# Conflict: 8854 vs Streamlined Filing Procedure



## WhatAmI

Consider the case of a US person (for example, dual Canadian-US from birth living in Canada since a child) who has never filed and wants to renounce US citizenship.

The Streamlined Procedure requires 3 years of taxes and 6 years of FBARs.

You then have to file the 8854, which clearly says you must certify that you have complied with tax obligations for the preceding _5_ years.

What do people do in this case?


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## Nononymous

Five years. If that's the requirement for renunciation, that's the requirement. The streamlined procedure is just a way of getting caught up for those who want to become compliant going forward. Requirements for renunciation are more stringent.


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## WhatAmI

So, I wonder if one could submit 5 years of taxes (and the 6 FBARs) to the Streamlined Procedure?


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## Nononymous

WhatAmI said:


> So, I wonder if one could submit 5 years of taxes (and the 6 FBARs) to the Streamlined Procedure?


Why? What's the advantage? It would probably just confuse the IRS. 

Opinions vary as to whether the streamlined thing is a good idea. If I were going to renounce, I'd send off five years' worth of 1040s and FBARs and be done with it, without the streamlined thing.


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## WhatAmI

Nononymous said:


> If I were going to renounce, I'd send off five years' worth of 1040s and FBARs and be done with it, without the streamlined thing.


Wouldn't that be considered a "quiet disclosure"? I guess I'm assuming the only way to catch up without getting caught as a quiet disclosure would be through the Streamlined Procedure.


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## BBCWatcher

It would.

I prefer the "follow the directions" methods.


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## WhatAmI

Seriously, which directions are you referring to?


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## Nononymous

What's wrong with quiet disclosure? I thought that was a good thing...


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## BBCWatcher

The IRS publishes sets of instructions for becoming tax compliant. One of those sets is called the "streamlined procedure."

Form 8854 requires two more years than the streamlined procedure requires. So if you want to follow the instructions -- that'd be my vote -- you'd follow the streamlined instructions plus add another two years. Or you could follow the streamlined procedure now, continue being tax compliant for two more tax years, then file Form 8854.


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## BBCWatcher

Nononymous said:


> What's wrong with quiet disclosure? I thought that was a good thing...


Only if the IRS is quiet.


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## WhatAmI

BBCWatcher said:


> So if you want to follow the instructions -- that'd be my vote -- you'd follow the streamlined instructions plus add another two years.


Ah, so you would agree with my thought of submitting all 5 years of taxes with the Streamlined Procedure filing?


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## BBCWatcher

If you want to renounce U.S. citizenship as soon as possible, I would.


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## CdnAllTheWay

WhatAmI said:


> Consider the case of a US person (for example, dual Canadian-US from birth living in Canada since a child) who has never filed and wants to renounce US citizenship.
> 
> The Streamlined Procedure requires 3 years of taxes and 6 years of FBARs.
> 
> You then have to file the 8854, which clearly says you must certify that you have complied with tax obligations for the preceding _5_ years.
> 
> What do people do in this case?


I am in the same situation. I have renounced. I *may* file the 8854, only after receiving my CLN...or I may not. I will not be filing tax returns and FBARS. I refuse to give up any further amount of time, complying with absolutely ridiculous demands of the IRS. I have no US assets, have never had US income, and they have absolutely no right to information regarding my family's Canadian accounts. I refuse to spend time, money and effort to show them I owe no tax. It is a never-ending obstacle course of hoops, and I'm not playing.

Streamlined is apparently not limited to three years.

As for fears of getting caught up in FATCA, especially if you don't file FBARs, read what would be reported under FATCA. There is a huge gap between the $10,000 amount that starts FBAR reporting, and the minimum amount that is required under FATCA ($500,000?).


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## Nononymous

Rock on!


