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Are the Psychological Benefits of U.S. Citizenship An Adequate Justification For The Worldwide Taxation of Nonresident U.S. Citizens?



I recently wrote a two-part series about the inadequate justification for the United States’ worldwide taxation of its nonresident citizens (Part I is available here; Part II is available here). Professor Michael S. Kirsch offers a different perspective in defense of this system. Instead of assessing the propriety of U.S. worldwide taxation on the basis of the legal benefits associated with U.S. citizenship, which lies at the heart of the “benefits rationale,” Professor Kirsch argues that, “it is reasonable to conclude that the retention of U.S. citizenship reflects a self-identification with the population of the United States (or the belief that the benefits of citizenship are worth the tax cost).”[i]

In justifying the worldwide taxation of U.S. citizens, Professor Kirsch relies on the psychological benefits of U.S. citizenship, namely, the ability of nonresident citizens to identify on an emotional level with the United States. Professor Kirsch advances the theory that a nonresident’s retention of his U.S. citizenship, despite having the ability to expatriate at any time, reveals a subjective “belief that the benefits of [U.S.] citizenship are worth the tax cost.”[ii]

According to Professor Kirsch, the failure to renounce one’s U.S. citizenship while living abroad reveals a person’s true, heart-felt intentions: “that the advantages to him of U.S. citizenship outweigh its tax cost, in terms of worldwide taxation of his income and assets,” as onerous as that might be.[iii]

I respectfully disagree. First, due to the U.S. government’s recent overhaul of the expatriation process, expatriation has not only become more cumbersome, but more expensive. Many find it to be “cost prohibitive.” Second, the tax liability incurred by two or more U.S. citizens living abroad may be radically different depending on the countries in which they live, despite the fact that they receive the very same benefits of citizenship.

At a primitive level, I do not disagree that the symbolic and emotional benefits of U.S. citizenship, referred to by Professor Kirsch as “self-identification,” are very real. One need look no further than the excitement and joy experienced by an Immigrant after taking the “Oath of Allegiance” at a naturalization ceremony (taking the oath completes the process of becoming a U.S. citizen).

At the same time, I agree with Professor Edward Zelinsky that as real as the psychological benefits of U.S. citizenship might be, they fall woefully short of justifying the global taxation of nonresident U.S. citizens. As so eloquently stated by Professor Zelinsky,

“There is a missing link between the major premise – the psychological benefits of U.S. citizenship – and the asserted conclusion – worldwide taxation of U.S. citizens. Why does the latter stem from the former? I respectfully suggest that Professor Kirsch (or anyone else) cannot supply the missing minor premise in this syllogistic chain.”[iv]

Although Professor Kirsch’s arguments help to clarify the debate, I remain steadfast in my opinion that the justification for U.S. worldwide taxation of its nonresident citizens is unpersuasive.

What do you think? I would love to hear your comments in the “FATCA Tracker” Community.  Click Button to access Community.

1-12-2015 9-39-39 AM

 

 

 

Endnotes:

[i] Michael S. Kirsch, Taxing Citizens in a Global Economy, 82 N.Y.U. L. Rev. 443, 481 (2007).

[ii] Id.

[iii] Edward Zelinsky, Citizenship and Worldwide Taxation: Citizenship as an Administrable Proxy for Domicile, Iowa Law Review, p. 1322.

[iv] Id, supra, Note (iii), at p. 1322.

Original Post By:  Michael DeBlis

As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.

Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.

   

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29 thoughts on “Are the Psychological Benefits of U.S. Citizenship An Adequate Justification For The Worldwide Taxation of Nonresident U.S. Citizens?

  1. SwissTechie says:

    I identify on an emotional level with the United States as a nonresident non-citizen, and I don’t need to pay US taxes for that.

    I also didn’t pay US taxes while living abroad as a US citizen and I didn’t renounce because of taxes. Rather, I renounced US citizenship due to national origin discrimination caused by US policy. National origin discrimination is a US federal crime.

    With over 500 years of American ancestry, I don’t need citizenship to identfiy myself with America. I will continue to have American heritage regardless of US taxation, US immigration policy or US foreign policy.

  2. John says:

    Is America the only country able to imbue psychological benefits? The professor sounds like the typical myopic home-lander: “Invade I-rack,” but cannot find it on a map.

    We have names for people like Professor Kirsch up here in Canada. Shit-for-brains might be the least offensive.

  3. Walter says:

    Very nice analysis Michael DeBlis!

