadians are using their principal residence as their retirement plan. Their plan is to sell, downsize and live of the balance of the proceeds. This is NOT possible if you are a tax compliant U.S. citizen! You must NOT be a U.S. citizen at the time the investments are sold.
If you want to preserve your investments you must relinquish your U.S. citizenship to protect your access to your investments!
That post included the following poll. The results are shocking!
In January of 2013 I began a series of posts to explore the rationale (if there is one) for “citizenship-based taxation”. I simply cannot understand how the United States of America, a country that once was a leader in human rights, can treat it’s citizens (not to mention Green Card holders) so badly. I assume that Congress has simply not considered this issue.
This series of posts (including the Prologue are):
In our country the people are sovereign and the Government cannot sever its relationship to the people by taking away their citizenship. Our Constitution governs us and we must never forget that our Constitution limits the Government to those powers specifically granted or those that are necessary and proper to carry out the specifically granted ones.
The US exit tax applies to U.S. citizens abroad who have accumulated all their assets outside the U.S. For this reason the U.S. tax is arguably much more offensive than the Exit Taxes imposed by the Nazis and Soviets.
Some of the world’s most disgusting and evil regimes restricted the right to emigrate, including the imposition of exit taxes designed to fleece those who did want to escape.
…citizens have been refused permission to leave the Soviet Union unless they pay a new tax… Nearly 500 Jews signed a letter to U.N. Secretary General Kurt Waldheim calling the tax an illegal “ransom” and an extreme injustice. Jews trying to emigrate to Israel have been the main victims of the new tax imposed by a decree… However, the tax is applied to anyone trying to emigrate from the Soviet Union.
Not surprisingly, the Nazis also used the same approach. Here are the relevant passages from a report…
That post included the following poll. The results are shocking!
In January of 2013 I began a series of posts to explore the rationale (if there is one) for “citizenship-based taxation”. I simply cannot understand how the United States of America, a country that once was a leader in human rights, can treat it’s citizens (not to mention Green Card holders) so badly. I assume that Congress has simply not considered this issue.
This series of posts (including the Prologue are):
This post discusses citizenship in the context of the equal protection clause of the 14th amendment of the constitution. I will argue that the equal protection prohibits discrimination against U.S. citizens abroad based on their citizenship.
The idea for this particular post came from the following comment at the Isaac Brock Society.
“Generally, U.S. expatriates are treated like U.S. residents and taxed on their worldwide income. However, U.S. expatriates should be compared not to U.S. residents but to nonresident aliens. But for their citizenship or immigration status, U.S. persons abroad would be treated like nonresident aliens, i.e. generally taxed at a flat rate of thirty percent on U.S. source income that is not effectively connected with a U.S. trade or business and at the regular graduated rates on income that is effectively connected with a U.S. trade or business, including on gain from the sale of real property interests in the United States. In addition, net capital gains would not be taxable unless they are fixed or determinable annual periodic income. Needless to say, the foreign source income of nonresident aliens is not taxed by the United States. In most cases expatriates could engage in the same economic activities in the United States as nonresidents without paying the higher taxes for which residents are liable. The difference between the tax imposed on nonresidents and that imposed on expatriates constitutes part of the “citizenship penalty” paid by U.S. persons abroad.”
— U.S. Citizen Abroad (@USCitizenAbroad) July 2, 2013
“In order to receive a “CRBA” (Consular Report of a Birth Abroad) the birth of a child must be reported before the child’s 18th birthday.”
Question: Does that mean the child is not a citizen until the birth is reported?
212 AD – Rome bestows citizenship
In 212 A.D., Roman Emperor Caracalla issued a declaration named – wait for it – the Edict of Caracalla (imagine that). The Edict granted citizenship to all free men within the Roman Empire. …
He would bestow citizenship on provincial folks. Things then worked somewhat the way they do now in that governments tend to treat tourists and part-time residents better than full-time citizens. As a result, those living in the far-flung areas of the Roman Empire were aliens and exempt from paying tax.
Caracalla’s seemingly outstretched hand was a farce. His lavish spending required more tax revenue that only extending the tax base by force could do. Only, like many politicians today, Caracalla knew that it would be easier and more expedient to pretend his power grab was all about giving people more rights. In reality, he just needed more tax revenues and more military recruits.
#FBAR – Your new Best Friend Forever? You decide! | AccountingWEB http://t.co/cfQ5lObz60 – Reasonable cause and automatic penalties
— U.S. Citizen Abroad (@USCitizenAbroad) July 2, 2013
Since the filing of FBARs online became possible I have heard various things about whether and/or how penalties are to be assessed. Effective July 1, 2013, the presumption is that FBARs are to be e-filed. This raises the question of filing FBARs online and the possibility of penalties. The issue is described by David Treitel as follows:
U.S. Persons Abroad - Members of a Unique Tax, Form and Penalty Club 