#FATCA Hearings (4/26/2017) – a very brief introduction

Tags

cbt, citizen-based taxation, fatca, FBAR

The Foreign Account Tax Compliance Act (#FATCA) is a law requiring all foreign financial institutions (FFI) to provide the United States’ Internal Revenue Service (IRS) with financial account details of any American Persons who has accounts with it. If a FFI does not comply, then it is subject to a 30% withholding tax on all its American transactions.

There are arguments for and against #FATCA, and even though I am fully against it, I will try to present both arguments.

Argument For

• The United States has suffered from tax evasion where its citizens and residents park their nest eggs abroad tax free. FATCA forces other countries to report these monies to the IRS. Estimates of taxes that will be recovered vary from $250 million a year to $792 million per year. The actual amounts received in taxes to date is only about $400 million.
• Since implementation in 2010, the Treasury Department has received about $8 billion from FBAR penalties — fines for not reporting overseas accounts; which are not tax revenues but reporting violations.
• More American Persons living abroad have become tax compliant. I cannot find figures on this, but I know it is true because it is true for me and many I know (online).
• There is no cost to American taxpayers. *At least this is argued. There is an indirect cost via increased compliance costs of US banks and the associated lost tax revenue.
• FATCA adds a layer of transparency — money cannot be squirrelled away anonymously.

Summary: the positives are compelling. FATCA is bringing home lost tax dollars, is preventing at least some tax evasion, and this is the argument commonly made.

Argument Against

• FATCA infringes on the right to be free of unwarranted searches as described in the 4th Amendment of the U.S. Constitution:

  

• It imposes costs on foreign financial institutions whose only ties are American customers. #CBT
• It imposes burdens on non-American persons. #FATCA & #CBT
• It infringes on the sovereignty of foreign nations (by applying American tax law on foreign soil). #FATCA & #CBT
• It helps capital from foreign economies into the American economy. #FATCA & #CBT
• Americans are being denied basic banking services.
• American small businesses abroad are less competitive through higher taxes and compliance costs. #CBT
• Threatens $2.2 trillion in American exports.
• Increases the impetus for the world to move away from the U.S. dollar as the global reserve currency.
• American livelihoods are impacted and threatened. #CBT
• In some cases violates attorney client privilege (when an attorney living abroad has foreign clients whom he or she has authority over their financial accounts).
• Exposes personal financial information to hacking.
• American citizens are renouncing their citizenship in record numbers.
• Americans living abroad are becoming disenfranchised and may be acting as a negative force on the global opinion of the USA.
• It exacerbates the world’s existing image of America as a bully.
• The US refuses to comply with its promise of reciprocity.
• There is no tax revenue gain.

Summary:

Most of these negatives are real. Others such as loss of trade are as yet undocumented. I take the individual citizen living abroad as the canary in the coal mine. Americans have lost all financial accounts and have even had mortgages cancelled, small businesses have suffered through loss of financing, and some individuals have lost jobs (existing and potential) due to their signing authority on foreign commercial accounts. And over 4,000 of us are now renouncing annually with no signs of letup.

Discussion

Some of these negatives are inextricably linked with citizen-based taxation (CBT). CBT was not as much an issue before FATCA as most Americans ignored their American income tax obligations. Actually most did not know they had tax obligations, and many today still don’t know they do. Others simply refuse to comply, and while I don’t know the compliance rates, all discussion I’ve seen says they are still far below 50%.

Most of us who live abroad think CBT should be abolished and replaced with residence-based taxation. This is how the majority of the world taxes its citizens: you are taxed if you live in a country, but if you move away, you are not. Why the US continues with this practice boggles our minds. It is virtually the same practice King George imposed on American colonists which is commonly known as taxation without representation. We get zero American services, so why should we be taxed?

One way to look at these issues is to reverse the roles. Suppose all other countries taxed their citizens in the US. Some 40 million foreign nationals would then have to file taxes abroad, and because of all the flimsy tax treaties the US has, the estimated $400 per head would leave the US ($16 billion annually versus the $3.6 billion the US extracts from foreign lands.) Plus, every American bank would have to supply financial information on every foreign person they had as a customer; which would mean verifying each customer’s nationality. The American financial services industry would not go for it; the American people would not go for it; and the American government would not go for it (as evidenced by the existing refusal to comply with its own law).

This is a bi-partisan issue. CBT was first created by President Lincoln, a Republican, and these laws have been supported and added to by both parties. Many of the Republicans are now understanding the complete immorality of CBT and FATCA, but most Democrats are clinging to their need to control.

There are better ways to catch tax cheaters. Recruit some business schools. Consult countries like Canada who have logical processes to protect taxes. tax money as it leaves, not the people. But Americans don’t want to do things the best way; they have to do things their way; because American way is always the best.

 

 

Advertisements

NaPoWriMo/PAD 2016 Day 30

Tags

8854, citizen-based taxation, fatca, IRS

For today’s prompt, write a dead end poem. Of course, I was thinking in terms of the challenge, but a dead end can literally mean the end of a person’s life, a dead end road, a dead end job, dead end mortgage, and so on. Take the phrase “dead end” and apply it to a noun, and the possibilities are nearly endless (except, well, there’s the whole “dead end” finality to it, I suppose). I hope it’s fun and that the blog is alive and well today.

