(This blog reposted due to its popularity and commentary)
OPEN LETTER TO DEMOCRATS ABROAD
Democrats Abroad (DA) recently reached out to the Democratic presidential candidates to ask them about issues relevant to Americans living overseas. The questions DA posed and the responses it received can be accessed at this link:
We strongly applaud DA for this valuable initiative. But we believe that it is important—indeed, vital—to call out the framing of this question:
“Most Americans living abroad think that the time has come for Residency-Based Taxation, the principle guiding all other countries’ tax systems and a fix for numerous unjust burdens on Americans living and working abroad. There are bi-partisan, revenue-neutral proposals to implement RBT that include robust provisions to protect the law from abuse by tax evaders. All we need is a moment of leadership to get this done. Will you be that leader?”
We believe that it is a grave error to condition a move to residency-based taxation (RBT) upon a demonstration of revenue neutrality. Doing so would serve to perpetuate the immoral and unjust system in place today.
These are the reasons why:
1) The current system is immoral and unjust on its face.
As DA noted in its question, today Americans living abroad are subject to “numerous unjust burdens” with respect to US taxation. Put another way, subjecting persons who do not live in the United States to US income taxation and thus forcing them to live under two incompatible tax systems is unjust. That is the very reason so many object to it and the reason this question was included in the questions posed to the presidential candidates.
Regardless of the outcome of any determination of revenue neutrality, the current system will remain unjust.
The United States has many times in the past changed its laws seeking to address situations that were considered to be immoral and unjust.
– Married Women’s Property Act, allowing women to own property and enter into contracts independently of their husbands,
– Civil Rights Act, lifting restrictions on African-Americans’ access to public accommodations such as schools and businesses, and
– Legalization of same-sex marriage, allowing same-sex spouses to file under the status married filing jointly, expanding eligibility for spousal benefits.
Each of these laws had implications with respect to tax revenue but revenue neutrality was never a condition of their adoption. They were adopted in order to right a wrong.
Citizenship taxation dates back to the Civil War. At that time and up until a few decades ago, citizenship was closely tied to domicile. That is, people generally lived in the country where they held citizenship. Those who emigrated from one country to another in most cases lost their original citizenship due to widespread prohibitions on dual citizenship. Today, prohibitions on dual citizenship have mostly fallen away and dual and even triple citizenship is common.1 Citizenship is no longer tied to domicile. For these reasons there are today many US citizens living outside the United States who have had little to no economic ties to the United States for 5, 10, 20, 30, 40 years and more, if indeed they ever had any. They are domiciled in other countries and they are subject to income taxation in the countries where they live.
Subjecting people who do not live in the United States to US income taxation does not fit the new reality of citizenship. As noted above, doing so requires them to live under two incompatible tax regimes. This is the very reason why, as DA has noted in its question above, they suffer “numerous unjust burdens.” This injustice will neither shrink nor grow based upon the outcome of any determination of revenue neutrality.
Indeed, by describing the current system as unjust but at the same time conditioning a move away from it upon revenue neutrality, DA is sending the message that not just the current tax system but any other injustice is acceptable if it is revenue positive for the US Treasury.
2) It is not possible to be sure of just how much revenue the United States actually collects from non-resident citizens and green card holders.
Public IRS data lists returns filed from addresses outside of the US but these include diplomatic and military personnel and temporary expats who would likely be considered US tax residents under RBT. Therefore there is no public information available that would enable a reliable estimation of revenue impact as opposed to pure speculation. Furthermore, the current taxation of US source income for nonresident aliens is at a higher tax rate than applied to most US citizens. Moving to residence based taxation would probably mean that nonresident citizens would actually pay more US tax on their US source income. The exact amount would depend on the relevant tax treaties and cannot be reliably estimated in advance. The revenue that the US would lose by moving to residence based taxation is the tax collected on foreign source income of nonresident citizens—income that their home countries have primary taxing rights to in the first place.
3) A determination of revenue neutrality must examine not just income but also costs incurred in relation to that income. This includes not only costs incurred by the IRS but also by private actors who share responsibility for US tax administration with the IRS.
Costs incurred by the IRS: While the provisions that apply to nonresident citizens are among the most complex in the Internal Revenue Code, the level of support the IRS provides to those taxpayers is much lower than that provided to US residents.
The National Taxpayer Advocate (NTA) has observed on a number of occasions that overseas taxpayers have unique needs: not only are they are confronted with an overwhelming complexity of international tax rules and reporting requirements but also they face potentially devastating penalties for even inadvertent noncompliance.2 It was in this context that in its 2015 report the NTA set forth a litany of service failures by the IRS with respect to overseas taxpayers. These failings included the closure of IRS attaché offices that had been housed in US consulates, the discontinuance of an email system permitting taxpayers to correspond with the IRS, the lack of availability of toll-free phone numbers for persons calling the IRS from overseas, inadequate postal correspondence,3 the lack of training of IRS representatives to be able to adequately respond to the queries of overseas taxpayers. These failures, together with a multitude of others—such as highly limited foreign language capabilities and the inability for overseas taxpayers to create an online account with the IRS—remain true today. As the NTA noted, these service failures constitute serious violations the Taxpayer Bill of Rights4 and more specifically of the right to be informed, the right to quality service and the right to a fair and just tax system.
The current system of taxing nonresidents is untenable without expending the resources required to remedy these failures. And—going beyond the NTA’s report—without expending the resources required to provide overseas taxpayers with the full support that they require as a result of the complexities they face and the multitude of languages they speak. At this time, the IRS has neither the resources nor the expertise to effectively administer tax law for residents of other countries whose entire existence—economically and in many cases linguistically—is “foreign” to the United States. For these reasons, any analysis of the revenue neutrality of RBT is not complete without accounting for these costs on the part of the IRS—costs that it should incur but that to date it has failed to do.
Costs incurred by others: It is not just the IRS that incurs costs with respect to tax administration for overseas taxpayers. Overseas taxpayers themselves as well as foreign financial institutions (FFIs) incur considerable costs in connection with the administration of the United States’ system of worldwide taxation.
This is not an accident; to the contrary it is a deliberate component of IRS strategy. In its April 2019 “IRS Integrated Modernization Business Plan,” the IRS lists its “Strategic Goal 3” as “Collaborate with external partners proactively to improve tax administration.”5
A November, 2019 report by the Internal Revenue Service Advisory Council elaborates on what this means:
IRS’s strategic goal [is] to collaborate with external partners proactively to improve tax administration by incorporating opportunities to leverage and enable as customer service delivery channels trusted members of the tax community. Tax practitioners, tax software vendors, financial institutions and payroll providers are aligned with the IRS’s mission to provide quality taxpayer service by helping taxpayers understand and meet their tax obligations. Each mission and business partner can serve dozens, hundreds, thousands or millions of taxpayers.6
At first glance this might sound innocuous. But scratch the surface and you’ll realize that the IRS is announcing in no uncertain terms its intention to rely even more heavily than it already does upon persons like tax practitioners and upon organizations like tax software vendors and financial institutions to carry out tax administration on behalf of the United States. That is, the IRS—a public agency—is planning to rely even more heavily than it already does upon tax practitioners, tax software vendors, and financial institutions—the private sector—to carry out what is in fact a public service.
The IRS is funded by public tax dollars. In contrast, tax practitioners, tax software vendors, and financial institutions are funded by private customer (taxpayer) fees. For example, as reported in the Democrats Abroad survey report published earlier this year, 55% of non-resident tax filers engage the support of a professional tax preparer; of these, 61% incur a tax filing preparation cost of over $500—at least twice what US based Americans spend on average.7 In fact, professional fees of upwards of $2000 and more each year for the preparation of an overseas tax return is common.
Equally if not more significant is this: according to a survey of Americans living overseas published in October, 2019, 41% of the survey’s 602 participants reported paying significant fees to a professional tax preparer even though they end up owing nothing in US taxes.8 This statistic alone shines a bright light not only on the high cost of tax administration placed squarely on the shoulders of overseas taxpayers but also on the fact that this cost is incurred without any corresponding revenue for the US Treasury.
