# Why do Expats Pay US Taxes?



## CanadianMoose

I'll start off by noting I have a pretty basic understanding of US Tax Laws and Tax Codes as well as a decent understanding on International Taxation laws and treaties and that sort of thing. Today we're getting taxed because in 1924 the Federal Government accidently imposed a tax on a man's property he owned and lived in as his primary home in Mexico (Cook v. Tait). They upheld this mistake, not taking any blame if you read through the case, and said it was justified because we as Americans get to exercise their rights as a Citizen (US Protection Around the Globe, The Ability to Reenter the US), which today for most Expats involves filing extra tax forms and paying for tax accountants to figure out what forms apply, who should get a ITIN and who has to get a SSN because the U.S. needs more people to tax, if whether or not one can use this treaty or if they should instead use something completely different. It's a burden and their reasoning for this form on Taxation by Citizenship/Resident Status is archaic, I get the same abilities from the Canadian Government anywhere I go in the world for free as a Canadian Citizen not having to pay Canadian Taxes while going to school in the states! 

How can a government impose citizenship on a person based on parents, why bother imposing citizenship on the person if in the end they decide they never wanted to be American in the first place (Because who in their right mind wants to be American when all it entails is crazy Taxes and the right to for whatever reason use an Embassy in a country that also has an Embassy for the person's country of birth). Now I understand why an impoverished person in Mexico might want to say their parents were American so they would have opportunities, but with countries like Canada or over in Europe why even bother, it should be a choice. In the end when they get their citizenship revoked (After paying more money) they may or may not have to still pay taxes, they are put on to a list of people to maybe not get let into the country, and they are put on a public government publicized list of people who are basically shunned for their decision.

I'm going to assume that this sort of thing is posted all the time though I would like to hear feedback from people, maybe suggestions on more court cases to go over (That would be fantastic). Oh and why not start a petition on whitehouse.gov to fight it? I'm sure we have more than enough people that are fed up with it haha!


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## Bevdeforges

Frankly, you're preaching to the choir here. The main thing is that "it's the law" (however determined or interpreted). But there are expat groups that are (supposedly) fighting this issue - though their tax lawyer members and board members tend to advise that it's a lost cause.

Actually, enforcement of the "tax from overseas" is still fairly spotty due to (among other things) manpower limitations and, given that the whole US tax system is largely dependent on voluntary compliance, there are still plenty of folks who don't file or pay taxes and probably never will with no penalty. As with so many things in life, it depends entirely on the facts and circumstances of your individual situation and where and how you show up on the IRS radar.
Cheers,
Bev


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## CanadianMoose

Bevdeforges said:


> Frankly, you're preaching to the choir here. The main thing is that "it's the law" (however determined or interpreted). But there are expat groups that are (supposedly) fighting this issue - though their tax lawyer members and board members tend to advise that it's a lost cause.
> 
> Actually, enforcement of the "tax from overseas" is still fairly spotty due to (among other things) manpower limitations and, given that the whole US tax system is largely dependent on voluntary compliance, there are still plenty of folks who don't file or pay taxes and probably never will with no penalty. As with so many things in life, it depends entirely on the facts and circumstances of your individual situation and where and how you show up on the IRS radar.
> Cheers,
> Bev


Well it's a big issue in Canada, being a next door neighbor you have somebody going over the border into the US, maybe they wanted to take a road trip to see NYC, turns out they're an American citizen and they have never filed taxes even though they had a SSN they never knew about. FATCA in itself goes against basic privacy rights we hold as Canadians, then through the banks the IRS can find out where a person lives, and because of ties with the US, if the US thinks they can fine a person enough money to be worth the hassle what on earth (Literally) is stopping them from attempting to get Canada to Extradite this person? 

Example: Oh you got lucky with a tech company, I recognize that name from the news, oh wait you're father was American and resided in the US fore more than 2 years after the age of 14, how convenient? Well hey we have a debt problem so we might as well try to send a letter of notice to this person on the fines they owe because we just looked in their multi-million dollar bank account and wow that is a lot of unclaimed bank account money, and how many years did you not send in your FBAR? Here we'll just take all of that out of there and just for fun we're going to extradite you and throw you in prison for being un-American and not paying your taxes, people will see you didn't pay taxes and your profits will most likely go down. If you had shareholders what does this tell them? It's a threat waiting to happen...

Edit: If you're looking for people trying to fend off some of the laws I recently have been paying a little attention to the Ginney Hillis Case against the FATCA


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## byline

Thanks for bringing attention to the Gwen Deegan and Ginny Hillis case. What they state is what we have all complained about, but it seems to fall on deaf ears to all the legal entities controlling this debate. It will be interesting to see if they succeed. Unfortunately, I have my doubts. Our respective governments seem to be at the mercy of our economic system, in which the U.S. has more power than Canada. Basically the U.S. has blackmailed financial institutions throughout the world: "You want to do business with us? Then you will have to meet our demands and provide the information we ask for." So much for democracy, eh?


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## Bevdeforges

I looked up the case, and it's a suit against the Provincial government (I think it was), apparently over the disclosure of bank information to the US. That's fine for Canada, but it won't stop the US from requiring the information from its citizens directly. 
Cheers,
Bev


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## CanadianMoose

Bevdeforges said:


> I looked up the case, and it's a suit against the Provincial government (I think it was), apparently over the disclosure of bank information to the US. That's fine for Canada, but it won't stop the US from requiring the information from its citizens directly.
> Cheers,
> Bev


I'm a Canadian Citizen that has a Canadian Bank Account, if this case passes through it will allow more interpretation, more suits, more wins. There is a thing going around right now where if the bank you have an account with also has a branch in the States that the US can just get ones info from that branch, though if this suit follows through and the Canadian Government finds out about how the Bank disclosed my private information to a completely different governmental entity which can be seen as releasing information based on my Citizenship as a US Citizen which is covered in the anti-discrimination clauses... or that they released my private information at all to a foreign entity is an issue in itself. Canadian Banks do pretty well off, they don't really need the "support" of the US to flourish as you can see during the US housing bubble while a large percentage of people defaulted on their loans, Canada was still under 1% defaults (Out of 100% of people that had mortgages in Canada, that's unheard of, it beats the normal rate the US finds itself at) and that was at its worst. 

I as a Canadian would also like to point out that I do not in any way support the Burger King move, since because I'm also an American Citizen congress is already looking at new taxes for expats (Because it's not a big enough pain in the rear as is) and foreign (previously American) corporations.


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## Bevdeforges

I am kind of secretly hoping that this "inversion" craze (i.e. Burger King becoming a Canadian corporation) will knock some sense into some people. Either corporations really "are" people and so moving to another country and taking a different nationality shouldn't make any difference with regard to their US tax obligation - or somehow Congress can be convinced that expats should have the same "rights" as corporations and shed their tax obligation when they move to a different jurisdiction.

Sauce for the goose, sauce for the gander and all that. Or maybe we expats can just incorporate ourselves and be done with it all!
Cheers,
Bev


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## CanadianMoose

Bevdeforges said:


> I am kind of secretly hoping that this "inversion" craze (i.e. Burger King becoming a Canadian corporation) will knock some sense into some people. Either corporations really "are" people and so moving to another country and taking a different nationality shouldn't make any difference with regard to their US tax obligation - or somehow Congress can be convinced that expats should have the same "rights" as corporations and shed their tax obligation when they move to a different jurisdiction.
> 
> Sauce for the goose, sauce for the gander and all that. Or maybe we expats can just incorporate ourselves and be done with it all!
> Cheers,
> Bev


Funny thing is that Corporations pay State AND Federal taxes based on the state they reside in (headquarters)... How would that work with Canada? Will US just claim Canada and be done with it haha?


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## CanadianMoose

(Because I can't find how to edit my most recent post, sorry for double post)
Also on topic, just found this out:

"Someone who renounces U.S. citizenship in time of war, with the U.S. Attorney General’s approval, will be considered to have relinquished U.S. citizenship under the Immigration and Nationality Act [see 8 U.S.C. Section 1481(a)(6)] but not under the Internal Revenue Code [see 26 U.S.C. Section 877A(g)(4)]." 
(Source: Relinquishing U.S. citizenship and expatriation – Hodgen Law)

So basically no matter who you are, because you are renouncing your citizenship in a time a war (When are we not in a time of war, time of war gives government privileges that they usually would no have), the US government can take advantage of you and tax you by not allowing you to relinquish your citizenship with the IRS. Fun stuff!


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## BBCWatcher

Can we all agree in the abstract that cross-border tax avoidance, tax evasion, money laundering, financing of terrorism, and other financial improprieties are problems that (reputable) governments all around the world, and their citizens, have a strong public interest in reducing and eliminating? I hope so.

Unfortunately there hasn't been enough global cooperation to combat those problems (and some others). Given that reality, the U.S. government has insisted on certain financial practices that Canada, acting on its own, could never enforce. (For that matter private payment networks, e.g. Visa and MasterCard, insist on their own financial controls across borders. It's not just about government.)

My recommendation to other governments, including Canada's, is to work toward achieving global financial/regulatory standards and global cooperation in combatting these problems. Otherwise each government, including especially the most financially powerful one (that of the United States) are going to step in with their own, domestically constructed standards. As the U.S. is already doing. If Canada and Canadians don't want to be constantly in reactive mode then how about pushing for, say, a World Financial Organization (WFO) that focuses on solving these issues collaboratively?

The U.S. government is -- understandably, I think -- impatient with much of the rest of the world in these areas, and it's acting accordingly. So are some other governments, particularly in Europe.


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## Nononymous

Be careful with the term expat here.

I moved from the US to Canada at the age of two. I am not an expat. I am a Canadian, from birth, born in the US to Canadian parents. For this reason I also have US citizenship. (Most of the folks in Canada who are caught up in this were either born in the US, or born in Canada to a US citizen parent who met the conditions to pass on US citizenship.)

I do not comply with US tax reporting requirements. I do not pay US taxes.

This is perhaps stubborn of me, since I would almost certainly owe the US no money (let's just ignore those hypothetical FBAR fines for the time being). But I oppose, on principle, the idea that I should face all sorts of onerous paperwork requirements, with risks of penalties, based on where I happened to be born. 

Sometimes when you are faced with stupidity on such a massive scale, the only ethical course of action is to ignore the law. Ignore rather than defy - I claim the chicken**** caveat of never expecting to be caught.

FATCA may make this course of action more difficult. I may very well be fired as a client by the family broker for refusing to provide citizenship information. I'm fine with this, it's likely a minor inconvenience.


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## BBCWatcher

I don't think "Expat" makes sense in this thread's title. A longer, much more correct title, would be:

"Why Does a Small Minority of U.S. Citizens, U.S. Nationals, and U.S. Permanent Residents Who Live Full-Time Outside the United States Owe U.S. Federal Income Tax on Non-U.S. Source Income?"

And that question has been answered: "Because that's how U.S. tax law operates and has operated for nearly a century." A slightly longer answer would be that, _as indeed is factually correct_, the U.S. has never viewed its overall income tax system as strictly an annual affair, like paying the electric bill. The U.S. government has always taken the view, to one degree or another, that an individual's relationship with his/her country, including financial relationship, has _lifecycle_ aspects or at least highly probably could -- and that his/her contributions to society should be means-tested. Life does not begin at 32, children typically don't pay taxes, and John Rawls really did have a valid point.

I think it's deeply disingenuous to try to argue otherwise. Though I'm not happy about paying U.S. income tax -- who is? -- it is factually true that in some sense I'm paying back what the U.S. government provided me, and that I would not even have the ability to earn what I earn and pay what I pay without the advantages afforded to me from that background, a part of which is attributable to the U.S. government, even with its faults. Moreover, even if that were not true, I still have the contingent insurance value of that citizenship, including (as examples) heavily subsidized or free medical care starting at age 65 and a U.S. military that has been known to swoop in and rescue its citizens from areas of conflict. I also enjoy at least the contingent insurance value of full, unfettered access to the world's largest, greatest wealth-generating economy. We can certainly quibble about the value of these contingent insurance items, but "zero" is the wrong answer.

However, if all that's not enough, and if I still don't like this deal, all U.S. persons who possess another citizenship (who would not otherwise be stateless) have the option to check out of the United States completely -- or at least as much as anyone else on the planet can check out of the influence and reach of the United States. (Let's not kid ourselves. It's a big, powerful country with outsized influence.) Yes, it generally costs some money for a Certificate of Loss of Nationality (CLN) -- usually a minimum of about US$2000(*), sometimes more if you're wealthy enough to qualify for the U.S. exit tax -- but that path is available, it's real and viable, a few thousand people take that path each year, and I'd defend their right to take that path should they choose.

By the way, CBT is not a radical notion even though it's unusual by global standards. Except, when you think about it, CBR (citizenship-based responsibilities) are positively common, with T (taxes) simply being one of the less onerous examples of R. To put things in perspective, when has overseas residence ever disqualified any citizen from a country's military draft? _Every_ country exercises sovereignty over its citizens, even those citizens living outside its land territory. There are of course differences in the scope and nature of that sovereignty. Singapore, for example, legally compels its young male citizens -- and even alien male sons of its non-citizen permanent residents -- to serve two years in its military. Overseas residence is not a valid waiver from this legal responsibility, and the government takes many steps to enforce compliance.

OK, so the U.S. has citizenship-based taxation, though only a small fraction of affected individuals residing full-time overseas actually legally owe anything, and a few actually can get free money from the U.S. government solely because they are citizens or nationals (and most typically they have a citizen/national minor at home). Somehow CBT critics miss that important detail. I wonder why.  Compare that to _universal_ young male compulsory military service, which is still very widespread in the world. Is there really any comparison, in personal liberty terms at least? Surely two years of hazard-filled, well below market rate compensated, legalized slavery is a heck of a lot worse than the U.S. federal income tax code? "One of these things is not like the other!"

Moreover, if anything there seems to be a slow global drift toward CBT. I could point out several examples.

