On December 5, 2019 TaxConnections published our “Open Letter To Democrats Abroad” in which we argued that “revenue neutrality” should be irrelevant in moving from “citizenship-based taxation” to “residence-based taxation”. That post attracted a large number of comments from Americans abroad expressing the difficulties living under the citzenship-based taxation regime. The bottom line is that the United States is forcing expats to renounce their U.S. citizenship. Yes, its’ true. The comments reminded me of a post that appeared on my site in 2017. Settle in for the ride as you read the “13 Reasons Why …”
Guest post by a perfectly ordinary person who renounced U.S. citizenship for perfectly ordinary reasons
13 Reasons Why I Committed Citizide
(Inspired by the television series, 13 Reasons Why)
Hey, it’s Jane. Jane Doe. Settle in because I’m about to tell you the story of my renunciation. More specifically, why I gave up my US citizenship. And if you’re reading this article, you’re probably thinking of doing it too. I can’t expect you to understand exactly how I feel; each person has a unique set of circumstances, a deeply personal mix of conflicting emotions, fears and problems that shape their response. But I can tell you why I did it. Let me start by saying, don’t believe everything you hear.
1. The lost children: I am one of an estimated nine million US expats, some by design, some by accident. Some aren’t even citizens at all but simply “US tax persons.” Whatever we are, none of us is beyond the reach of the IRS. Most of us are everyday people living modest lives in the countries of our choice, not high-rolling tax cheats playing hide and seek with Uncle Sam. Most of us owe no tax money whatsoever to the US because we already pay taxes to our own governments. Yet untold millions are being spent to find us and bring us in. Confusing? Yes. Misguided? Undoubtedly. It would seem this is more about ownership than owing, more about optics than actuality.
2. Beer and maple syrup: I am a natural born dual US/Canadian citizen. I identify as Canadian. Always have, always will. Until recently, I was proud of my dual status. But if push comes to shove, I choose Canada. Canada is my home. This fact is not incidental, even if you refuse to recognize its importance, America. You feel you have the right to walk into my house uninvited in your muddy boots and demand a key for the door. This I cannot tolerate.
3. Privacy: Something I put a premium on, but there is none for expats, thanks to FATCA, the Foreign Account Tax Compliance Act. Created to catch whale-sized tax cheats hiding billions offshore, FATCA requires non-US financial institutions to report US citizens and the details of their bank accounts to the IRS. But whales are tricky, and boatloads of by-catch have been netted instead, flopping and wide-eyed and gulping for air. To remain an American citizen is to relinquish financial privacy — mine and my Canadian husband’s — willingly or no, to be tax compliant in Uncle Sam’s world. To say this puts a strain on my relationship is an understatement. Every part of my life is affected by it — and it has taken its toll.
4. Tourist in my own town: To simplify, FATCA considers all non-US banks to be foreign financial institutions (FFI’s) and any country other than the US to be foreign. So by FATCA standards, anyone who is a US citizen who banks in a country outside the US — no matter if they are, say, a Canadian living on Canadian soil — is an “offshore American” consorting with foreign financial institutions for the purpose of tax evasion. Can you imagine how this feels? To be labeled and punished as foreign in my own country is deeply painful and unacceptable to me.
5. A penny saved is a hardship earned: I’m talking about FBAR — Report of Foreign Bank and Financial Accounts — formally known as form TD F90-22.1. If I’d known about FBAR before I knew about FBAR, I could have worked within its ludicrous parameters. But I didn’t. And I don’t want to. Add to this the IRS’s floating definition of a foreign financial account, the Treasury Department’s penchant for reserving “the right to issue regulations in the future” on just about anything, along with the mere mention of the Financial Crimes Enforcement Network, and I’m ready to tap out. No thank you, America. No.
6. The naked truth: I belong to a magical group called the “uncovered” expatriates because I was born a dual US/Canadian citizen. That means I don’t have to pay a punitive “exit tax” to the US if I decide to quit the game, no matter how successful my life in Canada has been. In some cases, the exit tax is ruinous; in my case, I’m free to go due to the happenstance of my birthplace and my father’s citizenship. The 2 million dollar ceiling doesn’t apply to me. It’s like a “get out of jail free” card, a secret extra game life. Hurray. But I still need to be US tax compliant. For me, this involves filing 5 years of back taxes and 6 years of FBARs, plus a punishing processing fee of $2350 US ($3,119 CAD at the current exchange rate) — and I have to hire a lawyer and an accountant for a complete playthrough to avoid Thwomps and Spike Traps along the way. Yet I am considered one of the lucky ones, one of the protected few, virtually invulnerable in my special “natural born dual citizenship” Vanish Cap as I run through IRS Lethal Lava Land collecting power stars to defeat the evil Koopa King. I am immune; I can renounce anytime. Except…
7. The Deadly Maze: In spite of my natural born dual citizenship status, I still have to comply with two sets of tax rules. For instance, although I don’t have to pay capital gains on the sale of my primary residence in Canada, the US still wants its cut. Who can keep up? I get anxious just thinking about it. Sometimes incredibly so. And even if I could successfully find my way through the maze, I could never be 100% sure of anything because…
8. Shifting Sand Land: Nothing is stable in IRS World; nothing is for sure. At any moment the sands could shift and a new game-changing rule could nullify my advantage. Best to cannon-blast right out of the game before the cannons are swallowed up entirely.