As regards FFIs, it is not just IRS policy but also federal law that requires them to engage in tax administration on behalf of the United States. More specifically, FATCA obliges FFIs to develop and implement complex procedures enabling them to identify among all account holders those who are “suspected US persons.”9 Their failure to do so is subject to very steep penalties: a withholding tax of 30 percent on all payments of the FFI’s US-source income. FFIs have incurred and continue to incur substantial costs in administering FATCA. While no one has performed a comprehensive study there is information available: the Spanish bank Banco Bilbao Vizcaya Argentaria estimated that compliance costs could range from $8.5 million for a local entity to $850 million for a global one. The British government estimated the aggregate initial costs to UK financial institutions at $1.1 billion to $1.9 billion, with a continuing cost of $60 million to $100 million a year. More globally, KPMG and Deloitte have estimated that more than 250,000 FFIs are affected by FATCA, with costs for some of the larger ones reaching more than $200 million.10
Overseas taxpayers and FFIs incur these costs because of IRS policy to “collaborate” with tax practitioners, tax software vendors, and financial institutions for the purpose of tax administration and because of federal law (FATCA). That is, extensive costs for the purpose of US tax administration are incurred not only by the public sector (the IRS) but also by private actors.
A complete and honest examination of the revenue neutrality of RBT must take into account these considerable tax administration costs that the current system places squarely on the shoulders not of the IRS but of FFIs and overseas taxpayers themselves.
4) A finding that RBT would not be revenue neutral would entail consequences for which the IRS is woefully unprepared.
As noted above, taxation by the United States on the basis of citizenship rather than residence requires that the IRS acquire the resources and expertise needed to effectively administer tax law for US citizens who are residents of other countries and whose entire existence is “foreign” to the United States. If it were determined that RBT could not be adopted because it was not revenue neutral then the Taxpayer Bill of Rights requires that the IRS spend the resources necessary to provide the same level of service to international taxpayers as is provided to domestic taxpayers. It is entirely inconsistent and a complete contradiction of logic, on the one hand, to defend the current system as revenue positive to the United States but yet, on the other hand, to continue to provide insufficient resources for the IRS such that it cannot fully support overseas taxpayers. Either there is a revenue surplus from the taxation of persons outside the United States or there isn’t. And if there is then it is incumbent on the IRS to fully support overseas taxpayers. Otherwise the determination of revenue neutrality was a farce and its outcome will serve to perpetuate continued violations of the Taxpayer Bill of Rights.
Again, we applaud DA’s efforts to reach out to the Democratic presidential candidates to ask them about issues relevant to Americans living overseas. It is a very important initiative. However, for the reasons explained above, we strongly recommend that DA remove from its communications any suggestion that a demonstration of revenue neutrality should be required in order for the United States to adopt a system of residence-based taxation.
1. See, for example, Maarten Vink, Arjan H. Schakel, David Reichely, Ngo Chun Lukz and Gerard-Rene´ de Groot, “The International Diffusion of Expatriate Dual Citizenship,” Migration Studies 7:3 (2019), 362-383, https://academic.oup.com/migration/article/7/3/362/5488849.
2. National Taxpayer Advocate, “Most Serious Problem #7: International Taxpayer Service: The IRS’s Strategy for Service on Demand Fails to Compensate for the Closure of International Tax Attaché Offices and Does Not Sufficiently Address the Unique Needs of International Taxpayers,” 2015, 73, https://taxpayeradvocate.irs.gov/Media/Default/Documents/2015ARC/ARC15_Volume1_MSP_07_International-TP-Service.pdf.
3. The problems with postal correspondence is also documented in a 2015 report by the Treasury Inspector General for Tax Administration (TIGTA), “Planned Improvements Have Not Been Made to Manage and Track Correspondence with International Taxpayers,” 8 September 2015, https://www.treasury.gov/tigta/auditreports/2015reports/201530072fr.html.
4. Taxpayer Bill of Rights: https://www.irs.gov/taxpayer-bill-of-rights.
5. “IRS Integrated Modernization Business Plan, April, 2019, 14, https://www.irs.gov/pub/irs-utl/irs_2019_integrated_modernization_business_plan.pdf.
6.Internal Revenue Service Advisory Council Public Report,” November 2019, 96-97, https://www.irs.gov/pub/irs-pdf/p5316.pdf.
7. Democrats Abroad, “Tax Filing from Abroad: Research On Non-Resident Americans and U.S. Taxation,” March 2019, 4, available at https://www.democratsabroad.org/carmelan/democrats_abroad_publishes_2019_expat_tax_research_datapack.
8. “’I Feel Threatened by My Very Identity’ – Report On US Taxation and FATCA Survey Part 1: Data,” October 25, 2019, 11, http://www.citizenshipsolutions.ca/wp-content/uploads/2019/10/Part-1-Data.pdf.
9. This is the phrase used by the IRS to refer to United States citizens: Internal Revenue Service, “ Foreign Account Tax Compliance Act International Compliance Management Model (ICMM) FATCA 4.1 Report Notification Technical Support Guide Version 3.0,” June 2, 2016, 4, https://www.irs.gov/pub/fatca/fatcaicmmreportnotificationtechnicalsupportguidedraft.pdf.
10. Nigel Green, “A Corporate-Welfare Bonanza for Tax-Compliance Firms: Soon the Foreign Account Tax Compliance Act Will Cost More Money than It Recovers,” Wall Street Journal, April 2, 2017, https://www.wsj.com/articles/a-corporate-welfare-bonanza-for-tax-compliance-firms-1491163938#comments_sector.
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77 comments on “Revenue Neutrality And A Move To Residence-based Taxation: Open Letter To Democrats Abroad”
There is no single governmental entity that I am aware of that has a top down view of citizenship based taxation in how it works. Each part is managed separately by different divisions. Furthermore, Congress has refused to give it an open air vetting where actual people are questioned on the associated problems with compliance. They march on like life is good.
Then we have Elizabeth Warren’s proposal to strengthen FATCA. She copied the “problems” the IRS was having administering the program and proposed a fix, while neglecting in the same report the negative affect heaped on Americans abroad. That is disturbing.
As for revenue neutral language, indeed it is inappropriate to apply that budgetary process towards citizenship based taxation. The government collects lots of statistics but have refused to study the socio-economic situation on expats. We have no idea on costs. Of course, these are not normal times. It is no accident the US government has taken a hostile view of any thing “foreign.”
Another seemingly insurmountable problem is Americans abroad have no representation in Congress and neither do the FFI. The Constitution itself spells out legislatures responsibilities and it does not apply overseas. For instance, there is no Congressman of Spain.
Citizenship based taxation has to come to an end.
When I hear about Warren wanting to “strengthen” FATCA, I think about that recent bill that would require ectopic pregnancies be moved to the uterus – IMPOSSIBLE!
Well written and thanks for posting this.
Citizen based taxation is a cruelty. Only once youve experienced it can you fully understand it.It has to end!
This letter should be sent to every Member of Congress & every Senator. It outlines rather succinctly the unjust double jeopardy that all expats find themselves in. Unlike expats from anywhere else. And by expat, I mean emigrant and Accidental American.
Definitely agree, this letter outlines many ways the citizenship taxation is unjust. It should be sent to all members of government and presidential candidates.
The negative consequences of the U.S. imposed FATCA law are mentioned in this article. The Alliance for the Defence of Canadian Sovereignty is opposing the so-called FATCA “agreement” between Canada and the United States that imposes this law on Canadians.
Requiring revenue neutrality to immoral, unethical laws is simply ridiculous.
CBO has no data, no understanding of long term harms to US by maintaining non-resident tax nor grasps incalculable value of international good-will promoted by a nations’ diaspora. They’ve squandered that irreplaceable treasure for a pittance. (As a former flag waving American I now fully support #BDSUSA & change in reserve currency; I’m that angry).
Interesting project for Tax Connections/ financial journalist: Interview members of Ways and Means Committee and current candidates (including POTUS) asking them to justify non-resident tax.
Under current rules an offset is ludicrous. According to their logic our (expat) tax money must be used to fill any gap. Of course the “gap” being our money. A lose-lose situation.
Then again, the government is purposely developing statistics that benefits its own narrative, while ignoring vital data from Americans abroad such as expense, hardship, etc., According to the government, if there is no data the problem does not exist – it never happened.