(*) I'm not happy about this price, but (as I've said before) if you believe that CLN recipients ought to pay the fully burdened costs of their own CLNs -- and that nobody else ought to be subsidizing CLN issuance and processing -- then that price is probably, unfortunately close to reality. That's at least a defensible argument, though, as I said, I don't know if I'd agree with it.


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## CanadianMoose

BBCWatcher said:


> Can we all agree in the abstract that cross-border tax avoidance, tax evasion, money laundering, financing of terrorism, and other financial improprieties are problems that (reputable) governments all around the world, and their citizens, have a strong public interest in reducing and eliminating? I hope so.
> 
> Unfortunately there hasn't been enough global cooperation to combat those problems (and some others). Given that reality, the U.S. government has insisted on certain financial practices that Canada, acting on its own, could never enforce. (For that matter private payment networks, e.g. Visa and MasterCard, insist on their own financial controls across borders. It's not just about government.)
> 
> My recommendation to other governments, including Canada's, is to work toward achieving global financial/regulatory standards and global cooperation in combatting these problems. Otherwise each government, including especially the most financially powerful one (that of the United States) are going to step in with their own, domestically constructed standards. As the U.S. is already doing. If Canada and Canadians don't want to be constantly in reactive mode then how about pushing for, say, a World Financial Organization (WFO) that focuses on solving these issues collaboratively?
> 
> The U.S. government is -- understandably, I think -- impatient with much of the rest of the world in these areas, and it's acting accordingly. So are some other governments, particularly in Europe.


The thing is, the Canadian Government is trying to come to terms with the US, though the reason the case I brought up earlier came up was because of Canada's leniency with the FATCA enforcement, though in return US Citizens in Canada get a nice fat credit as well as a couple of new forms that can be used as credits and deductions. As for your first entry, I for the most part don't care all that much for American Taxes, people are freaking out over Burger King leaving because they think they'll have to make up the tax money lost to the government (Which in reality would be less than a dollar if congress did increase taxes by not even half a percentage point), oh so sorry Burger King can't fund your constant wars and can instead stipulate the world economy by having the ability to hire more people who get paychecks and go out and spend that money (Since they would be taxed somewhere around 5% less and they would have more income from Timmy Hoes).



Nononymous said:


> Be careful with the term expat here.
> 
> I moved from the US to Canada at the age of two. I am not an expat. I am a Canadian, from birth, born in the US to Canadian parents. For this reason I also have US citizenship. (Most of the folks in Canada who are caught up in this were either born in the US, or born in Canada to a US citizen parent who met the conditions to pass on US citizenship.)
> 
> I do not comply with US tax reporting requirements. I do not pay US taxes.
> 
> This is perhaps stubborn of me, since I would almost certainly owe the US no money (let's just ignore those hypothetical FBAR fines for the time being). But I oppose, on principle, the idea that I should face all sorts of onerous paperwork requirements, with risks of penalties, based on where I happened to be born.
> 
> Sometimes when you are faced with stupidity on such a massive scale, the only ethical course of action is to ignore the law. Ignore rather than defy - I claim the chicken**** caveat of never expecting to be caught.
> 
> FATCA may make this course of action more difficult. I may very well be fired as a client by the family broker for refusing to provide citizenship information. I'm fine with this, it's likely a minor inconvenience.


From my understanding in reading through all the tax forms and publications, US Government can't decide on how they primarily define 'Expat'... to them it can either mean somebody that renounces/ relinquish citizenship, or a U.S. Citizen that takes residency in a foreign country. So yes the term does apply to you haha. Even if you do claim to be an American I'm just glad that in Canada, banks and loaners can't discriminate against you because of that... whereas in certain countries of Europe they will flat out turn you down because they really want to avoid filing all the extra forms to the US government, because you are an American Citizen and their country may not have established a nice treaty with the U.S. on this matter.


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## Bevdeforges

Let's not start wrapping up in our respective flags just yet. The Canadians are in a particularly tricky situation due to their proximity (physically and culturally) to the US. Oddly enough, you don't hear much about the CBT stuff out of Mexico, except perhaps by a few expats who "suddenly" discover the requirements.

And I had dinner this weekend with an American who hasn't been tax compliant for years, and "doesn't know" if her American children have been filing or not. She has lived here in France since the age of 23, has worked and has a couple of joint accounts with her French husband that probably ought to be reported, but haven't been. There has been little or no publicity here about the whole matter and I suspect we'll hear little or nothing in the future unless perhaps some egregious case gets resolved in favor of the IRS someday. 

TBH, the only way I heard about all this FATCA stuff is here on the forum. (Really, who actually reads that "what's new" stuff in the instructions?) And I only heard about the Bilateral Agreement on FATCA from a former AARO associate who sends out an annual "newsletter" each year at Christmas to his (mostly high roller) clients.

I suspect there are literally thousands of American expats who are not at all compliant and won't find out about this until and unless they decide to move back to the US with an NRA spouse or do something else that requires "proof" of tax compliance for the last few years.
Cheers,
Bev


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## Guest

worth reading

Foreign Earned Income Exclusion - Physical Presence Test


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## Guest

additional explanation

Foreign Earned Income Exclusion - Requirements


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## expatwannabe2010

Interesting stuff.... but I still don't quite understand WHY the US taxes a person who may have never lived in the US and earns all their money in the country they live in. I was talking about it with a French friend of mine, and he thinks it doesn't make any sense at all, if you're not living there and your money is not made there. What is the reasoning? Does the IRS have any documents explaining why they do this? 

Also, speaking of expatriation... I read that if you do that, you only get 29 days a year to be in the US. I'm still researching if this is true, I read it in passing about a director who gave up citizenship and can only be in the US 29 days out of the year, while his British wife can come for 180. It doesn't make sense. If you become a British citizen, isn't it one of your rights? Why does the US limit the rights of a British citizen just because they used to be a US citizen?


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## Bevdeforges

I'm afraid that taxation doesn't always make much sense. And in answer to the "why do they do this" I fear it comes down to "because it's the law." (Or at least it's one Supreme Court's interpretation of what the law says.)

Behind the scenes, it has something to do with the American attitude toward citizenship (though oddly enough, the laws about children of one US parent automatically being considered citizens didn't really get passed until the mid-1970s, when enforcement of the taxation by citizenship thing was not particularly enforced anyhow).

Not sure what you're talking about, though, on expatriation about the 30 day limit to time spent in the US. They passed a law in 1996 that stated that the US Attorney General could deny any sort of visa to someone who had renounced US citizenship (with a few conditions applied to that). Note "could" - not "would" nor "must" - it was an option, not a requirement. But other than that, someone who has renounced should be able to visit the US on the same basis as any other person with the same nationality.

The 30 day thing is usually connected to those folks who are still citizens, when filing tax returns invoking the "physical presence test" (rather than bona fide resident) to claim their FEIE. Other than that, I know of no "restriction" on time spent in the US.
Cheers,
Bev


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## expatwannabe2010

Seems strange that they don't give people reasons for creating laws. And strange that we don't fight back more. I'm going to... I'm looking at what organizations are doing something about it, pressuring for change... I'd really like to know why we're the only country that does this. Why can't we be like other countries? Residence based taxation rather than citizenship based.

Anyway this is the article I read where he mentions being limited to 29 days

Terry Gilliam: Hollywood is just “gray, frightened people” holding on for dear life - Salon.com


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## Bevdeforges

expatwannabe2010 said:


> Seems strange that they don't give people reasons for creating laws. And strange that we don't fight back more. I'm going to... I'm looking at what organizations are doing something about it, pressuring for change... I'd really like to know why we're the only country that does this. Why can't we be like other countries? Residence based taxation rather than citizenship based.
> 
> Anyway this is the article I read where he mentions being limited to 29 days
> 
> Terry Gilliam: Hollywood is just “gray, frightened people” holding on for dear life - Salon.com


To be honest, I've never heard of that. It might have something to do with that 1996 law I mentioned - but other than that, I have no idea to what he is referring.

As far as organizations "doing something about it" I don't really know of any. The two big US expat groups (AARO and ACA) are basically convinced that it's a lost cause and have specifically struck the issue from their annual lobbying trip to Washington. (Of course given the track record of the current Congress, they could be right.)

One longstanding issue in all of this is the image that Congress seems to have of the "expat." To them, they're talking about a well paid executive, living on expense account outside the US and hanging out at swanky cocktail parties. There's little or no awareness of the "typical" US expat - whether someone married to a "non-resident alien" or a kid born overseas who just happens to have a US parent who meets the requirements to pass on citizenship, or your ordinary working schlub trying to get by on their local salary.
Cheers,
Bev


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## maz57

expatwannabe2010 said:


> Seems strange that they don't give people reasons for creating laws. And strange that we don't fight back more. I'm going to... I'm looking at what organizations are doing something about it, pressuring for change... I'd really like to know why we're the only country that does this. Why can't we be like other countries? Residence based taxation rather than citizenship based.[/url]


The people who passed those laws are long since dead. The only way you will ever get reasons out of them is if you happen to run in to them in the afterlife. Those who are presently alive just shrug and say "because that's the way its always been, besides it would be impossible to change". 

Expats are unable to fight back or push for change because they have zero political influence. Same for expat organizations. This is not an issue anybody inside the US cares about (or even knows about). Heck, even inside the US everyone knows the tax code is a mess and they are unable to fix it; why would they be worrying about the problems it causes for expats? The choices for expats are clear. Return to the US, shut up and pay, or renounce.

The US is the only country that does this because the US is exceptional. The US cannot be like other countries because it is exceptional. Unfortunately it is exceptional for all the wrong reasons.

The US is stuck on stupid with its tax code. To expect this to make sense or be logical is not possible.


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## Bevdeforges

maz57 said:


> The choices for expats are clear. Return to the US, shut up and pay, or renounce.


While I agree with most of what you say, you did overlook another choice in the matter: "variable compliance" - which ranges from non-compliance to what I prefer to call "selective" compliance. 

The IRS is nowhere near as "all-knowing, all-seeing" as they would like you to believe. And even the big public accounting firms are known for "taking an aggressive tax stance" and seeing if and how the IRS reacts. Frankly, there are sources and levels of foreign income that they have little or no interest in.
Cheers,
Bev


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## BBCWatcher

To have even a prayer of making a persuasive political argument, consider this simple question: Who should have their taxes raised to compensate for the losses to the U.S. Treasury if (mostly relatively fortunate or better) people (living in comparatively low income tax jurisdictions) like me don't owe any U.S. income tax?

Anybody got a good answer to that question?

In fact, chances are excellent if you want to raise this political issue significantly you'll find plenty of lawmakers who think it's unfair that the Foreign Earned Income Exclusion even exists or that it (and the Foreign Housing Exclusion) are set so _high_.


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## Bevdeforges

Every few years, someone in Congress proposes legislation to do away with section 911 of the tax code. (Ironic, eh?) The last three or four times, the legislation has dropped this bit more or less at the last moment. The US expat organizations mobilize over this one and raise some similarly very good issues, such as lack of competitiveness for US citizens wishing to work for the various "international civil service" organizations, such as the UN and its affiliates, the OECD, NATO and others - because normally international civil service salaries are free from local income tax altogether.

Hey, why shouldn't the US tax people all around the globe if they need the money, regardless of their nationality? You're a big advocate of US based retirement funds (like IRAs and 401Ks) - and I don't think too many folks benefiting from those would argue they shouldn't pay income tax on that particular US-source income. Someone who gets a UK government pension pays UK tax on that (and no tax in their country of residence if it's not the UK).

It's the US exceptionalism that folks are objecting to. If someone is paying the appropriate taxes in the country in which they reside or to the country that is the source of their revenue, then the US has no claim on additional taxes, even if the person is (nominally or not) a US citizen.
Cheers,
Bev


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## expatwannabe2010

Bevdeforges said:


> To be honest, I've never heard of that. It might have something to do with that 1996 law I mentioned - but other than that, I have no idea to what he is referring.
> 
> As far as organizations "doing something about it" I don't really know of any. The two big US expat groups (AARO and ACA) are basically convinced that it's a lost cause and have specifically struck the issue from their annual lobbying trip to Washington. (Of course given the track record of the current Congress, they could be right.)
> 
> One longstanding issue in all of this is the image that Congress seems to have of the "expat." To them, they're talking about a well paid executive, living on expense account outside the US and hanging out at swanky cocktail parties. There's little or no awareness of the "typical" US expat - whether someone married to a "non-resident alien" or a kid born overseas who just happens to have a US parent who meets the requirements to pass on citizenship, or your ordinary working schlub trying to get by on their local salary.
> Cheers,
> Bev


Maybe they need to be educated!

I did find this...

Breakfast with Senator Mike Lee and James Bopp, Jr. - AARO - Association of Americans Resident Overseas


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## Bevdeforges

Ooh, that certainly sounds encouraging!
Cheers,
Bev


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## BBCWatcher

I note, Bev, you haven't answered the question I posed.  It's a simple enough question, and it also happens to be the political and economic reality. If X doesn't pay then Y must. So who's the Y here? That question must be answered.

With respect to such matters, Congress operates on CBO scoring. Yes, you can reduce revenue on X as long as you come up with an "offset" Y (or set of offsets) that's revenue neutral or better according to the CBO score. That's how it works with a couple exceptions, e.g. bombing campaigns. Your offsets can be spending cuts, revenue increases, or some combination.

So what's the plan -- what's the Y? Your proposal doesn't even get past the House Appropriations Committee without an answer to that fundamental mathematical question. One can rail all one wants against the "fairness" of (usually relatively well-to-do U.S. persons living in comparatively low income tax jurisdictions) having to pay some U.S. income tax. But who's going to lose by correcting that "unfairness"?

....And yes, I'm biased. It'd be wonderful if I didn't have to pay any U.S. income tax. I'm one of these expats that owes (and pays) U.S. income tax. But even I'm not naive enough to believe I don't have to answer that fundamental question if I want to have any political chance of winning an argument about why my U.S. income tax burden ought to be slashed to zero.


