# FEIE vs FTC



## underation (Oct 25, 2018)

Useful-looking article about the pros and cons of claiming FEIE or FTC.

"To FEIE of not to FEIE"
https://www.gocurrycracker.com/to-feie-or-not-to-feie/

If accurate, it would seem to make it pretty obvious why some tax-compliant US citizens living outside the US want to keep filing US tax returns and keep claiming FEIE; some want to keep filing US tax returns and claiming FTC; and some want to shed the filing obligation while keeping all other USC privilege

Which in turn would seem (IMO) to make it pretty obvious why US legislation to change the _status quo_ to any significant degree is unlikely; while also showing that for many (perhaps the majority) of US citizen expats/ emigrants who identify as American or dual, CBT is actually more of a benefit than a burden.


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## underation (Oct 25, 2018)

Also very relevant to the CBT "Is-it-a-benefit-or-a-burden" question: US SS, which many US citizens living outside the US have contributed to.

https://www.ssa.gov/policy/docs/ssb/v78n4/v78n4p1.html



> If no totalization agreement is in force, both the employer and the worker generally are required to pay social security taxes to both the United States and the host country on the worker's earnings...
> 
> *This problem is particularly acute for U.S. workers because the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA) mandate more extensive coverage for U.S. residents working abroad than do the comparable social insurance programs of most other countries (McKinnon 2012). Although most countries tax their own nationals only for work performed in their own territory, the United States levies taxes on a broad range of economic activity performed by U.S. nationals and permanent residents outside U.S. territory.* Further exacerbating this problem, the countries to which most U.S. workers are transferred tend to levy high payroll taxes to finance relatively generous social insurance programs. In some countries, the combined employee and employer share of those taxes can approach or exceed 50 percent of payroll (IBIS Advisors 2017).
> 
> ...


If I understand that correctly, CBT and US SS coverage are, for some US expats, inextricably intertwined.

Also, it explains why the OECD and the IGA1 partner countries can't just refuse to go along with America's deeming of US citizens to be forever US-tax-resident.

Hmmm...


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## underation (Oct 25, 2018)

Of course, US citizenship is clearly more of a burden than a benefit, for those of us who never wanted any of the benefits of a dual-citizenship life.

Not only do we have FATCA to deal with, we can't visit America without a US passport, and in theory may be required to register for US military service. 

Our children, also, even if not US-born, may find themselves ineligible to obtain a visa or ESTA clearance for a visit to the US, and may be required to sign a W-9 to accept US withholding on their earnings, if they make use of various US-owned platforms such as a*az*n publishing or a*rb*b.

No solution to these problems, other than paying the fee to renounce the citizenship (if possible) - before producing children (if possible).

It's basically a problem created by the US State Department's fee structure.


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## Bevdeforges (Nov 16, 2007)

underation said:


> No solution to these problems, other than paying the fee to renounce the citizenship (if possible) - before producing children (if possible).
> 
> It's basically a problem created by the US State Department's fee structure.


Beware of facile "solutions" like renouncing or whatever. It really does depend on the facts and circumstances of each person's particular situation, their US ties (or potential ties) and what the local tax treaty says. But it was a problem before the US State Department started charging for renunciation. (Ah, remember the "good old days" when we all thought the $450 fee to renounce was outrageous?)


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## underation (Oct 25, 2018)

Bevdeforges said:


> Beware of facile "solutions" like renouncing or whatever. It really does depend on the facts and circumstances of each person's particular situation, their US ties (or potential ties) and what the local tax treaty says. But it was a problem before the US State Department started charging for renunciation. (Ah, remember the "good old days" when we all thought the $450 fee to renounce was outrageous?)


It appears to me that for those who don't want the benefits of US citizenship, and do want the benefits of non-US-citizenship, renunciation isn't a facile solution, it's the only way to achieve the desired outcome. And the only obstacle is the cost. Worth saving up for, if that's possible.

But for those who do want or need to retain US citizenship or any of the benefits of US citizenship, I agree, other solutions may be preferable, depending on circumstances.