    Professor Kirsch is grasping at straws with his far fetched premises. Only a pathological apologist for the peculiar institution of citizenship-based slavery could come up with such bull crap. Kirsch needs to get his head examined.

  4. Ruth says:

    These sorts of arguments completely ignore the fact that desspite identifying with the U.S. emotionally some simply cannot AFFORD *are too POOR* to be able to make the so called choice to retain their citizenship. I”m going to assume here that the professor in question is fairly well off and therefore can afford to engage in such arguments. He assumes wrongly so that those who are not able to keep their citizenship due to FATCA, low income, problems with a foreign sposue who makes all your income etc are somehow “Less engaged emotionally” with their citizenship with the U.S. Are Canadians less emotionally linked to their citizenship because Canada does not practice CBT? I find this professors argument A.) elitist B.) wrong headed and insulting. Not everyone is able to make the choice to remain a citizen and he should be thankful he has never been put in such a position.

  5. John says:

    Being a US citizen carries many benefits. Access to the best healthcare in the world, best education system, protection from the US military, assistance from the US diplomatic team, US retirement system, ability to live in the US, Social Security, Medicare, Unemployment insurance, financial markets, low pollution, clean water, and a government of law with low corruption.

    Someone with US citizenship can avail themselves of these benefits at any time. Without it, they often cannot.

    The US has an onerous tax system in some ways, but so does China and some other industrialized nations. My observation is that the territorial tax system leads to abuses as people move money and assets into places where the home country doesn’t tax them, hurting the economy. It results in massive game playing. On the plus side, in many ways, the US tax system is less onerous than others.

    Frankly, if you are only worried about money, low taxes, and lowering your costs, expatriate and move to Panama.

    Hope you can get back in for that operation or your kid into Harvard and your pension might be in Balboas.

    My view is there are lots of benefits of US citizenship, if you don’t value them, you should leave and stop complaining about the tax system.

    • SwissTechie says:

      Europe has excellent healthcare, paid for with local taxes. No need to go to the US for that. Currently, Al Qaeda is threatening US expats in France, who are being protected by the French police to whom they pay local taxes. There are no US marines protecting US expats in France. US diplomats never do anything for US expats, other than to cause trouble for them with poor diplomacy. Expats are excluded from the US retirement System. Expat Social Security is heavily slashed with the WEP Penalty. Expats are excluded from Medicare, don’t get unemployment insurance, are excluded from financial markets and and do not live in the US for “low Pollution, clean water or government law”

      Expats don’t have any of the “benefits” that you claim that they can “avail” themselves with. Expats generally pay local higher taxes than what stateside Americans pay in the US, and yet stateside Americans continue to greed and lust for foreign money earned and taxed by people who don’t live in America.

    • Ruth says:

      Most expats will not now nor ever owe any taxes. The problems of late have little to do with taxes owed. The assumption that “you don’t value” something because some are not ABLE *see Nina Olsen* to keep their citizenship is simply nonsensical.

      Harvard? Most of us are not rich enough to send their kids to Harvard. Mine is going to be a paramedic with a huge student loan. I think you have a picture of what is going on here that is out of touch with reality.

      It’s not about being worried about taxes. What if you can’t keep your mortgage because there is an American in the household and no bank wants to renew it and you and your spouse are in your fifties and lower income? This and MANY other serious issues are caused by CBT. Some do not have the luxury of discussing things the way you are. Maybe the very wealthy can or they can afford to drop their job and up and move back with foreign spouse and children in tow. Most cannot. You really don’t get it at all.

    • Walter says:

      Dear John,

      The US is ranked number 16 on the Economist Intelligence Unit “Quality of Life Index.” That means there are 15 other countries (Switzerland, Australia, Norway, Sweden, Denmark, Singapore, New Zealand, Netherlands, Canada, Hong Kong, Finland, Ireland, Austria, Taiwan, Belgium, and germany) deemed to be ahead of the US for the various benefits you listed. NONE of them have Citizenship Based Taxation (CBT). Why is that? Because CBT is abusive for citizens living outside their Homeland.

      Another fallacy in your argument, is what about non-resident Americans who live in third world countries on the bottom of the Quality of Life Index? Why should they be paying the same tax rates as the US or more with the inescapable double taxation when they receive only a fraction of the services provided to people living within the US?

