Tag Archives: relinquish u.s. citizenship

Relinquished US citizenship in the 1970s? Are you still a U.S. “Tax Slave”?

The above tweet references a comment at the Isaac Brock Society.

Returning to the purpose of this post:

The question asked by Stephen Kish is how should Caroline be advised. Mr. Reed proposes two interpretations of S. 877A which he calls the “literal approach” and the “common sense” approach. One problem of reading articles written by the tax compliance community is, that by focusing on the theoretical, they minimize the “real life” consequences to the people they advise. So, what are the “real life consequences?” The “literal approach” results in the destruction of your life. The common sense approach means that you still have a life. (Which do you think is the better approach?)

Here is why.

Rather than frame the issue as “the literal approach” vs. the “common sense approach”, the issue should be framed as:

Approach 1 – Your Life Is Over: Under this “literal” interpretation of S. 877A, you poor dumb former American will have to turn your life savings over to the IRS (and pay the adviser to help you do this) because you did not go out and obtain a CLN. It doesn’t matter that a CLN was not required by law. It doesn’t matter that you didn’t know what one was. It doesn’t matter that the U.S. Government was threatening you with the loss of your U.S.citizenship if you became Canadian. It doesn’t matter that in some cases the U.S. was denying entry to the USA to those who had become Canadians. What matters is ONLY that this is what the statute says NOW!!!!!!! So, you better step right up and turn your life savings over to the IRS.

Approach 2 – It’s Your LIfe! Why don’t you keep it!: Let some “common sense” prevail. You were one of the smart ones. Because you relinquished U.S. citizenship – according to the clear laws of the USA in the 1970s – you are not affected by this new law. The only people affected by this new law are the “dumb bunnies” who decided it was a good idea to be a U.S. citizen AND were U.S. citizens when this law took effect on June 16, 2008. I don’t think you should draw attention to yourself. You might want to document the circumstances that led to your becoming a Canadian citizen in 1978. When documenting those circumstances, you probably should make it clear that you were intending to relinquish U.S. citizenship. But, either way you have to sleep. So, you might as well – Sleep well!. There is no good reason to turn your assets over to the IRS and pay your adviser to help you do it.

A fair reading of the legal commentary on this issue appears to be:

One group of lawyers (including the three who commented on this article) do NOT believe that the “literal” (or as Michael Miller says, the “absurd”) approach is correct.

A second group of lawyers thinks that the “literal” approach MIGHT be correct. But, they aren’t really sure. Even though they are not sure, for reasons known only to them, they usher clients into turning their assets over to the IRS. Hmmmm, …

Given the existing commentary and lack of certainty (on the part of those who recognize the “literal approach”), what I can’t understand is:

1. How any adviser could possibly advise a client that the “literal” approach is correct (turn your assets over to the IRS). Yet, we know that a very large number of people are being advised to do just that. (Note that, since June 16, 2008 a CLN is most certainly required lose U.S. tax subjectness. But NOT before.)

2. How any client, given the existence of conflicting views, could possibly allow themselves to be guided into accepting that they should turn their assets over to the IRS. (Actually I know the answer. It’s because there is ONLY one certainty in life. If you turn over all your assets to the IRS, then you will never have tax problems again. But, you won’t have a life either and then you will have a different set of tax problems.)

This reality notwithstanding:

There is/are a large number of people who clearly relinquished U.S. citizenship many years before the current laws, who have allowed themselves to be guided into the “literal appraoch” – turning their assets over to the IRS.

Conclusion: The result that you get will be determined by your choice of adviser. Think about it!

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Part 1 – Congressional and administrative barriers to exercising the right of expatriation – the relinquishment fee

The election of Barack Obama ushered in the era of “Change you can believe in”. For Americans abroad it is has resulted in the need to relinquish U.S. citizenship. Although the U.S. Supreme Court has ruled that there is a constitutional right to relinquish U.S. citizenship and the 1868 “Right to Expatriate” statute is still on the books, the United States continues to impose barriers to relinquishing U.S. citizenship.

This will be a series of post designed to explain the administration (think Obama administration) and Congressional barriers (think laws) to relinquishing U.S. citizenship.

 

There are at least three categories of barriers. To be specific there are:

  1. Financial – Barriers imposed by the cost of relinquishing U.S. citizenship
  2. Mental – Barriers imposed by a requirement that that the potential renunciant “understand what he/she is renouncing”
  3. Physical – Barriers imposed by the requirement that the renunciation take place outside the United States and at a U.S. Consulate

Each of these barriers is deserving of a separate post.

Today, we will begin considering the financial barriers to renouncing U.S. citizenship.

To put it simply, it is far from “free” to relinquish the citizenship of the “Land of the Free”.

Although the administrative fee to relinquish U.S. citizenship is on only one (and for many the smallest) component of relinquishing U.S. citizenship, it imposes a barrier for many. The current fee for relinquishing U.S. citizenship is $2350 USD. As Robert Wood has discussed, the United States has the highest relinquishment of citizenship fee in the world. (Check out the comments to his article.) It is reasonable to conclude that the purpose of the fee is to discourage people from exercising their right to expatriate. It is clear, that many people Americans abroad have difficulty affording that fee. See this recent Facebook discussion at Keith Redmond’s American Expatriates group. It’s clear that many families are beginning to include “U.S. citizenship renunciation” in the family budget.

Renunciation Fund – “Put a little love in your heart” – A possible humanitarian gesture …

Next – tax compliance fees and the relinquishment of U.S. citizenship.