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## underation (Oct 25, 2018)

underation said:


> It appears to me that for those who don't want the benefits of US citizenship, and do want the benefits of non-US-citizenship


i.e., those for whom US citizenship is unquestionably more of a burden than a benefit,



> renunciation isn't a facile solution, it's the only way to achieve the desired outcome. And the only obstacle is the cost. Worth saving up for, if that's possible.
> 
> But for those who do want or need to retain US citizenship or any of the benefits of US citizenship


i.e., those for whom US citizenship is more of a benefit than a burden, or a necessity, or simply neutral



> I agree, other solutions may be preferable, depending on circumstances.


Horses for courses.


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## Nononymous (Jul 12, 2011)

underation said:


> Our children, also, even if not US-born, may find themselves ineligible to obtain a visa or ESTA clearance for a visit to the US, and may be required to sign a W-9 to accept US withholding on their earnings, if they make use of various US-owned platforms such as a*az*n publishing or a*rb*b.
> 
> No solution to these problems, other than paying the fee to renounce the citizenship (if possible) - before producing children (if possible).


There is a very simple solution for any non-US-born children: do not disclose US citizenship by parentage, period. As adults traveling without parents such persons can apply for a visa or ESTA waiver without suspicion. No reason to sign a W-9 when they can sign a W-8. And certainly no reason to subject one's self to FATCA reporting or restrictions on banking services by disclosing US person status, if they have other citizenship and ID without a US birthplace. 

For Canadians, even the US birthplace isn't a problem because banks don't check or validate declarations of citizenship.

This is of course dishonest but really, who cares? If you don't want to deal with the US and don't want to pay US$2350 to renounce, lie.


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## underation (Oct 25, 2018)

Nononymous said:


> There is a very simple solution for any non-US-born children: do not disclose US citizenship by parentage, period. As adults traveling without parents such persons can apply for a visa or ESTA waiver without suspicion.


As long as the forms don't ask questions about the citizenship or birthplace of the parents of the applicant. It's also true that USCs born outside the US may never have any desire to visit the US.



> No reason to sign a W-9 when they can sign a W-8.


If the withholding rate is the same for USCs and non-USCs. 




> And certainly no reason to subject one's self to FATCA reporting or restrictions on banking services by disclosing US person status, if they have other citizenship and ID without a US birthplace.


Or if the account was already open before FATCA came into force, and no "indicia" are on file.



> For Canadians, even the US birthplace isn't a problem because banks don't check or validate declarations of citizenship.
> 
> This is of course dishonest but really, who cares? If you don't want to deal with the US and don't want to pay US$2350 to renounce, lie.


USCs who don't experience any problems arising from their US citizenship, or have found a solution to any problems, would clearly fall into the second of the two groups I referred to - those for whom US citizenship is more of a benefit than a burden, or is necessary, or is neutral.


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## underation (Oct 25, 2018)

Bevdeforges said:


> Beware of facile "solutions" like renouncing or whatever. It really does depend on the facts and circumstances of each person's particular situation, their US ties (or potential ties) and what the local tax treaty says. But it was a problem before the US State Department started charging for renunciation. (Ah, remember the "good old days" when we all thought the $450 fee to renounce was outrageous?)


Thinking about this - those who didn't renounce when there was no charge presumably found US citizenship in those days more of a benefit than a burden, or considered it necessary, or neutral? And for some of us the balance changed, when FATCA came along: the citizenship became more of a burden than a benefit.


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## Bevdeforges (Nov 16, 2007)

underation said:


> Thinking about this - those who didn't renounce when there was no charge presumably found US citizenship more of a benefit than a burden, or considered it necessary, or neutral?


Not necessarily. While I think the implementation of a charge to renounce probably came in about the same time as FATCA, I seriously doubt that most USC living overseas consciously consider the benefit vs. burden thing. Besides, to renounce you need a second nationality to fall back on. Getting that can take anywhere from 2 or 3 years to 10 years of more of residence in a single country plus whatever administrative hoops they choose to put you through.

As long as you don't run up against any overwhelming burdens or obstacles, the rather natural reaction is to simply make do with the status quo. Back before FATCA and the charge for renouncing, it was no big deal to get right with the IRS if you hadn't realized you were supposed to be filing US taxes while living overseas - just a matter of filing current year plus 3 years back. It was an unofficial policy of the IRS for ages, and then appeared on the IRS website as an official policy for several years before FATCA and the "Streamlined Compliance Program" came into being. 

