U.S. gov't announces intent to slash citizenship renunciation fee by four-fifths
americanexpatfinance.com
americanexpatfinance.com
“At issue, as many American expat critics of FATCA are quick to point out, is the fact that the U.S.'s citizenship-based tax regime – famously unique in the world, apart from Eritrea – obliges anyone born in the U.S. to file tax returns every year, and potentially to pay U.S. taxes and even penalties for failing to file such documents as Foreign Bank Account Reports, even if they have never lived in the U.S., or earned money there.”
"It shall be unlawful for any person to sell or otherwise dispose of any firearm or ammunition to any person knowing or having reasonable cause to believe that such person ... who, having been a citizen of the United States, has renounced his citizenship"
And yes, this is actively enforced as part of the federal background check system.
Ironically, legal non-citizen residents can lawfully purchase firearms, even on a student or a work visa (although there are more hoops to jump through).
Because it's in the constitution, and changing that is very hard. That's the answer.
I saw interviews about this and the Danish kidnap victim rescued with Ms. Buchanan said something to the effect of "the best thing that happened to me given this scenario was getting kidnapped with an American."
Citizenship has its privileges. I've been an US expat and will likely be one in the future and have no problem with paying taxes as a citizen either here or abroad.
[0] https://en.wikipedia.org/wiki/Rescue_of_Jessica_Buchanan_and...
The real question you should be asking is why are you ok double-taxing non-resident citizens?
In that vein, do you think it's right for the town in which you lived right before moving abroad to charge you property taxes on a home you buy in a foreign country? What if there was an exemption on the first $250K in property value? After all you may one day return to your home town and they were providing bus service while you were gone...
What about your home town charging you property taxes on the place you buy in the big city a few years after you move away for college? After all your family is still there and those schools won't fund themselves.
In some cases it is national service, others it is a requirement to vote, in the U.S. case it is to declare and pay taxes.
I would expect that most people like the idea of the option to live and work in the U.S. and keep their citizenship even if not residing there.
I think it is a difficult call to renounce citizenship but if the tax requirements are onerous on the individual they are least have the choice.
But in America all we want is your money. In America its _always_ about the money...
Plus, there's the fact that even if you're not living in the US doesn't mean you're not benefiting from citizenship. You still enjoy the privilege of American consulates, being able to travel to certain countries, and certain limited protections and privileges. So it's not like it's _nothing_.
It doesn't make sense to tax citizens who aren't resident when you are also taxing residents who aren't citizens. That's having your cake and eating it too - which I can only imagine is part of the reason no other country on Earth does this (except Eritrea, who obviously cannot enforce).
If resident aliens have to pay taxes while resident, and can stop when they leave - doesn't it also make sense for resident citizens to be afforded the same luxury?
The state department operates on a cost-recovery basis anyways so if you avail yourself of emergency or consular services you get mailed a bill no matter what.
[edit] Remember if you live abroad you have to pay taxes to that government too! So the question is why is it a fair impingement on your freedom to live abroad to have to pay taxes to two different governments simply because you're an American?
You're being punished as a de facto civil war deserter! The war is over, friend. The North won! Let freedom ring! lol.
[edit2] As @drewcoo pointed out I used the term 'deserter' inappropriately in context, I should have said 'deadbeats.' I was in fact referring to citizens who left the United States around the time of the war and the way they were viewed by congress as not paying their fair share while retaining a vested interest in the outcome of the war. It was a colloquialism used as flourish that was wrong in context. h/t.
The exemption amount isn't exactly a windfall level ($120K). Amounts earned over that are taxed in both countries - the US and the foreign country - and the only way to avoid double-taxation on that is if the US has a tax treaty with the country [1]. But that treaty generally means you end up having to pay whichever rate is higher: the US rate or the local rate, in aggregate.
More importantly you're not exempt from filing even if you have no net tax obligation to the US.
These returns are not easy to prepare, and so you may end up spending thousands of dollars per year paying one of the likely very few people with experience filing returns to both countries and properly attributing income and deductions.
