The cost of relinquishing U.S. citizenship

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beneficii
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23 Oct 2016, 6:01 pm

If a U.S. national becomes a citizen of a country that does not permit dual citizenship, then they must pay the State Department $2350 to relinquish their U.S. citizenship:

http://www.forbes.com/sites/robertwood/ ... df7db76568

This is by far the most expensive relinquishment fee in the world, more than double that of Jamaica, which is in 2nd place. In some countries, the process is even free.

It appears part of the reason for this is a belief among many Americans that no one in their right mind would want to give up their U.S. citizenship for another citizenship in another country, unless they were wealthy fat cats trying to avoid taxes. However, there are many reasons why someone would want to relinquish their citizenship, as well as the tax obligations it presents (as, other than Eritrea, no other country in the world requires its citizens to pay taxes if they live and work abroad). They include:

- People who have no connection to the United States other than they were born there, their place of birth making them citizens. (But why should they have to pay taxes to the U.S. if they have no interest in the country?)

- People who have moved overseas and are seeking to become a citizen of another country, because that's their home now, where their life is, and they plan to live out the rest of their lives there, but the country requires them to give up all other citizenship.

There are plenty of middle-class and otherwise less wealthy people who fall into the above categories, making the $2350 fee a real burden for them, on top of otherwise having to report their income every year and pay the IRS the difference.

I can understand the desire to go after wealthy fat cats who go offshore to avoid taxes, but a $2350 fee isn't likely to be much of a burden to them,--it's pocket change for them--but I think this is a circumstance where there are unintended consequences and policy-makers should take that into account, and let go of the hubris that no one but a wealthy fat cat could reasonably want to become a citizen of a country other than the U.S.


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beneficii
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23 Oct 2016, 6:14 pm

One could also make an argument that imposing such a burden on people without means violates their right to change nationality under the Universal Declaration of Human Rights, Article 15:

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(2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.


http://www.un.org/en/universal-declarat ... an-rights/


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auntblabby
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23 Oct 2016, 6:24 pm

it seems to me that uncle sam is trying to keep in as much cannon fodder as possible. they do that by encouraging other desirable nations to throw up as many roadblocks as possible for Americans of average means to emigrate, in addition to having to pay that aforementioned 4-figure sum.



beneficii
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23 Oct 2016, 6:37 pm

And it's a situation I don't see changing under Hillary.


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beneficii
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23 Oct 2016, 6:52 pm

With this high fee, the State Department has made millions from the record numbers of people expatriating.

http://www.forbes.com/sites/robertwood/ ... 8ea6d536c5

And there's this:

Quote:
U.S. reporting is based on worldwide income, even if they are paying taxes in the country where they live. Many can claim a foreign tax credit on their U.S. returns, but it generally does not eliminate all double taxes. These rules have long been in effect, but enforcement was historically less of a concern with expats. Today, enforcement fears are palpable. Moreover, the annual foreign bank account reports known as FBARs carry civil and criminal penalties all out of proportion to tax violations. Even civil penalties can quickly consume the balance of an account.


Apparently, a lot of people relinquish because they're afraid of making an error on their annual tax form, which they must submit to a country they no longer feel connected to, and then the IRS coming after them in court. They think, Why should I put up with all of this when I no longer live there and plan to live the rest of my life here?

The only other country in the whole entire world that imposes tax obligation on its citizens living and working abroad is Eritrea.


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auntblabby
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23 Oct 2016, 7:00 pm

:o what good company America is keeping with Eritrea. :x [sarcasm] America could be so much better than it is.



Sweetleaf
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23 Oct 2016, 8:05 pm

beneficii wrote:

There are plenty of middle-class and otherwise less wealthy people who fall into the above categories, making the $2350 fee a real burden for them, on top of otherwise having to report their income every year and pay the IRS the difference.



So wait, if someone pays this fee and relinquishes their U.S citizenship and aren't a U.S citizen anymore they still have to pay the IRS every year? Or am I understanding this wrong.


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beneficii
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23 Oct 2016, 8:07 pm

Sweetleaf wrote:
beneficii wrote:

There are plenty of middle-class and otherwise less wealthy people who fall into the above categories, making the $2350 fee a real burden for them, on top of otherwise having to report their income every year and pay the IRS the difference.



So wait, if someone pays this fee and relinquishes their U.S citizenship and aren't a U.S citizen anymore they still have to pay the IRS every year? Or am I understanding this wrong.


No. I apologize for the unclear wording. It is if they remain a citizen, which they will if they can't pay the $2350 fee for relinquishment.


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24 Oct 2016, 12:30 am

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:


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beneficii
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24 Oct 2016, 12:35 am

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:


What about middle-class and working-class people who simply found a home in another country and want to live out their lives there?


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24 Oct 2016, 12:41 am

beneficii 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:


What about middle-class and working-class people who simply found a home in another country and want to live out their lives there?


No; I said fat cats looking to avoid paying taxes. Might not be fair to the super rich, but as they've gotten all the breaks in life already, then they should feel real pain for being modern day Benedict Arnold's just because they don't want to pay taxes... WHICH THEY CAN AFFORD!! !!


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24 Oct 2016, 2:54 am

Kraichgauer wrote:
beneficii 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:


What about middle-class and working-class people who simply found a home in another country and want to live out their lives there?


No; I said fat cats looking to avoid paying taxes. Might not be fair to the super rich, but as they've gotten all the breaks in life already, then they should feel real pain for being modern day Benedict Arnold's just because they don't want to pay taxes... WHICH THEY CAN AFFORD!! ! !


My understanding is that if your assets are above a certain level, then you must pay an exit tax.

