Anderson Cooper, Bill O'Reilly, bloomberg, cbt, citizen-based taxation, Domocrats Abroad, fatca, FBAR, Forbes Magazine, income tax, IRS, New York Times, President Barack Obama, Sasquatch, VOA
This post covers the taxation of Americans abroad and why it is forcing me to renounce my citizenship. There are other reasons I am renouncing (relinquishing) — I have lived in Canada for 45 years — but they are not as front and center as the IRS. I have been battling Americans over citizen-based taxation, mostly political Facebook groups and authors and commentators of news articles on citizen-based taxation and FATCA. I try to argue that taxing us Americans living abroad is wrong. The Democrats Abroad group – a bunch of gutless bureaucrats afraid to buck the party line – shrugs me off, vocal citizens claim I should pay for the services I receive, and retired military service personnel basically call me unpatriotic. You probably already want to leave this page because I sound like an anarchist or a communist, a revolutionary who wants to live in the woods with his gun and live off deer, rabbits, and homebrew, either that or one of the wealthy tax evaders.
I am not that person. I am not wealthy, and I am as patriotic as any American. I won’t say I love the country in the same way as homelanders. Living abroad opens your eyes to the rest of the world, and America’s sores seem more visible to us living abroad. I will continue to write about American wrongs as long as I live. I will because I still hope for an American dream. The United States is the world economic and military leader, and I write to improve America, not drive it under. I want America to succeed, for if America succeeds, the world succeeds.
I have a large American flag folded in a cedar chest. It covered my grandfather’s coffin. My dad served in the 50’s but there was no action at the time. An ancestor fought in the Civil War for a Wisconsin outfit. The details are now lost. My uncle Cope walked into Luxembourg at age 16, out of Inchon Reservoir, earned a Silver Star, and served in the Special Forces during the Vietnam War to put my cousins through college. Cope wouldn’t talk of his experiences, but he had a way of relating the horrors he’d been through, the losses. I have thought much about America’s military engagement. I criticize it when it’s wrong, but I remember the parts that should be remembered every November 11th.
American taxes hurts me, my family, my brothers, my American friends, all 7.6 million of us living abroad, our unnumbered extended families, our businesses, our hard-earned retirement assets. This is not inconvenience. An extra forty hours of work a year to do taxes may not seem much to you, but when the cheapest advice you can find is $400 to prepare a null return, and more like $2,000 to file a more complicated return, it starts affecting livelihood. Starts.
The next set of issues comes from FBAR compliance. This is the list of all my financial accounts I have signing authority over, including joint accounts, children’s savings and education funding accounts, insurance cash value, retirement savings plans (RRSPs and private pensions), plus the non-profit organization I volunteer for. Other people have signing authority in businesses where multiple people own it, and they have to submit this account information to the IRS. There are published stories of people being denied employment because they don’t want to allow them signing authorities and subject their business not only to IRS invasion but possible IRS tax hassles. I have to supply all of this account information and the highest value in each for the year. If I omit an account or make a mistake, I am subject to a $10,000 penalty and 50% of the account’s value. The internet is full of people confused about this requirement and it is obvious people are making mistakes. I may have made mistakes. There are no guidelines. There is no assistance. It is risky for us, very risky.
I get a foreign income exclusion of $95,000. I don’t make that much, so yeah, I will never pay taxes. Except there are a few gotchas. One is the sale of a private residence. The sale of my home is not taxed in Canada, but it could be by the United States. Again, my home is not worth that much and I am not at risk. However, we are looking at buying a multi-unit building for our retirement, say a three unit building that will supplement our meagre retirement savings. Such a building increases the risk of taxation dramatically. It is viable under Canadian tax law, but not under American auspices. I cannot deduct mortgage interest from my taxes because it is not inside the United States, so while you deride me for evading the tax man, the tax man imposes impossible restrictions on me. Many Americans living in big cities around the world are facing financial ruin because of this. They are average wage earners who bought homes and watched the prices soar over the decades. They’ve lived in them all their lives and watched the values skyrocket. Stories abound of people living in million dollar or multi-million dollar homes they had bought for a hundred thousand back in the early 70’s. These are house-poor people with huge property tax bills and with no other retirement savings, yet if they sell, a big chunk will be lost to the IRS. And it won’t be at the favored American capital gains rates as those only apply to Americans living at home but at a whopping 39.9%.