It gets much, much worse if you want to start a business in the foreign country in which you live because then you're the owner of what the IRS considers a Controlled Foreign Corporation. The paperwork for this is a waking nightmare and will cost you thousands more per year, if you're even in a position to complete it. [2] Notice in [2] the US definitely on of a CFC is also different than the rest of the world.
[1] https://www.irs.gov/businesses/international-businesses/unit...
Ugh. ..the US definition of** a CFC...
Have a resource for this? From what I remember, income tax started around the 1910's with the 16th amendment and grew to take out a large portion of citizens' income when prohibition severely cut sales tax proceeds from alcohol.
It was started in 1861 as a way to raise revenue to fight a war.
https://nomadcapitalist.com/global-citizen/citizenship-based...
Deserters would most likely have gone home, remaining citizens and living in the US. And I'm unaware of US IRS attempt to collect taxes from the CSA during the war.
https://teachinghistory.org/history-content/ask-a-historian/...
Whereas if you live in another country for years, you use pretty much NOTHING (except for some consular services MAYBE). Huge difference.
Would you rather have a US passport living in UAE or Bali or Australia, or would you prefer to have an Iranian one?
I'm not saying the taxation is "right", as nearly all other nations don't care, just highlighting what folks would argue it's for.
I realize folks are arguing what it's for, but I don't think their argument holds water.
Heck, it applies to people who don't even realize that they are US citizens -- a number of Canadians have been hit by large bills from the IRS after discovering at advanced age that they have a parent born in the USA.
India specifically prohibits holding two or more, and expect its citizens to renounce Indian one in 6 months or less from acquiring other one. No repercussions as long as you don't go to India or deal with Indian Embassy (which almost every ex Indian has to, family, relatives, stuff in India). Although one can get an equivalent of green card (OCI) without requirements of residency.
The majority of US taxes go towards Social Security, healthcare (Medicare), benefits for US veterans/federal employees, etc.[1] Most of these systems are not available to "US persons" who haven't lived/worked in the USA. Those that have worked there will see their US benefits decreased by amounts paid into non-US tax systems.
[1] https://www.cbpp.org/research/federal-budget/where-do-our-fe...
> Tax compliance is not required for renunciation of US citizenship, but only to formally exit the US tax system after expatriation. Consular officials will not inquire about a person's tax status during the renunciation interview, nor is a potential renunciant required to supply a Social Security Number at any point during the process. The common but mistaken belief that tax compliance is required prior to renunciation is encouraged by the US tax preparation industry, often at great cost to unsuspecting Accidental Americans. It appears, however, that a significant number of former US citizens have renounced without any attempt at tax compliance.
https://fam.state.gov/fam/07fam/07fam1260.html#M1266
100% though on the US tax preparation industry.
I believe that someone renouncing citizenship specifically to avoid paying US taxes, for example, to not fund the war machine, is subject to the Reed Amendment and may be denied entry into the US. As the above link points out, this is nearly unenforceable.
In practice, I believe most US citizens living overseas pay no actual taxes to the US. The Foreign Earned Income Exclusion excludes "your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023)." - https://www.irs.gov/individuals/international-taxpayers/fore... and a number of countries have a bilateral agreement with the US to prevent double taxation.
> which you benefit from via your citizenship and US passport
The large majority of "accidental Americans" don't have a US passport, and may even be surprised that they have US citizenship.
] The very first such [private letter request] request came from a British citizen who stated that he was unaware of his U.S. citizenship; Willard Yates, a retired tax attorney then with the IRS' Office of Associate Chief Council (International) who handled that PLR request, initially expressed disbelief at the possibility that anyone could be unaware of their U.S. citizenship, but states that later, "after working a bunch of 877 PLRs, I realized we didn’t know anything about anything when it came to U.S. citizens working overseas, accidental or otherwise." - https://en.wikipedia.org/wiki/Accidental_American
For these people the benefits are minuscule compared with the negatives, like loss of access to local banking services should the bank not want to deal with FATCA, the expense of finding an accountant who can handle both sets of taxes, and the difficulty of dealing with capital gains, retirement accounts, etc. which may be tax-free in one's home country but not the US, or which may be subject to double taxation.
