If you’re not “one of US” then don’t marry one of those #americansabroad



In a recent post, “Before You Say ‘I Do’: Options for British-American Couples“, London based, U.S. immigration lawyer, Susan McFadden explores different ways the future spouse can move to the U.S. This is of interest to a large number of people. She assumes a U.K. citizen wishing to marry a U.S. citizen and move to the U.S. Although this may make “emotional sense”, it may make no sense once the euphoria wears off.

Marriage between those who are not “one of US” and U.S. citizens needs to be considered from the perspective of what it means to be married to a U.S. citizen.  Much has been written on the effects of direct U.S. taxation, FBAR and other IRS requirements. These are a gross violation of the sanctity of the family during the marriage. In some cases, it may be the “straw that breaks the marital back“. But, what about divorce? How do the tax laws  apply to a marriage where one partner is NOT a U.S. citizen?

Those who have thought about citizenship-based taxation and the way it affects U.S. citizens abroad understand it to be  a form of life control. It is certainly a “fiscal prison”. But, it is much more. Under the guise of citizenship-based taxation the U.S. claims the right to interfere with, define and control the family. In fact the most important party in the family of any U.S. citizen abroad is the U.S. government.

U.S. tax laws operate to:

– make it more difficult for U.S. citizens to marry non-citizens; and

– make U.S. citizens  very unattractive as marriage partners.

I suggest that these laws in their intention and application constitute a massive human rights violation against U.S. citizens in general and U.S. citizens abroad in particular. Furthermore, they are one more example of the truth about citizenship-based taxation.

Citizenship-based taxation is NOT about taxation.  It is about life control!

(Interestingly, in his book “The Audacity of Hope” Senator Obama discussed the importance of marriage in society.)

This post requires you to understand the following terminology:

Terminology related to who you are or where you live

1. U.S. citizens – these are most commonly those born or naturalized in the U.S. In some cases those born outside the U.S. are also U.S. citizens (Defined by the 14th amendment of constitution or Congressional legislation)

2. Alien – Somebody who is not “one of US” a U.S. citizen

3. Non-resident alien – A non-citizen who is neither a “Green Card” holder or who does not mean that the “substantial presence” test

4. Green Card holder – a person who has been given permission to reside in the United States on a permanent basis (defined by the Immigration and Nationality Act)

5. Substantial presence – spending a minimum amount of time in the U.S. (See IRS Publication 519)

– http://www.irs.gov/publications/p519/ch01.html

Terminology that describes potentially taxable transactions

6. Transfer of property – the “sale or exchange” – See: 26 USC § 1041 – Transfers of property between spouses or incident to divorce

7. Gift – A gift is a gratuitous transfer with nothing received in return.

See: 26 USC § 2523 – Gift to spouse

Marriage is a common occurence (and common learning experience). Marriage is also common for U.S. citizens living abroad. In many cases, those U.S. citizens abroad have a spouse who is NOT “one of US” a U.S. citizen. The fact of NOT being “one of US” a U.S. citizen means that the non-citizen spouse is an “alien”. If the “alien” spouse is living outside the United States, then the alien becomes a “non-resident alien”.

During the course of a marriage, and/or as an “incident of divorce”, it is common for:

1. Spouses to transfer property to each other; and

2. Make gifts of property to each other.

Both transfers (recognition of gain or loss) and gifts (just because) are  potentially taxable transaction under U.S. tax law.

Note: It is important to note that a transaction is either a transfer or a gift. It cannot be both.  As explained by Phil Hodgen:

Property settlements between spouses may trigger gain recognition if the transfer is a “sale or exchange”.  Alternatively, they may trigger gift tax if the transfer is a gift.  It won’t be both.  A gift is a gratuitous transfer, with nothing received in return.  Property transfers where he gets this asset and she gets that asset will be a sale or exchange.

Let’s examine the implications of both “transfers” and “gifts” in the context of a marriage and/or divorce between a U.S. citizen abroad and a   spouse who is NOT “one of US” a U.S. person or not a U.S. citizen.

To avoid confusion please note that:

In the case of “transfers” the issue is whether the the spouse is a “non-resident alien”.

In the case of “gifts” the issue is whether the spouse is NOT “one of US” a U.S. citizen.

Confused? Remember that a Green Card holder is NOT an alien and therefore cannot be  a “non-resident alien”.

Property Transfers – Very common as a way of wrapping up a marriage

Transfers are governed by: 26 USC – S. 1041 – “Transfers of a property between spouses OR incident to a divorce”

Although the more important context  may be divorce, it should be noted that this rule applies also during marriage.

To put it simply, the Government of the United States of American is the most important partner in the marriage.

Without going into excessive detail the rule governing “transfers” says:

(a) General rule

No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)

(1) a spouse, or

(2) a former spouse, but only if the transfer is incident to the divorce.

(b) Transfer treated as gift; transferee has transferor’s basis

In the case of any transfer of property described in subsection (a)—

(1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and

(2) the basis of the transferee in the property shall be the adjusted basis of the transferor.

(c) Incident to divorce

For purposes of subsection (a)(2), a transfer of property is incident to the divorce if such transfer—

(1) occurs within 1 year after the date on which the marriage ceases, or

(2) is related to the cessation of the marriage.