My point is that these heavy-handed efforts to go after offshoring "fat cats" have had a lot of unintended consequences for middle-class and working-class people who were not meant to be the target of these efforts. In my next post here, I will go into the burdens faced by the so-called "accidental Americans", people who were born in the U.S., and thus were born U.S. citizens, but who otherwise have no ties to the U.S.


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24 Oct 2016, 3:22 am

I have been reading about "accidental Americans", people who were born in the U.S., and thus were born U.S. citizens, but who otherwise have no ties to the U.S. It appears that the practice of taxing U.S. citizens abroad, a practice the U.S. shares with only Eritrea out of the whole entire world, combined with stepping up enforcement in the last few years has created huge financial burdens for this group. I think Wikipedia here introduces the topic well:

Quote:
Despite their lack of personal or business ties to the United States, accidental Americans have the same U.S. tax filing and payment obligations as do self-identifying "Americans abroad" who are aware of their U.S. citizenship status, and are subject to the same fines for failure to file. Tax treaties generally do not serve to mitigate the double taxation and filing burdens such people face, as all U.S. tax treaties give the U.S. the power to tax U.S. citizens residing in other countries as if the treaty did not exist; such treaties generally only benefit business entities and dual-resident non-U.S. citizens. The result, as tax attorney Gavin Leckie put it, is that "people who have no sense of being American find themselves caught up in a maze of rules really aimed at the U.S. resident citizen seeking to defer or evade U.S. taxes by holding assets offshore".


https://en.wikipedia.org/wiki/Accidental_American

A lot of accidental Americans are unaware of their status and so may fail to comply with U.S. tax filing requirements. However, regardless of whether they were aware, the U.S. government is unforgiving of its citizens living abroad who don't file, as Wikipedia states:

Quote:
Under the 2011 Offshore Voluntary Disclosure Initiative, people residing outside of the U.S. who stated that they did not file U.S. tax and asset-reporting forms because they were unaware of their U.S. citizenship faced fines of 5% of their assets.


These laws also impose harsh filing requirements on accidental Americans, even if they would owe no tax due to credit for paying tax in their country of residence; basically, they have to prove they owe no tax, which can be very onerous. As Wikipedia further explains:

Quote:
The reason is that the foreign earned income exclusion does not affect filing obligations nor the treatment of non-U.S bank accounts and investment plans. Tax lawyers state that compliance with the foreign trust and passive foreign investment company rules can be particularly onerous, because their definitions are so broad as to include mutual funds, retirement accounts, and similar such structures owned by accidental Americans in their country of residence; people with savings in these kinds of plans will face higher taxes and compliance burdens than U.S. residents who keep money in similar U.S. investment plans. Those who have spent their lives planning for their retirement without considering the U.S. tax consequences of the non-U.S. financial instruments they hold may find that U.S. taxation, in particular PFIC taxation, wipes out most of their returns on investments; as Allison Christians states, "the PFIC regime is designed to be so harsh that no one would ever knowingly own one unless they were treating it like a partnership, and marking it to market annually with the assistance of sophisticated tax counsel".


As mentioned in the OP, relinquishing U.S. citizenship has become expensive, and you must prove 5 years of tax compliance, which has hamstrung many accidental Americans from relinquishing. Even so, record numbers have been relinquishing, and a large part of these are accidental Americans trying to break free from the claws of a country they otherwise have no ties to.

Since 2010, via the Foreign Account Tax Compliance Act (FATCA), designed to prevent offshoring to evade taxes, the U.S. government has attempted to impose filing requirements on foreign banks. This has caused many foreign banks to refuse to let people who might be U.S. citizens because of their parentage or place of birth, open or keep accounts with them.

Some accidental Americans are beginning to push back, however. In Canada, a million accidental Americans have filed suit against the Canadian government, seeking to enjoin it from enforcing its FATCA deal with the U.S. to hand over their financial information, citing the Canadian Charter of Rights and Freedoms. More info can be found in this article:

http://www.forbes.com/sites/robertwood/ ... fc19114de7


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beneficii
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24 Oct 2016, 3:30 am

Going back to the Wiki, here is a map of countries and their taxation systems, whether they tax by residence, presence, or citizenship, or don't impose income taxes:

Image

Green = No income tax on individuals
Light blue = Income tax only on individuals present in the country
Dark blue = Income tax only on individuals residing in the country
Magenta/pink = Income tax imposed on citizens living abroad

What is so different about the U.S. that we have to be like Eritrea in this matter? As shown above, this practice creates serious complications for the people affected by this rule and may interfere with international relations. Why do we have to keep doing this? Why do we, along with Eritrea, have to be the odd one out?

Going back to that Wiki article on accidental Americans, the Republican National Committee in 2014 unanimously showed support for abolishing taxation abroad, an uncommon point on which I agree with Republicans:

Quote:
Advocacy groups including American Citizens Abroad and Republicans Overseas have also proposed that the U.S. switch to the system of residence-based taxation followed by nearly all other countries in the world. In August 2014, the Republican National Committee, at the urging of Republicans Overseas, unanimously adopted a resolution calling for an end to citizenship-based taxation.


When will Democrats get on board for removing these burdensome rules as part of heavy-handed tactics to go after a few wealthy "fat cats", while harming millions of people who aren't wealthy living overseas?


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24 Oct 2016, 3:53 am

this is but one of scores of stupid things that America does to its own citizens.



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24 Oct 2016, 4:05 am

I used to wonder why we never see Americans working here (in the UK). They'd have to pay tax twice.

So the US administration gets loads of tax income? - and still hasn't managed to devise a National Health Service. There was a news story last week about how Americans are actually charged to give birth. One new family got a bill which included a charge for holding their own new-born baby.

I continue to be baffled by US patriotism. I guess it's fueled by early years brainwashing.


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