Category Archives: U.S. tax issues

Cook v. Tait 24: The protection of political minorities in the political process

 

Introduction And Purpose:

This post is to “tie together” three comments/posts that discuss the problem of “political powerlessness” in the political process. This poses obvious problems in the area of “citizenship taxation”. It is important to note that what some refer to as “expatriate tax legislation” seems to always appear as a “revenue offset provision”. In other words, “Let’s put the cost on those whose votes don’t matter”. This point was made in one of the recent submissions to the Senate Finance Committee.

What should be the basis for the right to vote?

That said, maybe “Americans abroad” are lucky to be able to vote at all. There is NOTHING about citizenship per se (as the Canada experience suggests),  that guarantees a “right to vote” for those who live abroad. In fact a recent comment from  Lucy Stensland Laederich includes:

Both AARO and FAWCO have progress to their credit in terms of citizenship and election reforms – in each case, we followed the legislative path and worked with allies. It is true we do not have a history of “rocking the boat” but we do have one of sometimes major successes: when we inundated Washington with tea bags in the mid-Seventies (a campaign that started in AARO), we got the vote for overseas Americans!

The 1970s “Tea Bag” campaign is interesting. It should also give hope to those who think that change in Washington is impossible.

I strongly recommend reading the “AARO Account of how achieved in an increased capacity to vote“. It includes:

But opposition by the Justice Department continued, still led by Antonin Scalia, who had persuaded the Attorney General to oppose the President’s signature. The representative of the bipartisan committee, Gene Marans, decided to go over the head of the Justice Department. He asked Sen. Barry Goldwater to call the legal counsel of President Gerald Ford.

Senator Goldwater’s message to the White House was: “Listen you ___ fools! There are more Republicans in Paris than there are in Detroit! And Ford doesn’t want to be the first President to veto a voting rights bill since the Reconstruction.”

The bill was signed by the President on January 2, 1976. Direct political life had begun for Americans living overseas.

Note that Antonin Scalia was appointed to the Supreme Court of the United States. He continues to serve on the court today. Note that he wrote a dissenting decision in the May 18, 2015 U.S. Supreme Court decision described below. In other words, Justice Scalia appears to have opposed the rights of Americans abroad to vote, BUT upheld the right to Maryland to impose taxes on the “politically powerlessness”.

Part 1 – Discrete and Insular Minorities In The Political Process – Do Americans Abroad Have REAL Political Representation?

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Thoughts on Exit Taxes in the Modern World by @VictoriaFerauge – Do the S. 877A rules go too far?

The above tweet references a comment that appeared on post written by Victoria Ferauge on her “TheFrancoAmerican-Flophouse.blogspot.com” blog. It is a old post that was written about “Exit Taxes” in general which she refers to as:

An exit tax is a tax that is levied against an individual or a corporation who wishes to transfer residency or citizenship from one country to another.  It is a tax on emigration and/or expatriation.  How does it work and what is its purpose?:

In general, ET [Exit Taxation] aims at levying the potential or latent gains (also called “hidden reserves”) related with the assets that an individual, a company or a PE located in a given country, economically (eg., through allocation to a foreign PE of a trademark or a shareholding), or physically transfer to another tax jurisdiction. A first feature of ET is, thus, related with the fact that it is imposed when no asset disposal takes place, and no revenue is generated.

It is a tax that the United States levies against certain individuals who relinquish U.S. citizenship. I recommend this Victoria’s post as an objective description of what is meant by an Exit Tax. I also found that I had left the following comment on the post:

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More on phantom capital gains and the injustice of U.S. taxation of #Americansabroad

I was alerted to the above comment that appeared on Facebook. Here we have one more casualty of the “Code of Conduct” that governs Americans abroad. You have heard the saying:

“When in Rome, do as the Romans”.

When it comes to Americans abroad, the Code says:

“When an American goes abroad, do as an American in the Homeland.”

The above tweet references an article on how dangerous Foreign Exchange rates can be to the financial health of an American abroad. It’s fascinating how fluctuating exchange rates impact the lives of Americans abroad in so many ways.

By the way, the Canadian dollar is feeling. This means that:

2015 is a very good year to renounce U.S. citizenship. To understand why, read this post.