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## Bevdeforges

I think you're barking up the wrong tree altogether. I'm perfectly willing to pay my US taxes on those sources of income where that was the basic agreement - mainly IRA and 401Ks. When I got into those funds, I agreed to pay taxes later on because I was getting a deduction at the moment I put the funds away.

US Social Security is a bit dodgier, since the only reason I might have to pay tax on that is because I'm married to an NRA. And then the question becomes whether or not to bother with the spousal benefit for DH depending on what accepting it does for the tax situation. (Not thinking about that yet - things could change by the time the issue arises for me.)

But I understand there is a Constitutional challenge at the moment to FATCA. No idea on what this is based or if it has any sort of a chance, but it's encouraging to see someone based back there at least pushing the envelope a bit.
Cheers,
Bev


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## BBCWatcher

I'm not following you, Bev.

U.S. tax-advantaged retirement savings accounts (and medical savings accounts, and education savings accounts) exist in the current tax code. Are you suggesting that those tax breaks be curtailed among all U.S. persons (including some lower and middle income persons) so that income tax rates for all non-U.S. resident U.S. persons (who are usually relatively well-to-do and who live in comparatively low income tax jurisdictions) can be zeroed out?

If that's what you're suggesting, I wish you the best of luck trying to make that trade happen in Congress. 

Or are you suggesting that you'd trade the Foreign Earned Income and Foreign Housing Exclusions for improved access to those U.S. tax-advantaged accounts? Well, you can do that already: don't take the FEIE/FHE. Then you qualify for making IRA contributions (as an example). Or, alternatively, earn over the FEIE/FHE, then you can make IRA contributions.

Note that I've made some suggestions about what is probably _achievable_. One thing that might be achievable is to reduce the FEIE/FHE (particularly the latter) in order to increase the personal exemption and/or standard deduction for U.S. persons residing overseas. If that's done on a revenue neutral basis then some individuals currently paying no (or less) U.S. income tax from earned income will pay more, and retirees (in particular) living outside the U.S. will pay no or less U.S. income tax. I might be in favor of that, and so might Congress.


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## Bevdeforges

No, you're completely misunderstanding me.

Many, many years ago, I signed up for an IRA (and then a 401K plan) while still resident in the US. I funded the plans and got the deductions I was entitled to. Since living overseas, I have done no further funding, but the plans themselves have appreciated. (Well, except for a few years back during the crisis - but they are almost back to where they were.)

When I start to withdraw from those plans on retirement, I admit that I owe US taxes - based on the original agreement for setting the plans up. And I will pay US taxes on those withdrawals, more or less gladly. It has nothing to do with the FEIE or with the US policy of taxing based on citizenship. It is the tax I agreed to pay when I took those deductions for putting the money away. (And oddly enough, even France considers this a transfer of capital because this is a retirement fund I qualified for and funded prior to becoming tax resident here in France.)

US Social Security is, according to the US-France tax treaty taxable only by the US, and that's fine, too. (Other than the issue about the amount subject to taxation determined by my filing status, which doesn't strike me as proper, but that's a whole separate issue.) It's US source income and thus is subject to US taxation rules according to the treaty.

What I object to is for the US to expect to tax me on foreign source income that is already subject to income (and other) taxes by my country of residence. Whether I pay more or less tax on that income to the country where I live (and where I also have citizenship) should not be their concern. I'm not interested in educating Congress in the error of their ways. They haven't proven themselves capable of legislating much more than fluff and the odd appointment of a national amoeba or fruit recognition holiday over the last few months and years. I don't hold out any hope for meaningful tax reform within my lifetime, though the system desperately needs it. 

What I would be interested in seeing, however, is just how much in taxes the IRS actually collects from overseas residents (other than those filing NR forms for legitimate reasons). I'm not sure there is that much revenue that would need to be replaced if they were to tax on a basis more consistent with the rest of the world. One time I found some stats on the IRS website that indicated that minuscule percentage of total federal tax revenue currently comes from taxpayers with overseas addresses. Surely tapping the Romneys and other one-percenters still living back there would more than cover the "loss" of the non-resident and "accidental" citizens, many of whom may not be filing at all anyhow.
Cheers,
Bev


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## diharv

BBCWatcher said:


> To have even a prayer of making a persuasive political argument, consider this simple question: Who should have their taxes raised to compensate for the losses to the U.S. Treasury if (mostly relatively fortunate or better) people (living in comparatively low income tax jurisdictions) like me don't owe any U.S. income tax?
> 
> Anybody got a good answer to that question?
> 
> In fact, chances are excellent if you want to raise this political issue significantly you'll find plenty of lawmakers who think it's unfair that the Foreign Earned Income Exclusion even exists or that it (and the Foreign Housing Exclusion) are set so _high_.


The residents of the US should have their taxes raised. They're the ones eating the cake , they should be the ones paying for it. The US is already one of the lowest taxed countries in the world relatively yet the powers that be and want to be always seem to preach no new taxes , all to garner votes. If they want to fund a first world lifestyle and infrastructure for their residents then they have to have some guts and tax the people to pay for it. Taxing already taxed foreign earned income is wrong as Bev alluded to even if it is they law but they don't give a [email protected]#t what they do to us as we have no say or representation. They don't really care about ACA hence the shabby treatment. You have to think that the eventual loss of foreign goodwill ambassadors to the US will eventually come back to haunt them.


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## BBCWatcher

OK, so Bev (and Diharv) are starting to answer the fundamental question. They feel that U.S. residents should see their taxes increase. Bev elaborates that it should be the most well-to-do residents of the U.S. who should have their taxes raised in order to eliminate the tax owed by (mostly well-to-do) U.S. expatriates living in comparatively lower income tax jurisdictions.

I would question the viability of that political proposal. I don't think you're going to get any traction for that swap.

Bev, one immediate problem you've got to confront is the _total_ revenue loss associated with zeroing out income tax among all non-U.S. residents. That is, one would reasonably expect some well-to-do U.S. residents would simply move outside the United States in order to reduce their U.S. income tax for no other motivating reason. There would be revenue loss associated with that tax avoidance both directly (lower tax receipts) and indirectly (lower tax receipts on diminished economic activity). _That_ total revenue loss must be fully offset according to PAYG rules (and basic math). That's how the CBO would, quite correctly, score any such tax changes. Those direct and indirect tax avoidance losses could very well be even larger than the loss of currently collected tax revenues from U.S. persons living overseas.

Diharv, I disagree. The U.S. actually has this one right, whether by accident of history or otherwise. One's relationship with one's country is _almost_ always a lifecycle relationship. As infants and children we don't usually pay taxes, and others (including government) are investing heavily in our futures. As working adults yes, we pay taxes. (Though we're also enjoying public services: clean air, safe food, roads and bridges, parks, defense and policing, enforceable contracts in court, etc., etc. Some of us as adults are massively enjoying public services or even heavy subsidies. For example, if you're living in a remote rural area in Canada, the U.S., or other developed economy, chances are excellent that your government is providing you with net subsidizes during your most productive adult working years, perhaps even heavy subsidies.) As retirees we increase our use of public services, notably publicly provided medical care, and we often receive government retirement benefits, to pick a couple examples. In accounting terms, during our lifetimes we borrow, we pay back (maybe), we accrue a surplus (maybe), and then we draw down that surplus. Plus we have the public safety net insurance benefits -- sometimes claimed -- all along the way. That's the classic, typical lifecycle pattern. This isn't a fee-for-service quarterly or annual relationship we have with our developed economy governments, and it's disingenuous to suggest otherwise. This isn't about buying hamburgers at McDonalds.

Now, if you feel you don't want that lifecycle deal on offer from the U.S. government, fine! Just exit! But that's the deal, and it's a _reasonable_ one. In fact, it may be among the world's most reasonable. But if you disagree, no problem! Settle up, and check out.

By the way, it's not true that the U.S. is "already one of the lowest taxed countries in the world." (If that were true, probably very, very few people living overseas would owe any U.S. income tax, including those earning above the Foreign Earned Income Exclusion and Foreign Housing Exclusion limits.) It depends a bit on how you count, but as a fair generalization the U.S. is among the top quarter of countries in total tax burden, at least factoring in the past couple years of tax changes. If you restrict your consideration to developed economies then the U.S. looks somewhat more lightly taxed but by no means the least taxed. A reasonable description is that the U.S. is a "moderately taxed" economy in global terms. Hyperbole really isn't useful here.


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## Bevdeforges

> Bev elaborates that it should be the most well-to-do residents of the U.S. who should have their taxes raised in order to eliminate the tax owed by (mostly well-to-do) U.S. expatriates living in comparatively lower income tax jurisdictions.


Where do you get the notion that expats are "mostly well-to-do"? While that may be the image that the Congresscritters like to bandy about, I would challenge that myth. The US has been unable (and frankly, unwilling) to even attempt to include non-residents in the US Census, so they don't even know how many expatriates there are, much less what their financial condition might be.



> One's relationship with one's country is almost always a lifecycle relationship. As infants and children we don't usually pay taxes, and others (including government) are investing heavily in our futures. As working adults yes, we pay taxes. (Though we're also enjoying public services: clean air, safe food, roads and bridges, parks, defense and policing, enforceable contracts in court, etc., etc. Some of us as adults are massively enjoying public services or even heavy subsidies.


And here you're forgetting entirely about the "accidental" Americans - folks born overseas with one American parent able to transmit citizenship, or someone born in the US while their non-citizen parents were on a temporary stay (studying, working, etc.). 

Add to that the fact that some of us, who live overseas voluntarily, paid in what we owed while we were living and working there (and enjoying the benefits you speak of). These days, however, we don't enjoy any of those benefits because we live elsewhere and pay our taxes to our country of residence for the benefits we enjoy. Our kids attend school in our country of residence and actually receive somewhat more in public services than they would get if they were living in the US - certainly in terms of health care, schools and subsidies.

While I believe in honoring my commitments, and therefore have no problem paying US tax on my retirement funds that come from the US. (Similar to the situation in the UK, for example, where a government pension usually continues to be taxed by the UK.) What I object to is being expected to pay tax on foreign source income from my country of residence - and I can imagine the objection of those who have never lived in the US but are considered US citizens due to a quirk in the law. But I have no obligation to consider where Congress will find the funds to "replace" the trickle of tax funds received from overseas residents. And, hey, the US is a big advocate of the "free market" - if raising taxes is going to send all their billionaires overseas, then maybe they want to consider cutting back on the spending a bit. (Though I see no indication that the Romneys are looking to expatriate if their tax bill gets raised a bit.)

Anyhow, this is a pointless argument. Congress has adjourned until after the elections, and even afterwards, it's unlikely they are going to do much of anything productive, certainly not on this issue.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Where do you get the notion that expats are "mostly well-to-do"?


I don't. You're misquoting. I wrote that U.S. persons _who owe U.S. income tax_ (on non-U.S. source income) are _mostly_ well-to-do. That's straight from the present tax code. Absent anything else in the way of deductions or credits, the Foreign Earned Income Exclusion, Foreign Housing Exclusion, personal exemption, and standard deduction mean that at least US$100,000 of earned income is U.S. tax free under all circumstances. US$100,000 is double the U.S. median _household_ income.

Now, to the extent "mostly" is not "all" -- and there are such circumstances, notably among not-so-well-to-do retirees -- there's a much, much stronger political argument to be made about adjustments to the tax code, albeit while still being sensitive to PAYG.



> And here you're forgetting entirely about the "accidental" Americans - folks born overseas with one American parent able to transmit citizenship, or someone born in the US while their non-citizen parents were on a temporary stay (studying, working, etc.).


No I'm not. All U.S. citizens and U.S. nationals have the option to check out, and I defend their right to do so under reasonable terms. (I'm not sure if $2350 for a CLN is reasonable, by the way. I understand the argument in defense of $2350, but I don't think I agree with it.)



> Add to that the fact that some of us, who live overseas voluntarily, paid in what we owed....


Again, if you don't like the deal, check out. Nobody is forcing anybody in possession of any other citizenship to remain a U.S. citizen or U.S. national. But U.S. citizenship/U.S. nationality includes a particular, evolving, situational set of rights, privileges, and obligations, just as every citizenship does. And every citizenship is different in those respects.



> And, hey, the US is a big advocate of the "free market" - if raising taxes is going to send all their billionaires overseas, then maybe they want to consider cutting back on the spending a bit. (Though I see no indication that the Romneys are looking to expatriate if their tax bill gets raised a bit.)


The U.S. view is that well-to-do individuals became well-to-do in part through the benefits of their citizenship/nationality. That's at least not an _unreasonable_ view. If you win life's lottery, a fraction of those winnings -- in whatever amount -- go to the U.S. Treasury. Even if you decide to move to the moon, as long the moon is a comparatively lower income tax jurisdiction. Society invests in all, some individuals prosper, and all individuals contribute back to that society on a lifecycle basis according to their means. That's the basic principle, and it's a _reasonable_, perfectly defensible one, even if it's sometimes violated. It's also highly reflective of entrepreneurism. If the investment pays off, it pays off.

....But you can check out!



> Congress has adjourned until after the elections, and even afterwards, it's unlikely they are going to do much of anything productive, certainly not on this issue.


I'd put it much more strongly. It is _unthinkable_ that Congress and the President would agree to exempt all U.S. persons living overseas from all U.S. taxes in all circumstances. That idea is completely and utterly a nonstarter and has been for a century. Considering that the U.S. has been and is a wildly successful experiment on this planet, maybe, just maybe, the Americans have the right idea. (I think the U.S. invented -- or at least seriously advanced the estate tax -- by the way.)


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## Bevdeforges

BBCWatcher said:


> I'd put it much more strongly. It is _unthinkable_ that Congress and the President would agree to exempt all U.S. persons living overseas from all U.S. taxes in all circumstances. That idea is completely and utterly a nonstarter and has been for a century. Considering that the U.S. has been and is a wildly successful experiment on this planet, maybe, just maybe, the Americans have the right idea. (I think the U.S. invented -- or at least seriously advanced the estate tax -- by the way.)


I don't think anyone is proposing that all US persons overseas should be exempt from all US taxes in all circumstances. Certainly, I'm not in favor of that. (That's what my insistence on paying the appropriate taxes on withdrawals from my IRA are all about.)

Oh, and the estate tax was adopted in Teddy Roosevelt's day on the principle that it was to discourage people from leaving great fortunes to their kids. Let 'em earn their own money and provide for their own retirement like Mom and Dad did! Oddly enough, I happen to agree with that, too. If I die in France, my estate falls under French inheritance rules (and taxes) - except for real property located elsewhere, where local law applies. That's perfectly normal and fair. 
Cheers,
Bev


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## Whatsnext

BBCWatcher said:


> OK, so Bev (and Diharv) are starting to answer the fundamental question. They feel that U.S. residents should see their taxes increase. Bev elaborates that it should be the most well-to-do residents of the U.S. who should have their *taxes raised in order to eliminate the tax owed by [expats].*


You make it sound like coming from one of those 'onshore' US politicians who simply seem to be living in an egg shell and never broke through to see what else is out there in the real world? (in terms of tax fairness and international reputation)  

Why should it be any US expat's problem that the US *even budgets* on tax collection from incomes by 'US persons living overseas'? It's not a question of what or who will possibly replace what MAY be missed out on by moving to a residence-based taxation (which btw is likely to generate way more economic growth for the US than CBT)...it is a question of what in the world they are thinking of applying extortion techniques on their citizens who chose to live overseas or contemplate working in international organizations that are important for the US in terms of economic growth stimulus.


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## Nononymous

Tell you what, here's a better "deal" - let every accidental American walk up to a US consulate, sign a statement that they've never lived in the US past childhood, or had US income or assets, and let them renounce on the spot for $50 (not $2350). No five years' tax filings, just one form and you've got your CLN.

Even better, let them do it by mail, since travel to a consulate is a financial burden for many people (as has been reported often enough on this forum). 

That's a deal I could see a lot of people wanting to take.

Yes this might be abused by a few sly rich folk, but I imagine it would still be a net benefit in terms of goodwill and administrative costs.

The alternative, particularly given the price jump for renunciation, is going to be a combination of scared individuals emptying their wallets on accountants and lawyers (and maybe for a very small percentage, even a bit of tax to the US too - but mostly to the accountants and lawyers) and angry individuals refusing to cooperate. 

Of course it will never be quite that easy, but given how the streamlined programs keep getting better, that might be the direction it moves. Particularly if after three or four years FATCA isn't a screaming success.


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## Bevdeforges

Frankly, I'd just settle for the US rolling back to something resembling the way the rest of the world does things. Establish residency elsewhere and you only pay taxes on US source income (and even then, on a "non-resident" basis). 

On the citizenship issue, I suppose they can't roll back the changes to the laws from the 1970's, but rather than automatically granting US citizenship to kids born overseas with one US parent, allow them to claim their citizenship (if they wish to) after the age of majority.

The problem with renouncing is that there are too many "penalties" still on the books for doing so. (I'm talking about such things as the 30% withholding on all non-US citizen accounts, the threat of withholding any sort of visa to return for a visit, the threat of having to file tax returns for an additional 10 years, etc.) Even the countries that do make you give up your nationality on taking another one don't actively "punish" their ex-nationals in the same way.

I suppose I'd be happy if the US would simply conform to international standards on this issue.
Cheers,
Bev


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## Nononymous

True, I'd only thought of some of the ways that renouncing is currently a crappy deal (cost & hassle) not all the ways it's a crappy deal (various long-term threats).

But yes, international norms would indeed be nice.


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## StewartPatton

Bevdeforges said:


> The problem with renouncing is that there are too many "penalties" still on the books for doing so. (I'm talking about such things as the 30% withholding on all non-US citizen accounts, the threat of withholding any sort of visa to return for a visit, the threat of having to file tax returns for an additional 10 years, etc.)
> Cheers,
> Bev


Actually, that is not the case at all. Not a single one of your examples is actually a real concern. I will return and expand on this when I get some time later today.

It pays to get advice from an actual attorney, folks.


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## Bevdeforges

Will be interested in your reply, not that I'm all that interested in renouncing. But the 30% withholding was still in effect last time I checked with the company where my IRA is held.

Actually, the law is still on the books that says that you can be stripped of your US citizenship if you voluntarily take another nationality. (There's a story here in Paris about a consular official back in the 1950's who got a little too gung ho on that one...) To my knowledge, they don't do that anymore, but the law is still on the books. (Oh, and a few years back, the Paris Consulate actually tried to find some of the women who were stripped of their US citizenship back in the 50's in order to give it back.)
Cheers,
Bev


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## StewartPatton

Bevdeforges said:


> (I'm talking about such things as the 30% withholding on all non-US citizen accounts, the threat of withholding any sort of visa to return for a visit, the threat of having to file tax returns for an additional 10 years, etc.)


None of these are penalties of renouncing. I'll take these in turn:

1. "30% withholding on all non-U.S. citizen accounts": You get half a pass on this one since you clarified in a later comment that you meant only IRAs. That bare fact is correct--there is 30% withholding on amounts distributed from an IRA after a U.S. citizen expatriates. A "non-U.S. citizen IRA" is a very very different (and much narrower) concept from "a non-U.S. citizen account." Also, this 30% withholding isn't really a penalty of expatriating--all U.S. citizens who contribute to an IRA get a tax benefit under the theory that they will repay the tax benefit once they get distributions. The renunciant is no longer subject to U.S. tax, so they repay the tax benefit in a different way (i.e., the 30% withholding).

2. "the threat of withholding any sort of visa to return for a visit." You must be referring to the Reed Amendment, which allows the US to block re-entry if it finds that a person has renounced for tax purposes. This law is actually on the books, but that's the only place it exists--there are no implementing regulations, no people whose job it is to enforce the Reed Amendment, and just generally no effect of the Reed Amendment at all beyond the four corners of the dusty page it is written on. You can search the real world all you want for any evidence that the Reed Amendment is the law and you won't find any. It's a living dead letter. So, it's not a "penalty of renouncing."

3. "the threat of having to file tax returns for an additional 10 years." That is old law. It doesn't apply now. No person who renounces today is under any threat of potentially having to file tax returns for any period of time after they renounce (except for their last return for the year of renunciation, which is filed at the usual time, or any returns to report U.S. income earned if necessary).

I don't mean to get on your case personally, and i hope you don't take it that way. There is a lot of misinformation online about renouncing, so I wanted to do my part to get the right info out there.


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## Bevdeforges

I think we're quibbling over terminology here. 

1. As far as the 30% withholding goes, I believe that a non-citizen could reclaim any excess by filing a non-resident return for those years in which they withdrew funds from an IRA (or 401K) and had 30% withheld. But I believe I saw on the Social Security website something about them withholding the same 30% on SS benefits paid to non-citizens. And my NRA husband has always had withholding on interest paid on a brokerage account he still holds in the US, though the amounts involved are too small to bother trying to file for the refund. Of course you could probably avoid the whole issue (at least for a while) by not telling the fund manager that you had renounced. But strictly speaking, it would be one "penalty" of renunciation.

2. There are a whole bunch of laws like this - that are still on the books but not enforced. Same thing goes for the laws about acts which are supposed to cost you your citizenship, but they simply don't bother enforcing them any more. It's good to hear that they never bothered to implement this, but as long as it's on the books, it could be resurrected in the appropriate political climate.

3. I always wondered what happened about this. Figured the "expatriation tax" must have taken its place but wasn't sure. 

No, my point wasn't that there are specified "penalties" as such applied to those who renounce, but rather "de facto" risks that could be considered as penalties to someone considering renunciation. In any event, it is not something to be done frivolously.
Cheers,
Bev


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## BBCWatcher

The central point I'm making is that if you want to make an argument to Congress (and the President) with _any_ odds of success then you must make and understand the best _counter_ arguments, too. If you cannot adequately respond to those arguments before they're made, what do you think is going to happen when those arguments actually get made?

So, what's the answer to PAYG and CBO scoring when eliminating all U.S. income tax on non-U.S. source income for U.S. persons residing overseas? Answer: At least some U.S. residents would have to pay higher taxes, perhaps considerably more depending on how big a tax avoidance mechanism is opened up. Good luck with that one, ladies and gentlemen. 

I would also point out that, if you surveyed the American public, most of them would have no idea that Americans living and working permanently overseas always owe zero U.S. income tax on their first ~$100K of earned income (except in certain U.S. government jobs, notably). If you then asked, "Do you think that's fair?" most of them would say "Hell no!" Be careful what you wish for! If you really want to open wide this debate, then _everything_ becomes fair game -- including one of the most generous tax breaks in the U.S. citizenship-based income tax code, the Foreign Earned Income Exclusion (and its companion the Foreign Housing Exclusion).

And I'm not making an academic point here. The last time there was significant debate about the U.S. tax treatment of U.S. persons living overseas it ended up as an effective reduction in the Foreign Housing Exclusion. Obviously whatever arguments were being made didn't resonate in Congress.

I hate to be the bearer of bad news, but zealotry and hyperbole on this issue really isn't helpful. Nobody likes taxes, stipulated, and Congress is thoroughly familiar with such animosities. If that's the sum total of your arguments -- and, thus far, that's what I'm hearing and reading when trying to think from that Congressional point of view -- you're going to get completely tuned out. Or, worse, your taxes are going to go up as these issues are revisited and reexamined at your insistence.


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## Bevdeforges

I don't think any of the expats here are talking about "reasoning" with Congress (if that is even possible these days). And honestly, if you surveyed the American public, I doubt most of them have a clue that long-term non-residents even have to file US taxes. (I have "surprised" a number of career accountants with this little factoid.)

On the other side, however, flippantly telling people to renounce if they don't like the way things are comes off very much like the old "love it or leave it" cry of the Vietnam War era. It's not an either-or question, but rather one with many factors that need to be considered in each individual case.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> On the other side, however, flippantly telling people to renounce if they don't like the way things are comes off very much like the old "love it or leave it" cry of the Vietnam War era.


I'm not telling people to renounce or "love" any country, flippantly or otherwise. I'm simply pointing out that terminating one's citizenship is an available, reasonable, considered option (for those who possess or obtain another citizenship) if you don't like that citizenship's package of rights, privileges, and obligations.

There's no jingoism expressed or implied here. (One would think that'd be self-evident.) But it is ridiculous to think one can enjoy the rights and privileges of a particular citizenship -- any citizenship -- without its obligations. We're all adults around here I hope.


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## Nononymous

Nobody's going to change CBT anytime soon. So why not eliminate the barriers to renouncing?

Drop the cost to $100 or less. Remove the tax compliance requirements. Let people renounce by mail. Send in a form and your US passport, if you have one; receive a CLN in return.

US assets and US-source income would still be taxed appropriately, of course.

That would allow those who aren't interested in the rights to quickly and easily rid themselves of the obligations. Most of those individuals (>90 percent?) would owe nothing anyway due to FEIE. In the case of Canada, the vast majority would never have lived in the US as adults, so there's not much of an emotional attachment to the US. 

Right now, between the $2350 fee, travel to consulates, and tax preparation services for those who can't or won't do it themselves, renouncing can be a multi-year process that can easily run to a five-figure expense. It's not an easy option. These barriers create a powerful incentive to stay off the radar, in my view.

(I still maintain that if FATCA turns into an unenforceable clusterf*ck, which I hope it will, we'll revert back ignoring compliance. There's not much to be gained by pursuing all those offshore tax cheats if they don't actually owe anything.)


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## maz57

Nononymous said:


> Nobody's going to change CBT anytime soon. So why not eliminate the barriers to renouncing?
> 
> Drop the cost to $100 or less. Remove the tax compliance requirements. Let people renounce by mail. Send in a form and your US passport, if you have one; receive a CLN in return.


The reason the US doesn't have such an arrangement is because it is stuck on stupid with this issue. Your suggestion sounds very much like the process by which poster boy Ted Cruz shed his Canadian citizenship. Such a system would be too sensible and civilized and not for the US which is "exceptional".

Here's an idea; allow those expats who wish to maintain their US citizenship pay a simple flat fee each year. No filings, no reporting, no life control other than the annual charge. It would be a win-win. The US government actually gets some revenue instead of a blizzard of useless paper, the individual gets to keep the passport and have a life. Don't want to pay? Your US passport lapses after a period of time and can only be reinstated by "catching up" on those annual fees.

This will never happen either because the US is stuck on stupid. The US seems to be far more interested in controlling and punishing expats than it is in collecting revenue. What other explanation could there be for a system that makes life a living hell for expats but only rarely results in tax owed? 

Congress has had plenty of time to learn about this issue and has chosen to not only continue but even increase the punishment.


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## Nononymous

Negative-option citizenship. Not a bad plan.


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## BBCWatcher

maz57 said:


> Here's an idea; allow those expats who wish to maintain their US citizenship pay a simple flat fee each year.


Which would be fabulous for rich people (in particular) -- the richer you are, the more fabulous -- living in comparatively lower income tax jurisdictions. It would terrible for just about everybody else. Are you actually recommending that a nonworking disabled U.S. spouse (for example) living overseas needs to pay $1000 per year to maintain his/her citizenship, and Bill Gates (if he were living overseas) would also pay $1000? Seriously?

Even speaking as an individual residing overseas paying substantial U.S. income tax, no, I think that's a terrible idea. It'd be another (huge) sop to rich people, and we've had way too many of those over the past few decades. If you're going to have CBT, then it has to be progressive much like the rest of the income tax. (It's actually more progressive overseas.)


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## StewartPatton

Hey BBCWatcher, you may want to try selling reason elsewhere. Doesn't look like you will find many buyers in this thread.


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## Nononymous

What about simplified renunciation then? Seems reasonable to me.


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## Bevdeforges

I think one of the big mistakes the US made in the whole citizenship thing was caving to the US expat groups back in the 1970s who wanted to make their foreign-born children automatic citizens at birth, even if only one parent was a citizen. I know several of the mothers involved in that campaign and, while they had the best intentions in the world, it has led to much of the mess we have to deal with today - at least on the "accidental Americans" side of things.