 

 

 

 

 

 

 

Cook v. Tait 16: Supreme Court’s Decision in Cook vs. Tait and Notification Requirement of Section 7701(a)(50)

This interesting post goes along well with my series of posts on Cook v. Tait found here:

https://renounceuscitizenship.wordpress.com/2014/03/28/cook-v-tait-14-its-not-citizenship-based-taxation-its-extraterritorial-taxation/

The author is arguing that even if U.S. citizenship-based taxation is constitutional (which is questionable), that the Cook v. Tait rationale could not justify citizenship-based taxation beyond the point where one ceases to be a citizen for immigration purposes.

The author writes:

The statute says ” . . . An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A (g)(4). . .”

“How can the U.S. federal government continue to impose U.S. worldwide income taxation on former U.S. citizens because of the provisions under Section 7701(a)(50) and 877A (g)(4)?”

I am not convinced that the effects of S. 7701(a) 50 and 877a(g)4 do apply to those who expatriated prior to 2004. On this point see the interesting article by Michael Miller:

https://renounceuscitizenship.wordpress.com/2013/03/05/michael-miller-on-the-8774-exit-tax-applies-prospectively/

This issue was recently canvassed at the Isaac Brock Society as follows:

https://twitter.com/USCitizenAbroad/status/610632090019868672

Those interested in this issue are encouraged to read the perspectives of a variety of lawyers in the “Isaac Brock post”. I find it incredible that some (but not all)  “cross-border professionals” routinely interpret S. 877A(g) 4 in he way that is least advantageous to the taxpayer.
In any case, this is an interesting “Cook v. Tait” post.

Tax-Expatriation

The U.S. Supreme Court upheld as Constitutional the concept of citizenship based taxation in 1924 in Cook v. Tait.  In that case, the U.S. citizen resided permanently and was domiciled in Mexico City with his Mexican citizen wife.

In those years, the Revenue Act of 1921 imposed a top income tax rate of 8%.  The IRS made a demand against Mr. Cook to pay his tax.  Mr. Cook paid it and sued for refund of the US$1,193 paid.    That amount represents about Zwerner Notice of SettlementUS$16,893 in 2014 inflation adjusted dollars.  Neither amounts are significant in current actions taken by the IRS.

As a point of reference, Mr. Zwerner was alleged to owe US$3,630,119 (on an account with a maximum value during the years at issue of apparently no more than US$1.69M) and ultimately paid about US$ 1.75M (more than he even had in his account?) per the Notice of Settlement…

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Cook v. Tait Prologue: Citizenship renunciations soar under Obama – Renouncing As An Act Of Self Defense

To Be, Or Not To Be: That Is The Question: – Whether tis nobler in the mind to suffer The slings and arrows of outrageous fortune … Continue reading

IRS Issues Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.

"Known unknowns and unknown unknowns"

On December 3, 2011 the Globe and Mail reported that the there would be possible waiver of tax and FBAR penalties for U.S. citizens living abroad. (On December 8, 2011 the Globe continued the story.) Once again – the directive was “sit tight” – information would be released by the end of December. Well, some (and there are surely more to come) information has been released. They apply to U.S. Citizens or Dual Citizens Residing Outside The U.S.

Is this welcome news or is it merely a restatement of the law and a further warning? In the online world, one can find a pundit to support any perspective.  The third party commentary varies from the:

Continue reading

Yet another reason to renounce U.S. citizenship: Medicare tax on unearned income

Obama's 3.8% tax on unearned income - it's true!

The situation is indeed dismal. I don’t understand everything in the following article,  but I can see that this is going to:

1. Add more bureaucracy and cost to filing your U.S. tax return – it is not clear how this is intended to impact expats (if they are considered at all);

2. Clearly interfere with your ability to invest and plan for retirement. The U.S. has become a nation of forms and bureaucracy.

The U.S. government is aliready taxing unearned and undistributed gains when it comes to PFICs (and perhaps more). Stop for a moment and think what this means. The idea behind income taxation is that a certain percentage of what you receive as INCOME is to go to the government as your contribution toward running the government. In its most simple terms, this means that (imagine a tax rate of 20%) that if you receive $100 then $20 goes to the government. The taxpayer does not receive all of that he was paid. When it comes to taxing “unearned income”, one needs to ask the following question: Continue reading

Expatriating Acts – The Status Of Your U.S. Citizenship

Updated on January 16, 2013

As the Government of Canada gets closer and closer to signing an IGA with the U.S. the issue of who is a “U.S. person” is becoming more and more important. Panic is starting to set in. Those of you who became citizens of another country prior to 1986 may not be U.S. citizens. Whatever you do: do NOT ask an accountant or tax preparer (they don’t have the expertise) or even a tax lawyer (they have a financial interest in your citizenship). The proper person to ask is a U.S immigration and citizenship lawyer.

Enjoy this old post.

Listen to the stories of these two people born in the United States. One of these is Professor Maurice Williams who wrote an interesting letter to Obama. Read the following blog post. These two people may or may not be U.S. citizens.

Renouncing U.S. Citizenship – A Growing Trend

Many people are coming to the conclusion that U.S. citizenship is at best undesirable and at worst dangerous. In the past – people came to America in pursuit of liberty and justice.  There are some who still do. What is new is the large number of people who are interested in “ceasing to be a U.S. citizen”. More and more people are renouncing U.S. citizenship.

But Wait – Maybe You Are Not A U.S. Citizen After All

I started this blog because I believe that there are U.S. expats who believe that they are U.S. citizens when in fact they are not. Even if you were born in the United States, you may not be a U.S. citizen. It is possible that there are people who entered the OVDI program who are no longer U.S. citizens. This is first of a series of posts where I will discuss reasons why you may no longer be a U.S. citizen.   There are many U.S. expats who would be very happy to be in your shoes. Continue reading