 

 

 

 

 

Are #Americansabroad “members” of Club USA or “owned” by Club USA?

U.S. citizens abroad are now entering the fifth year of what some have called “the U.S. citizenship nightmare”. Since 2011 thousands of blog posts, comments and tweets have: deliberated, sought comfort, agonized, theorized and suffered persecution at the hands of the U.S. government. This can be understood only by those affected. Homelanders cannot understand how those who moved from American have suffered and continue to suffer.

Americans abroad have (with justification) felt betrayed. At a minimum they have learned that U.S “citizenship” is like no other “citizenship”. Stay in the Homeland and will be fine (maybe). But, if you leave you will be subjected to a slow and painful death by a “thousand cuts”. Each cut inflicted by an incomprehensible law, threat or penalty from the U.S. government, the cross-border professionals or the media.

How could it a country treat its “citizens” this way? I suppose the answer depends on how the U.S. views its citizens. What is the relationship between the U.S. government and its citizens?

What follows are two lengthy comments at the Isaac Brock Society. They are from two unrelated posts.  Each in its own way explores the “nature of U.S. citizenship.

The first comment is directed towards the theoretical nature of U.S. citizenship. U.S. citizens claim they have “rights”. Is that the case? Can something be a “right” if it is granted by a Government? Can something be a “right” if it is limited by the government? This comment suggests that the rights of U.S. citizens are quite limited. They are less of a “right” and more of an “indulgence” from the U.S. Government.

The above tweet references the following comment at the Isaac Brock Society:

@George and @Mettleman

George: Your comment includes:

@Mettlemen, let me rephrase your last comment;

“after the meeting as a canadian citizen resident in canada, i was able to work to come to peace with my self and mine and mine alone decision to preform an act of civil disobience and not comply with an unjust foreign law of a foreign government.”

Interesting thought

In an essay he wrote about the Afroyim case, Professor Peter Spiro suggested that “rights” are contingent on “personhood” and NOT on “nationality”

“… in the wake of the human rights revolution, under which rights are contingent on personhood rather than nationality”

This distinction may have some applicability here.

There are at least two ways of looking at this.

1. Is this “non-compliance” a recognition that a U.S. law cannot apply to someone who is a Canadian citizen residing in Canada?

Under this interpretation, one is saying that he is a free person who is NOT the property of any country but agrees to obey the laws of the country where he is present. He is saying: Sorry but U.S. law ends a the U.S. border. This U.S. law simply cannot apply to me.

Under this scenario he is NOT saying:

“I will NOT comply with an unjust law.”

He is saying the law simply doesn’t apply to me because I am a Canadian citizen living in Canada.

Note that under this scenario, he (while accepting the requirement to obey the laws where he chooses to live) he is really saying:

“My rights come from my status as a being human” – my “personhood”. Because I am “human” I have rights that are NOT dependent on the permission of any Government. I believe in the U.N. Declaration of Human Rights which recognizes that I have rights because I am a human being. I do NOT and am NOT dependent on the United States of America for my rights. U.S. governments will come and go, but “my personhood” is eternal. My tombstone will NOT say that my rights come from my nationality. My tombstone will say that I was a good person “Husband, father, friend ..”.

The Universal Declaration of Human Rights is worth reading:

http://www.un.org/en/documents/udhr/

The Preamble includes:

Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom,

(Notice there is no reference to citizenship or nationality.)

Because I am a “person” and NOT “property” I recognize that U.S. law ends at the U.S. border.

2. Is this “non-compliance” based on an acceptance that U.S. law DOES apply to a Canadian citizen residing in Canada, but is a conscious decision to NOT comply with an “unjust law” – making the “non-compliance” an act of “civil disobedience?

In this case the “non-compliance” assumes that the U.S. law does apply to a Canadian citizen residing in Canada. This necessarily assumes an acceptance that he is NOT a free person but U.S. property. (This is the view of the Government of Canada. NEVER FORGET that the Government of Canada believes that, because you were born in the U.S., you are the property of the U.S., and that you have only the rights that the U.S. government allows. That’s what the FATCA IGA is about.)

In contrast to the model where one has rights by virtue of being human, this model assumes (perhaps unconsciously that one’s rights come NOT from being a “Human Being” but rather from citizenship in a country. In other words, as a U.S. citizen, I don’t get my rights because I am a “Human Being” I get my rights because I am a U.S. citizen. (Think of American T.V. – Have you ever heard:

“I’m a U.S. citizen, I have rights.”

Furthermore, since my rights are NOT based on my status as a “Human” but on my status as a “U.S. citizen” I fully gratefully and graciously accept that my rights can be limited by the United States regardless of where I may be and regardless of my status as a “Human”.

Since I recognize that my rights come from my U.S. citizenship, my “non-compliance “really IS an act of “civil disobedience”.

Conclusion

If you believe you are a “person” and that your rights come from your “personhood” there is no civil disobedience.

If you believe that your rights (or limitations) come from your status as a U.S. citizen, then you clearly are committing an act of “civil disobedience”.

So, as the Spiro observation implies, the question that people must ask is:

Am I a person who has rights because of my “personhood” or am I the property of a country where I don’t live and don’t choose to live?

The next tweet references a second comment at the Isaac Brock Society:

The second comment argues in a less theoretical but more practical way that U.S. citizenship is not like a club membership where you are free to leave. Through example, it implies that the relation of a a U.S. citizen to the U.S. Government is more like the relationship between a “master” and “servant”.

The comment, which addresses the question of whether U.S. citizenship is a “membership” or an incident of  “U.S. Government ownership” includes:

@Medea,
re;
“….but refuses to man up and give the citizenship up. If he [Boris] wants to continue to be American – which recently renewing his passport suggests he does – then he’ll have to do as thousands of others do and get his tax affairs in order – even if it bankrupts him as it has others. He’s not the only one who’s been through this and I suspect he could weather the cost much better than most…”…

Forgetting about this example being about Boris specifically.

Extrapolating:

Is the fair price of US citizenship – or any citizenship “…even if it bankrupts… as it has others…”? Should citizenship have a price, or a price so high that it “bankrupts”? Or is it a right conferred on us regardless of our assets and net worth? Rights by definition are something immutable that are not dependent on the ability to pay – or subject to market or other forces.

I and others were FORCED to get a US passport because of the US control of our travel – due to the changes in border crossing rules after 9/11 we had to obtain one – many not until very late in life – if we wanted to see a family member on their deathbed, attend a funeral, care for them in need or emergency. What ‘choice’ is that? Is possible bankruptcy, or going into debt to pay lawyers and accountants and possibly part of the price of our family home outside the US a reasonable price for a birthright?

Is bankruptcy a fair, ethical and just cost that US citizens abroad must all potentially incur in order to “continue to be American”, and to travel to the US if we ever want to see our family again? Or even just to travel to another destination – where most of the travel options go over or through the US in a virtual monopoly? Particularly if we did not choose to be an American, but only inherited it by accident of where our mother happened to be when she gave birth to us? Or, we had a US parent, but were born outside the US?

Is that in the US constitution?

Are FBARs in the US constitution? Is FATCA? Is the punishment of all local non-US mutual funds, savings plans and other legal local banking in the constitution? Is double taxation? How does that accord with the founding values and the ‘rights of man’?

Is American citizenship, or any citizenship a commodity to be bought and sold? Is it a membership fee – as in an exclusive country club where only some can belong – if they can afford to pay whatever is charged?

Does/should US law rule millions outside its boundaries no matter the consequences (and non-US persons and taxpayers and families pay the price too)? Should our US family members be deprived of our assistance and visits because the US is attempting to blackmail them and us by tying the US passport to acceptance and resignation to complex and unfair tax and financial control/oppression over those abroad?

In the current circumstances, there are aprox. 6 million or more living outside the US who it deems to be ‘US taxable persons’. Many are only ordinary people and families, who can neither afford to keep US citizenship, NOR to give it up (an average family of four renouncing would incur almost 10,000. USD just in State Dept. fees, plus the untold thousands in accounting and legal fees, plus whatever interest and penalties the IRS could apply depending on their circumstances – for example, US taxes imposed on their retirement, education and disability savings and their family home). I don’t know about you, but 10,000. is an astronomical amount for my family.

Many are being forced to pay in order to give up the US citizenship because they could not afford to keep it. Especially if they did so using the methods that the IRS and US Treasury demand. A part-time worker or caregiver who makes barely enough to be taxable in either Canada or the US may have almost no income at all and may not even have met the US filing threshold and owe no US taxes. They may have no US economic connection or income, have lived outside the US for more than 50 years, never worked there. Canadian taxpayers, their family and their community and they themselves have paid for their education, healthcare and any other social and economic benefits enjoyed. US hospital fees at birth were paid in full by parents paying directly fee for service, and any other costs came from the taxes paid as US residents at the time incurred. In that scenario, they do not qualify for US social security, or healthcare, and many/most have no intention of ever living in the US. Often, the NON-US/Canadian spouse is the breadwinner. So, the NON-US / Canadian family pays the cost of one or more members retaining their birthright US citizenship – incurred through an accident of fate many decades ago. Should individuals and families outside the US shoulder the compliance burden forever? We are prevented from taking on community work due to the FBAR obligations to report even non-personal co-signatory roles. Prevented from being a co-signatory on RESPs, prevented from being a potential executor or co-signatory on family accounts.

Is that the cost of US citizenship that is just, moral, reasonable and ethical?

I feel that I was the victim of extortion by the US. If I had decided not to burden my Canadian family with the fees to become ‘compliant’ in the manner prescribed by the IRS and US Treasury, and had not renounced, would you advise that I should have ‘manned up’ too? I and my family paid too high a price for ‘compliance’ – a state almost impossible to achieve if done in the manner the US prescribed in 2011, and almost impossible to achieve for anyone with local legal accounts, a home, retirement savings, mutual funds, etc. due to the ways in which we are punished for living, earning, banking and saving outside the US.

Do US residents – those who are merely permanent residents, as well as those who were born with US citizenship have to bear the same burden that those residing outside the US bear? The Taxpayer Advocate says not.

The US is the ONLY country in the world to do this other than Eritrea.

Funny that of all the so-called ‘developed’ nations in the world, only one forces people to entertain bankruptcy in order to maintain a passport or citizenship.

 

 

 

 

Why improving relations with #Americansabroad is difficult for the #IRS and USG

This is a comment on a post at the Isaac Brock Society.

@Badger

Here is a post that I did in February 2012 titled:

Canadian RRSPs and the OVDI Penalty Base

https://renounceuscitizenship.wordpress.com/2012/01/12/canadian-rrsps-and-the-ovdi-penalty-base/

You will note that it includes a comment from Ij

In any case, it is clear that that the “Shulman Reign of Terror” has caused irreparable damage to the relationship between the IRS and Americans abroad. As the Hodgen post demonstrates it is quite obvious that the IRS was using OVDI as nothing more than an “FBAR Fundraiser” and was in fact – once it became clear who was entering the OVDI program – quite deliberately and willfully extracting penalty revenue from its victims.

Although the original intent of OVDP/OVDI may have have been to allow “criminals” to legalize their illegal gains, it soon became clear that an entirely different group of people (law abiding Americans abroad) were entering the program. By entering OVDI, Americans abroad were allowing the IRS to confiscate a large portion of their legally earned and after tax gains! In other words, OVDI was designed to give a fantastic deal to criminals and to confiscate the lawfully earned assets of Americans abroad!

The IRS did NOTHING to discourage this! In fact, by NOT contradicting the claims of lawyers/accountants that a failure to enter OVDI was a “forbidden quiet disclosure“, the IRS encouraged Americans abroad to enter OVDI. This immoral and unethical treatment of American’s abroad sealed the deal. Shulman proudly proclaimed OVDI a success (notwithstanding the OVDI concerns raised by Taxpayer Advocate).

As Phil Hodgen commented (see the reference in the Badger comment above):

“Think about what the IRS is saying:

Ordinary Canadians must give the United States Treasury 25% of their pension savings because of a missing piece of 8.5 x 11 paper.”

Yes, this is exactly what was going on in 2011 and 2012. So incredible that NOBODY believed this when it was explained to them. Think about it. Your whole retirement savings subject to confiscation because you didn’t file a piece of paper that NOBODY would even imagine needed to be filed!

From that moment on, Americans abroad understood that they needed protection FROM the U.S. Government. There were are are only two ways to get that protection:

1. Stay underground and hide your “U.S.Ness”; or

2. Renounce/relinquish (at an increased cost, more people will take the first option).

(Don’t forget that that these problems were enabled and exacerbated by our friends “The Cross Border Professionals”. They regarded their “professional obligation” NOT as protecting the client but to enter people into OVDI. Instances have been reported of people entering OVDI who ceased to be U.S. citizens in the 70s. Think about it.)

The hatred and distrust of the IRS and the Obama administration is so extreme that anything the IRS does will remind everybody of the “FBAR Fundraiser” and OVDI. For example, I personally believe that the new 2014 Streamlined Compliance Program IS an IRS attempt to allow Americans abroad to come into the system “penalty free”. But the complexity of U.S. tax laws and PAST experience with the “Shulman Reign of Terror” means every proposal is interpreted in an atmosphere of distrust.

The fastest growing source of hatred of the United States of American is (and understandably so) Americans abroad.

It’s obvious that the only thing that makes sense is to:

Renounce and rejoice!

U.S. dollar FX Rates give and take – falling Canadian dollar a benefit for #Americansabroad renouncing

Almost two years ago to the day, I wrote a post explaining how:

How Fluctuating FX Foreign Exchange Rates Generate Capital Gains on the Sale of Property and the Discharge of Debt.

Those wishing to understand how exchange rates affect possible U.S. capital gains liability for Americans abroad should revisit that post. The “Readers Digest” version is as follows:

1. For the purpose of U.S. taxes, all transactions are converted to U.S. dollars (using the applicable rate at the time of the transaction);

2. The result is that fluctuating exchange rates can generate “phantom” capital gains and losses, which can generate U.S. tax liability for Americans abroad.

As the Canadian dollar rises in value, fewer Canadian dollars are needed to purchase a U.S. dollar. The capital gains measured in U.S. dollars would increase.

As the Canadian dollar falls in value, more Canadian dollars are need to purchase a U.S. dollar. The capital gains measured in U.S. dollars would decrease.

The Canadian dollar has fallen by about 10% in the last two years. The above tweet references a video suggesting that, the decline of the Canadian dollar or (as a Homelander would say), the strengthening of the U.S. dollar is EXCELLENT for Americans in Canada considering renouncing U.S. citizenship.
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One (of many) reasons why retirement is much harder on #Americansabroad

Very interesting article about aging, retirement and why people live abroad when they retire. Incredibly the article includes:

Rod Burylo, national marketing director with Calgary-based Axcess Capital Advisors and a specialist in international retirement topics, says living abroad in retirement is often mistakenly viewed as the domain of the ultra-rich. But in many cases, snowbirds are settling in towns such as Ajijic – a lakeside town in Mexico’s Jalisco state that’s become home to a growing community of Canadian and U.S. expatriates – because of cheap rents and an affordable lifestyle.

“You can retire comfortably there on $2,000 a month, depending on whether you rent or buy,” Mr. Burylo explains. “If a retired couple are on a Canada pension, they could comfortably retire and that includes being able to eat out every night. Having that lifestyle in Canada … wouldn’t be possible.”

But Mr. Burylo reminds Canadian retirees that they need to take steps to ensure they’re making the right decision to relocate in their golden years. His first recommendation: Find an accountant who specializes in international tax law and have him or her work closely with their financial planner to ensure compliance and reap any and all possible tax benefits.

Unlike Americans, he explains, Canadians are not taxed based on citizenship, but residency. That means retirees who live abroad full-time can take themselves out of the Canadian tax system and – local legislation permitting – be subject to the tax laws of their adopted retirement home.

This article is interesting and reminds me why it’s difficult to be an American abroad in your retirement years. The main reason is the vicious and punitive taxation of passive income. The author of this article doesn’t fully understand how problematic it is to be an American abroad.

It’s appropriate to end this post in the way I ended my earliest post:

Renounce U.S. Citizenship and Rejoice! (the sooner the better).