Dead end. An easy prompt. A dreadfully easy prompt for someone who has spent their life running into walls. While I admit most walls were of my own construction — John builds the greatest walls! — some walls were built by others. One wall in particular, the United States citizen taxation walls of laws, has been a huge road block in my life. And there was only one way to get around it, so I took it. I left the American side of me behind that wall and moved forward. Thank you presidents Lincoln and Obama for being so un-American.

Perhaps these two gentlemen will eventually be seen as two of the greatest presidents. While I am not an Obama lover for many reasons, I am not a hater. He’s a smart, reasonable man, but maybe he’s too reasonable. I’d rather he did more his first term while he had control. I wish he have made even more changes: cut government, implement true universal healthcare, and get America on a path of world participation. Instead, he’s blocked financial growth. He’s implemented FATCA which has pissed off ever foreign financial institution, over 160,000 of them. Foreign banks if my words are too big.

Why do foreign banks matter?

Because now foreign banks do not wish to do business with America. FATCA poisons the waters. If you are a medium-sized company say in Hong Kong and you need financing (all companies use financing), then you need to give your banks certain documents: business plans, financial statements, cash flow, risk analysis, etc. It is now risky for banks to deal with the US. I can envision foreign bankers telling foreign businesses to ditch the American sourcing. Sell all you want; because we want their money, but if you buy from them, no money for you. Source your expertise from China or even the hated Japanese. Just don’t source from America.

I don’t know this is happening, but I do know banks around the world are shutting American citizens like myself from basic banking services, and millions of individuals and an estimated one million small businesses are scrambling to rid themselves of their American ties. I relinquished my citizenship and this last week signed a form with my bank confirming I was no longer a risk to them. No, I didn’t get a toaster.

Corporate inversions are another form of disloyalty — in the eyes of homelanders, but to me it’s common sense. If a large corporation has operations around the world — a common example is Ireland with its 12.5% corporate tax rate — they want to be able to compete; they need to be able to compete. America’s corporate tax rate is 39%, so if company X, American,  makes a million dollars in profits and company Y, Irish, also makes a million dollars in profits, Company X nets $610,000 while company Y nets $875,000. That’s called unfair competition, and that’s why American multinationals are inverting to foreign ownership. They want to be taxed 39% on American operations and 12.5% on Irish operations. It’s only fair, right? Obviously there is room for cheating, and that needs to be controlled, but as it stands now, the US is the biggest tax cheater of the all. These troubles are its own fault, instituted by Lincoln in 1863 and reiterated by Obama in 2010.

Taxation without representation!

Representation is not a vote. Sorry, but a American vote means nothing to me because no elected official can impact my life: I drive Canadian roads, work for Canadian employers, use Canadian schools, use Canadian health care, use Canadian retirement vehicles, and pay Canadian taxes (as I should). What possible claim does the US have on my life as a US citizen when I use zero of its services? That’s the way the rest of the world thinks, it’s the way I think, and it’s the way any common sense person thinks. Just as the US taxes foreigners living and working in its borders.

The original law was drafted to stop Confederate sympathizers expatriating to Canada to avoid the new income tax act. It was the only logical tool at the time. But this is no longer  1863. Our world is computerized. We don’t need to tax citizens abroad, we can tax them as they leave, like Canada and some other countries do. We could give citizens a choice: be taxed on everything you own (with a much lower than $2 million limit) as you leave, or keep filing with reduced foreign income exclusions until you return from your temporary stay.

This is no a hard concept. It’s called fairness. But Americans are too wrapped up in their own aggrandizement to care. America is number one, and everything outside her borders sucks and should be leached because they are subhuman civilizations.  Maybe that’s not what you as an American think, but it’s how the world sees you. The US sucks in every comparative category: healthcare, education, standard of living, satisfaction, freedom, or whatever. The only thing Americans are first in is saying they are number one.

My rant’s not over, not by a long shot, but it’s time to post a poem. Another rant about, not my dead end, but the potential dead end for America of it doesn’t get its shit together. FATCA, Corporate inversions, and more recently a ubiquitous fear of trade deals. Listen to me: if you kill all free trade deals, it will send a clear message to the world that you do not want their business. This might be an eye opener to you, but the rest of the world no longer needs American know-how. And most nations are more than willing to try and fail on their own. Obama brags of his $2 trillion trade surplus. Don’t wait until that turns into a $2 trillion trade deficit before you believe me. I might no longer be a citizen, but I care about my country.

#FATCA

Today I’m filing my 8854, what the FATCA for?
Because my fellow Americans have forgotten
life, liberty, and the illusive pursuit of happiness
were intended to be inalienable.
Taxation without representation has caused previous revolts
financial slaves of the free world
you have no right to bury your heads and hide from, the oxymoron
President Obama, the thinker
The biggest tax cheat of them all
The American People

I am angry and sad, my home nation
dying in a world of progress, more intent on building walls
than living its propaganda. Freedom.
Hate cannot defend right
A bully cannot pretend might
The myopic will never be able to write, happy endings
A blinded horse is incapable of leading the way
straight roads only with shallow ditches
a future without curves.
A nation with the least common sense and the most guns
can only lead to dead ends.

