This post is motivated in part by Robert Wood’s latest post titled:
Of course Mr. Wood’s article is based on “Official Relinquishments”. As explained by FromPatriotToExpatriate in a comment to Mr. Wood’s post:
It’s clear that for Americans abroad, President Obama’s “Change We Can Believe In” has meant that U.S. citizenship has become a frightening and horrifying experience. Here are some recent comments that encapsulate the experience:
This comment comes from Edelweiss:
The risk/reward of being a US citizen abroad is almost exclusively risk and no reward. The best analogy I can give is that you live your life permanently with your neck in a guillotine while wearing a metaphorical financial straightjacket. I for one refuse to live my life where the IRS can drop the blade on me based on some obscure rule that applies only to US citizens abroad. Nor will I allow the government of a country I haven’t lived in for 15 years to impact every single decision I can make in my financial life.
Each year, I subjected myself to a penalty regime that would bankrupt me many times over, paid $3,000-$5,000 in tax prep fees and spent about 200 hours tracking, compiling, calendarising (since the local tax year is not a calendar year), translating to USD, checking, double-checking and filing. All that for a US tax liability of zero in 2013. By comparison, my local tax return (which uses precisely the same three sources of income) took less than 2 hours all-in. I even went so far as to pay my US based accountant to count the number of “accounts” I had for FBAR purposes so that I could tick the 25 accounts and over box and be extra confident that the number of accounts I entered on the form was correct. You spend money on silly things when the prospect of getting it wrong is potential financial ruin.
As if the decision wasn’t easy enough, the provider of my main investment account decided that they would become FATCA compliant by implementing the FATCA required client onboarding procedures but not implementing any of the FATCA reporting procedures. Makes sense since the vast majority of FFIs would never be able to recoup the cost of full FATCA implementation from 0.1-0.3% of their customer base. I live in a country of 65 million and there is one (ONE!) online investment account provider who will take US citizens (and another one who says they will but haven’t updated their terms and conditions). As for the rest, if the IRS asks, they will simply say they don’t have any US citizen customers. Problem solved. My provider amended their customer terms and conditions such that it was a breach of the agreement to be a US citizen. Any US citizen discovered on their books would suffer an immediate account freeze and possibly also a forced liquidation of the entire account (confirmed via email since I didn’t want to speak to them by phone for obvious reasons). Do you choose your money or your citizenship?
This comment comes from Anne Frank:
One last relinquishment comment: I have to bite my lip every time I see a survey asking “why people are renouncing”. Be honest – there is only ONE reason to renounce or relinquish and we all know it: the ridiculously burdensome web of filing obligations associated with the CBT lunacy. We all know that USUALLY little tax actually results (although the anomalies – many of which can arise through ignorance such as non-resident trusts can be ruinous even for the middle class). It may not be the actual tax bill per se, but the constant threat of ruinous penalties, the prospect of hundreds of hours per year as an unpaid form-slave of the IRS – all of it makes the idea of staying as a dues paying member of the club unthinkable. I know people who happily collect second passports from other “homelands” through their parents or even grandparents in Europe. They think it is great that maybe, some day, if they want, they could use that passport to live or work in Europe some day. They probably never will (and at this stage in most of their lives, maybe it is time to admit it!), but it is a “nice to have”. Alone among potential 2nd passports, the US demands to be first in your heart or it will turn to acid in your hands. There is but one reason to shred the damned thing: it is a ticket to perpetual slavery. If it weren’t, I’m sure that most of the relinquishers would gladly take it back. We all have/had lots of reasons for taking up citizenship in the place where we live and have made our homes. Those reasons did not usually preclude keeping a link to the US as well save and except the toxic by-product of keeping that link. I think the press articles I have read have tiptoed around that hard fact. Without CBT, there would be no more than a handful of renunciations every decade, let alone every year. Uncle Sam needs to spend some quality time looking in the mirror.
Holding the U.S. Accountable – Legal Options
My sense is that the Expat Community has decided that that the U.S. has had time to change its treatment of its citizens abroad. With the advent of FATCA things are getting worse. So far, the following two legal challenges to “U.S. citizenship abroad” issues have been announced and are certain:
1. A group of Canadians of U.S. origin are launching a challenge against the Harper Government for agreeing to IGA, which will require implementing legislation, which is alleged to violate the Canadian Charter of Rights and Freedoms.
2. Republicans Overseas has announced that it is challenging various aspects of FATCA in the U.S. courts.
3. The question has been raised and it’s time to explore a lawsuit against the U.S. government in the U.S. courts. This lawsuit would be based on the horrible, inhumane and horrible treatment by the U.S. government of it’s citizens who choose to live outside the United States. Robert Wood points out that the U.S. government doesn’t care about the pain suffered by expats. Mr. Wood comments:
Not only do I not think exits were intended by FATCA, but I don’t think the U.S. government views this is a sad or unfortunate phenomenon. I’m afraid that many Americans too may react with a kind of “good riddance” response. But as you are clearly aware, the issues are more complex than this.
The time has come to consider a legal challenge, against the United States directly, in the U.S. courts, on the constitutionality of the the treatment of U.S. citizens abroad. The simple fact is that U.S. citizens abroad are being forced to renounce their U.S. citizenship. I have written dozens of posts explaining why U.S. citizens abroad are forced to renounce U.S. citizenship. This includes the whole Cook v. Tait series of posts. Of these the most significant post in terms of the constitutionality of of the taxation/treatment of U.S. citizens abroad is Cook v. Tait 12 which talks about 14th amendment issues. Some of these issues are captured in the following comment from the Isaac Brock Society: