The cost of relinquishing U.S. citizenship

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beneficii
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25 Oct 2016, 5:08 pm

YippySkippy wrote:
My understanding has always been that if I applied to be a citizen of my husband's country, then I would automatically lose my American citizenship. An American cannot actively (as opposed to by birth, for example) become a citizen of a foreign country and still retain American citizenship. America doesn't allow that type of dual nationality.
That's what I've read on various government websites, unless I misinterpreted something.


You do not automatically lose U.S. citizenship, and now even
if your new country does not permit dual citizenship you still have to pay $2350 to relinquish U.S. citizenship.


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beneficii
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25 Oct 2016, 6:53 pm

beneficii wrote:
YippySkippy wrote:
My understanding has always been that if I applied to be a citizen of my husband's country, then I would automatically lose my American citizenship. An American cannot actively (as opposed to by birth, for example) become a citizen of a foreign country and still retain American citizenship. America doesn't allow that type of dual nationality.
That's what I've read on various government websites, unless I misinterpreted something.


You do not automatically lose U.S. citizenship, and now even
if your new country does not permit dual citizenship you still have to pay $2350 to relinquish U.S. citizenship.


I know this is confusing as heck, but this may help:

https://travel.state.gov/content/travel ... ality.html

To lose your citizenship, you must perform an expatriating act (such as taking up citizenship in another country) AND with the intent to relinquish. Here's the rub, the government will always assume you intend to remain a citizen unless you go through the formal process to expatriate and pay the fee (currently $2350). Don't go through the process and you remain a citizen.


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AnneOleson
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25 Oct 2016, 7:40 pm

Beneficii, the new country may not grant you citizenship until you give up your first citizenship. My father was in such a situation when he was younger.



beneficii
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25 Oct 2016, 7:53 pm

AnneOleson wrote:
Beneficii, the new country may not grant you citizenship until you give up your first citizenship. My father was in such a situation when he was younger.


In those countries, then, to play you have to pay Uncle Sam first.


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25 Oct 2016, 8:27 pm

beneficii wrote:
I'm looking at the Foreign Account Tax Compliance Act (or FATCA, the abbreviation making it obvious this act is meant to reassure Americans they're going after "fat cats")...


Rule of thumb: never trust a law named after a dead child or with a "clever" acronym, nothing good ever comes of it.


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26 Oct 2016, 9:23 am

Jacoby wrote:
Now personally I'd rather fund our government off tariffs and excise taxes but the cat is out of the bag as far as the 16th Amendment goes. I don't really believe in dual citizenry either, I think the US should make those born with 2 to choose in between US and whoever else's citizenry after age 18 or whatever as many in the world would do. That is what Japan does who is very strict in this regard, there shouldn't be accidental citizens.


I disagree in part. Income tax is a poor method to tax an economy, but excise taxes and tariffs are astoundingly worse, because they depress economic activity--you need look no farther than the Smoot-Hawley Tariff Act for a real world example. What I would replace income tax with is a value added tax. It has, I suggest, a few strong benefits: first, it's unavoidable. If you're spending money on goods and services, you're paying tax. Period. Second: it captures economic activity from people who are not otherwise in the tax base, such as tourists and people who earn their income from non-taxed activities such as capital gains. Third: it's transparent as to the taxpayer--whether corporate or individual, the more you buy, the more tax you pay.

There are a couple of drawbacks. Without some tailoring, it can be regressive. A well designed value added tax should probably, at a minimum, zero-rate groceries and rent in order to lower the tax burden on the poor. Also, there is at least one non-value-added transaction that could potentially be added to enhance revenues: real estate purchases (generally only purchases of new construction attract value-added tax). But these are pretty simple policy tweaks.

Quote:
As for this double tax, it's an issue with the foreign employer who should be paying the difference I think.(probably not a lot of mom and pop organizations) If you were able to simply travel abroad and make a bunch of money that wouldn't be taxed in this country then it would be a recipe for corruption and would obviously be used to evade.


In most situation, double-taxation does not exist because tax conventions permit a taxpayer to reduce the tax payable in one country by the tax paid in the other. Typically the country where the taxpayer earned the income gets to collect the full amount of tax, and the country where the taxpayer resides for tax purposes can collect the difference.

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$2300 isn't that bad to relinquish citizenship, I don't believe there are many people surrendering their US citizenship that can't afford that fee and to be honest I think it should be a lot higher for those with lots of assets. Perhaps you could put different fees for different income brackets, I dunno. I really doubt their are very many lower-middle class ex-pats, I think $2300 isn't enough for the real fat cats.


There is an important public sector accounting rule that comes into play. Government can either charge cost recovery fees for a service--such as issuing a passport or a driving license--in which case the fee should properly be applied universally (subject to allowable policy exemptions) and should be calculated to cover the cost to government to deliver the program, but not to create a surplus. A sliding scale fee based on net assets doesn't meet this accounting rule.

So, if it's not a cost recovery fee, then government isn't charging a fee, it's levying a tax. But there is a host of jurisprudence around how a tax must be levied, and fiscal federalism would likely come into play, since the practice of taxing assets being expatriated has a direct impact on states as well as the central government.


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26 Oct 2016, 12:39 pm

Thanks for that information, Beneficii. That's really helpful to know! :D



auntblabby
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26 Oct 2016, 6:21 pm

if I ever get wealthy enough to move to some other country, I'll keep all that in mind.



beneficii
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27 Oct 2016, 5:36 pm

A lot of people argue that because the United States provides consular services and may evacuate citizens from war zones and disaster areas, citizenship-based taxation should be retained. However, they fail to tell you an important part of the story. From page 192 of the Mason paper:

Quote:
In addition to voting, proponents of citizenship taxation review many other benefits retained by nonresident citizens. Take, for example, diplomatic, consular, and emergency assistance. Kirsch cites the example of the U.S. evacuation of its citizens from Lebanon in 2006 as helping to justify worldwide taxation of citizens. A serious problem with pointing to the possibility (not entitlement) of emergency evacuation as helping to justify worldwide taxation under the benefits theory is that the U.S. government seeks reimbursement from citizens for evacuation. Logically, government services financed through fees cannot form the basis for a benefits tax. For this and other reasons, Kirsch concluded that the United States should not charge for crisis assistance. Similarly, the United States charges fees for other overseas services, such as passport renewal and departure assistance services, and nonresident green-card holders must purchase a reentry permit if they reside abroad for a period longer than a year.


In other words, you have to pay fees for consular services and you must agree to reimburse the government if they evacuate you. So the taxes on worldwide income you have to pay when you live overseas don't pay for either.

Other countries that don't tax nonresident citizens on their worldwide income also provide evacuations to their citizens (p. 193):

Quote:
Other countries that provide similar benefits to their nonresident citizens apparently conclude that such benefits do not warrant worldwide taxation of nonresidents. For example, it should not surprise us that other countries—countries without citizenship taxation—also evacuated their people from Lebanon. Similarly, other countries also provide diplomatic and material aid to their citizens abroad. Self-interest and the need to signal strength motivate countries to protect their citizens abroad. Moreover, resident citizens may demand that a country act to protect nonresident citizens. Some countries’ constitutions even require the government to safeguard emigrants.


Americans living abroad are getting a poor deal here.


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beneficii
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28 Oct 2016, 9:49 am

As swarms of American-Canadians rush to the exits, the U.S. government has deliberately made the process more difficult and costly:

Quote:
The United States appears to be dragging out the renunciation process, said Kevyn Nightingale, a tax partner at MNP LLP in Toronto, whose firm has done tax filings for nearly 200 clients giving up their U.S. citizenship. “There are a lot of consular services being provided to Americans abroad. Nothing takes this long,” he said.