Hello Laura. Are you able to re-phrase your first sentence because I am not sure whether you are for or against CBT. I think you are against it but frankly I do not understand your post and would like to. Thanks.
Taxing based on citizenship is immoral and unethical, no other nation behaves in such a fashion.
Basing the repeal of immoral and unethical laws based on revenue neutrality is equally immoral and unethical. Aside from morality issues CBO has zero data on which to base findings.
RNC stated in 2016 platform:
1) “Replacing Citizenship-Based Taxation with Residence-Based
Taxation will raise net Federal tax revenue because of increased economic growth.”
2) “RNC urges Congress to align U.S. law with the laws of other industrialized countries of the world by limiting taxation to Residence Based Taxation on American Citizens living overseas which will encourage increased employment of Americans and increased export of American goods and services.”
Can / will CBO study RNC’s position statement or simply base their findings on past revenues of which I’d wager are mostly interest and draconian penalties, not tax revenue. CBO can create out of thin air whatever they please, consult with only those that support their preconceived narrative and lacks outside scrutiny. I believe the ‘real’ revenue stats are unknowable, the loss of soft power good-will incalculable. This is one of those instances where a monetary value cannot be placed on simply doing what is right and just, best for your nation in the long haul.
Right Laura. You can’t right a wrong (CBT) by applying the wrong test (net neutrality) to the obvious right alternative (RBT). CBT is wrong. RBT is right. PERIOD. If you simply must apply a test then apply a morality test to CBT. There is no moral justification for the USA to tax its citizens who reside in other countries, thereby siphoning off revenue which rightly should remain in those other countries where it was earned/created and appropriately taxed.
There is no possible way to compare revenues and expenses between countries. In France, social charges are extremely hight but you receive single payer health care for example.
A junior it developer in the US is paid almost twice than the similar position in France and yet the Franch purchasing power might be equivalent.
Property taxes are so different also…
So many examples
The bitter irony of experiencing ‘taxation without representation’. What was the American Revolution about? Citizenship based taxation has caused a great deal of family stress and a financial straitjacket re small business. The complexity is maddening.
Although outside the scope of this particular post, it’s worth noting that under the guise of citizenship-based taxation, the United States is imposing a significantly more punitive tax system on residents of other countries than on Homeland Americans. See this:
Thank you for this letter, which correctly outlines the burdens that being subject to two contrasting tax jurisdictions places on U.S. citizens who live abroad, many of whom have no U.S. assets but are increasingly being denied financial services where they live due to U.S. regulations. Most U.S. persons abroad live there for personal reasons (relationships or jobs) that have nothing to do with tax evasion. Demanding proof of revenue neutrality to implement residence-based taxation is a stumbling block to correcting an injustice.
I doubt if any senator who is not living in their birth state would be willing to pay taxes in their birth state and where they are currently resident. For example, Elizabeth Warren would be paying both Oklahoma and Massachusetts taxes as her “fair share” … It would also mean that Donald Trump even with his move to Florida would still be paying New York taxes for eternity.
Thank you for writing this. I wish that US legislators – or at least relevant staff members would read and understand this. In particular, Senator Warren and her staff might benefit.
The expatriate and accidental American population have minimal (if any ) representation, and no organizations abroad looking out for their interests.
FATCA and CBT are built on a flimsy base, with very little supporting data. The idea makes folks in the US warm and fuzzy, while in reality, the effect on Americans abroad is deleterious.
It’s too late for me, but I think it’s astounding that anyone who believes in fairness could support this unjust burden placed on Americans simply because they live abroad. If you decide that the current situation can’t change because it would have a negative effect on revenue, you’re basically saying it’s okay to balance the budget on the backs of Americans overseas. How can that possibly be fair when they are the ones making the least demand on government money in any way?
Thank you so much for this. I agree with this one hundred percent. To be honest, I think point number one should be enough to switch immediately to RBT. The other points make it clear how ridiculous both CBT and FACTA are.
Revenue neutrality; all I know is that CBT and global taxation is immoral and unjust. Nobody should ever have to file taxes in 2 countries. I was never aware of this, I never asked for US citizenship, my Dutch parents just happened to live there when I was born. I couldn’t care less about the US. Had I known about CBT I would have renounced decades ago. My sister was born in Canada, lucky her! I pay plenty tax where I live.
The years have rolled on with the US government fully aware of the incredible amount of harm caused to ordinary families by FATCA and non-resident taxation. Yet the tyranny continues and the unreasonable burdens placed on overseas Americans and accidental Americans have actually increased, rather than decreased. US politicians ignore us because we are nobodies who don’t even have any representation and they have zero reason to help us.
Thankfully in Europe we now have the GDPR to protect our fundamental rights to data protection and privacy. The GDPR is grossly incompatible with FATCA. The amount of bulk data on individuals being automatically sent from Europe to the US without any consent or right of reply is so staggering, so illegal, and so contrary to our data protection rights, that our governments are actually refusing to report anything to the public or their representatives about what FATCA is actually achieving. They are refusing our Freedom of Information Act requests. Under FATCA, ‘transparency’ has been turned on its head to mean that the people are transparent to the government while the government is hidden from the people.
Every US-born individual in Europe has the right to take this matter to their country’s data protection authority. Our data protection and privacy rights are fundamental, and the government cannot disregard these rights at their convenience. https://www.crowdjustice.com/case/fatcahmrcprivacybreach/
The US practices the most unique form of taxation that essentially paralyzes and ruins the economic lives of any ordinary middle-class US citizens that have to stay abroad for more than a few years. Interestingly though, this citizenship taxation has failed the US in what seems to be the goal, which is to 1) collect revenue and 2) prevent the taxpayer base from leaving. Despite FATCA, threat of herculean penalties, and constant scaremongering heard in the media, numbers show over 85% of US persons abroad do not comply, and of the ones that do comply, over 80% of the returns they send are zero returns. US could save a lot of cost chasing and reviewing zero returns, and accomplish the 2 said goals better by residence-based taxation and a departure tax, as practiced by most other OECD countries. There is a reason why the countries use that system, because it works. An RBT departure tax would be much more easily and immediately complied with than an exit tax based on citizenship many years after someone has left the US. The current system does not serve the US, and terrorizes average US citizens that have to live abroad for varied reasons such as marriage, work, school, having sick family members. Even though many of them don’t comply, their financial lives and prospects are still restricted due to having to live in constant fear of mind-numbing penalties that are unheard of for homeland taxpayers. The system is so onerous, so complex, and so punishing that no one with more than a simple salary income would be able to comply with it. It violates the “US taxpayers Bill of Rights” in almost every article. Those with a simple small business, or a few ordinary mutual funds would be beaten into oblivion with forms that 99% of CPAs could not crack. This is an overt abuse of human rights and being perpetrated by the US gov of both parties. “Land of the free” should not treat its citizens so cruelly in a system that doesn’t even work for the US. Residence-based taxation would help the US protect its tax base better and collect more revenue, and also relieve those Americans who have to live abroad, of an unbearable burden and shackles.
I wholeheartedly agree. It’s a huge burden on Americans whose tax home is abroad.
I vote in Florida, Vern Buchanan’s district.
I’ve lived abroad nearly 15 years and am very tired of being double taxed (yes, I pay twice as I’m also self employed) and paying two different accountants to file for the same income. My accountants also think my filing is a huge joke and a waste of time. The entire process is exhausting and humiliating.
I’ve been middle class my whole life, I’m certainly not rich, don’t own property or have assets, I don’t even drive a car. Yet when I go to the bank where I live they act like my account is something criminal because I also hold American citizenship.
I’m tired of the trite xenophobia from ordinary Americans who have been brainwashed into thinking foreign = bad so obviously you’re a criminal for not living in the US is bad enough.
We have no representation in Congress, no one is looking out for us because the government assumes Americans are overseas only temporarily.
The price gouging from greedy accountants, who are really the ones making money here, is sickening. They don’t want this terrible law fixed. I don’t trust something like filing my taxes to tax software, they are a joke and make costly mistakes. Expats don’t have the luxury of getting taxes done for free and while I like to think I’m pretty smart (I work for a corporation whose headquarters are in London) I don’t have a head for math and numbers to do it myself.
Additionally, those in Congress don’t want to admit they’ve made a mistake and now that the genie is out of the bottle, there’s no way to go back but to move to residency based taxation.