There were other aspects to the expat campaign back in the day: voting from overseas (which is, IMO, a far bigger "risk" for fraud than the photo i.d.s and other proposals they seem to be keen on back in the States these days), being included in the Census (which turned out to be a huge bust after a very unsuccessful trial a few years back) and a few other things the loyal corps of expats felt were their due even living overseas.

I guess there is quite a bit more publicity to the tax issue in Canada. Frankly, here in France, the only place I've heard about any of this is right here. Most expats pay US taxes on their US source income according to the policies laid out in the various tax treaties, and report their other income in such a manner as to fulfill their obligations to their home government without incurring additional taxes to the US. 
Cheers,
Bev


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## maz57

BBCWatcher said:


> Which would be fabulous for rich people (in particular) -- the richer you are, the more fabulous -- living in comparatively lower income tax jurisdictions. It would terrible for just about everybody else. Are you actually recommending that a nonworking disabled U.S. spouse (for example) living overseas needs to pay $1000 per year to maintain his/her citizenship, and Bill Gates (if he were living overseas) would also pay $1000? Seriously?


Nah, I'm thinking more a token fee; like $100 a year. To use your examples, I think even your disabled US spouse could probably scrape together $100. (Works out to $.27 per day.) Or if she has no intention of returning to the homeland, skip the payment and her life goes on unencumbered. 

In the case of a Bill Gates, the US would still collect a massive amount of tax because of his US assets. If he wanted he could try filing a US non-resident return to see if he could get some of that refunded. Or not, his choice. If he didn't like that arrangement, he could liquidate, take the massive capital gains hit and move his marbles elsewhere. 

Under the present system, our disabled US spouse can't even get a bank account in some places. She has to juggle two conflicting tax systems and her resident country tax advantaged accounts which are intended to help disabled people financially are not only not recognized as such and taxed by the IRS, she has to file additional obnoxious forms every year because they are classified as trusts. That costs her more money she doesn't have because they are so complicated she has to hire a US tax professional to fill them out. (A professional who can be difficult or impossible to find in most places outside the US.) Please explain to me how this is "progressive" and fair.

I'm not worried about the Bill Gates of the world. They can take care of themselves (they always do). I'm worried about the rest of us; the ordinary people that are really being harmed by this toxic combination of CBT and FATCA.


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## BBCWatcher

You're advocating what's known as a poll tax, maz57. And a net revenue-losing poll tax at that, meaning taxes would have to go up for U.S. residents with your plan.

Even though I would personally financially benefit, no thank you. The poll tax has always been a terrible zombie idea. In fact, the "user fees" movement is nothing but a poll tax enacted incrementally.


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## BBCWatcher

StewartPatton said:


> ....You may want to try selling reason elsewhere. Doesn't look like you will find many buyers....




I should be clear that political arguments aren't always won based on reason alone. But it's helpful. One ought to understand and appreciate the best counterarguments against the position you happen to advocate, and one ought to have reasonable answers to those counterarguments.

I don't think it's a crazy idea (except here?) to point out that "Raise the taxes on (some) U.S. residents" isn't going to be a wildly politically popular answer to the very reasonable question "What should Congress do to address the direct and indirect tax revenue losses associated with zeroing out all U.S. income tax obligations on non-U.S. source income for U.S. persons living overseas?" If you don't like CBT, then you'll need a much better answer to that patently obvious question.

Maybe there isn't a reasonable answer?

That said, I think there are winnable arguments. There's been some comment about the "accidental American problem." I'm not sure there's anything _accidental_ about _birth_ (as opposed to conception!) within U.S. territory -- it's no great mystery or surprise that U.S. citizenship is a birth right -- so let's just focus on the birth to U.S. citizens abroad scenarios.

First, how about including a brief, fair summary of all U.S. citizenship obligations when the CRBA is issued? And again sent at age 18 (combining State Department travel registration databases, Selective Service, etc. to notify 18 year olds)?

Then, how about tying the cost of a CLN to whether one is subject to the exit tax -- which the vast majority of 18 year olds are not? Right now the CLN costs $0 (close enough) or $2350 depending not on income or wealth but on circumstances. How about making the CLN cost the same as a U.S. passport for everyone, regardless of circumstances, with the exception of those subject to the exit tax who would pay ~$5000 for the CLN itself (plus their exit tax)? Note that I'm assuming here that 18 year olds would almost always pay ~$100 for a CLN and that's that, should they choose. If they win/won life's lottery at a very young age _then_ they'll pay the exit tax and uplifted CLN price should they choose.

As another problem, the U.S. tax code is currently quite favorable to U.S. persons overseas earning income from work (via the Foreign Earned Income Exclusion and Foreign Housing Exclusion) but much less favorable to U.S. persons overseas who receive at least moderate passive income from non-U.S. sources (who live in comparatively lower tax jurisdictions), e.g. retirees. OK, then. Would anyone be in favor of making the earned income tax breaks less generous to make the passive income tax breaks more generous? I don't think I would. There's too little labor demand and an oversupply of rent seeking capital, so given that reality I would not generally be in favor of tax changes that further discourage work and encourage rent seeking, other things being equal.

Should there be both FBAR and FATCA reports? I'd say no. Make it one, consolidated report instead of two separate but largely overlapping reports. There are certainly ways to make tax and financial reporting simpler and lower cost -- over the objections of Intuit, yes -- and those changes ought to be made. As another example, there ought to be more ways to pay the IRS that are easier and lower cost for people living overseas.


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## Nononymous

> That said, I think there are winnable arguments. There's been some comment about the "accidental American problem." I'm not sure there's anything accidental about birth (as opposed to conception!) within U.S. territory -- it's no great mystery or surprise that U.S. citizenship is a birth right -- so let's just focus on the birth to U.S. citizens abroad scenarios.


I would extend the offer to anyone born of foreign parents on US soil, who returned to their home countries before 18. Plenty of those folks out there too. There's nothing remotely American (other than the passport) about individuals like myself who happened to be born while their parents were studying or working in the US for a few years.


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## BBCWatcher

But the country of birth is rarely "accidental." I'm struggling with that word since it doesn't accurately fit such circumstances. ("Incidental" is a bit closer to the truth but still not perfect.) Indeed, here in Singapore lots of non-Singporeans -- and even many Singaporeans -- assume if you're born here you are a Singaporean citizen automatically. Thus (if male) subject to compulsory military conscription, as it happens. In fact, no, Singapore is a _jure sanguinis_ citizenship country.

Anyway, "accidental" or not, my (probably revenue neutral) proposal about how to (re)set the price of CLNs based on income/wealth (i.e. tied to exit tax eligibility) would be universally applied. The average cost of a CLN might actually be $2350, but I don't believe everybody applying for a CLN should be charged its average cost. Some should pay more, and some should pay less.


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## Bevdeforges

Whoa, a big part of the "accidental" American issue relates to children born outside the US with one American parent. Used to be they had to choose which nationality they would retain at age 18 - assuming they got dual nationality based either on the place of birth or the nationality of the non-US parent. Maybe that wasn't such a bad deal after all!

But honestly, I would really like to see just how much (in dollars and cents) is currently paid into US coffers by overseas residents on _*non-US source income*_. I doubt anyone really can build much of an argument for exempting US source income - most other countries tax non-residents only on the income derived from the country. And frankly, most USC non-residents either know (or learn) the tricks for assuring that they aren't being double taxed on their foreign income or they simply don't declare it, knowing that the IRS has little or no way of tracking it down.

It may just be that there isn't all that much tax revenue that would have to be replaced. And, by limiting the tax obligation to US source income, it would have a huge simplifying effect on the filing requirements. But until you quantify how much income we're talking about that would have to be "replaced" the whole argument that "US resident taxpayers would have to pay more" is specious. They might be able to make it up simply by devoting a bit more attention to checking up on tax fraud and evasion on the home front. (And the ability to eliminate those expensive overseas IRS offices and perks.)
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> But honestly, I would really like to see just how much (in dollars and cents) is currently paid into US coffers by overseas residents on _*non-US source income*_.


"Substantially more than zero" -- I can _personally_ attest to that fact  -- but that's likely only a small part of the picture. Again, if hypothetically all U.S. persons residing overseas saw their tax rate slashed to zero on all non-U.S. source income, then you'd have the direct revenue loss you're describing _plus the second order tax revenue losses associated with a new, giant tax avoidance opportunity that'd be very attractive to many wealthy U.S. persons_. The latter is likely to be a very substantial, accelerating tax loss even bigger than the direct losses.

How do we know this? The European experience. Wealthy Europeans have been playing this particular game for many decades. Ever been to Andorra, Monaco, certain Swiss cantons, or the UAE?  Why do you think the United Kingdom, as an example, has made it much harder to terminate U.K. tax residence?

No, this is certainly enough tax revenue to worry about. If it's enough for rich people to whine about -- and goodness knows they complain about it often enough -- it's enough to worry about. 



> It may just be that there isn't all that much tax revenue that would have to be replaced.


Seen any estimates that include both direct and second order impacts? As a first approximation, how much tax revenue loss is there in Europe due to opportunistic tax residence? (Preliminary answer: "A lot.")

It's also patently obvious by now that multinational corporations play tax residence games. Wealthy individuals are fundamentally no different in that respect.



> And, by limiting the tax obligation to US source income, it would have a huge simplifying effect on the filing requirements. But until you quantify how much income we're talking about that would have to be "replaced" the whole argument that "US resident taxpayers would have to pay more" is specious.


I don't think so because those advancing the counterargument, to preserve the century-old status quo, don't have the political burden to bear. Those arguing to change the status quo do. Moreover, I don't think you win the argument by saying "Just do a better job collecting taxes from U.S. residents." That's something that could already be done, and those arguing that U.S. persons living overseas (in comparatively lower tax jurisdictions, and generally with incomes double or more the U.S. household median) are entitled to any particular priority share of enhanced revenue collections don't have a strong political argument in those terms. I'm quite sure Congress can think of many constituencies far ahead of U.S. persons living overseas who Congress feels are more deserving of the fruits of improved revenue collection.

I'm all in favor of simplifying tax and financial reporting. But while "cut my taxes to zero" is _simple_, I don't think Congress is likely to favor that particular form of tax simplification.


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## Bevdeforges

Once again, no one is saying "cut my tax obligation to 0" - I've seen numbers on how much tax is collected from those resident outside the US, and it's in the vicinity of one- one-hundredth of a percent of total collections. (Though that may include more than just income taxes.)

Still, those of us with US based deferred retirement accounts (for example) would still be obligated to pay taxes on withdrawals under the original terms of the plans. And those with other US based sources of income. (If you're paying large amounts on foreign source income, then you need to find a better tax advisor.)

But I agree, there is the old snowballs' chance in hell of getting any sort of reasonable or effective tax reform out of Congress now (or probably any time after the elections in November), so this is all sheer speculation anyhow.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Once again, no one is saying "cut my tax obligation to 0"


...On non-U.S. source income, yes, that's the idea. Zero tax on non-U.S. source income for all non-U.S. residents is what you -- or at least other posters -- think ought to happen.

So let's make the big assumption your estimate is accurate and then run a back-of-the-envelope calculation. Total annual U.S. federal tax receipts are (in round numbers) $3 trillion. "One one hundredth of one percent" is 0.01%. Do the math and that's $300 million annually in first order tax revenue losses with this particular tax change, or approximately one dollar per U.S. citizen resident in the U.S.

As an aside, I'm not sure I believe that $300 million number when simply extrapolating from my own personal experience. It seems low based on another back-of-the-envelope calculation. But let's assume your figure is correct in this hypothetical.

Second order tax revenue losses -- which you continue to ignore, I notice  (but the CBO won't) -- are likely much greater. Even so, do you really think Congress would vote to increase every U.S. resident's average tax even by one dollar -- ignoring the real total impact -- in order to slash tax rates to zero on non-U.S. source income for (mostly comparatively wealthy) non-U.S. residents?

I agree: no, there's no chance of that.


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## BBCWatcher

I see a couple great ideas that J. Richard Harvey (at Villanova University) suggested. Elaborating on his ideas a bit (i.e. adding some details to make them workable in the tax code), here are what I think are his best ideas:

1. Allow U.S. persons residing overseas, if qualified, the option to file a simple one page annual statement with the IRS ("1040FX"?) in which they swear, under penalty of perjury (per usual), that their foreign earned income from all sources is under the Foreign Earned Income Exclusion ($99,200 in tax year 2014) and their other income from all sources is under the personal exemption and standard deduction ($10,000). If they want refundable tax credits or other tax refunds they'll have to file per normal, but if not this is a speedy, simple route to zero for most.

2. Allow U.S. persons residing overseas who live in an IRS-maintained list of comparatively high income tax jurisdictions the option to file a simple one page annual statement ("1040FT"?) with the IRS in which they swear, under penalty of perjury, that they have fully paid that country's income tax on all of their worldwide income and that their total U.S. source income is below their personal exemption plus standard deduction ($10,000). They would also be required to provide their foreign country's tax ID number and grant permission to the IRS to exchange tax information with that government. Again, if they want refundable tax credits or other tax refunds -- or if they want to "bank" excess Foreign Tax Credits -- they'll have to file per normal, but this'd be another express route to zero for a large group of filers.

By the way, he estimates that only 6% of U.S. persons living overseas owe any U.S. income tax on non-U.S. income. (Apparently half of that 6% post here. ) About 91% have zero U.S. income tax liability on non-U.S. source income through operation of the Foreign Income Exclusion and Foreign Housing Exclusion, and another 3% have zero (or even negative due to bankable credits) U.S. income tax liability on such income through operation of the Foreign Tax Credit. That leaves 6% (which includes me!) owing some U.S. income tax on non-U.S. source income.

Enact the above two suggestions or something like them and you go a long way to making annual tax filing dramatically simpler for most of the 94%.

....And maybe those two approaches are combinable while still keeping the form simple. Maybe I need to design a sample overseas "EZ" tax form for the IRS.


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## Bevdeforges

Let us know how you do with the IRS on those sample forms. 