      Your logic is that of a person who does NOT live outside the US and does not have to put up with all the double taxation, additional forms to fill and forms with stupidly high penalties (FBAR), inability to save for retirement (US doesn’t recognise most foreign pensions), inability to own a majority stake in a local business (CFC rules), bank closures, mortgage cancellations etc, etc.

      Oh, I almost forgot, Americans abroad do not have a Senator or Congressman to represent their interests as “Americans abroad.” I seem to recall America’s founders having a problem with the British because of this, but maybe you don’t know for that.

      And to top it all off, if an American abroad wants to give up US citizenship in order to live a normal life, s/he has to pay 2,350 USD plus an Exit Tax if they have 2 million in assets and can never tell anyone they renounced due to tax reasons (gag order) or be prohibited from visiting family members in the US ever again.

      John, I hate to be the one to break the bad news to you but YOU ARE NOT FREE. If you ever decide you want to live outside the US, you will have all these same problems to contend with along with a whole bunch more that I can’t even remember to write.

      So good luck to you John. Enjoy your life inside the American Berlin Wall.

    • James Wattengel says:

      I and my employers paid the FICA tax for more than 40 years. I receive US Social Security retirement benefits but $100+ dollars is deducted from each payment for Medicare Part B (Part A was paid for by FICA). Yet, Medicare does not pay for medical expenses outside of the US. By the way, excellent medical care with the best doctors and hospitals here in Brazil costs 50% of what it costs in the US.

      I like your joke: assistance from the ‘Diplomatic Team’. All services have fees. A simple notary costs $50.

      A US Citizen with a Foreign address cannot is blocked from the US financial markets.

      Most of Income Taxes go for the Orwellian “Perpetual War Machine” which does not make the world safer.

    • calgary411 says:

      Said like the *exceptional* homelander American, John.

      “Someone with US citizenship can avail themselves of these benefits at any time. Without it, they often cannot.” Wow, really?

      “Frankly, if you are only worried about money, low taxes, and lowering your costs, expatriate and move to Panama.” No, for US-defifned *US Persons* US citizenship-based taxation, enabled by FATCA intergovernmental agreements signed with the countries in which they have chosen to live, is life control based on where a person was born or in which their parents / grandparents were born (otherwise known as discrimination by national origin).

      The US wants tribute from even “Accidental Americans” who were born in the US to other-country parents, returning to their own country as infants or children (no choice as an adult) OR children born to US citizen parents in another country — even though they have never lived in the US, never had any of the benefits you gush about. Especially abhorrent, someone like my son,born in Canada, has never lived in the US. He has a developmental disability, therefore does not understand the concept of citizenship and can’t renounce something not understood. A person with any kind of a ‘mental incapacity’ must NOT have the influence or assistance of anyone in making such a decision as renunciation of US citizenship. A parent, a guardian or a trustee cannot renounce on behalf of such a person, even with a court order. If there is such a thing as *exceptional* US citizenship-based taxation, it should NEVER entrap anyone in the complexity and consequences of yearly US tax and reporting compliance.

    • Mr. A. says:

      John,

      Please consider my situation – born in the US to a Canadian parent
      (therefore a Canadian citizen from birth), arrived in Canada as an infant, subsequently raised and educated in Canada and have never left Canada. I have only worked, earned income and paid my taxes in Canada.
      I have never received any services or benefits from the USA (and don’t want any). I have no interest in ever living or working in the US. The US govt. deems me a US citizen whether I want to be one or not. Should I be filing US tax returns and paying tax to the US? I think not.

      And I cannot just “leave”. The financial barriers to renunciation are obscene for someone who has never been in the US tax system and who has saved for retirement only as a Canadian living in Canada.

      US citizenship-based taxation is immoral and unjust. The hypocrisy of the Obama administration (in trying to enforce CBT) is incredible. The USA was founded over the principle of unjust taxation of the American colonies by England – a war was fought, people gave their lives. And now the US is committing the same offence that the American patriots fought against.

  6. Ruth says:

    John,

    Your argument assumes people are in some country living in a tent! Expats for the most part are in Canada or Europe not “Panama” and no one said they don’t “value” the list of benefits you have there.

    Canada also has “clean air, clean water” and I will venture a better education system than the U.S. does by many statistical measures. Expats CANNOT avail themselves of medicare, the U.S. health care system or many of the things you listed there. You have completely misunderstood the situation.