That describes way more people than overseas US citizens.
Not saying I agree with paying US taxes if not living there, but there are financial benefits to US citizenship.
Compare this to say Canada, where you can leave, never pay taxes, then retire in Canada with free healthcare that you never paid into. It’s “privatize the gains, socialize the losses”.
And to be honest, most Americans living outside the US will pay no US taxes. It’s just the filing burden that is the issue.
Somehow the UK does it without subjecting all British citizens worldwide to UK taxes.
I read once that UK repatriation was funded as part of the passport fee, but can't verify it. In any case, if this were the justification for the policy, it might be good to know how much it costs the US vs. what extra revenue the US generate from this taxation, and the number of non-resident/non-passport holding Americans are also covered by this repatriation.
I have two USA born children under the age of 4. My wife and I are in USA on work VISAs. When we leave this year, we'll have to research all this stuff and file all the right paper work so my kids don't potentially have trouble ~16 years later.
They will likely not pay much tax between now and then so the cost of the opportunity (if you would ever consider living in the U.S. permanently) is minimal.
[1] https://www.investopedia.com/terms/c/cfc.asp [2] https://www.investopedia.com/global-intangible-low-taxed-inc...
Fun fact: the "eagle screech" sound is actually that of a hawk.
All too easy to make the analogy that the American (freedom) eagle is really an American (war) hawk.
I live in Japan, and holding Japanese stocks will get me in trouble with the US government, while holding US stocks can dramatically complicate my Japanese taxes. Because I reside outside the US, I cannot have a 401k or Roth IRA, but it is also impractical for me to take advantage of the Japanese equivalent (NISA) due to the prohibitive cost of correctly reporting my holdings to the US. In some cases there is also double taxation.
1) In a traditional (vs a roth), you save taxes at your marginal rate today. 2) In a traditional (vs a roth), you save on state taxes today. 3) you can take those tax savings and invest them in a taxable account (or spend them on things you need to spend them on)
4) In retirement, if your income is lower than your income today, your tax rate will be lower, so the savings of not paying on disbursments from the Roth will be lower.
5) In retirement, you have more ability to choose where you live, i.e. can live in a tax free state (or move overseas) and hence just have federal tax liability on the disbursements (at a lower overall rate if income is lower).
6) A roth is a promise of a benefit in the future vs a traditional giving you a benefit today. It's hard to take away a benefit already given, while I don't expect the roth rules to adversely change, there's still risk.
Now, a big benefit of the Roth is for people who can't save and are bad financial planners. "prepaying" the tax, even if its worse decision overall, is better than blowing the immediate tax savings of a traditional on "hookers and blow".
Another big benefit of a roth is if one expects tax rates to severely rise, prepaying tax at a much lower rate vs a future possibly higher rate is a benefit (but one has to factor in the ability to get out of state taxes in future as well, so if your state tax rate is nearin 10%, does one expect federal future tax rate to really be 10% higher than today).
Over a long period of time if one has high income in retirement, a Roth probably is better (even if the traditional tax savings are invested). However, at those income levels, I don't think it actually matters much as the difference wont be huge (in terms of savings/income). If one expects retirement income to be reduced relative to one's current income, traditionals become much more attractive.
More countries should oearn from this. Any country can decide to tax citizens. And who is a citizen? Well, it's determined by that nation's laws.
Why should citizenship only be granted to children citizens? Why not grand children? Or great grant children?
Could ireland or italy pass laws giving 3rd generation Immigrants citizenship, and then send them all a tax bill?
They could, but it's harder for a small country to enforce such laws compared to the US.
Of course if they can get the EU to help enforce those laws, perhaps the sky is the limit.
People living far away are the ideal tax base. For one thing, they can't effectively vote against the tax.
US expats can vote from abroad from the last state, county, and municipality they held residency in prior to going abroad, as I understand.
Obligatory IANAL.