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## Nononymous

PS Sitting in a departure lounge after my fourth (?) time entering the US on a Canadian passport with US birthplace since getting a warning about that in December. (And the last time before I renew my US passport later this year when living in Europe - eventually a bit too risky messing about on business trips when someone else paying for the flight.)


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## CdnAllTheWay

And to think that, for all these years I've worked hard to tame my inner rebel, only to need it in middle age.

I'm keeping a close eye on the border crossing situation. Just a few years ago, my husband and I were contemplating a future house purchase, in the southern US, as future snowbirds. Not now. The US has now lost that future economic benefit of our Canadian dollars, and created such anger that they may never see another of our dollars...ever. Even my teen children are angry, and have vowed to never again set foot in the US. That's important, since we live in a border city, with the US sister city very dependent upon us. That's what happens when you elect politicians that can't be bothered to read the legislation they pass.


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## WhatAmI

CdnAllTheWay said:


> Streamlined is apparently not limited to three years.


What are you basing this on? I know several people trying to get the definitive answer to this question.


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## CdnAllTheWay

It's based on the fact that some of the people that had entered the horrible voluntary disclosure programs are being flipped into Streamlined, by the IRS. The voluntary programs required more than three years of returns.


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## BBCWatcher

Flipped *into* streamlined is generally good news. Streamlined requires 3 back years of tax returns and 6 back years of FBARs.


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## maz57

@ CdnAllTheWay Right on! Personally, I'm doing the ultimate "quiet disclosure". I'm not sending the IRS anything. And yup, now we're rebels "with" a cause.


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## BBCWatcher

Just as long as you're _prepared_ to lose anything/everything within reach of (insert country here)'s jurisdiction, you can refuse to follow (insert country here)'s rules. That includes travel to/from that country (even to visit family and friends), financial assets held in or reachable by that country, etc.


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## CdnAllTheWay

BBCWatcher, I would agree. I have no (insert country here  ) interests, holdings, just distant family that moved from Canada. Should that country try to confiscate my Canadian holdings, in Canada, for no tax owed, I think Canada would then be in a state of war with (insert country here). I would be one of many in this country, and I know I would not be the only one to own those holdings jointly with Canadians who could never be deemed US persons, such as spouses, parents, children, business partners...it's all smoke.

It has taken me a substantial amount of time to come to this conclusion, which is ridiculous in that I owe no tax, even if I spend time, money and effort to comply. Tax forms would be full of zeroes. The last thing I would do is send that corrupt organization my bank account numbers. I am compliant in my country of citizenship AND residence. I am a faithful Canadian that has paid anything I have owed to my country, and will continue to do so. I have a life only in one country, I will support only one country. If that means I buy a summer home in beautiful Newfoundland, or the Yukon, so be it. Arizona or Florida lose out. The only thing that they have south of me is heat in the winter...but so does much of the world. I'm sure South America is beautiful.


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## maz57

@ BBC; I'm not only prepared, I've done it before. I left the US for Canada back in the Vietnam era knowing I could never return, knowing they would probably harass my US relatives (they did), and knowing they could (theoretically) seize my US assets (they didn't). We all know how that turned out. 

When President Carter created his amnesty program (to the man's credit he was trying to do the right thing) I refused that because I figured I should be offering amnesty to the US, not the other way around. In the end they just quietly gave it all up because they knew it was a fiasco. So for many years I have been travelling back and forth between the two countries and only got a US passport because the new rules mandated it after 911. During all this time there wasn't word one about US tax filing obligations and FBAR. So even the US government isn't advertising these unenforcible rules. 

Now that I have my Canadian passport (and relinquished my US citizenship in the process although they refuse to allow me to apply for a CLN) I travel only with it and have had no problem whatsoever. This current situation is shaping up to be another fiasco and the first case of the IRS trying to confiscate the Canadian assets of a Canadian in Canada who doesn't voluntarily pay up is going to start a war. I don't think it will happen because even the morons in the US government can figure out that it's a losing proposition for the IRS. So my conclusion is don't volunteer; not to pay , not to file, and not to submit. I sure as hell am not going to give 'em a shopping list by filing 8854. 