    Territorial tax systems in most nations work just fine as you must PROVE you aren’t living and earning in your home country. Citizenship based taxation not only taxes the citizen but, their spouses and chldren too who have never lived or worked inside the U.S. Many of the things you list expats are not allowed to “avail” themselves of including the “U.S. retirement system”

    Which benefits are expats paying for and which are our families paying for again? I don’t think you understand what is going on here. At all.

  7. Ruth says:

    Maybe we could explore the psychological nightmare of waking up and realizing that because you married abroad you can now no longer keep your citizenship like it or not. Identify as an American or not. I know of one divorce over this, and several people who have had to go to see a doctor and who are on medication.

    The real tragedy going on here is that the U.S. does NOT earn money from expats but, they are treating them and their families like criminal tax evaders while causing some people to have to choose between their beloved country of birth or their family where they live. I’m glad “John” and the professor who wrote this have never had to stand in the shoes off some American’s abroad and face what they have had to face lately. I’ve met a lot of them, not one was a “rich overseas tax cheat” who hated the U.S. MOST had been proud free ambassadors for their home country for many years. The U.S. needs a mirror to look in and a lot of education about who expats are, and who they are not. This latest onslaught upon them is a mistake and someone is paying for it with their citizenship. One wold think such an educated government would be able to admit a mistake and make adjustments.

    No country should put people in a position to have to choose between their family or their country of birth yet that is exactly what I have personally seen going on here in many of the renunciation cases. But by all means let us throw more dirt and flames upon the people this is happening to with zero understanding at all of what is really going on and then let us defend our position with straw man arguments.

    I valued my citizenship greatly John, what part of not being ABLE to keep it do you not understand? I highly doubt Nina Olsen would bring this up if she too had not seen evidence of what is really happening here. It is a sad and disgraceful moment in U.S. history but, the disgrace belongs to the congress critters who know this is happening and why and sit and do nothing.

  8. Concerned Canadian says:

    Thanks for coverage of this issue. I’m a US expat as well – moved to Canada decades ago to become a Canadian citizen. Best move ever – like buying Tim Horton’s stock before Burger King’s takeover drove it through the roof.

    I’m also now solely Canadian, with a Certificate of Loss of US Nationality to prove it to banks, border stock brokers, employers, and even insurers. But I remain concerned.

    Unlike Canadian citizens from anywhere else in our Canadian “nation of immigrants”, I have to be able to prove I have severed the ties of citizenship to my birthplace in order to have the same privacy rights and access to financial services as any other Canadian citizen. That is due to Canada’s recent FATCA IGA, negotiated in capitulation to US pressure – and now the subject of a “grassroots” Constitutional challenge.

    I’m pragmatic: my partner’s Jewish ancestors fled Nazi Germany to survive, so I had a strong precedent to what was needed, even though it was distasteful and time consuming.

    The ill will, angst and fear caused by FATCA in Canada is pathetic. And bad for business; the ultimate beneficiaries of FATCA will be the US’s competitors in the global marketplace, because it’s becoming impossible for US citizens to live and work abroad.

    Canada will be a “battleground state” for FATCA. Because of its large population of so-called “U.S. persons”, almost all of who have financial accounts, Canada is in the absurd position of being the world capital of so-called “illicit and undeclared foreign accounts held offshore by U.S. persons”. And the Alliance for Defence of Canadian Sovereignty legal challenge to Canada’s “FATCA IGA” legislation will shine a light on this unusual form of national origin discrimination.

  9. Walter says:

    Professor Kirsch is an ivy leaguer who used to work for the IRS in tax policy. His brain is programmed for only one thing — how to justify grabbing as much money out of as many pockets as he can get away with. When it comes to taxing expats, he is clearly, “stuck on stupid.”

    http://law.nd.edu/directory/michael-kirsch/

  10. JT says:

    “Being a US citizen carries many benefits. Access to the best….”

    All industrialized countries carry ‘benefits’ and are paid for by the people who use them when working and residing in their country. Only 2(US and Eritrea)want money from their Citizens if they do NOT use them and do NOT live in their country. Also, the claim of ‘best’ for example for Health Care and Educational system are factually wrong and most of us Americans would disagree with you just by taking a random walk down the street in a major city and making observations (however, you could prove me wrong and site a source that backs this claim?).

    – America is indeed great for many things, however, not for double taxation and assessing reporting penalties (300% more than what is in their retirement or checking accounts) on normal average Americans living abroad who are carpenters, teachers or delivery persons who happen to live in another country. Quickly sear on “FBAR reporting” and you will see a law made for Drug Cartels being used on normal average US citizens who live abroad.