I cannot easily invest in mutual funds. Foreign mutual funds are treated as passive foreign investment companies. I do not get the 15% tax rate Americans but the 39.9% rate with a gazillion forms and the likelihood of paying over 50% tax. A cannot buy American mutual funds from abroad. I am a Canadian citizen but I cannot invest in mutual funds as my neighbors can or as you can.
Canada has some investment instruments not covered by treaty. A college education savings plan and a tax-free investment account. These are fully taxed in America and my tax deductions here are not recognized by the IRS. I am a Canadian citizen but I cannot save for my children’s education nor my own retirement as other Canadians can.
The impacts on businesses abroad are more severe. A mom & pop shop might pay a couple thousand to pay an accountant at year end to do their foreign return, but stories are emerging of business owners paying an additional $10,000 to prepare their IRS returns. On top of that, they are required to pay Social Security and Obamacare taxes, even though neither they nor any of their employees will ever qualify for such services. Business is competitive. If I have an expense my competitor does not have, then I am at a serious disadvantage. Many of these estimated one million businesses are now re-organizing. They are being transferred to foreign spouses and other family members. It’s easy to do: simply fold and restart under a new name. The problem is some business owners are both American and the ones that do re-organize, the American is left with no assets.
This is a lot to ask of an American. It is too much, and this is why we are renouncing. I have never owed America taxes and I likely never will, but I cannot invest, I cannot plan my retirement as my neighbor can, as you can, because America won’t let me.
My discussion is nowhere near complete as I could easily write 400 pages on this subject. I have only scratched the surface of our troubles, my troubles, but I think I have made it clear there is cause for concern and risk to my financial well being. With the mis-strike of a pen, I could rack up a $10,000 penalty and a $50,000 fine for omitting a retirement savings account. I don’t have that kind of money, and I am very afraid of the potential consequences.
Citizenship does not come with a price tag. You cannot buy it or sell it. America is asking us to pay for our citizenship far above and beyond what Americans living at home have to pay. It is wrong to suggest I owe America my taxes. I live in Canada, and I owe the nation I live in my taxes. The constitution of the United States gives me the freedom to live abroad. The International Bill Of Rights gives me the freedom to leave a country. Double-taxing me impinges on this freedom. It is hardly patriotic to deny someone a constitutional right
Services. The United States provides me exactly zero services. SS, SSI, Medicaid, Obamacare, highways, schools, defense, evacuation services, etc. You name it, I don’t get it. I’ve been thrown the argument that I should help pay for the aircraft carriers that defend my waters. No, that is not an individual service. That is an agreement between Canada and the United States. The US patrols waters, but Canada lets them into the arctic to operate NORAD, or whatever it’s called today. And Canada capitulates. We may not have aircraft carriers, but our soldiers go places American soldiers cannot go. Kosovo. Crete. And many other United Nations operations. Places where American soldiers would be shot. Don’t give me that cute aircraft carrier argument, it doesn’t hold water. I already pay dearly for that with my astronomical Canadian taxes.
And no embassy is going to save me. Did they rescue Americans in Yemen or Nepal? No. They give warnings to leave. And if they ever did rescue someone, that person would be charged for the services. Rescue is not a gratuitous, tax-paid service. The embassy argument also holds no water.
It is obvious to me that I have to renounce my citizenship. I don’t want to but I have to. Living under these laws is neither living as a Canadian nor as an American but as a mutated hybrid with two heads, four left feet, a humped back, and no heart. My livelihood and my family’s livelihood takes precedence over any benefits I may derive from the thing. I am American whether I like it or not, and I do want to help make it a better place. But I don’t need my citizenship to do that. My pen knows no boundaries.
Donna lane nelson said:
Sad and so right. Been there, done that. More and more I wonder why people are expected to love a piece of dirt with arbitrary boundaries
I am Canadian, and I do not know much about this, but I do have a question. How does voting work when you are an American living abroad? Are you allowed to vote in elections, and if so, who is your representative? If not, then wouldn’t this harken back to one of the very principles which prompted American sought independence?
Taxation without representation can’t be both wrong and right. can it?
I am sorry that you have to renounce your citizenship, but I think your reasons are sound.
Reblogged this on U.S. Persons Abroad – Members of a Unique Tax, Form and Penalty Club and commented:
“It is obvious to me that I have to renounce my citizenship. I don’t want to but I have to. Living under these laws is neither living as a Canadian nor as an American but as a mutated hybrid with two heads, four left feet, a humped back, and no heart. My livelihood and my family’s livelihood takes precedence over any benefits I may derive from the thing. I am American whether I like it or not, and I do want to help make it a better place. But I don’t need my citizenship to do that. My pen knows no boundaries.”