But you seem to be leaving out the savings the US government would have if they eliminated their overseas presence and the overall savings on not having to process and track all those $0 tax due accounts from run of the mill overseas residents. The real issue, I suspect, are the offshore accounts in various tax havens - for which taxes are generally due to one's country of residence.

Oh, and one other consideration - not every country has a handy dandy "taxpayer identification number" like the US does. My last tax declaration here in France has at least three different taxpayer numbers (all of which are necessary in order to do the filing online - but at least that can be done for free) - one for the declaration itself, another is the "online taxpayer number" and there is a third to identify the individual taxpayer (my French spouse has a separate number, making four in total for our declaration).

Add to that, France has no option for filing separately, so heavens knows how they would apportion the various income reported on a single declaration in the case of a bi-cultural couple. (Or whatever the current term is for those of us married to furriners.) Income reported by banks and investments is often pre-printed on the tax forms here (a brilliant idea) but it is NOT reported against any of the "taxpayer identification" numbers. (Don't ask me how they do it, but it's very convenient.)

Anyhow, we're just blowing hot air here, due to the impossibility of any sort of meaningful tax reform in the States in the near future. Pity none of us are running for Congress in November - but I suspect we're all better off for staying out of that whole mess.
Cheers,
Bev


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## Guest

Bevdeforges said:


> Anyhow, we're just blowing hot air here, due to the impossibility of any sort of meaningful tax reform in the States in the near future.
> Bev




Sums it up very well.


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## Nononymous

BBCWatcher said:


> But the country of birth is rarely "accidental."


It felt very accidental to me, the one being born. My parents went to grad school in California, and returned. No intention to immigrate.

Growing up, I was told that I'd have to pick a citizenship at 18. I would have picked Canadian, but the law changed and I didn't have to. 

If at 18 I had been presented with the option to keep or discard the second citizenship, with a frank discussion of the pros and cons, I'm not sure what I would have done. Probably kept the option open - at that age one doesn't think about tax issues decades down the road.

If we could combine "mail-in renunciation" with simplified tax forms ("I have no US income and I swear I wouldn't owe anything on the rest of it.") then we'd solve a lot of problems for duals in Canada. 

It won't happen, of course, so the options remain: invest a lot of time and money in renouncing; invest a lot of time and money in becoming and remaining compliant; be very, very quiet.

It's worth remembering that a friend of mine, a US citizen working in Canada for several years, used to write "zero owing" on a 1040, staple it to a copy of his Canadian tax return, and mail it to the IRS. He never heard a thing, even after returning. To me that indicates how seriously the US takes this, and how easy the third option is likely to remain (even with FATCA, due to the exclusions).


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## maz57

BBCWatcher said:


> I see a couple great ideas that J. Richard Harvey (at Villanova University) suggested. Elaborating on his ideas a bit (i.e. adding some details to make them workable in the tax code), here are what I think are his best ideas:
> 
> 1. Allow U.S. persons residing overseas, if qualified, the option to file a simple one page annual statement with the IRS ("1040FX"?) in which they swear, under penalty of perjury (per usual), that their foreign earned income from all sources is under the Foreign Earned Income Exclusion ($99,200 in tax year 2014) and their other income from all sources is under the personal exemption and standard deduction ($10,000). If they want refundable tax credits or other tax refunds they'll have to file per normal, but if not this is a speedy, simple route to zero for most.
> 
> 2. Allow U.S. persons residing overseas who live in an IRS-maintained list of comparatively high income tax jurisdictions the option to file a simple one page annual statement ("1040FT"?) with the IRS in which they swear, under penalty of perjury, that they have fully paid that country's income tax on all of their worldwide income and that their total U.S. source income is below their personal exemption plus standard deduction ($10,000). They would also be required to provide their foreign country's tax ID number and grant permission to the IRS to exchange tax information with that government. Again, if they want refundable tax credits or other tax refunds -- or if they want to "bank" excess Foreign Tax Credits -- they'll have to file per normal, but this'd be another express route to zero for a large group of filers.
> 
> By the way, he estimates that only 6% of U.S. persons living overseas owe any U.S. income tax on non-U.S. income. (Apparently half of that 6% post here. ) About 91% have zero U.S. income tax liability on non-U.S. source income through operation of the Foreign Income Exclusion and Foreign Housing Exclusion, and another 3% have zero (or even negative due to bankable credits) U.S. income tax liability on such income through operation of the Foreign Tax Credit. That leaves 6% (which includes me!) owing some U.S. income tax on non-U.S. source income.
> 
> Enact the above two suggestions or something like them and you go a long way to making annual tax filing dramatically simpler for most of the 94%.
> 
> ....And maybe those two approaches are combinable while still keeping the form simple. Maybe I need to design a sample overseas "EZ" tax form for the IRS.


Those are a couple of great ideas. The $64 dollar question: could the IRS just do this without requiring an act of Congress? As far as I know, the IRS came up with the Streamlined Procedure without getting Congress involved. Maybe they could do the same with either of these (or a combination)? If so, at the same time eliminate FBAR and 8938 for overseas filers and you would be a long way towards addressing the problems expats face.

The one remaining problem is the punitive treatment foreign mutual funds, pensions, and resident country tax-advantaged accounts face under the US tax code. But if specific reporting was not required, maybe this problem becomes moot.


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## BBCWatcher

I took a whack at creating a combined IRS "Form 1040XP" that applies to the two filer categories J. Richard Harvey implied in his ideas: most filers that end up at zero via the FEIE, and most other filers that would end up at zero via the FTC. My Form 1040XP would not fully cover the ~94% who owe zero U.S. income tax on non-U.S. income, but it'd cover a big chunk of them.

My Form 1040XP has only 12 lines (as the IRS would count them) and only one short worksheet in the instructions (for the self-employment tax). It ends up being slightly less complicated than Form 1040EZ. I don't even have a filing status checkbox on my version since it doesn't matter (much). I just assume the "worst case." I think it entirely conforms to the current U.S. tax code, though I haven't quite checked everything I want to check.

I've put in some overseas-friendly features like "US$," "non-U.S." instead of "foreign" (where it makes sense), and the option to receive tax refunds and pay any self-employment taxes owed via Visa and MasterCard debit cards which would be nice (and low cost for the IRS). For most 1040XPers the end result will be zero, but some will get tax refunds for U.S. taxes overpaid, and other filers will owe some tax on self-employment income. Those scenarios contribute to the 12 lines. Also, line 0 is a simple qualifying checkbox question for FBAR and/or FATCA reports, right up front where it belongs for this group of filers -- not buried in fine print in Schedule C (or wherever it is).

The tax form itself is relatively easy. The instructions take most of the work, and I didn't finish those.

Anyway, it was a fun exercise. I had an inkling that tax filing could be dramatically simplified down to 1040EZ levels or better for the majority (probably vast majority) of U.S. persons living overseas (though not me), and that seems to be a correct supposition.


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## BBCWatcher

maz57 said:


> The $64 dollar question: could the IRS just do this without requiring an act of Congress?


I think the IRS is free to issue a "Form 1040XP" as long as it conforms to the tax code.

Forming a list of "trusted" comparatively higher tax countries might be a bit tricky, though, since the IRS probably cannot be 100% sure that _every_ participating tax resident in every listed country would end up with an FTC that always equals or exceeds U.S. income tax owed. But the IRS could certainly start with an FEIE-only 1040XP, and that'd be even simpler than my 12 line version. (I tried to pick up the "FTC 3%" J. Richard Harvey alluded to, but aiming for the bulk of the 91% of filers is still rather good.) Or maybe it'd be possible to extend the existing 1040EZ to many/most overseas residents without changing 1040EZ much.


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## Nononymous

As hobbies go, creating new 1040 forms is surely one of life's more peculiar leisure activities. Not that I'm complaining. Send it off and see what they say. 

Even better, do it up to look authentic and post the PDF. If enough of us file the damn things, it might just be accepted.


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## Meritorious-MasoMenos

Re BBCWatcher's "That leaves 6% (which includes me!) owing some U.S. income tax on non-U.S. source income."

First, I feel for you, BBCWatcher. Second, I'm no expert, but always read in U.S. media accounts something like "The United States is the only [major or industrialized] country that requires citizens to pay income taxes on income earned in other countries." Is this correct?

Also, is this the same principle that has the U.S. gov't also taxing the income of U.S.-based businesses on their overseas income? Again making the U.S. the only country to do this?

This business income tax is often in the news as major companies such as Burger King buy foreign based firms and then move their headquarters there to try to avoid this overseas income tax, while still paying income tax on U.S. profits?

Also, Apple on other huge international firms have tens or even hundreds of millions of dollars of overseas profits that they won't bring home to avoid paying taxes on it?

This movement to "move abroad" by Burger King and others has triggered moves by Obama and other taxers to close this "loophole" to try and prevent such companies from "unfairly" evading taxes they own?

If so, unfairly?


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## Bevdeforges

What about those who actually owe US taxes on US source income (e.g. withdrawals from an IRA or 401K plan)?

Oh, and there already is a way to pay taxes due from overseas using a credit card. It's just that you have to pay a service fee to do so. Pay your Taxes by Debit or Credit Card
Cheers,
Bev


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## BBCWatcher

Meritorious-MasoMenos said:


> Second, I'm no expert, but always read in U.S. media accounts something like "The United States is the only [major or industrialized] country that requires citizens to pay income taxes on income earned in other countries." Is this correct?


No. Practically every country requires its tax residents to pay income tax on foreign income (with a credit for foreign tax paid).

The United States is rare in requiring its citizens (and its nationals and its permanent residents) who are not U.S. residents to (occasionally) pay income tax on foreign income. It is not quite alone, though.



Bevdeforges said:


> What about those who actually owe US taxes on US source income (e.g. withdrawals from an IRA or 401K plan)?


That might be one category of filers ineligible to file my hypothetical Form 1040XP. Just like 1040EZ, not everybody would be able to file the simplified tax return. I'd still be a long form filer, as an example.

However, I'm not sure yet. I think I might be able to cover some such individuals.

Some rainy day I'll probably take a look at Form 1040EZ to see if it's easily amenable to the Foreign Earned Income Exclusion without adding complexity for U.S. resident filers of that form. That'd be an even better idea all around than a separate 1040XP. A minor form or instructional change is easier to do than a whole separate form.


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## Bevdeforges

BBCWatcher said:


> Some rainy day I'll probably take a look at Form 1040EZ to see if it's easily amenable to the Foreign Earned Income Exclusion without adding complexity for U.S. resident filers of that form. That'd be an even better idea all around than a separate 1040XP. A minor form or instructional change is easier to do than a whole separate form.


You have read the instructions, haven't you? If you want to claim the FEIE you MUST file a 1040 long form. No 1040EZ. 
Cheers,
Bev


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## Meritorious-MasoMenos

BBCWatcher said:


> No. Practically every country requires its tax residents to pay income tax on foreign income (with a credit for foreign tax paid).
> 
> The United States is rare in requiring its citizens (and its nationals and its permanent residents) who are not U.S. residents to (occasionally) pay income tax on foreign income. It is not quite alone, though.
> 
> 
> That might be one category of filers ineligible to file my hypothetical Form 1040XP. Just like 1040EZ, not everybody would be able to file the simplified tax return. I'd still be a long form filer, as an example.
> 
> However, I'm not sure yet. I think I might be able to cover some such individuals.
> 
> Some rainy day I'll probably take a look at Form 1040EZ to see if it's easily amenable to the Foreign Earned Income Exclusion without adding complexity for U.S. resident filers of that form. That'd be an even better idea all around than a separate 1040XP. A minor form or instructional change is easier to do than a whole separate form.


Well, BBCWatcher, as I said, I claim no expert knowledge in this area, just info from ever reliable media. Googling brings up a lot of stories that U.S, is unique in handling of what its citizens and businesses earn overseas and again, I'm no expert.

From Wiki on u.s taxation:

"The United States is one of two countries in the world that taxes its nonresident citizens on worldwide income, in the same manner and rates as residents; the other is Eritrea.[7] The Court upheld the constitutionality of the payment of such tax in the case of Cook v. Tait, 265 U.S. 47 (1924)."
(Taxation in the United States - Wikipedia, the free encyclopedia)

Tax policies for businesses is not unique, as I had thought, but still controversial and whether it places U.S, interest at disadvantage:

"The United States is one of only six industrialized nations (of 34 OECD members) that taxes domestic corporations on a worldwide basis. In the past fifteen years, thirteen OECD countries have moved to a territorial system that exempts all or most of active foreign earned income from domestic taxation.[4]" 
(How Much Do U.S. Multinational Corporations Pay in Foreign Income Taxes? | Tax Foundation)

From (http://www.taxpolicycenter.org/UploadedPDF/413004-Milken-Corporate-Income-Tax-Reform.pdf)
"Chief executives and policy economists alike complain that the high corporate tax rate (35 percent) and the rules for taxing the foreign-source income of U.S. companies discourage investment in the United States and place U.S.- based multinationals at a disadvantage with competitors based overseas."


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## maz57

@Masomenos. I think there is some misunderstanding with respect to tax residency. What BBC was saying is that most countries (including the US) require their tax residents to pay tax on their worldwide income. For most countries tax residency depends on actual physical residency. 

In the case of the US, its citizens are US tax residents no matter where in the world they live and no matter if some other country also claims them as a tax resident because they physically live in that other country. That is where the US is unique and departs from the world norm of residency based taxation. To say this causes problems for US citizens who don't live in the US is an understatement.

To put it another way, for most countries, if you move from that country you have no further tax obligation to that country once you have properly exited that country's tax system. In the case of the US there is no way to ever exit the US tax system other than terminating your US citizenship.


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## Meritorious-MasoMenos

I think you're right, Maz, rereading BBCwatchers posts. I guess we're all on the same page with this, and of course, all of us back 110% what your post concisely explains: "In the case of the US there is no way to ever exit the US tax system other than terminating your US citizenship." Yikes!


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## maz57

By the way, you appear to have a Mexican connection. Between Canada and Mexico, these two countries probably have a significant percentage of the total US expat population worldwide. 