    “The US has an onerous tax system in some ways…the territorial tax system leads to abuses as people move money and assets…hurting the economy. It results in massive game playing. On the plus side, in many ways, the US tax system is less onerous than others.”

    Almost all Americans agree the IRS and Treasury are too complicated with taxes. And to justify the system by saying it is not as bad as for example Zimbabwe is not a very compelling argument. I do agree it is not ok to evade taxes by ‘hiding’” your money in offshore accounts to avoid paying taxes (however, assume we are talking mostly about US citizens who live in the US). This is NOT an argument just against Territorial Based Taxation, as it applies against the US’s Citizen Based Taxation. The US is the only ones in the world to tax you twice which encourages people to hide their “Offshore” money while living in the US. Finally, this does not hold any longer as FATCA is in place requiring all accounts to be reported on all US citizens accounts in other countries (sooner or later).
    – If you cannot ‘hide’ your money due to FATCA than it is almost impossible to ’abuse’ the Territorial system. However, the 80% to 90% of people who are average earners living and paying their fair share of taxes in their resident country will be excessively punished because they did not know to report their ‘local’ savings and checking bank accounts and the Treasury will demand all of their money +300% (please note most Expats do not owe any US taxes, however, pay for an expensive accountant due to the IRS onerous tax code and YOU and your family or friends pay for the IRS to process this meaningless paper work). See FBAR.

    “Frankly, if you are only worried about money, low taxes, and lowering your costs, expatriate and move to Panama.
    Hope you can get back in for that operation or your kid into Harvard and your pension might be in Balboas. “

    Agree with your above, however, I am now coming to the conclusion that you are frustrated with the Billionaires that are making large amounts of money in the US and then running away. Unfortunately, this will always happen, however, majority of Americans living abroad are NOT Billionaires. What about the typical father of 4 who has lived and worked and paid taxes in the foreign country he resides in the last 20 years? Your above certainly does not apply to the demography of US Citizens living abroad (this working class is 80% of all expats). And if Billionaires do leave for this reason, than it is understandable why you would not want them back.

    “My view is there are lots of benefits of US citizenship, if you don’t value them, you should leave and stop complaining about the tax system.”

    Agree that there are a lot of benefits received by US Citizens living in the US (and who should pay taxed for them). However, to say ‘stop complain about the tax system’ is not what it is for me to be an American. If this was our mind set, than slavery, women’s rights, social security, health care…etc., would never have changed and the US would definitely not be the Great country it is today.

    • JT says:

      It’s time for America to join the rest of the world and reap the benefits that the rest of the world enjoys under a Territorial Based Taxation System. We should amend the tax code and the enforcement of the Treasury to catch the ‘real’ tax cheats and not punish normal working class Americans living abroad to make this fair for all Americans.

  11. Andy Grossman says:

    It is painful to read the Belinsky article (online here: http://www.uiowa.edu/~ilr/issues/ILR_96-4_Zelinsky.pdf ) and not just because it was published in 2011 long before the current brouhaha over FATCA. Zelinsky seems to have no conception of the comparative law of nationality and of domicile (the subjects of my PhD and LLM dissertations, respectively). An “accidental American”, a dual (or multi-) national may have no real connection with the USA. Boris Johnson, if he becomes PM, could be — in the exorbitant US notion of “allegiance” (the US proxy for “nationality” because the latter is a Christian and Civil Law concept; drawn into municipal law of Common Law countries for practical and international-law reasons) — charged with treason or various economic crimes (Trading with the Enemy Act, etc.) in the performance of his official function.

    One can, in theory, have only one domicile although Willis L.M. Reese proved that one can have different domiciles for different purposes (or under the laws of different jurisdictions). One might say the same of nationality. There are too many accidental factors in the attribution of US nationality to persons born abroad: nonmarital (i.e. “illegitimate”) newborns are subject to different maternal residence rules from those whose mothers are married to an alien or to a US citizen.

    I can’t address every issue here. It’s enough to say that it isn’t income tax that is causing the most grief but declaration of foreign assets (whether or not they produce income) and the draconian penalties for non-declaration (of foreign trusts, foreign bank accounts, foreign companies). Penalties that many or most noncompliant accidental Americans living their lives abroad (and perhaps not speaking English and never having been in the USA) lack the means to pay.

