On Tuesday July 14, a lawsuit will be launched by about a dozen people against the U.S. Treasury, IRS (ironically, this stands for the Internal Revenue Service), and U.S. Financial Crimes Enforcement Network. The suit is being launched by expatriates as well as Rand Paul. Hopefully it will generate media attention. Of course some of the coverage will be wrong, likely slanted by ignorance, and some of it will be sparse. I’d love to see some serious debate on CNN and FOX News with all the necessary pundits. I don’t expect it to go that far, yet, but this is only the first of many law suits being lined up, including one Canadian suit against the Canadian government.
I am telling you this because it may get messy. I may write something I am not proud of. It has happened before, and Tuesday may become even more intense. Many American “homelanders” are ignorant and uncaring of expatriate tax woes. They are complex issues with a long history, and most Americans judge them with their patriotic blinders. I cannot get upset at them for their reactions, but when they continue to discount my argument even after pages and pages of fact, I tend to get a little upset. I am cleaning the heavy artillery for an onslaught against the ignorant.
Another indication of the seriousness of these taxation issues: A month ago I met with the American Consulate in Halifax to let them know I was relinquishing my American citizenship. Five days prior, I was asked if I’d be interested in having a major network’s “News” show (think 60 Minutes) tag along with me. Record numbers of Americans are booking such appointments, and this program wanted to know if I would be interested in having a camera crew tag along with me. We determined I was not the candidate as I have lived abroad 45 years, have no intention of returning to the United States, and I was not torn up about leaving. And I am not. As soon as the IRS leaves me alone and sends me my Certificate of Loss Of Nationality (stupid concept) I will be most relieved to be gone. The point is some of the major news media are paying attention.
The basic problem we expatriates face is the US has kept its 153 year old tax strategy to control tax cheating by people moving money outside of the country. Most countries have chosen the logical approach: they tax money as it leaves the country (resident-based taxation, RBT). The US has chosen to tax its citizens wherever they live (citizen-based taxation, CBT).
CBT causes many problems, too many to discuss in detail. But the US’s practices have raised the following concerns:
- CBT taxes foreign economies. Every dollar we pay is a dollar that drops the American debt and raises foreign debt. A person working in Canada for a Canadian institution who invests in a Canadian home, RRSPs, mutual funds, or race horses, has no logical allegiance to the IRS.
- The IRS does not recognize the same tax savings devices as other countries do. The big example is private homes. The IRS taxes capital gains on the sale of private homes where Canada and many other countries do not. The IRS taxed Boris Johnson, the mayor of London UK, over $100,000 on the sale of his home. He of course called it outrageous. A key difference is the IRS allows mortgage interest and property tax deductions; while Canada and other countries do not.
- Many American tax laws are protectionist. For example, investing in stocks and mutual funds is looked on favorably, if you live in the US and buy US shares. If you buy foreign shares, these are treated as passive foreign investments or PFICs and are taxed at the highest rates (39.9%) and can be taxed as high as 50% (requires a tax lawyer to explain this shit).
- About 50% of taxpayers are in private pension plans through their employer. The IRS only recognizes such plans if they are American plans. So all American expatriates working for Bell Canada Enterprises not only are not allowed to deduct their pension contributions from their American income, not only do the plans also do not grow tax free, but such plans are technically considered PFICs and taxed at 39.9% to 50%. It is mind bogglingly stupid, yet there are more examples.
- We file a FBAR report which is a list of all our accounts, their balances, and the other signing authorities. This invades my privacy and places the burden of proof on me.
- FBAR penalties are extreme. If I refuse to file, I get slapped with a $10,000 penalty per account plus 50% of the account’s balance for a maximum of three years. Omitting a $25,000 RRSP could cost me $105,000 in penalties; which have been upheld by American courts.
- FBAR invades my non-American family’s privacy as some of my accounts have been shared by my spouse and my children.
- FBAR invades the privacy of a non-profit organization I have signing authority with. If I didn’t relinquish my citizenship, I couldn’t ethically retain this duty. I have probably broken my professional accounting ethics guidelines already, but what can I do?
- Lastly a new law called FATCA is now in place, and this is what Tuesday’s lawsuit addresses. FATCA requires all foreign financial institutions to submit the financial information of all American Persons (similar to the self-reported FBAR report) or have 30% of all their American transactions withheld. This program combined with recent pursuit of several foreign banks for aiding and abetting American tax cheaters to the tune of billions of dollars, has riled foreign banks around the world:
- Americans are being denied bank accounts and mortgages
- Existing accounts are being closed
- Some long term companies are facing difficulties conducting day to day business and signing new contracts with major corporations
Basically the United States has bullied the rest of the financial world and American citizens and businesses (estimated at one million) are taking it on the chin. Canada has not seen these problems, likely because our relationship with the US is so close. Americans in France, Switzerland, Southeast Asia, and other nations are being forced to renounce or relinquish their citizenships if they want to remain.
I am not intimate with the first lawsuit, but it seems to focus on what might be termed a technicality. Treaties and taxation changes require Senate approval. The suit claims the more than 100 IGAs (Inter Governmental Agreements) the US has signed with other countries are full-fledged treaties, and since Senate approval was not sought, they are null and void. Such arguments don’t seem to matter anymore though. The Obamacare tax failed a similar argument, and President Obama has run executive orders through that probably should have been voted on. Yes, there are many issues involved, and I do not want to get into them. Even if this suit fails, hopefully the media will be woken up to our plights and other, more serious lawsuits will garner even more coverage. There are a number of issues at play here, and a single, all encompassing lawsuit seems unlikely, especially given Cook Vs. Tait failed in 1924.
I firmly believe CBT needs to die. It is wrong on all levels. It would be best of Congress and the president actively discussed this issues and put forward new and better RBT laws, but we cannot wait. Peoples’ financial lives are in Danger. We need action yesterday, and if that means billions of dollars of hidden offshore money goes free, then so be it. We cannot stand for Americans being hurt like this. On Tuesday I and other American expatriates and former expatriates will be bringing out the big guns. You may not want to read my FaceBook timeline on Tuesday.
If you are media and you want intelligent opinion, I know people who can give it. 😉