Knowledge of the US tax "uniqueness" and FATCA seem to be gaining ground in Canada, yet we hear very little from Mexico on the subject. If you have some first hand knowledge of how things are developing in Mexico there are many on this forum who would be interested in your perspective. Perhaps it is because Canada and the US are both predominantly English speaking whereas Mexico is predominately Spanish?


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## BBCWatcher

maz57 said:


> That is where the US is unique and departs from the world norm of residency based taxation.


The United States is not quite unique in this respect. Hungary is another example.


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## BBCWatcher

Bevdeforges said:


> You have read the instructions, haven't you? If you want to claim the FEIE you MUST file a 1040 long form. No 1040EZ.


I think the context was clear enough Bev that (some rainy day) I'll take a look at how difficult it would be for the IRS to include (hypothetically) the FEIE within the 1040EZ filing path. Of course I'm aware that 1040EZ is currently not available to those who take the FEIE. Just as Form 1040XP doesn't actually exist except as my personal exercise. These are hypotheticals I'm exploring, that's all.

If you/we want simpler filing, then (beyond complaining about it) it's helpful to run some simulations to see what "simpler" might look like. That's what I'm doing. Bearing in mind that Congress writes the tax laws, not the IRS. But the FEIE exists in the present tax code, and 1040EZ exists in the present filing regime, so (some rainy day) I'll take a look at what would be involved in marrying the two. If a large portion of the ~91% of overseas filers could switch to a future 1040EZ path, that'd be nice, wouldn't it? That's the sort of thing the IRS could do if I could explain how an FEIE-inclusive 1040EZ path would look and if the relative simplicity of 1040EZ is kept intact.


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## maz57

BBCWatcher said:


> The United States is not quite unique in this respect. Hungary is another example.


Hmmm--interesting. Eritrea is bandied about but Hungary, never. Did a quick Google and sure enough, if you are a Hungarian citizen, you are considered to be a Hungarian tax resident. However, if you are also a citizen of another country, you are not considered to be a Hungarian tax resident unless you actually live in Hungary. 

There are some rules used to determine actual physical residency (i.e. "center of vital interests", permanent home, 183 days per year, etc.). So actually leaving Hungary and taking on another citizenship will apparently free you from the Hungarian system. I would imagine there are some EU rules that come into play as well, but that is as far as I took it.


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## jbr439

maz57 said:


> Hmmm--interesting. Eritrea is bandied about but Hungary, never. Did a quick Google and sure enough, if you are a Hungarian citizen, you are considered to be a Hungarian tax resident. However, if you are also a citizen of another country, you are not considered to be a Hungarian tax resident unless you actually live in Hungary.
> 
> There are some rules used to determine actual physical residency (i.e. "center of vital interests", permanent home, 183 days per year, etc.). So actually leaving Hungary and taking on another citizenship will apparently free you from the Hungarian system. I would imagine there are some EU rules that come into play as well, but that is as far as I took it.


Hungarian citizens are also not Hungarian tax residents if they reside in a country that has a tax treaty with Hungary.

See: International taxation - Wikipedia, the free encyclopedia


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## maz57

jbr439 said:


> Hungarian citizens are also not Hungarian tax residents if they reside in a country that has a tax treaty with Hungary.
> 
> See: International taxation - Wikipedia, the free encyclopedia


Interesting table. I see the US and Eritrea down at the very bottom. Even Eritrea gives its non-resident citizens a reduced flat rate. The US taxes a non-resident citizen exactly the same as a resident. (Yeah I know, there's the FEIE, which works fine if you happen to have earned income, but not so much if you don't.) 

By the way, it looks as if Hungary doesn't even require you to file an annual tax return if you are a simple wage earner with no other income. The employer deducts a flat 16% each month and remits it to the Hungarian tax authority.


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## Nononymous

And Eritreans aren't exactly thrilled about their situation either:

Eritrea collecting 'money for the dictator' from expats in Canada - World - CBC News

I will refrain from drawing parallels with the US or Hungary...


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## FilingLate

Bevdeforges said:


> I am kind of secretly hoping that this "inversion" craze (i.e. Burger King becoming a Canadian corporation) will knock some sense into some people. Either corporations really "are" people and so moving to another country and taking a different nationality shouldn't make any difference with regard to their US tax obligation - or somehow Congress can be convinced that expats should have the same "rights" as corporations and shed their tax obligation when they move to a different jurisdiction.
> 
> Sauce for the goose, sauce for the gander and all that. Or maybe we expats can just incorporate ourselves and be done with it all!
> Cheers,
> Bev


The burger king deal with Timmy's has nothing to do with burger king trying to hide money. If someone can only read their business statement its 620 pages. Burger king pays 30 Mill in taxes per year, they purchased Timmys for 12 Billion$ for anyone to suggest they are trying to save a few million in taxes seems ridiculous to me
The reason why Burger king did that is so they can pass their merger with the canadian govt. If they didnt do this that means Canada can decline the merger after all timmy brings in twice the revenue as BK


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## BBCWatcher

I think the argument from the U.S. side is that, like many U.S. headquartered companies, Burger King pays very little corporate income tax. However, they would eventually pay U.S. income tax on their stranded earnings from overseas when those earnings are repatriated. In Canada they may not have such issues.

The U.S. Congress passed (and the President signed) some measures a few years ago to make inversions less attractive. Some companies have evidently found creative ways around those measures. Congress may tighten the rules again. If it does, I'd expect something like a stronger "mark to market" requirement for all non-repatriated earnings before a change in corporate headquarters -- something of a corporate exit tax, in other words.


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## maz57

All of these corporate shenanigans are a direct result of high US corporate tax rates in combination with loopy US tax rules that require US companies to pay corporate tax on profits made in other countries. US corporate rates are so high that US companies are in the business of figuring out how to get their effective tax rate down to something reasonable, i.e. comparable to what their foreign competitors are paying.

The US corporate tax rules parallel US individual tax rules (i.e., are taxed on worldwide income) with one major difference...no tax is owed on those foreign profits until they are repatriated. If they are repatriated, the tax owing will be the difference between whatever the foreign corporate tax rate is and the US corporate rate, which is about 35%. (Canada's is 15%.) So, naturally enough, US companies don't repatriate 'em. They just leave the money overseas...investing in other countries economies, generating more profits, and generating nice tax revenues for other governments. (To bad US expat individuals don't enjoy the same deal! That would almost fix CBT.)

In the case of an inversion, the US company is, in effect, renouncing its US citizenship. No longer being a US company, that company can now bring those very same foreign profits back into the US without suffering a US tax hit. Burger King's US ops still pay the same US corporate tax they always did pre-inversion, but now they've got those foreign profits back in the US to expand the business, pay a dividend to shareholders, make an acquisition, whatever. The practical effect of US corporate tax rules as they presently stand is to give an unfair advantage to foreign companies operating on US soil compared to US companies engaged in the same business.

The US government doesn't need to come up with ways to make inversions less attractive. It needs to fix the US tax code and lower the US corporate tax rate to something comparable to other developed countries. Unfortunately, that's not likely. Its crazy, but there you go.


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## Meritorious-MasoMenos

maz57 said:


> All of these corporate shenanigans are a direct result of high US corporate tax rates in combination with loopy US tax rules that require US companies to pay corporate tax on profits made in other countries. US corporate rates are so high that US companies are in the business of figuring out how to get their effective tax rate down to something reasonable, i.e. comparable to what their foreign competitors are paying.
> 
> The US corporate tax rules parallel US individual tax rules (i.e., are taxed on worldwide income) with one major difference...no tax is owed on those foreign profits until they are repatriated. If they are repatriated, the tax owing will be the difference between whatever the foreign corporate tax rate is and the US corporate rate, which is about 35%. (Canada's is 15%.) So, naturally enough, US companies don't repatriate 'em. They just leave the money overseas...investing in other countries economies, generating more profits, and generating nice tax revenues for other governments. (To bad US expat individuals don't enjoy the same deal! That would almost fix CBT.)
> 
> In the case of an inversion, the US company is, in effect, renouncing its US citizenship. No longer being a US company, that company can now bring those very same foreign profits back into the US without suffering a US tax hit. Burger King's US ops still pay the same US corporate tax they always did pre-inversion, but now they've got those foreign profits back in the US to expand the business, pay a dividend to shareholders, make an acquisition, whatever. The practical effect of US corporate tax rules as they presently stand is to give an unfair advantage to foreign companies operating on US soil compared to US companies engaged in the same business.
> 
> The US government doesn't need to come up with ways to make inversions less attractive. It needs to fix the US tax code and lower the US corporate tax rate to something comparable to other developed countries. Unfortunately, that's not likely. Its crazy, but there you go.


I agree that laws that force U.S. companies to pay income taxes on profits earned overseas is outrageous, but you see how the Obama administration frames the argument, with little pushback from the media that backed him so strongly, that these companies are "evading" their "fair share." It works into the envy mentality of that part of the electorate (47 percent, anybody?) that depends upon the federal gov't for so much of its sustenance.


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## BBCWatcher

It's always important to deal in facts, so let's cover some basic facts first.

The "headline" U.S. corporate income tax rate is relatively high, though it's not the world's highest. (Last I checked the United Arab Emirates has the world's highest "headline" corporate tax rate at 55%.) But nobody -- least of all corporations -- takes that headline rate seriously except when trying to make self-serving political arguments.

The _actual_ effective tax rates U.S. headquartered corporations pay is quite low both in global terms and in U.S. historical terms. In 2014 the U.S. Treasury will collect approximately 1.9% of U.S. GDP from all corporate income taxes, _including_ corporate taxes paid by non-U.S. headquartered corporations. In 1952 that figure was 5.9% for perspective. In other words, total U.S. corporate income tax has been slashed by approximately two thirds from its post-World War II peak -- and I'm quite sure the U.S. economy performed very well in the 1950s despite those trebled corporate income taxes. Total U.S. corporate income tax collections could double tomorrow and they'd still only be merely average in post-War historical terms.

That said, at _any_ non-zero rate most corporations _always_ try to avoid (and even in some cases evade) their tax payments. They try a bit harder when the rate differentials are higher, but they always try. Accountants are always cheaper, basically.

There have been many arguments that U.S. headquartered corporations that have not repatriated overseas earnings represent a lost opportunity for the U.S. economy. To net it out, those arguments are hogwash. That experiment has already been tried, and it failed, miserably. The U.S. Congress has already offered "repatriation holidays," encouraging U.S. headquartered corporations to repatriate their overseas earnings at lower tax rates. Corporations took ample advantage of those holidays to repatriate earnings at lower tax rates...and exactly nothing good happened to the U.S. macroeconomy. They didn't create jobs, they didn't invest in plant and equipment in the U.S., they didn't boost R&D (and hire U.S. scientists) -- they mostly bought their own shares back, paid off some debt (see below), and perhaps paid some more dividends.

Fortunately there are many members of Congress (and the current President) who aren't fools, at least not in that respect, at least not again. They've seen that bad movie a couple times before, and they're not planning a sequel.

Indeed, U.S. headquartered companies have already found ways to buy back their shares and pay higher dividends: they borrow at historically low interest rates against their voluntarily stranded overseas earnings, they use those borrowed funds to buy back their shares and pay dividends (and pay a very few top managers bigger bonuses), they deduct that low interest as a business expense, and they repay the loans from overseas earnings. Lather, rinse, repeat.

One effective solution would be to limit the number of years U.S. headquartered corporations can defer U.S. corporate income tax on non-repatriated earnings, analogous to the Required Minimum Distributions (RMDs) that U.S. individuals must make from traditional IRAs and 401(k)s when they reach age 70 1/2. That'd work. (If you don't agree, what exactly are you advocating? Cutting the 1.9% of GDP corporate income tax collections _further_? If you really think voluntarily stranded overseas corporate earnings are a "problem," OK, focus on that -- with effective carrots and sticks.)

The OECD recently has seen the light, so there's also quite a bit of international support building for curtailing at least the biggest corporate tax abuses. No, Starbucks really doesn't grow coffee beans in Switzerland or in the Netherlands despite what their corporate tax filings might quasi-legally argue.


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## Meritorious-MasoMenos

BBCWatcher, to set the terms of the discussion, then, your "biggest corporate tax abuses" refers to U.S. corporations who do not want to pay U.S. taxes on their overseas profit?


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## Meritorious-MasoMenos

And of course, BBC, to your: "One effective solution would be to limit the number of years U.S. headquartered corporations can defer U.S. corporate income tax on non-repatriated earnings, analogous to the Required Minimum Distributions (RMDs) that U.S. individuals must make from traditional IRAs and 401(k)s when they reach age 70 1/2. That'd work. (If you don't agree, what exactly are you advocating?"

Advocating? Well, why should corporations pay income taxes at all? It means double taxation for the people who own the corporation, i.e., including those of us who own them only via mutual funds, a much greater proportion than those who own direct shares, as once the profits are distributed, every earner has to pay income tax once again on his portion. Therefore, the tens of millions of people who think they have tax free income building up in their IRAs are actually paying very heavy tax bills, not only in those who have only U.S. operations, but for overseas ones as well.

This applies to the many foreigners who have their own retirement accounts overseas that invest in U.S. securities. They too are losing an amazing amount of money from this double taxation, and then from taxing overseas incomes.


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## maz57

BBCWatcher said:


> The "headline" U.S. corporate income tax rate is relatively high, though it's not the world's highest. (Last I checked the United Arab Emirates has the world's highest "headline" corporate tax rate at 55%.) But nobody -- least of all corporations -- takes that headline rate seriously except when trying to make self-serving political arguments.


That's why US corporations are in the business of figuring out how to lower their effective tax rate as much as they are in whatever their normal business is. A great waste really except for creating employment for hordes of accountants.