U.S. officials may be embarrassed that their efforts to crack down on wealthy tax cheats has instead triggered an exodus of frightened middle-class Canadians, Mr. Nightingale suggested. “It does not look good to have a lot of Americans renouncing their citizenship because of stupid rules – rules that don’t generate significant revenue,” he argued.


http://www.theglobeandmail.com/news/pol ... e28688026/


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28 Oct 2016, 4:20 pm

An accidental American in the U.K., born in the U.S. but moved as an infant, didn't know she was a U.S. citizen until 2015 when her bank asked her to confirm if she was (based on her place of birth). At age 50 in 2015, she found out she hadn't been "complying" with the U.S. tax requirements, though she has always been up on her U.K. taxes. Then she found that in order to "comply", even though she never had so much as a U.S. passport, she must now get a Social Security Number, having "to present a record of her life’s movements in person to US tax representatives, via microphone through a glass panel, in a room with other people waiting", in order to do so. All 50 years of her life must be accounted for.

At this point, she was tired of this and worked to renounce, having to pay at least $10,000 to do so, as well as 5 years of tax returns and 6 years of foreign financial account reports. “I object to having citizenship imposed on me. The US frowns on dual citizenship and yet imposes it on those people who don’t want it," she said.

http://www.telegraph.co.uk/tax/income-t ... ax-system/

Does anyone else feel disgusted as I do when reading what's happening to our expats and accidental Americans? I called my Congressman to register my disgust earlier today.


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beneficii
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31 Oct 2016, 10:23 am

Letter from an American-Canadian who recently renounced their U.S. citizenship to First Lady Michelle Obama on why they renounced:

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Dear Mrs. Obama:

I gave up my U.S. citizenship this year, so I cannot vote. And if I could, I wouldn’t vote Democrat. It’s not that I hate liberals. I am one. And the Republicans honestly make me sick. The bottom line is America has lost its way in this world, and neither party, in my humble opinion, is going to make any headway in making it better.

I have lived abroad most of my life. This is my 46th year in Canada. I married Canadian, my kids are Canadian, not American, I have worked my entire life in Canada. I invest here, and will retire here. I am Canadian, but as you are likely aware, giving up that USA brand is not easy. I have many relatives living in the 50. I used to love to visit them. At the moment, I couldn’t care less if I ever cross that border again.

This brings me to my main reason for handing in my passport: you are still taxing me. I hope you continue reading, as I get the sense that homelanders typically shrug off our complaints as sour grapes and tax avoidance. It is anything but. My issues are fundamental. My issues are based on American values and the Constitution. Since those values and the Constitution have failed me, I am gone, as are thousands of others. It is a national disaster, that in my opinion, will be a black mark on your husband’s legacy.

I want you to consider the duty to file and pay taxes based on citizenship. It sounds patriotic, and all red, white, and blue, but I’d like to reword it for you: “citizens shall pay taxes to the United States because the U.S. owns them.” They do not have the right to walk away from this obligation, despite what the United Nations proclaims, because the U.S. owns them.

They are chattel. They are economic slaves. I am being treated as a slave. I live, work, and pay taxes in Canada, yet my master needs his payment. The concept is against everything I consider American.

Consider also sovereignty of foreign nations, something I can’t claim the U.S. has ever respected. The U.S. does not allow foreign countries to step in and tax its businesses and its citizens at home, its economic contributors. America’s practice of taxing its citizens abroad is basically what Mr. Trump accuses Mexico of doing: sending its citizens to America to generate dollars to send home. It is a despicable concept which the Democratic Party has rightly laughed at. Yet this is what you do with citizenship-based taxation, FBARs, and FATCA.

You tax monies earned abroad by your citizens. You tax capital gains on private homes in the UK. You apply Social Security and Obamacare taxes on mom & pop businesses operating overseas. You tax lottery winnings considered tax-free economy boosters in foreign lands. Your actions pirate money from foreign economies, and you pretend it is okay because we victims are American.

We are not the only victims. Our families, our communities, and our host nations all suffer from your syphoning. You steal funds, jobs, and debt. America is the biggest tax cheater of them all. The fact that you justify it based on patriotism is disgusting to me, and to almost all of the 8.9 million citizens abroad.