Excellent post. I especially like *My pen knows no bounds.*
I officially renounced in 2012 to get a Certificate of Loss of Nationality (CLN) to show to my local, Canadian *foreign financial institution* that I am NOT a US citizen. That was decades after I became a Canadian citizen in 1975 and was WARNED by the US Consulate that by doing so I would be losing my US citizenship. *OK – it’s a deal — I’ve made a decision on where I want to live, be a citizen and raise my family.*
My children were born in Canada, so *born dual*. Neither were registered with the US as *US births abroad*. I naively expected that their birth in Canada, becoming Canadian citizens, would be the same as their parents, warned as above that they would lose any US citizenship. Not so. One child has renounced her US citizenship. She is a small (very small) business owner and has paid dearly in the process of renunciation.
The other of my children is ENTRAPPED into acquired US citizenship by birth to me — he was born in Canada, raised in Canada, never lived in the US, never had any benefit from the US – only the many benefits he receives from Canada. Someone like him, without *requisite mental capacity*, would not understand the concept of citizenship, must have no influence in making such a decision and must have no help in that process. The parent, guardian or trustee of such a person (a person who might have either a developmental disability as my son or may have age-related dementia, a brain injury caused by an accident or medical event, an addiction, some mental illness), even with a court order.
I shelled out over $42,000 from my Canadian-earned retirement savings, the total to three different cross-border US tax and accounting firms (and to one Washington, DC immigration/nationality lawyer regarding my son’s *entrapment*) before my required US tax and reporting compliance was done correctly, mainly because of the Canadian Registered Disability Savings Plan, another of the Canadian registered accounts the US considers *foreign trusts* and subject to additional complex and expensive to administer IRS Forms 3520 and 3520A. Here is the way my US tax lawyer explains the US$3,661 that I paid to the US IRS:
1. If the sponsor / Holder of an RDSP (or RESP for that matter) is a US person then (US person analysis of the beneficiary is irrelevant):
a. The income generated by the RDSP is taxed to the US person sponsor currently as it is earned
b. The grant is taxed to the US person sponsor when it is distributed to the beneficiary
c. US person sponsor must file 3520A annually
d. US person sponsor must file 3520 annually
2. If the sponsor / Holder of a RDSP (or RESP) is NOT a US person, AND the beneficiary is a US person then:
a. The income generated by the RDSP (RESP) is taxed to the US beneficiary currently as it is earned
b. The grant is taxed to the US person beneficiary when it is distributed
c. US person beneficiary must file 3520 annually (no 3520A)
Neither RDSPs nor RESPs are covered by the Canada / US Tax Treaty. Nor are TFSA’s.
Every Canadian taxpayer helps make the government contributions to RDSPs and RESPs — so essentially part of that goes to the US IRS.
I say those like my children born in a country outside of the US to US parent(s) and others who have some *accidentally acquired* US citizenship (those born on US soil to Canadian or other-country parents but who returned to their parents’ and their home country as infants or minor children — i.e., they had no say over where or to whom they were born — should have a CHOICE, a CLAIM to a US citizenship at age of majority (with full knowledge of any benefits, as well as the ongoing consequences of US citizenship-based taxation — much different than the residence-based taxation of the country in which they reside). If there is NO CLAIM, with also *requisite mental capacity*, it is all null & void — there should be no automatically acquired US citizenship for these *accidental Americans*.
I maintain that there should be an OPT-IN to US citizenship (if the facts allow), never an OPT-OUT of an automatically acquired US citizenship. I and others, believe that is unjust — bad US law, regarding both citizenship and its tax consequences.
Many have given submissions to the US Senate Finance Committee and hope someone there is listening (http://www.finance.senate.gov/newsroom/chairman/release/?id=3b14e94b-69f9-41e2-9fd3-7d191971b7ee) and can inject common sense for change into US tax policy. They say: “Each of the five bipartisan working groups is currently working to produce findings on current tax policy and legislative recommendations within its area, with the goal of having recommendations from each of the five working groups completed by the end of May.”
My pen / your pen know no bounds. We’re tired, but we cannot give up standing up for what should be our rights in Canada (and other countries) as we are told by our own governments that we are *US citizens residing in the countries in which we are Canadian (and other country) citizens*.