I just want this tax nightmare to end.
This article is a good overview of the hypocrisy and double standards currently practised by the USA against its citizens living elsewhere. I will never owe tax to the USA due to living in a higher taxing country, but every time I submit a tax return it will cost the IRS time and money to review it. It sounds like many permanent expats are a loss maker for the IRS. So much for revenue neutrality! Once I found out about CBT we rearranged our affairs so that I will not owe any tax in retirement either.
As an Accidental American, I find the whole CBT situation created by the USA both perplexing and repugnant. Why would any country do this to its citizens? Why would any politician continue to support this once made aware of the detrimental effect on citizens?
As Laura Wilson said, the USA is destroying the goodwill of its potential citizen ambassadors overseas by making it difficult or impossible to remain a USC. While once being proud of my place of birth, all that remains is disdain. It is time for the other nations of the world to stand up and say “Enough is enough – Hands off our citizens and hands off our tax base”. It is time for America to stop being a bully, move to RBT and join reciprocal international programs to deal with tax compliance. I support #BDSUSA and a change in the reserve currency.
U.S. expats are being subjected to taxation without representation. Even though we may vote in U.S. elections few, if any, representatives and senators consider us “real” constituents. Many of us have tried our best to contact our representatives and got no response whatsoever. Those of us who have tried to phone have found it difficult, if not impossible, to explain the complexity of our financial lives to clueless congressional aides. Many of us can no longer open bank accounts. We cannot save normally for retirement. We are having our small businesses ruined. We must report our personal accounts to the US Treasury’s financial CRIMES unit, as if we are suspected of something.
Perhaps if Congress had some mechanism in place for evaluating how changes in the tax code affect U.S. citizens abroad, our burden would not have become so onerous. But the devastating effects of the Tax Cuts and Jobs Act for many expats was the last straw. It’s time to stop citizenship based taxation!
FATCA is incompatible with our rights as US citizens as outlined in the Bill of Rights, US Constitution and even in the Holy Bible (severe warnings against the sins of extortion and ‘unjust weights and balances.)
FATCA is viewed by foreign governments as but another attempt by the US to financially ‘colonize’ the rest of the world, and FATCA is little different than Caesar exacting tribute from his subjects, no matter where in the world they lived. And since all of our tax dollars go to pay the Federal Reserve the interest it’s owed for creating US currency and loaning it at interest to the US Treasury, the whole idea of having an income tax to fund government is a farce!
Our taxes go to pay the rich bankers who own the central bank and virtually NONE of it goes to pay for government services! (If you doubt this, read ‘The Grace Commission Report of 1984’ and make up your own mind!)
FATCA allows them to fatten their profits even more, via police-state, extra-territorial, dictatorial laws and regulations. Dump FATCA, now and let expats finally enjoy their lives far from the US. Thank you.
There is absolutely nothing fair, just, or moral about this abusive taxation scheme which is used to perpetuate myths about americans abroad being wealthy. This is purely an abuse of power designed to harm people who have little to no representation in congress as it must be stopped because it is the right thing to do. Revenue neutrality should not be a factor in this what so ever.
United Stated could have millions of ambassadors spread throughout the globe, but rather than utilising these ambassadors who could vote for American friendly politicians in their resident country, America hunts down, abuses, and ultimately forces many citizens to renounce citizenship in order to survive financially. These newly-renounced Americans will then start to seek out anti-american gov’ts in their resident countries, governments who will oppose extra territorial policies.
In the long run, policies such as CBT only act to hurt the nation, rather than help it.
Thank you for this succinct letter that has deepened my understanding on the wrongfulness of citizenship based taxation and why it is the matter to be addressed head-on by DA, irrespective of revenue.
This letter needs to be read and heeded.
Revenue neutrality is untenable and pea-minded. Not a mention or Fourth Amendment issues, either
Thank you Laura, Richardson and Karen for the amount of effort and time you put in to doing this!
For me, FATCA has always been the biggest threat and biggest reason for considering renunciation as I cannot bank, the discrimination is real and naysayers should go live overseas for a year and see how it really is.
Citizenship based taxation is wrong. However, if one wishes to continue to put money into their SS and pay on worldwide income it should continue to be done as not all of us have the luxury of a pension system in our host countries. But beyond this CBTax is wrong and unjust. In addition, many people are forgetting that expats also need to pay into Medicare on self-employment income, but if we never return to the US we will lose all benefits even though we have paid. It is roughly 2.9% of the 15% we need to pay.
FATCA is the real threat and the biggest problem. And hearing that Warren wants to strengthen it, she is truly and totally out of touch with reality like most politicians and government workers who are sheltered from the burdens that rest of us face. She also supports CBTax, and I guess does not realize we overseas Americans use no services in the US and do not get any benefit from paying, and have no representation.
I am tired of the USG trying to go after a handful of billionaire tax evaders when 9M of us have to suffer because of it. If citizenship based taxation was abolished this whole thing would go away. But will they do it before many of us have to make the hard decision to give up on our country and renounce??
Definitely agree, this letter outlines many ways the citizenship taxation is unjust. It should be sent to all members of government and presidential candidates
This is an excellent summary of the major reasons why the only just solution is RBT – full stop, no caveat. CBT jeopardises retirement where one’s home country and the USA don’t have an appropriate tax treaty in place with respect to such and is such a cause of family stress for those of us who have made a home outside of America. I hope that the obviousness of this is acknowledged in the form of a change long overdue due: RBT. Full stop.
I would argue that most of us living abroad are middle class who, because of FATCA, are not even able to have savings accounts. I am surprised at DA and Warren for not looking further into this and FATCA and seeing how unjust it is. I have avoided marriage with my non-American partner, mostly to protect his assets from our overreaching government.
I only found out about this after my non-American wife was pregnant with our first child. If I knew of this beforehand, I would not have married until I renounced or found some other solution. I can not express the horror and shame I feel for infecting my family with this terrible disease.
If you love him, don’t marry him until you are free.
With the ‘value’ of currencies so varied from country to country, expansion of the US tax system further into foreign lands will only increase the burden for the Expat, and especially the accidental American, in those lands where the cost of living is very high compared to others. There is no equality of US-Dollar value around the globe and no equal rendering of a tax amount set be a single standard by the US on a one-for-all basis.
Most of our embassy diplomats here in Norway could save nothing during their postings, but in other lands $50,000 was not an unusual savings to hear about for a 2-year posting – due to the cost of living.
End CBT and FATCA and have these types of political candidates return to their state’s and USA’s interests rather than continuing to nickel-and-dime Expats.
The tax laws are a concrete example of how legislation has been enacted without researching the far reaching consequences to the ordinary American. Whilst the premise of catching wealthy tax cheats is noble it’s the ordinary, middle-class citizen and the children of bi-national parents who are egregiously harmed.
It’s important to remind all “homeland” Americans that the unintented effects of FATCA are mostly hurting poor or middle-class Americans abroad : impossible to open bank account (at all), existing accounts being closed with no inquiry… It is ironic that Republicans are the only ones defending poor and middle-class Americans abroad! (I’m a Democrat but dumbfounded by how my elected representatives don’t care about the disastrous consequences of FATCA)
I believe it is also important to inform homeland Americans that they’ve been hoodwinked in regards to FATCA. Obviously everyone wants to curb tax evasion, money laundering etc. In this case USG is selling a false bill of goods. True evaders, launderers are NOT morons, their funds sitting in accounts waiting to be FATCA’ed, they’re long gone. Only way to curb criminal activity is to ‘follow the money’, no easy way out. FATCA is ONLY destroying honest ‘little guys’ at great expense to US and others.
FATCA is also harming US. Other nations becoming aware that US is not honouring promised reciprocity, they’ve been extorted into signing FATCA IGA’s, US has not joined OECD’s Common Reporting Standard and vaulted to #1 tax haven status. To top this all off US is penalizing, heavily fining other nations for behaviour US readily wallows in. The hypocrisy and lack of integrity is shameful.
Will EU Commission, OECD finally find backbone to sanction US? What might be eventual response to weaponizing reserve currency privilege, ability to extort the world’s financial sector under FATCA, force world to impose US foreign policy sanctions? Might change in reserve currency be response? Telling US to finally ‘go fish’? I sure hope so.