(d) Special rule where spouse is nonresident alien

Subsection (a) shall not apply if the spouse (or former spouse) of the individual making the transfer is a nonresident alien.

Commentary – so, what is this supposed to mean?

The general rule is that there is that no gain or loss if recognized by  virtue of a transfer between spouses. (Since there is no gain or loss there is no tax payable.) Instead the transfer (because it is between spouses) is treated as a gift between spouses.

Okay, but what about a gift tax? There is no gift tax payable because of a “marital deduction” from the sum of your gifts. The “marital deduction” allows one spouse to “deduct” (from the aggregate value of gifts made), gifts made to the other spouse. The deduction is unlimited.

The combined effect of the transfer and gift tax rules (which of course are in three different parts of the IRC) is that:

“In general”, spouses can transfer property  to each other tax free.

I say “in general”. This is NOT true in the case of a U.S. citizen abroad who makes either transfers to or gifts to a “non-resident alien”  spouse!

Here is why:

The rules for both “transfers” and “gifts” are different if the spouse is not “one of US”. There are exceptions because the spouse is NOT “one of US”.

Exception the general rule governing transfers:

S. 1041 (d) says:

(d) Special rule where spouse is nonresident alien

Subsection (a) shall not apply if the spouse (or former spouse) of the individual making the transfer is a nonresident alien.

In other words, if a U.S. citizen abroad transfers property to a “non-resident alien” spouse, the transfer is treated as a “sale or exchange” and is taxable. Think about this! This makes divorce much more expensive for a U.S. citizen abroad who must settle marital obligations by transferring property to a “non-resident alien” spouse. For example, under the Ontario Family Law Act, a U.S. citizen spouse, might be ordered to make an “equalization payment” to the non-resident alien spouse. This would be treated as a “sale or exchange” of the property and would therefore be a taxable event.

If the U.S. citizen abroad were married to another U.S. citizen abroad, the transaction would NOT be treated as a transfer.

For all practical purposes, the only people affected by this rule are U.S. citizens abroad who chose to marry a person who is NOT a U.S. person. (Remember that if the spouse has a Green Card he/she is NOT a “non-resident alien”.)

If a U.S. citizen abroad can still find anyone willing to marry him/her, this needs to be considered and should possibly be anticipated in a marriage contract. (But, I digress.)

How do you like your freedom now?


What about gifts made between spouses? In a normal, U.S. Government sanctioned marriage, (between two U.S. citizens) one spouse is permitted to make unlimited gifts to the other. This is commonly referred to as the “marital deduction”.

But, if your spouse is NOT “one of US” a U.S. citizen (regardless of residence), the rules are predictably different.

Here is how the rules work:

1. There is NO marital deduction for gifts make to a spouse who is NOT  one of “U.S.” – a U.S. citizen.

See USC S. 2523. – Gift To Spouse

2. The amount that the U.S. spouse is able to gift without the payment of a gift tax is increased to an amount that is approximately $140,000 per year.

See USC 2503Taxable Gifts

As you can see, in a world where divorce is the exception rather than the rules, this provides:

Disincentives for U.S. citizens abroad to marry those who are not “one of US” U.S. citizens; and

Disincentives for those who are not “one of US” U.S. citizens to marry U.S. citizens.

Conclusions – The Practical and the academic

Practical Conclusion:

U.S. tax laws have simply diminished the value of U.S. citizens as investors, business partners, and marriage partners. There is an “IRS Discount” associated with every U.S. citizen. Hate to say it, but if you are not “one of US” a U.S. citizen, you should NOT marry one!

Note that this doesn’t even include the day-to-day IRS reporting obligations (FBAR and the like)!

If you are not “one of US” and are considering marrying a U.S. citizen you better get some good legal advice!

Academic Conclusion:

This is just one more example that demonstrates that U.S. citizens are not free people but are the property of the state. The obvious justification of the tax rules in this post is to ensure that the U.S. government retains control of the U.S. citizen’s money. If it were to go to someone who was not “one of US” they would lose that control.

The reasoning would be:

1. U.S. citizens are the property of the U.S. government.

2. The property of U.S. citizens is therefore the property of the U.S. government.

Therefore, the property of the U.S. cannot be permitted to leave the jurisdiction of the U.S. government.

The more one learns about the U.S. and how it treats its own citizens, the clearer it becomes that the U.S. is NOT the “land of the free”. It’s the opposite.

A historical analogy?

These rules are a modern day equivalent of the old rules – that have a long history in America – that specifically prohibited marriage between certain ethnic groups.

For example:

Anti-miscegenation laws or miscegenation laws were laws that enforced racial segregation at the level of marriage and intimate relationships by criminalizing interracial marriage and sometimes also sex between members of different races. Such laws were first introduced in North America from the late seventeenth century onwards by several of the Thirteen Colonies, and subsequently by many US states and US territories and remained in force in many US states until 1967. After the Second World War, an increasing number of states repealed their anti-miscegenation laws. In 1967, in Loving v. Virginia, the remaining anti-miscegenation laws were held to be unconstitutional by the Supreme Court of the United States. Similar laws were also enforced in Nazi Germany as part of the Nuremberg laws, and in South Africa as part of the system of Apartheid. In the United States, interracial marriage, cohabitation and sex have been termed “miscegenation” since the term was coined in 1863. Contemporary usage of the term is less frequent, except to refer to historical laws banning the practice.

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