Nationality has traditionally been not much more than an "accident of birth" and is still seen to a large degree as something you can't really do much about.


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## underation (Oct 25, 2018)

I think we're saying much the same but expressing it differently.



> As long as you don't run up against any overwhelming burdens or obstacles, the rather natural reaction is to simply make do with the status quo. Back before FATCA and the charge for renouncing, it was no big deal to get right with the IRS if you hadn't realized you were supposed to be filing US taxes while living overseas - just a matter of filing current year plus 3 years back.


Indeed. And for most, CBT was not and is not an overwhelming burden / obstacle - otherwise it wouldn't be so easy for USCs to not even know of it, or to not bother filing if they do know.

FATCA is not so easy to not know about / ignore. For some of us, it tipped the balance, and made non-US-citizenship desirable (though not necessarily affordable).

And for others, presumably, US citizenship remains more of a benefit than a burden, or necessary, or neutral.


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## underation (Oct 25, 2018)

For instance, to take a circumstance that has been mentioned before: if a USC is receiving, or expects to receive, significant US-source income that is taxed by the US more favourably for a US citizen than for a non-US-citizen -- that's a benefit of US citizenship which for many would outweigh the benefits of renunciation.

While for a USC with no US-source income, renunciation may be much more desirable. But if s/he can't afford to renounce, s/he may be stuck forever with an unwanted citizenship that brings burdens without compensatory benefits.

However, I'm probably going on about this much too long. I will desist.


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## underation (Oct 25, 2018)

Correction:



underation said:


> For instance, to take a circumstance that has been mentioned before: if a USC is receiving, or expects to receive, significant US-source income that is taxed by the US more favourably for a US citizen than for a non-US-citizen -- that's a benefit of US citizenship which for many would outweigh the benefits of renunciation.


More accurately - the more-favourable tax rate is a beneficial consequence of deemed US tax-residence, which because of CBT can be claimed by a non-US-resident USC (by filing a US tax return); but of course cannot be claimed by a non-US-resident NRA.

Other consequences of deemed US-tax-residence, such as FATCA, are of course far from beneficial, and may outweigh the advantages and lead a USC to prefer renunciation.


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## Nononymous (Jul 12, 2011)

underation said:


> As long as the forms don't ask questions about the citizenship or birthplace of the parents of the applicant.


Citizenship and birthplace of parents isn't necessarily enough to determine a child's US citizenship - if only one US parent, he or she must meet residence requirements etc. to pass on US citizenship. 



> If the withholding rate is the same for USCs and non-USCs.


It's not simply about withholding rates. Signing a W-9 identifies you as a US person, signing a W-8 does the opposite. Signing a W-9 could potentially lead to FATCA reporting. A W-9 also requires an SSN, while a W-8 does not.


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## underation (Oct 25, 2018)

Nononymous said:


> Citizenship and birthplace of parents isn't necessarily enough to determine a child's US citizenship - if only one US parent, he or she must meet residence requirements etc. to pass on US citizenship.


Yes - but a parent's US citizenship or US birthplace would be enough to lead to further questioning in order to determine whether the child was or was not a US citizen.



> It's not simply about withholding rates.


 Sadly, from the US's point of view it largely is - when it's not about something worse.



> Signing a W-9 identifies you as a US person, signing a W-8 does the opposite.


Exactly. And if as a US citizen you declare under penalty of perjury that you're not a US citizen, in order to gain the advantage of a lower rate of withholding, and the deception is detected, they've got you by the short and curlies.

For FATCA purposes, it's probably not a serious offence even if noticed, and is in any case nothing to do with the US authorities; but for withholding purposes, if detected, it may be seen by the US as deception for gain. Which, after all, is what it would be.


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## Bevdeforges (Nov 16, 2007)

Nononymous said:


> Citizenship and birthplace of parents isn't necessarily enough to determine a child's US citizenship - if only one US parent, he or she must meet residence requirements etc. to pass on US citizenship.


Drifting here a bit, but I've always wondered about this. Frankly, it only comes up if someone was born outside the US - and even then, only if something happens where it is "apparent" that the person has a US parent, like if the child is traveling with the US parent. Nothing like having to prove a negative ("Oh, my Mom left the US when she was 12 and hasn't lived there since!" How on earth would you ever prove that one on the fly?).