The unjust tax laws are literally, financially crippling with penalties.
I sent letters to all my representatives in Washington this year with little response, but I agree with this whole-heartedly. Citizenship based taxation is not fair.
This is a very thorough presentation of the injustice and high cost of the current citizen based taxation system. Thank you for speaking out on behalf of non resident citizens.
The United States is one of only two out of 200+ countries in the world that tax its citizens no matter where they live. This needs to end for all the reasons stated in the letter.
It has become increasingly difficult for me and others who aren’t wealthy to have a bank account and make investments because of this over-reach by the US. Laws that were intended to catch wealthy people hiding money overseas have had the unintended consequences of restricting options for Americans abroad. The wealthy can hire armies of tax attorneys to navigate the rules in their favor. I can not.
Then there’s the insanity of having to file taxes under two entirely different tax systems with different deadlines. Plus this is most complicated area of the US tax code with the least amount of support from the IRS and with the least amount of information available to accountants.
Congress not everyone who chooses to live abroad is wealthy or hiding assets. The vast majority of us are ordinary people with ordinary incomes who should not have hire accountants in two countries to spend hours attempting to comply with rules in the tax code that are often contradictory and incomprehensible.
It’s time to end FACTA. It’s time to stop taxing non-resident citizens and green card holders.
Dems Abroad would have so much money if they listened, cared, and then followed suit with this…
But instead, they are lacking volunteers, losing money, getting increasing amounts of negative PR, will lose hundreds of thousands of votes (to trump, stay at homes, and 3rd party nominees), and eventually many renounced citizens who in turn will be even more angry at america….
A summary of the problem: tax “compliant” for Americans (or American-born dual nationals) living abroad means being singled out for the following privileges not accorded homeland Americans: filing 10 years of detailed returns for every account you have ever had signing authority over; spending thousands of dollars per year to prepare and file taxes (possibly in multiple currencies, multiple languages and with tax years that don’t align); resigning any non US treasurer or comptroller employment; handing over 100% of the value of any mutual funds you have ever owned since virtually all are “illegal” if not US registered (and US registered mutual funds cannot be purchased outside the US) ; and/or praying that your non-filing of the above will not lead to arbitrary penalties of several times your net worth even when NO TAX IS OR EVER WAS OWING to the IRS.
Consider additional risk of FATCA and Citizenship-based Taxation on ordinary EU (dual) taxpayers : the risk of bank accounts frozen or closed, or new account applications refused. Some citizens risk being bankrupted by penalties for noncompliance even if $USD zero tax is owed. The US is coming for it all — pensions, current accounts, mutual funds, and spouse co-signed accounts, govt funded disability pensions.
And what if a dual citizen wishes to be free from lifelong double taxation without representation or services? No problem, if you don’t mind a lengthy legal process that involves paperwork, interviews, and money. You’ll fork out a few grand in accounting fees to file 5 years worth of worldwide tax compliance history, and pay the standard admin fee to renounce your US citizenship: $2,350. This is 20x the relevant fee for other high income countries… there is much to learn from how other countries look after their citizens, America.
Thanks John, Karen and Laura for your advocacy.
Here in Japan, the banker’s association make it very clear that all US persons are being reported under FATCA. Japanese included. No minimum value on deposit.
John’s article is accurate and somewhat abstract. Let me tell you what living this is like.
I was born in the US, left the country when I was 20 years old, 40 years ago, and have lived in Switzerland now for 14 years. I have only a very modest income. Almost all Americans living overseas are middle class, I suspect many are lower middle class, like the Mexicans with jobs in the US. Why? Because it is damn difficult to integrate into a foreign society. A lot of us wind up on the fringes for lack of perfect foreign language skills and/or a lack of university or occupational degrees in our countries of residence.
Contrast that with a US politician’s typical view of who we are, a horde of extremely wealthy Americans hiding their money overseas. Tax laws aimed at us all assume we are fabulously wealthy, and can afford crafty advisors to cheat the US out of revenue. This is why if I total all the potential penalties I face each year for non-compliance, taking the IRS and Treasury Department’s warnings at face value, there is no limit to them whatsoever – especially for FATCA violations, determined without any due process or judicial procedure by an IRS case officer acting a judge and jury. Many of these penalties are for filling out a form incorrectly. These bloody things have become so complex, even my specialist US tax attorney tells me she does not know for sure if she is doing it correctly, because the IRS does not provide comprehensive instructions for them. They assume the nitty gritty details will be litigated in tax court, because I’m supposed to be a bloody billionaire who can afford to litigate the details of my 5471 filing in tax court to keep myself from going to prison for 5 years and paying a huge fine because my tax advisor did not complete it correctly. The 5471 is designed for massive multinational corporations with overseas entities – like Exxon Mobil. I’m literate. I can read and understand English. I can’t even begin to understand how to fill out that form. I would need to be educated as an international tax attorney. I know one as a friend. He says he has not been able to understand how to fill that thing out correctly.
Meanwhile, I’ve actually called the IRS, multiple times, begging them for help. I can’t afford the specialists. It’s bloody difficult to find one that will charge reasonable fees and actually seems like they really know what they are doing. The first hurdle I faced was to figure out what forms to file. Years ago, I wound up calling the IRS at least 30 times, in a effort to average out all the off the wall replies to my question about my filing requirements. One IRS advisor with a heavy New York accent replied “Switzerland, you live in SWITZERLAND, Man are we going to fuck you over!” then as an aside to the guy next to him “Joe, I can’t believe it. I got somebody from SWITZERLAND on the line.”
When I finally wound up with the top specialist recommended to me by one ordinary advisor, I asked a perfectly reasonable question about whether my small one person company here in Switzerland could be regarded as a pass through entity. He screamed, really screamed at me “THE US TAXPAYER DOES NOT FUND THE IRS TO PROVIDE TAX ADVICE!!!” And then he repeatedly slammed the phone on his desk. I thought he was going to smash the receiver. I was simply in shock.
Meanwhile, here in Switzerland, I’ve had bank accounts closed without warning. I’ve been forced to sign releases to maintain the bank accounts I still have that gives the bank the right to waive all Swiss banking privacy regulations, they can provide my account information to any third party, and if the US government wants to confiscate money from any of my accounts, the release says the bank will simply hand it over, without notifying me. Why? Because these banks face millions of dollars of fines from the US government if they are suspected of “hiding” money of a “US person”. And the US will enforce that by confiscating funds that these banks hold in US accounts. It’s already happened – they’ve bankrupted the oldest bank in Switzerland doing this because the bank was following Swiss privacy laws and the US suspected this bank had “US person” clients. Bank employees go to prison here for many years for revealing client data. It’s a very serious offence.
So now, when I enter a bank in Switzerland, they see me as a liability, a big risk. I absolutely cannot get a mortgage. The banks assume the US will confiscate my assets through correspondent account in the US without due process, because that’s already happened. I went into one local bank here to try to open an account a few years ago, told the employee I was a US citizen, and she asked me to immediately leave, pointing at the door, and motioning to the guard to escort me out. That was a deep shock.
Recently, a Swiss friend of mine stopped me on the street. She said she needed to confess something to me. She was in this same bank and they subjected her to an interrogation about any connections she might have to America. Has she ever been there? No. Does she have any business contacts or ties in America? No. Does she know any Americans here in Switzerland? No, she said.
“I’m so sorry I lied but I was afraid they would not open my account if they found out I knew an American here. I feel like I betrayed you.” Strong thing for her because nearly all of her family died in the holocaust. Why did the bank ask her if she had an American friend? Because she could open an account in her name and let me operate it.
Back at the IRS, I tried to file my transition tax declaration to the best of my ability, because I could not afford a specialist to do it for me. Well, the IRS computer or employee that reviewed my return completely misinterpreted it, and decided I owed tax. I got a notice in the mail. I have NO idea why it takes at least 40 days for IRS notices to arrive, especially ones that say I must respond in 2 weeks, which is a month ago once it gets here. Anyway, everyone I have spoken to at the International Division of the IRS has gone out of their way to be kind and helpful, but none of them, even the attorney, know anything at all about the transition tax. They all admit that while they have had some instruction, it is still well beyond their understanding. They can’t advise me.