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## maz57

BBCWatcher said:


> One effective solution would be to limit the number of years U.S. headquartered corporations can defer U.S. corporate income tax on non-repatriated earnings, analogous to the Required Minimum Distributions (RMDs) that U.S. individuals must make from traditional IRAs and 401(k)s when they reach age 70 1/2. That'd work. (If you don't agree, what exactly are you advocating? Cutting the 1.9% of GDP corporate income tax collections _further_? If you really think voluntarily stranded overseas corporate earnings are a "problem," OK, focus on that -- with effective carrots and sticks.)


Another solution is obvious; switch to a territorial based system like the rest of the world. Not likely to happen; for unfathomable reasons the US is stuck on this citizenship based system which is simply unworkable in the modern global economy. Your solution sounds like a plan to further encourage corporate expatriations. As for a corporate "exit tax", I suspect companies would do the math and conclude it would be cheaper to pay a one time fee and be free.

The fact is there are many places in the world where it is better to be in business (tax and regulation wise) than the US. You don't have to be a US company to invest in the US and have access to the US market. In fact it's an advantage not to be.


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## BBCWatcher

The territorial system has big problems also. Heck, even the staid OECD thinks it has problems.

The "double taxation" argument is tedious. Taxation has _always_ been "double" in some sense. What is VAT (or sales tax), for example? It's a tax that people who've already paid income and payroll taxes pay when they buy goods and services. Should VAT and sales taxes be abolished? Maybe -- there's a much stronger double taxation argument there.

But OK, if you believe corporate taxes ought to be abolished, same question: who has their taxes go up to compensate for the revenue loss of ~1.9% of U.S. GDP collected through corporate income taxes? Raise personal income taxes? On whom?

There was somebody in this forum who advocated abolishing ~96% of total U.S. federal government (and much of state and local) tax receipts. OK... so what's the plan then to replace that lost revenue? It's a simple, fair, essential question.


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## maz57

BBCWatcher said:


> But OK, if you believe corporate taxes ought to be abolished, same question: who has their taxes go up to compensate for the revenue loss of ~1.9% of U.S. GDP collected through corporate income taxes? Raise personal income taxes? On whom?


Never said that, but it would make sense to get them low enough to be competitive with other jurisdictions and low enough that its cheaper to just pay them rather than figure out ways to avoid them. 

And yes, a federal sales tax could compensate for that lower rate. (Did I really say that; I hate paying sales tax as much as the next person.) I think it would be very difficult to implement in the US, though. The states and municipalities have already staked out that territory and the resulting combined sales tax rate in some jurisdictions would be through the roof. (Can you imagine a politician's election platform "if elected, within the first 100 days I'll bring in a XX% national sales tax".)

(As a footnote, Canada implemented a 7% national sales tax [GST=Goods and Service Tax] some 20 odd years ago. It was universally reviled at the time but over time people have gotten used to it and the trade-offs have been beneficial. Personal and corporate income rates have been significantly lowered from what was previously pretty excessive and eventually even the GST rate was lowered to 5%. One advantage of a sales tax or VAT is that it is way harder to avoid. Its also a fairly predictable and stable revenue stream.)


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## BBCWatcher

maz57 said:


> Can you imagine a politician's election platform "if elected, within the first 100 days I'll bring in a XX% national sales tax".


No.



> One advantage of a sales tax or VAT is that it is way harder to avoid.


For whom?

Yes, poor(er) people find it harder to avoid VAT and sales tax.



> Its also a fairly predictable and stable revenue stream.


No, that they're not. U.S. states rely to a great degree on sales taxes, and they've found them to be quite pro-cyclical. Since they are, and assuming they have to balance their budgets (most must, by law), they have to cut spending and raise sales taxes/VAT during recessions/depressions. This is really, really bad economic policy.

Got any ideas for _raising more tax revenue from wealthier people_ instead of screwing poor(er) people? We live in a new Guilded Age that's more extreme than the previous one. How about recommending a tax policy consistent with that reality?


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## maz57

BBCWatcher said:


> Got any ideas for _raising more tax revenue from wealthier people_ instead of screwing poor(er) people? We live in a new Guilded Age that's more extreme than the previous one. How about recommending a tax policy consistent with that reality?


Easy. Structure the sales tax so the essentials of life are exempt. (Basic food, kids clothing, school supplies, rent below a certain threshhold, that sort of thing.) 

By definition the rich pay more sales tax because they spend more. Its the rich that drive $100,000 cars ($5000 [email protected]%). Poor guys drive used cars (0 tax). In Canada there is also a refundable GST credit that is built into the tax return. I don't know exactly how it works because I've never qualified for it but it specifically addresses this issue for low income people.

Everyone has an equal opportunity to avoid sales tax; don't buy stuff. And you don't need a team of accountants to figure it out either. The rich seem to be able to find accountants that can figure out how to avoid income tax; wouldn't do 'em any good with a sales tax.

Don't worry BBC. There has been talk of tax reform in the US for half a century. Nothing has been done so far and its not likely anything will happen going forward.


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## maz57

BBCWatcher said:


> No, that they're not. U.S. states rely to a great degree on sales taxes, and they've found them to be quite pro-cyclical.


So is income tax, both personal and corporate. Lose your job or your customers=no income=no tax owing. Tax revenues decline during recessions. That is why governments run deficits in such situations.


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## BBCWatcher

OK, so under Maz57's modified sales tax plan the poor would pay something (up from the negative income tax rate the working poor currently enjoy), the middle class and upper middle class (depending on where you draw the line) would pay a larger percentage of their income in sales tax (up from their current income tax burden), and the wealthiest individuals would see a significant tax cut. Because that's how the math works, quite simply. Take a (mildly) progressive income tax, replace it with a sales tax with two tax rates depending on the type of product, and that's what you end up with: a tax cut for the richest people and a tax increase for whoever is not at the top part of the income distribution. Plus you discourage consumption of goods and services -- exactly the opposite of what current economic conditions call for.

Why on earth should policymakers do that?

Yes, many types of taxes are cyclical. _Including_ sales taxes.


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## maz57

BBCWatcher said:


> OK, so under Maz57's modified sales tax plan the poor would pay something (up from the negative income tax rate the working poor currently enjoy), the middle class and upper middle class (depending on where you draw the line) would pay a larger percentage of their income in sales tax (up from their current income tax burden), and the wealthiest individuals would see a significant tax cut. Because that's how the math works, quite simply. Take a (mildly) progressive income tax, replace it with a sales tax with two tax rates depending on the type of product, and that's what you end up with: a tax cut for the richest people and a tax increase for whoever is not at the top part of the income distribution. Plus you discourage consumption of goods and services -- exactly the opposite of what current economic conditions call for.
> 
> Why on earth should policymakers do that?


No one suggested replacing personal income tax with sales tax (actually VAT, there is a difference). A VAT was offered as one way to compensate for the revenue lost by lowering the corporate income tax to a more competitive level.

Yes, sales taxes discourage consumption. All taxes by definition discourage whatever is being taxed. What earthly good comes from discouraging people and companies from earning income? Or discouraging trade in the case of excise/duties? In the case of sales tax the money not spent on consumption and paid in tax might just be saved and invested instead, which I imagine you would agree is not a bad thing. The actual tax rate determines just how much taxing a certain thing is discouraged.

A great many countries around the world have a VAT. Many of those countries do a much better job of caring for the poor and vulnerable in their societies than the US does. Like, for example, providing universal health care for their residents. So having a VAT does not equal screwing the poor. 

But as I mentioned before, there's no need to worry US policymakers will implement a national sales tax; we're just amusing ourselves here. Its pretty much guaranteed they will do nothing.


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## jbr439

maz57 said:


> No one suggested replacing personal income tax with sales tax (actually VAT, there is a difference). A VAT was offered as one way to compensate for the revenue lost by lowering the corporate income tax to a more competitive level.
> 
> Yes, sales taxes discourage consumption. All taxes by definition discourage whatever is being taxed. What earthly good comes from discouraging people and companies from earning income? Or discouraging trade in the case of excise/duties? In the case of sales tax the money not spent on consumption and paid in tax might just be saved and invested instead, which I imagine you would agree is not a bad thing. The actual tax rate determines just how much taxing a certain thing is discouraged.
> 
> A great many countries around the world have a VAT. Many of those countries do a much better job of caring for the poor and vulnerable in their societies than the US does. Like, for example, providing universal health care for their residents. So having a VAT does not equal screwing the poor.
> 
> But as I mentioned before, there's no need to worry US policymakers will implement a national sales tax; we're just amusing ourselves here. Its pretty much guaranteed they will do nothing.


My understanding is that economists, *for the most part*, agree that taxing consumption makes significantly more sense than taxing income.

It's also of interest to see that the vast majority of countries have a VAT. Among developed countries, only the US doesn't.
See: Value-added tax - Wikipedia, the free encyclopedia (scroll down to tax rates).

And I would have to agree, given the choice between being poor and vulnerable in the non-VAT US vs being poor and vulnerable in a developed country with a VAT, I'd take the latter without hesitation.


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## diharv

The US has it figured out. The best way to have your cake and eat it too is to get those who don't actually live in your house pay for it. A great many right wing teapot crackpot zealots with a firm no increase in taxes mantra could ride a wave to election victory on that platform .(sarcasm with a hint of truth possibly ?)


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## BBCWatcher

maz57 said:


> In the case of sales tax the money not spent on consumption and paid in tax might just be saved and invested instead, which I imagine you would agree is not a bad thing.


Yes, it's at least a bad thing now! (Has anyone in this thread been paying attention to the world outside their window?)

The world is _flush_ with savings. There is a vast _oversupply_ of savings. Otherwise interest rates wouldn't be at or near record lows across the world. What else is Canada's housing bubble about, for example? (It has one.) It's cash that can't find anything better to do than chasing assets. It's certainly not going to build factories, invest in R&D, hire more workers.... Moreover, the corporate income tax is levied on net profits. If it's a textbook profits tax then it's broadly agreed to be a wonderful tax -- probably the least distortionary major form of taxation that exists.

And has anybody been paying attention to Europe? Europe has high VATs and raised them during an economic depression. The depression is bad, festering, and (it looks like) getting worse. The United States has comparatively low sales taxes and raised them a bit. The states that raised them (or raised them more) are doing less well than the national average, but the U.S. is doing _much_ better than Europe. Japan raised its GST and is now having economic problems (again), though a falling yen may yet save Japan.

You don't do harm consumer demand in recessions and depressions. It's absolute economic policy malpractice to do that.

So I ask again: what's your preferred tax policy _consistent with the actual real-world situation we live in_? The world is awash in excess capital, has never in history been more generous to its wealthiest inhabitants, has record corporate profits, historically high income and wealth inequality, labor markets ranging from slack to record terrible.... And there's actually somebody who thinks raising VATs or sales taxes makes sense in this world? WTF?


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## jbr439

BBCWatcher said:


> Yes, it's at least a bad thing now! (Has anyone in this thread been paying attention to the world outside their window?)
> 
> The world is _flush_ with savings. There is a vast _oversupply_ of savings. Otherwise interest rates wouldn't be at or near record lows across the world. What else is Canada's housing bubble about, for example? (It has one.) It's cash that can't find anything better to do than chasing assets.
> ...


Canada's housing bubble (assuming there is one) is not fueled by household savings. Household debt to personal disposable income has been on an upward trend since at least 1984 (see Chart 2 at Maintenance - Bank of Canada). Same for the US and the UK (see chart 1). I don't know how many times I've seen stories about high household debt in Canada (and the US). Households which are flush with savings would not show such debt levels, no?

Interest rates are not low because there's too much savings, interest rates are low because central banks are afraid to raise rates to anything approaching the long term average due to the perceived frailty of their respective economies.


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## BBCWatcher

We're not talking about _all_ households. We're talking about corporate balance sheets and wealthy households, including those in Canada. They are both flush with funds.

The Canadian government can borrow at about 2% nominal interest on a 10 year bond. That's a 0% real interest rate on 10 year money.

I have absolutely no idea why there's so much focus on this thread on problems that simply don't exist.


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## maz57

Yes, this thread has wandered miles from the original question: "why do expats pay US taxes". Other than the obvious (and simplistic) "because the US says so", I have seen no good answer. 

If there is a good answer, it must lie deep in the minds and philosophy of the people presently in power in Washington. The concept of exceptionalism and an unwillingness to change are not good long term strategies for coping in a complex, rapidly changing world. I liken the present day US to a dinosaur; i.e., very large, very powerful, but not particularly adaptable.


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## Nononymous

The answer to the original question lies deep in the minds and philosophy of US citizens living abroad. In which case the answer is some combination of fear, duty, obedience, and obligation. With the caveat that a great number also do not pay (or even file) for reasons of ignorance or defiance.


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## Bevdeforges

Interesting philosophical questions - though I can tell you quite honestly that I feel that I owe US taxes on my eventual withdrawals from the retirement savings plans I set up back there. The deal at the time was that you were just "deferring" the taxes until you withdrew the money on retirement. (And the French government seems to back that by considering these plans to be tax obligations related to the period when you were working in the US and subject to US tax law.)

This approach does kind of get complicated if you try to maintain contributions to an IRA or 401K while living abroad, as has sometimes been suggested here. But that's not my problem - I leave it to those who have made that choice.
Cheers,
Bev


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## maz57

Good points, Nononymous. Which means it is really a trick question and the correct answer is: "most don't".


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## maz57

Bevdeforges said:


> - though I can tell you quite honestly that I feel that I owe US taxes on my eventual withdrawals from the retirement savings plans I set up back there. The deal at the time was that you were just "deferring" the taxes until you withdrew the money on retirement.


I agree that's fair. Besides, the source country should always have first crack at taxing income. Back when I had US source income (I don't anymore), I never objected to paying US tax on that income.


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## Bevdeforges

maz57 said:


> I agree that's fair. Besides, the source country should always have first crack at taxing income. Back when I had US source income (I don't anymore), I never objected to paying US tax on that income.


I think that's all that most US expats want. And to some extent, it's basically the extent to which most US expats do their tax reporting. It remains to be seen to what extent all this FATCAT and FUBAR nonsense can or will be followed up on for those of "modest" means, but I'm guessing that, unless there are some big bucks involved and complex investments or tax dodges, the answer is "not much."
Cheers,
Bev


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