    It is a fundamental rule of international law that a dual national resident in one of the countries of nationality can be treated by that State as if s/he were solely its national. In the wake of FATA and the governmental and financial service provider agreements, I would not be surprised to see political defenses enacted abroad. The new mutual collection provisions and the new tax-crime extradition provisions notwithstanding.

  12. Polly says:

    Freud already spoke of “rationalisation” as a human defense mechanism. DMS-IV says that rationalisation occurs when “the individual deals with emotional conflict or internal or external stressors by concealing the true motivation of his or her own thoughts, actions or feelings through the elaboration of reassuring or self-serving but incorrect explanations.”
    The stressor is american debt in the trillions. The irrational solution is to get those least able to defend themselves to pay for it. The rationalisation is trying to explain how this is the right thing to do.
    There are many countries which match or surpass America in terms of freedom, healthcare, education and many other benefits. These countries do not use citizenship-based taxation to justify owning their passport.

  13. BC_Doc says:

    I’ve lived in Canada since 1993 and became a Canadian citizen in 2001.

    As an ex-pat, one gains no benefits from holding a U.S. passport. Benefits are only paid to those who live in the Homeland. Medicare requires 44 quarters to become vested but is not honoured outside of the Homeland. Social Security payments are payable outside of the U.S., but the expat has also paid into the program for at least 44 quarters to become vested. Again, expats receive no benefits.

    The ex-pat holding a U.S. passport retains the right to return to the U.S. This is not a benefit. It is a human right and as such cannot be taxed. The U.S. has recognized the right of return as a signatory to the UN Universal Declaration of Human Rights. Citizenship based taxation impedes this right by forcing long term expats into renunciation of their birth right.

    • FromTheWilderness says:

      The US even puts obstacles in front of renouncing citizenship, which is another abuse, ie. $2,350 renunciation fee, renunciation appointment delays, Exit Tax, Reed Amendment etc.

  14. FromTheWilderness says:

    Michael Kirsch is a privileged Homelander. He has never walked in the shoes of an expat which is exactly why Homelanders have no business making tax policy for people living outside the US borders, consuming zero US public goods and services and in principle should be owing the US no money whatsoever other than perhaps taxes on US source income.

  15. Walter says:

    Michael DeBlis,

    Your fine article just got posted on the WSJ Expat facebook page. Once again, nice article. Keep em coming!

  16. PierreD says:

    And, for those “Homelanders” still reading……I can assure you, that if I knew what I know now, I NEVER would have been so stupid as to have married a US citizen (almost 30 years ago) and to have “dared” to live off that plantation.

    Every day, I see advertisements on TV form banks offering various deals which might interest us, but then the reality of being “US Persons” sinks in and we realize that we’re completely unable to benefit from these deals, since any new sign-ups will be met with the question of our places of birth……and then we’re screwed.

    US, you’re messed up, and a far cry from the beacon of “freedom” that you (only 30% with passports) think you are. I’d never make this mistake again, and am actively telling any romantic interests of my in-laws who are not already “Berlin Wall” slaves to “run like hell” away from US citizens.

  17. ExUS says:

    For those the US deems legally incompetent to understand the concept of citizenship, and thus too incompetent to understand renunciation/relinquishment of it, there are no ‘psychological’ or other intangible benefits:

    The US prevents them from EVER renouncing or relinquishing for life if the underlying condition is chronic and permanent (ex. mental, psychological, intellectual or physical states which cause substantial lack of understanding sufficient to be considered legally ‘competent’ – ex. brain injury, developmental delays). And prevents minors from doing the same for years until age of majority (rarely earlier unless the minor can prove their understanding to stringent consular judgement) – on the basis of being not mature enough to appreciate the consequences.

    Adult parents and legal guardians are prevented by US law from relinquishing/renouncing their children or ward’s US citizenship status on their behalf.

    So, why is it that US extraterritorial citizenship-based taxation does not then exclude those deemed legally incompetent (by US laws) of the burdens of taxation predicated on the very status (citizenship) which it also FORCES them to retain (many for life) – because it states that they are incompetent to understand the status, and to form a decision to retain or renounce it?

    The FBAR online instructions state that children (deemed ‘US taxable persons’) should complete and submit THEIR OWN FBAR themselves – an absurd and offensive instruction to impose on a minor whom US law states is legally incompetent/immature. It is completely unacceptable that the US should instruct children that their local legal birthday and education savings accounts are reportable (and PENALIZABLE) to an agency called “FINANCIAL CRIMES ENFORCEMENT NETWORK” merely because they are outside the US, and have either a US parent, or a US birthplace. This would apply to those adults deemed incompetent as well.