The truth of the matter is that the citizenship based taxation of the US just doesn't fly in a modern world. I'm enjoying being able to make a financial decision based on merit instead of always having to check the US tax code to see if I'm creating a filing nightmare for myself. I don't see myself as as particularly unique; most USP's in Canada ignore the IRS and the US government because they are totally unaware of these ridiculous rules. The only difference in my case is I tried to become compliant but gave up because it's nearly impossible and so morally repugnant that I couldn't stomach it any longer. So no need to warn those of us who have made the decision to resist the monster. My contemporaries from the Vietnam war either came home in a box or were so mentally disturbed that they have had a very difficult time in their lives. I was one of the lucky ones. I don't need the "protection" of the US; I need protection from the US. Canada has a superb, long history of doing just that. If it means giving up cross-border shopping, it's a small price to pay for real freedom.


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## BBCWatcher

maz57 said:


> This current situation is shaping up to be another fiasco and the first case of the IRS trying to confiscate the Canadian assets of a Canadian in Canada who doesn't voluntarily pay up is going to start a war.


That wouldn't be how it'd work because Canadian assets, at least initially, wouldn't be reachable. However, just as Canada refuses entry to U.S. citizens who have, for example, a DUI on their U.S. record (which the U.S. shares with Canada), the U.S. could start hauling Canadians (and dual citizens) with unpaid U.S. tax bills into the "special room" at the border. If/when they do, Canada will have no persuasive counter argument. Canada looks at every aspect of U.S. citizens' criminal records to decide whether to admit and routinely denies entry for relatively minor infractions. It would not surprise me at all if the U.S. started (or more correctly increased) its tax checks at the border.



> The truth of the matter is that the citizenship based taxation of the US just doesn't fly in a modern world.


People keep saying this sort of thing in this forum, but I'm a person of logic and reason, and I try to observe what's actually going on. I see zero evidence that the U.S. is going to change, and I see some evidence other countries are leaning in the U.S. direction. A large part of the reason has to do with large global multinational companies and their tax avoidance behaviors which are drawing increasing criticism and response. There's an emerging consensus they shouldn't be able to plant a flag in one low/zero tax jurisdiction and do business everywhere else, and that emerging consensus is bound to affect wealthy individuals in particular. Also, Japan has introduced 5 year exit rules on its citizens and former residents concerning gift and estate taxes, and Australia is at least leaning in the direction of imposing tax requirements on its overseas citizens.


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## maz57

You're probably right when you say the US won't change. It is one of the most backward places I know of. The morons in Congress can't even agree on the time of day. But it most assuredly it will get left behind. And they are doing a good job of making sure that expats who previously were ambivalent about the US government now use every opportunity to point out the abusive and just plain stupid rules to anyone who will listen. 

Even the all powerful IRS doesn't have the resources to chase down every USP in every far flung corner of the earth. The IRS is well aware of this and knows that it has little in it's arsenal other than threats and intimidation. If Australia goes down that road they will soon come to their senses, realise their folly, and revert to something more reasonable. 

Practically speaking, citizenship-based taxation is impossible to administer when you are talking about voluntary compliance. I don't expect they will have any more success than Prohibition or the present day War on Drugs. Now that they have created millions of criminals everyone will flaunt the law with impunity. If they took a stab at making compliance a little bit palatable (like say, for example, eliminating conflicts between the US code and the code of the country of residence) there might be a chance for it but I see no hope of that. Instead the stupid dinosaurs will plod on more and more out of touch with reality until they become the laughing stock of the civilised world. 

And if , per chance, US customs drags me into their back room, I'm a Canadian with a Canadian passport with solely Canadian assets; I owe them nothing. I'd love to tell my story to the media about my "international incident".