My international tax attorney friend also says that he doesn’t fully understand the transition tax. It takes a team of specialist attorneys and accountants at a big firm to fully get it.
So, I wrote them a letter pointing out the instructions I followed on the IRS website to complete the transition tax calculation. I found them in the footnotes of an obscure FAQ. The instructions for how to complete the transition tax declaration were only published AFTER the return was due, which I extended until the last possible moment December 15th, of last year. The IRS still has not answered my letter. Every 2 months I get another letter from them saying they need 60 more days to look into my case because of the complexity. US tax season never ends for me.
Now, by any measure I’m definitely not wealthy. The transition tax, in case you don’t know, is a tax levied on my Swiss one person company, through me, that I’ve used to provide programming services to Swiss clients. The US has no business taxing a Swiss company. And yet if I don’t comply with this nonsense, there is a perceived risk that the IRS might try to confiscate funds from my bank account. All the US expats in the know say that’s ridiculous, it would never happen. But the Swiss banks take the risk so seriously that I’m treated like a sanctioned individual.
So if I’m ever to have a home of my own, or be treated on an equal footing with my fellow Swiss residents and citizens, I will need to renounce my US citizenship. It’s not to avoid US taxes. I’ve never earned more than $40,000 a year here, and the last few years have been much worse. It would be simply to regain the rights I’ve lost, and mitigate the risk that an irate IRS employee having a bad day decides I should be fined because I’ve not filled out a form the way he or she thinks I should fill it out. And also to get out before the US congress or the IRS makes things much worse for us. I don’t want to renounce my US citizenship. But I’m also responsible for taking care of my family here, and subjecting my wife and her daughter to all this senseless financial and legal risk is not right.
Again, many expats assure each other this will not happen. Don’t spread fear. But all this really gets under your skin after awhile. There are so many unanticipated consequences to the US attempting to enforce its tax code on other countries. It doesn’t work, on so many levels.
If I may add one comment, I would appreciate the opportunity to do so.
Anyone familiar with the ten planks of the ‘Communist Manifesto” have in some way be implemented in the United States, especially since the Great Depression and the New Deal era in the 1930s.
Plank 4. of the manifestos calls for “confiscation of the property of all emigrants and rebels.”
Citizenship-based taxation, as forced upon US expats, is really very similar to plank four of the communist manifesto.
Emigrate to a new country and be forced to pay the US for the rest of your life – or risk losing everything. The US government views expats as rebels, and as such, apparently the only thing to do with such a person is to confiscate their wealth via US income taxes even after they’ve shaken the dust of the USA from their feet, no longer relying on nor benefitting from any government services.
Surely, the UN or even the International Criminal Court would rule in favor of residence-based taxation for US expats, should they be able to hear this case in all of its outrageousness.
As a widow who has lived in Canada since I was 12 years old I can say that the stress I feel due to my US reporting obligations has been detrimental to my health. I am so afraid of what will happen when I sell my home. I need the money for my retirement. I will never move back to the United States but if I renounce, I heard that re-entry will be difficult and I have family there. I don’t understand why the United States think they have the right to tax me. I have US, Canadian and British Citizenship. My US citizenship is an awful, dreadful thing!
Citizenship based taxation is just plain wrong! All roads lead to renunciation…
Why do we have to justify Revenue Neutrality to move to RBT. I think this just a reason to avoid the issue. Bottom line it’s just wrong to impost and tax code to resident and financial institutions for other country under the threat of harsh penalty. I call this exetroration and not taxation.
There’s everything in this letter that makes my life horrible. This has to end and move on to RBT. Too many years waiting for a change.
Foreign aqBanks are being more aggressive now towards Americans cause they are a burden.
Citizen-based taxation, is a left over from another time and place in US history, and must go and be replaced by Residence-based taxation, like the rest of the civilized world has done. I pay an exhorbitant amount of money to have my US taxes done each year and my return is relatively simple. The US’s over reach and strong-arm taxes are unfair to the many average income citizens who live overseas. CBT, FATCA, FBAR perpetuates the myth the anyone living overseas is wealthy. That is not even remotely true! Democrats Abroad should be leading the charge against CBT, FATCA , FBAR. As a member of Democrats Abroad, I urge DA to consider this. As a US citizen group, we have no representatives in Congress and no one but ourselves to watch out for our interest. If we do not speak out in our own defense, who will. It is very sad that many have to choose renunciation of their US citizenship just so they can live a normal life overseas.
The truth is that being taxed in two countries is just not sustainable. How can citizens abroad possibly function? I can’t even believe we’re having to discuss it. There is no other western nation that burdens their citizens abroad like this and only one other country in the entire world with citizenship based taxation. America, you are crippling my family. Something has to be done to right thing wrong
and now is the time.
The issue of demanding revenue neutrality as a prerequisite before considering replacement of CBT with RBT is in fact attempting to legitimize a process (CBT) that is de facto extortion; state-sanctioned pizzo to be precise. Moving to RBT is not a favor. it is justice. The US diaspora has been a victim of this system for generations. The US is a spineless banana republic in this respect that doesn’t want to owe up to the damage it has wreaked upon its diaspora. It expects the latter to continue to suffer the consequences of CBT rather than having the US face its responsibilities and fall in line with the fiscal standard (RBT) practiced by the entire planet; 242 out of 244 existing fiscal jurisdictions. No decent, righteous state and society thinks and behaves in this way, pricing its diaspora out of its citizenship, leaving renunciation as the only feasible option to live a normal life.
I would garner a guess that reality is changing.
With FATCA terrorizing the universe and compliance vultures frothing at the mouth many were lured (terrorized) into IRS amnesty schemes, where IRS was deemed the sole arbiter in determining willfulness, (That kind of makes one feel all warm, safe and fuzzy, right)?
That, along with making the assumption that in this digital age it won’t take much to link up border security/customs with IRS, many with low tolerance for risk might come into compliance if they wish to visit family in US.
The only folks safe from being destroyed by US are those without family or assets in US and have second citizenship in nations that have stated they will NOT assist IRS in collecting from their citizens.
Collection assistance agreement or not, anyone with only a US passport is at grave risk of losing it if not in compliance, or even if they are but are also a victim of ID theft.
Regardless of citizenship/s, many US persons are at risk of having their financial data shared with the US, with all the risks that come with that.
FATCA is wrong. Period. It has to stop. Period.
Well before any discussion about revenue neutrality in this matter of citizenship based taxation, we need to talk about the complete lack of any fairness or “neutrality” in regards to tax expenditures. Let me explain.
Taxes are collected to pay for services, like garbage collection, the police force and fire department, the maintenance and construction of roads, bridges, highway tunnels, schools, teachers’ salaries, the administrative costs of government, etc. All those services are LOCAL in nature. Even the cost of the military is local, because a military largely exists to protect the nation it serves.
Americans living in other countries pay taxes to their local governments, and it is these governments, of France, Spain, Germany, Denmark, Norway, etc that provide these services to us. If the forest next to my home is on fire, I’m going to call the local fire department for help. If my security is threatened, I’m going to call the local police department. I definitely will NOT call the Marines, or the US Embassy, or a congressperson, or anyone else on the US government payroll. Why? Because security services provided by governments are LOCAL, HAVE to be local. The Marines, even if they would come, would take way too long to get here to Switzerland. And the local authorities would not allow them to operate here … “our jurisdiction, we’ll handle it”. There are very few lawless areas in the world where US Special Forces can simply swoop in and rescue one of us. And they are certainly not going to bother if somebody breaks into my car and steals my laptop.
My local government is paying for the roads I use, the water and sewer systems, the refuse collection, my protection, any infrastructure that we all share as residents of a community, state and nation – like the parking lot I use for my car, or the tunnel I travel through when taking the train up to Zurich. And I’m paying taxes here for those services.
The US government has not contributed a single penny to pay for any of the local services I use, and would never consider it.
IF “US Persons” are required to pay taxes to the United States of America and in some cases to the last US state in which they resided, when we move to other countries, THEN the US, and those states, should bloody well be helping to pay for our local services, our roads, schools, bridges, police, and everything else in the countries we live in. Or what the hell are we paying for???
Taxes are to pay for those services. Why is it that United States thinks it can simply extort the money from us without providing the services that taxes are designed to pay for in return?