I could write all day about how I am personally abused. I cannot invest in mutual funds. I face invasions of my privacy and my family’s privacy. I cannot save for retirement, cannot open the financial accounts my neighbours can, etc. America upping its fees to prevent us from leaving is nothing more than extortion. The American government is nothing more than a disgusting bully. If I could still vote, I’d vote for the worst of the opposition, because I hate what your husband and his cabal are doing to American citizens like me.

Sincerely,

A Canadian, no longer American, in New Brunswick, Canada


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31 Oct 2016, 12:02 pm

Kraichgauer wrote:
If fat cats leave America to avoid paying taxes, then in my humble opinion, they should have their property nationalized, and told to enjoy life without taxes. :evil:


We should cut to the chase and just nationalize their property either way :twisted:


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31 Oct 2016, 12:48 pm

AJisHere wrote:
Kraichgauer wrote:
If fat cats leave America to avoid paying taxes, then in my humble opinion, they should have their property nationalized, and told to enjoy life without taxes. :evil:


We should cut to the chase and just nationalize their property either way :twisted:


Good idea! :twisted:


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beneficii
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31 Oct 2016, 9:25 pm

Kraichgauer, Jacoby,

beneficii wrote:
Jacoby wrote:
Now personally I'd rather fund our government off tariffs and excise taxes but the cat is out of the bag as far as the 16th Amendment goes. I don't really believe in dual citizenry either, I think the US should make those born with 2 to choose in between US and whoever else's citizenry after age 18 or whatever as many in the world would do. That is what Japan does who is very strict in this regard, there shouldn't be accidental citizens.

Just because a country has a high tax rate does not mean there isn't a lot of people evading taxes, as some would know the US had a much higher tax rate than it does now but the reality was that nobody actually paid that amount due to loopholes and deductions.

As for this double tax, it's an issue with the foreign employer who should be paying the difference I think.(probably not a lot of mom and pop organizations) If you were able to simply travel abroad and make a bunch of money that wouldn't be taxed in this country then it would be a recipe for corruption and would obviously be used to evade.

$2300 isn't that bad to relinquish citizenship, I don't believe there are many people surrendering their US citizenship that can't afford that fee and to be honest I think it should be a lot higher for those with lots of assets. Perhaps you could put different fees for different income brackets, I dunno. I really doubt their are very many lower-middle class ex-pats, I think $2300 isn't enough for the real fat cats.


There are better ways to prevent avoidance and abuse that are practiced by other developed countries. They are detailed in the Mason article on pages 231 to 236. Here's a rundown of some of the ways:

- Only tax citizens for, say, 3 years after leaving. This is the Finnish policy.

- Tax U.S.-based assets and income.

- Don't cut them loose from U.S. taxes until they establish tax residence in another country.

- Use an exit tax for people moving abroad.

These preposals aren't mutually exclusive and they allow us to lift these excessive burdens off the shoulders of middle-class and working-class Americans who have permanently settled abroad while keeping wealthy high-rollers from abusing the system. Our current system, flat out, does not work and puts many Americans abroad into untenable situations. The sooner we realize and deal with this, the better.


Does any of you have a response to this?


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05 Nov 2016, 2:49 am

It angers me still just how indifferent our political system is to this harm. In my opinion, what the Democrats are doing is what has enabled dictators to come to power. By representing what is supposed to be progressive, they sell out and enact horrible policies that alienate progressive citizens, pushing them away from politics, laying the groundwork for an authoritarian takeover. It's playing out here.

I'm reading about Democratic members of Congress, who upon hearing of people driven to renounce their citizenship so they can live a normal life in their countries of residence, mischaracterize them all as wealthy "Benedict Arnolds" who renounce to get out of their obligations, even though those obligations are often not the actual payment of tax but the yearly filing to show they owe no tax (what is the point in making people do this?), instead of sitting back and reflecting on how their policies may be causing them to do this, as Professor Allison Christians, who studies tax law, discussed at 13:30 in this video:



I hate those members of Congress, whose personal failings have real consequences for real people. I cannot wait until effers like Chuck Schumer and Harry Reid are out of there (Reid, thank God, is retiring). The Democratic Party does not need demagogues like that.


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