Purple Mountains – A Poem For America

Tags

America, American Revolution, citizen-based taxation, Climate Change, dollar, Evil Empire, Expat, expatriates, fatca, FBAR, healthcare, racism, Sex discrimination, tax cheat

I have thought many futures since I was hauled away
Will I return or will I stay
I saw the mountains, prairies, and seas
I learned such treasures are not all glorious,
That binding words are more likely to fill prisons than free slaves
The currency of freedom should not be a crime to possess

Living on the fringe one learns to appreciate rainbows
But some lessons take time to learn
One does not easily befriend the absence of colour,
When one has been circled by white cars with red and blue lights
You cannot protect what you don’t have by taking away what you don’t own

I rarely see the Almighty Eye of the world but I know it watches
I can feel its sticky fingers in my pockets,
And I see it handed out freely
Front desk floozies beg for it,
But you only demand more payment when they multiply

Self defence, you claim
Fighting for safety is the greatest of all evils,
But living in fear is not the same as freedom to fear
You cannot close the gate on the lady dressed in leaves
Did you know mountains only look purple in fading light?

Why Tax Citizens – America’s Obsessive-Compulsive Disorder

Tags

cbt, citizen-based taxation, fatca, FBAR, OCD, patriotism, US constitution

America has an obsessive-compulsive disorder. The rest of the world thinks so, based on America’s seemingly non-sensical, misguided, and random behavior. Examples are long and storied: the failure to adopt the metric system, the insane void of gun control, a refusal to fund the United Nations yet an expectation to run the organisation by its lonesome, a fetish for free trade yet a near communist obsession with cheap oil and food, and the list runs on. These are decisions most of the rest of the world has made; because they make sense. Such a patient cannot accurately judge their own actions and motivations, so don’t bother arguing this point if you are an American living in the 50: I won’t listen to you just as you won’t listen to me.

I am focusing on income tax. Americans believe all its citizens must pay income tax. It is a value grounded in constitution and war. Not so much constitution, really; there are no constitutional clauses stating all American citizens must pay income tax. The Sixteenth Amendment (Amendment XVI) states, The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. And that’s about it as far as income taxes go, in the constitution.

All American citizens are required to file and pay income taxes to the United States, and when I or any other American expatriate argues that this is nonsense, most Americans simply state the obvious: “you are a citizen and it is your duty. If you don’t like it, then leave.”

Let’s take a closer look at this idea. What’s right for America should be right for the rest of the world. It’s why America fights most of its wars, to defend the American way, its values and ideals: freedom, liberty, and the pursuit of happiness. So in an ideal world, all countries would tax their citizens and only their citizens. We would all file taxes with our native lands. It’s the patriotic thing to do. The only trouble is the United States of America doesn’t practice what it preaches: the US taxes not only its citizens but also non-citizen residents. In 2012, there were an estimated 13.3 million permanent residents in the US who were not citizens and who were required to file income taxes. The US does not just tax its citizens but also its foreign residents.

“But of course,” you say. “Why wouldn’t we tax these people? They live and work in America, they receive government services, so they should pay for those services.”

I agree. It would be wrong not to tax someone living in your country. It would open the doors wide open: “come live in the greatest nation in the world and do it tax-free!” It’s a preposterous idea. People should pay taxes where they live because that’s the economy they impact and the economy that impacts them. Boris from Russia works in Silicon Valley, lives in a San Jose home, drives a car bought in California, sends his kids to a private American school, has married an American person, drives American roads, calls American police when his home is broken into, doesn’t have to worry about bombs and rockets because American warships and fighters protect his lands, and on and on. It only makes sense that Boris pay taxes to the US and not to Russia. Which is the way it works if you live in America.

Other countries tax American citizens living in their lands because these citizens live, work, and receive services in those foreign countries. Just as the US does, all countries tax their residents because it makes sense. But the US is different. Besides residents, the United States taxes citizen expatriates as well – citizens living abroad and participating in foreign economies – because somehow this makes sense to an American. The US wears patriotic blinders and can only see the world from its myopic, obsessive-compulsive, cavernous halls of righteousness that says all its citizens must pay for their liberty and freedom and services received, even though there are no documented services expatriates receive for their tax dollars. Just like the metric system, the United Nations, and gun control, the US cannot buy into a concept because it is right if it hints at being unpatriotic or freedom-limiting. Never mind that 8 million of its citizens are burdened with the onerous task of juggling two tax systems, have their financial freedoms abused (basic investment options such as private pensions and mutual funds severely are restricted), and are subjected to invasion of privacy no American living at home would stand for under threat of extreme penalty.

America is losing 15 citizens every day and the rate is growing. It is not because we are not patriotic but because we need to protect ourselves. We are being abused by our native country. Can we please sit back and think about what we are doing and why, America?

Why I Am Renouncing My American Citizenship — the taxation aspect

Tags

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 11^th.

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.