And you know what? In the one area where the US could provide services for expats, assistance and advice for all the complex requirements thrown at us because of the US government’s system of citizenship based taxation, the IRS doesn’t lift a finger. It does not train a single one of its representatives. I’ve spoken to at least 50 of them, some very kind, some quite hostile, and not one of them knew a bloody thing about the 5471, the transition tax, GILTI requirements, what forms I need to fill out, not a thing. When they send me mail, particularly the ones with a 2 week deadline for a response, they put it on a bloody boat and it takes at least 40 to 50 days to get here!
That is why taxation should be local, why taxation IS local for every other country in the world – because the services taxation provides for are local. If the US government will not even consider helping to pay for the local services that its expat “US Person” community use and require, then it has no business requiring us to pay US taxes.
You want to talk about revenue neutrality, as if that is a basis for a “fair trade”??? NO! Let’s first discuss the unfairness of the fact that the US does not think it at all necessary to provide SERVICES in exchange for the taxes US expats are supposed to pay! And on top of that, have the audacity to threaten us with severe penalties for non-compliance, and make the whole thing so complicated that we’re all in legal jeopardy.
And to add to my post above: The main individuals/entities whose revenue will be impacted by a shift to RBT from CBT for those of us who are not actively trying to hide money (and my guess that this is the vast majority of those of us who are passionate about this issue because it has a true impact on our financial viability as individuals and families), are the accountants and tax preparers who specialize in this area. In 16 years of having permanent residency outside of the USA, I have owed money to the IRS twice, well under US$200 per time. However, my tax preparer makes AU$1500/year from just me each year (which is a lot of money to go out the door each year just to be compliant). For my tax preparer, a change will not be revenue neutral. Is that really who the IRS/US government is out to support (the profits of those who prepare the 50 page tax return to show that one owes little to nothing?). And for me, even with a change to RBT, I’d still owe the small amounts as such is based on US sourced income, leaving my tax preparer as the biggest “winner” from CBT and “loser” from RBT, and the US treasury flat – no worse off, no better off.
As the authors say, numbers are hard to get but I would venture to say RBT would be revenue positive, forget about neutral – i.e. US would collect more under RBT, and spend much less in administration. US doesn’t make much from CBT and it costs too much to administer. Also many expats can currently delay or evade the exit tax pretty much forever. Whereas under RBT as practiced for example by Canada, US could collect more under a departure tax that would be much more likely to be complied with and much easier to assess and collect.
“Subjecting persons who do not live in the United States to US income taxation and thus forcing them to live under two incompatible tax systems is unjust.”
Agreed. Another way to back up how the U.S. Double Taxation of residents of other countries is unjust is: to state international norms of when taxation is justified, then compare the U.S. double taxation of U.S. citizens living outside the U.S.
When taxation is justified. Throughout history taxation has been viewed as justified when services are provided in exchange, primarily local protection of property and provision of local services. In the more modern era to this has been added the protection of local rights.
Does the U.S. provide local protection of property, resident services, and protection of individual rights to U.S. Persons living overseas? No, no, and no. Therefore the U.S. claim of double tax jurisdiction is not justified.
If one were to include costs of the services that the U.S. government should provide to U.S. persons overseas (but is not currently doing do), then those costs go far beyond explaining the double taxation and providing assistance in completing the double compliance. Those costs should include provision of resident services to U.S. persons overseas, the kind of services that the U.S. Government provides for U.S. residents. These services may include for roads, courts, schools etc.
Based on the U.S. population and federal government budget, and the population of 9 million U.S. Persons resident overseas, the U.S. should spend $113 billion a year on resident services for U.S. Persons overseas. NOT zero as currently. Additionally, a present value figure should be added for past years that services have not been provided.
From the viewpoint of the justification of taxation, it is the U.S. Government who is the tax cheat of U.S. Persons overseas it claims tax jurisdiction over.
Far easier and less costly for the U.S. is a simple shift end the claim of double tax jurisdiction.
Excellent piece, Mr Richardson and Mss Alpert and Snyder. As you have shown, nice-sounding jargon like “revenue-neutral” disregards the pernicious reality many Americans live in who by choice or by accident find themselves outside of the US and therefore subject to a punitive tax regime like no other. By making it so hard for its citizens to live overseas, the US seems to be actively working to shut itself off from the world.
CBT coupled with FATCA is a neat way for the US to extort ordinary, middle class people living overseas. Nothing new about the US extorting foreign nations, but the US extorting it’s own citizens is less common. So much for all the talk about being a “free” country – the Democrats’ language here tells us plainly that they care more about power than about people.
Good letter but please get rid of the revenue-neutrality aspect. Send it to every US representative (and would-be representative, i.e., the presidential candidates) of every kind. Thank you.
Perhaps I’ve misunderstood you, but since contesting “revenue-neutrality” as a condition for ending CBT is the whole point of the letter, why should they get rid of it?
It reminds me a bit of someone I knew who told me that he’d like the movie “The Sound of Music” a lot more if they took out the songs.
As for sending this to members of Congress and Congressional candidates – that absolutely must happen. But it’s not up to the people who signed this letter to do that – it’s up to each and every one of us, and especially to send it to our own Representative and Senators.
The reality for those Americans abroad who attempt U.S. tax compliance is that:
“All Roads Lead To Renunciatinon”
An excellent description of why is found at:
Looking forward to your comments.
That road to renunciation is blocked for many.
Why is the requirement to renew our passports always forgotten?
Here is an explanation of the terms under which the IRS is allowed to ask the state department to revoke a US passport, or deny its renewal:
What is unnerving about this is that the one of the easiest actions for those advocating a tightening of laws to enforce CBT for those overseas is to use our need for a US passport as leverage to ensure that, for instance, every American citizen resident overseas files a tax return – or their passport will be revoked. To be clear, that’s not the case today, but this is one of the reasons US expats need to obtain citizenship in their countries of residence.
This regulation states that if a passport is revoked while someone is “overseas”, the state department will issue a document to allow the person to travel back to the US only. For me, and for many long-term US expats, we have nowhere to go in the US. If I was truly forced to return to the US because my passport was revoked, it would be as an absolutely homeless person in my 60’s.
That may be an irrational fear, but … the potential harm from widening the scope of this passport revocation strategy is so great that I cannot discount it. AND … I also have to keep in mind that even if I make an honest attempt to file my returns, the potential fines for errors, particularly on the 5471, are so high that they could easily exceed the $50,000 that could trigger passport revocation. I have no means whatsoever to pay such a fine, even if I sell everything I own.
I’ve already considered what I would do in such a case. I would arrange my affairs to ensure my wife and daughter in law have access to whatever meager assets remain, say goodbye to them, and disappear into the mountains here. Better than dying homeless on some street in America.
Many discount your and my fear as being irrational, just as they did when people warned of beng locked out of the financial sector. Discounting our fears is irrational given that what you describe is the law and given how things have thus far played out. However, the reality is worse than you describe.
In addition to all you wrote is the reality that neither the IRS nor the State Department are required that you are in fact the one who owes the US Treasury money. I have not lived in the US for over twenty years yet an online search revealed that I own property in several states, a couple of which I have never even passed through. I have learned that I am divorced, wonder who my wife was? Several professional licenses have been issued under my name and SS#.
So, you could meet all the reporting requirements, A feat I have serious doubts about being possible to accomplish, and yet still have your passport yanked because someone stole your identity and the US. Gov. will not bother itself to see if it is you who actually owe.
I have to renew my Gaijin card, residence card required of all long term residents to have, in a few months. Now that these are issued only at national immigration centers instead of locally as they were until recently, will they check my passport status? I have not filed with the US as I had no idea I was required to. Plus I have the ID theft issues I mentioned above. If the check, I’ll be detained with in the same building until deportation. Japan treats immigration violations very seriously. Violators are automatically jailed.
Is this my last Christmas with my family? When I say goodbye the morning I left for the immigration center to renew my Gaijin card, will I actually be saying my final goodbye to my family? For me too, deportation to the States would render my homeless and just ten years younger than you.
Not when renewing my gaijin card, then how about when I have to renew my passport in a few years?
The route to Japanese citizenship is not open me. IF I had planned on it years ago, I probably could obtain it, but I never planned on staying here and I can no longer meet the requirements of citizenship.