    The FBAR treats ourselves and our children and wards as criminals.

    Where is the presumption of innocence before guilt?

    And how can the US government and US law maintain the fiction that minors and those deemed legally incompetent due to immaturity or physical/psychological/mental/intellectual conditions are incompetent to understand the ‘benefits’ of US citizenship, yet are competent enough to be mandated to file their own FBARs, and to be US taxpayers?

    The US taxes and penalizes the education and disability savings and grants of our children and dependents outside the US – despite giving tax preferred or deferred status to the US equivalent accounts.

    The US deprives our children and dependents who are deemed to be US citizen-taxpayers ‘abroad’ of the benefits it extends to ALL US residents (whether citizens or not).

    There are no psychological benefits or other similar intangible benefits for those who the US deems legally incompetent to understand US citizenship.

    Whereas there are substantial burdens and costs and potentially bankrupting penalties the US imposes on even minors and the legally incompetent – as well as their parents and legal guardians – who may themselves NOT BE US citizens or ‘US taxable persons’.

    Obviously, everyday there are many people born around the globe – outside the US – who may have had one or more US citizen parent, and who have NO other US connection or relationship, who will never set foot in the US, are citizens of the non-US country where they were born, and who may never know that the US considers them ‘US taxable citizens’.

    That does not even cover the situation faced by those who happen to have been born in the US to non-US parents who are there on a short or temporary basis – to students, visitors, etc. Or, who were sent across the Canada-US border to a US hospital on an emergency basis. Their parents are NOT US citizens and did NOT seek US status for their children. In those cases, the US forces citizenship twinned with lifelong US taxable status on them.
    January 2015

    • calgary411 says:

      Thank you, ExUS. You ask the questions that need to be asked and answered!

    • calgary411 says:

      Here is the unrelatedness of naturalization and renunciation.

      From: Kavaler, Howard (Department of State, Legal)
      Sent: Wednesday, May 07, 2014 9:55 AM
      Subject: RE: Question re US Citizenship never registered with the US

      If your son was born in Canada to two U.S. citizens, at least one of whom had a residence in the United States prior to his birth, your son is a U.S. citizen pursuant to Section 301(c) of the Immigration and Nationality Act. Your understanding of U.S. citizenship law is absolutely correct. U.S. citizenship is a status that is personal to the U.S. citizen and may not be renounced by a parent or a legal guardian. If your son seeks to renounce his citizenship, it will be incumbent upon him to demonstrate that (a) his action in renouncing his U.S. citizenship is the product of his own free will and (b) that he fully understands the consequences attendant to the relinquishment of his U.S. citizenship.

      …which agrees with the information from an immigration / nationality lawyer in Washington, DC, to confirm this son’s US status and give possibilities for his renunciation. The result was that her children were US citizens from the moment of their births. The following is information from that lawyer based on his conversations with the US Department of State: DOS persons have “sympathy” for such cases. However, the developmentally disabled person will have to have FULL understanding of what he’s doing; if any question of lack of comprehension and grasping meaning and importance of ramifications, they could NOT approve such a case. From DOS point of view, US citizenship is precious and they have therefore established fundamental requirements for “compelling reason”. Even though there is the risk that a person’s financial resources could run out before his/her life was over, they will never approve a renunciation for financial / economic reasons. DOS has NEVER had such a renunciation case approved due to “compelling circumstances”. A person could sue but persons he talked with at DOS are SURE no one would ever win such a case as the courts view the discretionary action that DOS has would take precedence.

      OTOH, a person the US deems legally incompetent to understand the concept of citizenship, and thus too incompetent to understand renunciation/relinquishment of can, according to http://www.uscis.gov/sites/default/files/files/article/M-476.pdf, can naturalize — “USCIS can waive the Oath of Allegiance when it is shown that the person’s physical or developmental disability, or mental impairments, makes them unable to understand, or to communicate an understanding of, the meaning of the oath. See 8 USC 337.”.

      That says the US will give the opportunity to be entrapped in US citizenship taxation but NOT the opportunity to get out of that CBT entrapment (never asked for!). A blatant contradiction to suit only the USA.

  18. Lynne says:

    I have no psychological attachment to United States. When I became a Canadian citizen in 1973, US Consulate insisted I was “permanently and irrevocably” relinquishing American citizenship.