9. The kids are alright — unless I leave them stranded in the Deadly Maze when I die. I like to think that I’ve done right by the people I love, that I’ve added to their overall feelings of happiness and wellbeing. I hope to bow out quietly, to leave only fond memories in my wake when I shuffle off this mortal coil. To do this I must reduce my citizenship footprint, minimize my global profile. For the sake of those dear to me, I must lighten the load.
10. Fear factor: I don’t want to look over my shoulder. I don’t want to be afraid of unknowns or worry about things I can’t understand let alone control. That doesn’t mean I need absolutes because we all know there are none in life. But there are ways to mitigate risk, which in turn, mitigates fear. The IRS penalties for non-compliant expats are absurdly harsh given the target. We are mostly everyday people who pay taxes already. Yet you shove your fist in our faces, America, to remind us that it is never enough, to remind us that you are the real danger and that we can never rest.
11. The devil you know: Canada isn’t perfect. Far from it. Our government simply rolled over when the IRS started making threats and demands. Our banks complied without protest. So how am I as an individual to manage my fear? Who is brave enough to stand up to you, America? Who is willing to take the risk? Ultimately, Canada is no better or worse than the US, but it is definitely different. And that difference is what I’m used to. We have a “wait and see” approach; we have a gentler method. There are things Canada considers immutable that some may not understand. Like publicly funded health care. That’s a big one. I sleep marginally better at night knowing that my tax dollars help my neighbors as much as me. I find comfort in that.
12. A modest proposal: My thoughtful nephew, upon hearing my predicament, proposed an expedient. He told me to view my US citizenship from a business perspective. Do the costs outweigh the gains? Am I getting a good return on my investment? What is my timetable for investing? What is my risk tolerance? If dual citizenship proves to be a solid financial venture then it’s business as usual. If not, cut your losses and move on. Above all, remember: hope is not a strategy. Have a logical reason for holding a losing position; don’t base your decision on sunk costs. So I sharpened my pencils and set about calculating, but soon found myself scratching doodles on the page. You see, the perceived freedoms I enjoy as a US citizen — to come and go as I please, to work anywhere in the country, to vote, to be a card-carrying member of one of the most exciting countries in the world — these things have no price, though they are far from free. There is a hefty cost for living outside your gates, America, made worse by your government’s indifference to my plight. I will never be able to properly live and thrive and plan for the future — nor will my children. We will never be able to truly find peace because we are bound by laws that you yourself would never accept. Which leads me to reason thirteen.
13. Citizenship-based taxation: As many of us know, there are only two countries that levy taxes based on citizenship: the United States of America and Eritrea. One is a global superpower; the other is a small country in the Horn of Africa with a human rights record and press freedom index so egregious, it’s government is ranked among the worst in the world. How can this be so, America? How can you knowingly break bread in such company? Have you forgotten your history? Have you forgotten how hard you fought for the freedoms you now forcibly withhold from your citizens in other countries? You once taught the world that citizenship-based taxation is untenable, condemned it as an abusive form of control that flies in the face of all that’s reasonable and good. Your fathers taught us to resist — showed us how. Yet even as you celebrate your hard-won independence you bind your children in chains. And I cannot support it. Don’t ask me to “move on.” Don’t ask me to accept your contradictions and “get over it.” Your citizens are not a resource, Uncle Sam. Your citizens deserve the rights and freedoms for which you are so famously loved and admired — no matter where they live. Please understand that I don’t take this lightly; this is the hardest decision I’ve ever made in my life. They took my passport. They added my name to a public list. I could barely sign the documents because America is and always will be a part of me. But unless you change your thuggish tax laws you will forever carry the shame of your hypocrisy. It diminishes you, America. It tarnishes every aspect of everything you say and do — far beyond my eyes and those of your forgotten nine million. Even if FACTA and FBAR are repealed as unconstitutional, the fact remains: citizenship-based taxation is utterly, undeniably wrong. You need to fix this, America, as fast as you can, so no more of your children are forced to do what I did.