For myself, several things must happen before I can sleep restfully.
1. End CBT. It violates most if not all the ideals the US says it stands for.
2. Repeal FATCA.
3. Repeal FBAR. It is a general warrant and is forbidden by the US Constitution and its amendments.
4. Repeal passport revocation. It violates our rights as citizens and our human rights, as if these were different.
I agree with John Richardson; all roads lead to renunciation – for those who can manage the process. It has worked for me (and no, it is truly not difficult to enter the US post-renunciation). For all those who wish to fight this, with or without renouncing, please chip into both of the two current important anti-FATCA legal cases. In the UK, go to https://www.crowdjustice.com/case/fatcahmrcprivacybreach/. In Canada go to http://www.adcs-adsc.ca/DonateADCS.html Let others know too. Donate as often and as much as you can – it is the best hope for all of us to end this nightmare for everybody.
I don’t agree with the premise of this letter. The question put to the candidates in no way makes revenue neutrality a condition of a RBT proposal. The question refers to the fact that some RBT activists have come up with a model that has rev neutrality as one of its features.
I can’t say what the motivations are of the letter’s authors, but I wonder why they don’t address their letters to the candidates themselves. Or better yet the lawmakers in a position to act on this immediately instead of in 13 months time at the very soonest.
Thank you so much for your comment.
What a shame you didn’t do any research before posting it.
Let me do that research for you:
1) DA has made it clear that at a minimum it does not object to a requirement for revenue neutrality and that at worst it supports it. You can see this in statements like these on DA’s own website:
“We are pleased that we now have a framework for building a RBT model that we believe could achieve these important things –
facilitate participation by those living abroad temporarily, for decades or for an indeterminate period of time;
include provisions for all Americans abroad to transition into “non-residency” status for tax purposes;
be **revenue-neutral** to the federal government; and
contain anti-tax avoidance mechanisms to prevent abuse by U.S. taxpayers who are not bona fide residents abroad.”
“I understand that there are some potential amendments that may address this during the debate process, but they have yet to be made public. We need the Senator to be fighting on this issue, and we need to ensure that reform IS addressed and is done so in a way that is **revenue neutral**, boosts opportunity and helps reduce inequality.”
There is no record of DA ever questioning a requirement for revenue neutrality. DA could have just remained silent about it. But instead, DA has a documented history of agreeing that revenue neutrality should be required.
When DA included a reference to revenue neutrality not only in its written questions but also in its oral interviews with the candidates (see this interview at 11:20 for example https://www.facebook.com/watch/live/?v=2834214683279806) it was not introducing the concept. To the contrary, DA was driving home its support for it. (Thankfully and encouragingly Senator Sanders does not repeat a mention of revenue neutrality in his response).
2)There is much information readily available on the internet that would give you great insight into the authors’ motivations. Those who are knowledgeable in this area are already long-familiar with that information. Let me suggest some sources that will help you:
– John Richardson’s website, where you will find by far the most insightful commentary on these issues in a series of blog posts dating back many years: https://citizenshipsolutions.ca/. John is a regular contributor to Tax Connections: https://www.taxconnections.com/taxblog/author/john-richardson/#.XfOoZOhKjIU. And he has a YouTube channel where he posts podcasts of discussions he has had with a variety of persons on US non-resident taxation and banking issues: https://www.youtube.com/channel/UCMJ8jVRwx8UXbZYIVrtQLOg
– Karen Alpert’s blog, where you will find more highly insightful commentary and information that is focused upon the situation of Americans in Australia but by no means exclusively so: https://fixthetaxtreaty.org/. Dr. Alpert is also the author of this article: “Investing with One Hand Tied Behind Your Back – An Australian Perspective on United States Tax Rules for Non-Resident Citizens,” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3097931
-Laura Snyder’s conference paper “Dispelling the Myth of the Wealthy American Expat, or Are Americans Free to Live Outside the United States?” http://www.progressiveconnexions.net/wp-content/uploads/2019/11/LauraSnyder_draftpaper-ver2.pdf. This paper draws upon a survey of current and former US citizens that Dr. Snyder conducted: https://americanexpatfinance.com/news/item/292-american-expats-actually-not-rich-after-all-survey.
Dr. Snyder is the author of this series of posts on Tax Connections highlighting the mental anguish experienced by Americans overseas as a result of US taxation and banking policies:
a) “I Feel Threatened by my Very Identity” (as an American): http://www.citizenshipsolutions.ca/2019/05/13/part-11-in-series-the-emotional-toll-of-us-non-resident-taxation-and-banking-policies-i-feel-threatened-by-my-very-identity/
b) “I Love the US but Feel Betrayed:” http://www.citizenshipsolutions.ca/2019/05/13/part-12-in-series-the-emotional-toll-of-us-non-resident-taxation-and-banking-policies-i-love-the-us-but-feel-betrayed/
c) “I Made a Poisoned Gift to my Daughter:” http://www.citizenshipsolutions.ca/2019/05/14/part-13-in-series-the-emotional-toll-of-us-non-resident-taxation-and-banking-policies-i-made-a-poisoned-gift-to-my-daughter/
d) “Maybe That’s the Only Way Out” (to renounce US citizenship): http://www.citizenshipsolutions.ca/2019/05/15/part-14-in-series-the-emotional-toll-of-us-non-resident-taxation-and-banking-policies-maybe-thats-the-only-way-out/
e) “I Just Wanted to Punch Kick Scream:” http://www.citizenshipsolutions.ca/2019/05/16/part-15-in-series-the-emotional-toll-of-us-non-resident-taxation-and-banking-policies-i-just-wanted-to-punch-kick-scream/
Finally, Dr. Snyder is the sole international member of the Taxpayer Advocacy Panel, a federal advisory committee to the IRS: https://improveirs.org/special-projects-committee/.
I am confident that if you deign to take the time to review this material you will have a clear understanding of the authors’ motivations, given you seem to need to have such an understanding.
3) You state “I wonder why [the authors] don’t address their letters to the candidates themselves. Or better yet the lawmakers in a position to act.”
Do you have actual knowledge about the communications that the authors have – or not – had with the candidates or other policymakers which allows you to make this presumptive statement? That is, you seem to have knowledge that no such communications have occurred. Please explain how you acquired such knowledge.
Are you, for example, claiming that this page on AARO’s website describing Dr. Snyder’s participation in Overseas Americas Week last June contains false information and that she did not in fact participate or speak with “lawmakers who are in a position to act”? https://www.aaro.org/advocacy/aaro-advocacy/796-2019-oaw-report
Clearly addressing this issue with the candidates themselves as well as with other policymakers is vital. But this job is made much harder as a result of DA’s support of a requirement for revenue neutrality. From the point of view of the candidates and other policymakers – and especially the ones in the Democratic Party – why should they question the requirement for revenue neutrality when DA refuses to do so, and, in fact, when DA includes on its website statements that support it? This is why DA’s support for requiring revenue neutrality must be addressed head-on.
Finally, given you seem to know that the authors are not addressing these issues directly with the candidates and other policymakers and your criticism of them for failing to do so, it is fair to ask: can you please report on the work *you* have done to inform the candidates and other policymakers on these issues? We are all capable of doing this work and we should all be doing it. I am sure that you have a lot to report because those who are not doing this work have no right to criticize anyone else for not doing it. And regardless of what you may or may not have done in the past, I assume that you will be doing more of this work in the immediate future, given your (correct) allusion to its urgency.
My humble recommendation to you, Stockholm Syndrome Expat? Do some homework before making such ill-informed comments. They waste valuable time and are a highly detrimental detraction from the important work to be done.
American business expats are greatly damaged by American tax policy. Compliance costs for even small international businesses are extremely expensive. My tax return for 2018 was 130 pages and cost me 10s of thousands of dollars, all for no tax in US due.
Americans overseas are ambassadors to the world for our country. We promote exports of US goods and services. It does no good to burden us with these idiotic forms our non-US competitors could not even imagine in their worse nightmare.
Did anyone else catch that bit about “payroll providers”? Now that they have our FIs directly or indirectly reporting us to the US, they are now openly stating that their goal is to also have our employers report us too.
If this comes about, say good bye to emoloyment.
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