    My Canadian citizenship oath renounced American citizenship (signed and witnessed by a Canadian citizenship official).

    Forty two years later, that’s not good enough for the Americans. They now demand access to my private financial records simply because I was born in the U.S.

    Even worse is my Canadian government and my Canadian bank are willing to help them!

    I have emotionally and psychologically identified myself as Canadian only for more than four decades and have now been betrayed by both my country of choice and my country of birth. There are many more just like me–including people who were simply born in U.S. when their parents were temporarily working, studying or visiting there. Or those whose mothers were sent to the U.S.to give birth because it was the closest hospital decades ago.

    FATCA is financial and psychological terrorism the U.S. has launched on the world. Many people have had sleepless nights, serious health challenges, strained marriages, difficulties with employment and even thoughts of suicide because of FATCA.

    Psychological benefit to being a U.S. person?!? No. It is a psychological nightmare.

  19. Mike says:

    Thank you everyone for the lively discourse. I have to admit that when I sought off writing this blog, I had no idea that it was going to generate as many comments as it did. I just recently learned that it made the WSJ Expat Facebook page (thanks for the “heads up” Walter).

    While I recognize that this topic inspires deeply-held beliefs and passionate debate, I have to compliment everyone for keeping the level of discourse both courteous and professional.

    I am very impressed (although not surprised) with the vast knowledge that so many of you possess on a topic as arcane as the justification for the U.S. system of worldwide taxation. Ask many people what gives the U.S. the right to tax its citizens and residents on their worldwide income, and the answer you usually get is, a “statute” or “the Internal Revenue Code.”

    I can’t help but to respond to some of the comments made about the other justification for U.S. worldwide taxation, namely the perceived “benefits” of being a U.S. citizen. Many of you did a stellar job debunking this myth, backing it up with hard facts.

    I recently wrote an article on the alleged “political, civil, and social rights” derived by U.S. persons who reside outside of the U.S.: Is the Justification For The United States’ System of Worldwide Taxation A Hoax? – Part I. You can find it on the TaxConnections blog here, http://www.taxconnections.com/taxblog/is-the-justification-for-the-united-states-system-of-worldwide-taxation-a-hoax-part-i/#.VL_3hItN38s

    Against these rights, how did Mr. Cook fair? He fell woefully short of enjoying most, if any, of these rights. With respect to political rights, Mr. Cook lacked the most fundamental one: the right to vote. Why? Because back in 1924 when Cook was decided, a U.S. citizen living abroad did not have the right to vote.That’s because such a person “did not live in any state and thus had nowhere to cast a ballot.”

    In terms of civil rights, Mr. Cook, not unlike any contemporary U.S. citizen living abroad, could “have called on the U.S. for formal diplomatic protection, including representation in international negotiations or arbitration.” Mr. Cook could have also requested “less formal assistance” from the American Consulate in Mexico or, at the extreme, “military protection, including evacuation” by the U.S. military.

    The problem of course, is that there is no telling whether the U.S. would have granted these requests. In other words, Mr. Cook “merely had the right to ask.” Beyond that, because Mr. Cook was a Mexican resident, his civil rights were guaranteed not by U.S. law, but by Mexican law.

    Searching long and hard, perhaps the only vestige of U.S. civil rights that Mr. Cook retained was the ability to return to the U.S. at anytime. In terms of this right, Mr. Cook had a “leg up” on a permanent resident. Very simply, permanent residents can be stripped of the right to permanent and continuous presence in the U.S. if they commit any one of a number of certain types of crimes, aptly referred to as “aggravated felonies.”

    With respect to social rights, there are few U.S. social benefits that the “contemporary Mr. Cook” would be entitled to while living in Mexico. For starters, unemployment insurance and Medicaid are state-run programs to which Mr. Cook would not be entitled to today since he has no state of residence.

    On the other hand, if the contemporary Mr. Cook was self-employed or worked for a U.S. employer, he would be eligible for U.S. social security benefits, since there is no totalization agreement between the U.S. and Mexico.

    If, however, Mr. Cook had lived in one of the twenty-four nations with which the U.S. had a totalization agreement, then he would not be eligible for U.S. benefits.

    In order to see how paltry a nonresident U.S. individual’s rights actually are, it is helpful to compare the U.S. legal rights of such an individual with the U.S. legal rights of a resident alien. It certainly reveals a lot.

    Thank you everyone for weighing in.

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