> It's not simply about withholding rates. Signing a W-9 identifies you as a US person, signing a W-8 does the opposite. Signing a W-9 could potentially lead to FATCA reporting. A W-9 also requires an SSN, while a W-8 does not.


Don't know how often it's used, but I have seen instructions about what to do if you are asked to sign a W-9 but you don't have a US SSN. Since the document stays with the bank, I suppose it's up to bank policy how to handle that situation.

Though I wonder how many of the foreign banks are simply sending in information on ALL customers with a US birthplace, even if they have indicated that they have renounced or don't have US citizenship for some other reason (say, child of a diplomat born in the US while their parent was serving in their diplomatic function). 

Still, there is little evidence that the FATCA information being submitted by the banks is being reviewed or acted upon back in the US - unless as part of an audit of some sort.


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## underation (Oct 25, 2018)

Bevdeforges said:


> Drifting here a bit, but I've always wondered about this. Frankly, it only comes up if someone was born outside the US - and even then, only if something happens where it is "apparent" that the person has a US parent, like if the child is traveling with the US parent. Nothing like having to prove a negative ("Oh, my Mom left the US when she was 12 and hasn't lived there since!" How on earth would you ever prove that one on the fly?).


Good question. But the trend does seem to be towards asking about parental citizenship. And since for ESTA /visa it's a question of seeking a benefit (permission to travel to / enter the US), it's conceivable they might just create so much delay that ultimately the offspring of a US-born parent would just give up and go spend the money to renounce, or else choose a different destination. (Or apply for a US passport in order to get refused and thus have evidence that they aren't entitled to US citizenship.)



> Though I wonder how many of the foreign banks are simply sending in information on ALL customers with a US birthplace, even if they have indicated that they have renounced or don't have US citizenship for some other reason (say, child of a diplomat born in the US while their parent was serving in their diplomatic function).


Under UK law, once a UK bank has marked an account as reportable, and has reported it, subsequent change of status such as loss of US nationality doesn't affect the "reportable" status of the account. I don't know about other countries, nor about diplomatic offspring.


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## underation (Oct 25, 2018)

As recently mentioned in a comment on the article "Royal baby Sussex: seventh in line for the throne and liable for US taxes", which I cited in another thread, the most recent revision to 9 FAM 303-3.3 (concerning eligibility for a visa) states:



> If the applicant was born in the United States, you may only issue a visa if you are satisfied that the applicant relinquished citizenship, if non-citizenship is established by conducting a "CFMM" (Children of Foreign Mission Members) check as described below, or if the Department authorizes visa issuance.
> [..]
> Do not use the CFMM Check process for individuals born outside the United States. If you are satisfied that the individual is an alien despite United States citizen parentage, you may issue a visa if the applicant is otherwise qualified. If you are not satisfied that the applicant is an alien, you may refuse the visa under INA 221(g) and request additional information from the applicant.


Which does (to my mind) suggest that it would be prudent for the non-US-citizen offspring of a US-born parent to obtain evidence of non-USC-entitlement, before applying for a visa. The phrase "additional information" seems pretty open-ended, and clearly the official has the authority to refuse if not satisfied.


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## Bevdeforges (Nov 16, 2007)

underation said:


> Which does (to my mind) suggest that it would be prudent for the non-US-citizen offspring of a US-born parent to obtain evidence of non-USC-entitlement, before applying for a visa. The phrase "additional information" seems pretty open-ended, and clearly the official has the authority to refuse if not satisfied.


Aye, there's the rub! How do you prove your USC parent was not resident in the US after the age of 14 - or whatever? (Though, OTOH, how is a consular official going to know where your parents were born? Or do they ask that nowadays when one goes for a visa?)


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## underation (Oct 25, 2018)

Bevdeforges said:


> Aye, there's the rub! How do you prove your USC parent was not resident in the US after the age of 14 - or whatever?
> 
> The same way you would prove s/he _was_ resident if you were applying for your first US passport: you ask the parent to try to document it. If that's possible, you don't need a visa, you can enter the US on your new US passport. If it’s not possible, you can apply for the passport, fail to get it, and use the refusal as evidence you'e an alien and it's ok to issue a visa.
> 
> ...


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