Here's the kicker: when you are born to US parents, you are automatically a US citizen, even if USA doesn't know about you. So you may have been born abroad and never set foot in the US, and theoretically, you should have been filling tax reports. I wonder if you owe backtaxes if you decide to inform USA about yourself later in your life...
One can be born abroad to a US citizen and not be eligible for US citizenship; Keanu Reves is a great example of that.[1] However, that child would be considered a "US Person" by the IRS and subject to US taxes.
No doubt this was to avoid having all the children of anyone a US serviceman interacted with abroad claim US citizenship.
"A U.S. citizen may have automatically acquired U.S. citizenship based on birth in the United States, but never actually resided in the United States. This U.S. citizen will not have established residence in the United States, and may be unable to transmit U.S. citizenship to his or her own children."
[1] https://en.wikipedia.org/wiki/Birthright_citizenship_in_the_... [2] https://www.uscis.gov/policy-manual/volume-12-part-h-chapter...
Note that I wrote "parents", not "parent", although full rules do specify additional residency requirement, so my statement may be considered incorrect, but not because of what you are pointing out. : - P
Reference for whoever's interested: https://travel.state.gov/content/travel/en/legal/travel-lega...
Quick google search shows articles citing "30,000 backlog" of people wanting appointments to cancel.
You can buy a gun in 15 minutes at a gun store normally. Want to put a suppressor on it or that gun just happens to be 1" shorter than 16"? You're going to wait 9-24 months longer. Ridiculous doesn't even begin to describe it.
The problem is that government is so large that, in practice, the ATF doesn't care, because that $200 just goes into the US Treasury general fund. If they actually kept most of the tax they collect, I think we'd see much faster processing times, and eFile would have happened many years ago.
(2) Even if you are aware of (1) you have to know of this unique bit of US taxation BS, and know that that means you have to file a US tax return (something that functionally costs money) to not be breaking the law and so be subject to fines.
(3) Even if you do realize that you need to renunciate your citizenship you have to do it in person, so you have to have the ability to also get to a US embassy, and hilariously prove you're a US citizen.
(4) As the article states: renunciation itself also costs money, in addition to the other costs incurred.
Given (1), many impacted people don't ever actually interact with the US government, and with (2) never occurs to them that they need to do anything. (3) and (4) then add an actual barrier to renunciation, couple with the potential "immigration" impact (Flying through LAX, NYC, etc can become questionable, which is a problem given they're major hubs), means that you actually get stuck in a damned if you do, damned if you don't.
Finally, despite it being ostensibly a legal right, the US government has a track record of denying basic constitutionally guaranteed rights, and renunciation is no different. Because of (3) it's necessary to make an appointment and visit in person, and the US has actively ensured that that isn't possible by understaffing and even simply canceling appointments. So while only ~2700 may have renounced citizenship, the actual backlog is in the tens of thousands.
For example if you’re born in a foreign country to a US citizen who can pass down citizenship. You’re a US citizen, but there is no record of it. USCIS doesn’t know, the IRS doesn’t know. Nothing will ever happen if you travel to the US on a foreign passport.
I know a couple people in Canada like this.
And if come from a country with higher taxes than the US you’ll owe $0.
Unless you've had a FS545, DS1350, or FS240 filed.
If it were free and doable with a single signed page, a passport to hand over, and proof of new citizenship, I think numbers would be way higher.
Within the group this affects (permanent emigrants from the US), it’s not a small number. Especially considering it’s such a difficult and expensive process that most don’t bother with it for those reasons.
There were more US citizenship renunciations than there were total births in Wyoming in 2020. But we don’t just ignore the existence of issues affecting people from Wyoming because “essentially nobody lives there.”
Incidentally I know this because I paid the $2350 last month, so timing couldn't be more annoying. I hadn't been in the US since being 1 year old and yet financial institutions refused to take my money due to the whims of another country.
If there's anything unique, it's the US doing this to people. It's an insane amount to charge just to declare you have no ties to somewhere.
Just renounced last month so I feel your pain. I've made peace with it by, in my head, amortising the cost over the rest of my life, but it sure would've been nice to do that with the lower fee!