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## BBCWatcher

maz57 said:


> If they took a stab at making compliance a little bit palatable (like say, for example, eliminating conflicts between the US code and the code of the country of residence) there might be a chance for it but I see no hope of that.


I assume "they" refers to the U.S. government. They have: lots of tax treaties and the Foreign Tax Credit. However, if foreign (non-U.S.) taxes are lower (on the relatively well-to-do and above), the U.S. collects the difference between foreign rates and U.S. rates. That's how it works. I would posit that the majority of Americans think that policy is entirely fair, hence it's not going to change.

I don't know if people around here realize it, but "I'm a well-to-do American living overseas who refuses to pay U.S. tax rates" (which are low by developed economy standards) isn't the most politically compelling argument. But that's the argument that gets repeated over and over in this forum. Does anybody honestly think that's a winning argument politically?

I'm just being a realist. If the choice is between, say, maintaining promised U.S. Social Security benefits or switching to a U.S. residence-based tax system that eliminates U.S. tax liabilities for well-to-do Americans living in low/zero foreign tax jurisdictions, which do you think most Americans would choose? Is there seriously any doubt about this?



> And if, per chance, US customs drags me into their back room, I'm a Canadian with a Canadian passport with solely Canadian assets; I owe them nothing. I'd love to tell my story to the media about my "international incident".


If you owe nothing then in all likelihood you wouldn't be stopped at the border. I'm referring to future possible tax enforcement for individuals who owe U.S. tax which I think is only a matter of time. That is, all individuals attempting to enter the United States would be checked for tax compliance. If there's U.S. tax due, it would be collected at the border. If you can't pay the tax owed on the spot, then something else would happen involving law enforcement. Starting perhaps with confiscating your luggage to start to satisfy the tax liability. 

There are countries that already police tax compliance at the border. If the U.S. started to do so it'd hardly be the first. And the Canadian government in particular wouldn't have a leg to stand on given the sort of policing Canada already performs at its border.


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## Bevdeforges

I just saw a recent article saying that the GAO in the US took a look at the proposed immigration bill and calculated that passing that law would actually result in huge savings to the US government - something like $1 trillion over the next decade, in part thanks to reduced costs in enforcing some of the trickier aspects of immigration (the rest in additional taxes paid into the system by newly "legalized" immigrants and ultimately citizens).

I really wish they would do a similar study to see how resident based taxation might actually save money over the long run. There is a breakdown on the IRS website of how much tax is collected currently from each state - and there is a line for "overseas." While the number there looks big (lots of zeros) it's something like 0.01% of total tax collections. And then you have the costs of overseas compliance, including maintaining the three overseas tax offices and administration of some of the compliance requirements. 

The fact of the matter is that not all American expats are in the "well to do" category by any means. And if those who are well off are actually resident overseas (in tax havens or not) and not drawing their revenues from the US, why should they be subject to US taxation? I'm sure most of us are fine with the notion of being taxed on US source income - in my case, any and all withdrawals from an IRA or other tax-deferred plan. As for my income in my "other" country - that should be primarily between me and my other country. As it is, I have to report US revenues to France (due to how the taxes here are calculated), but I don't pay tax to France on US sourced income. That seems a reasonable (if slightly imperfect) approach to the issue.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> I just saw a recent article saying that the GAO in the US took a look at the proposed immigration bill and calculated that passing that law would actually result in huge savings to the US government - something like $1 trillion over the next decade, in part thanks to reduced costs in enforcing some of the trickier aspects of immigration (the rest in additional taxes paid into the system by newly "legalized" immigrants and ultimately citizens).


That is true, although it was the CBO, and the CBO probably underestimated the beneficial impacts of higher rates of immigration (with paths to citizenship).



> The fact of the matter is that not all American expats are in the "well to do" category by any means.


That's also true, but those who are earning less than about 2 to 4 times the U.S. median household income who are living overseas (and who don't have other U.S. source income) owe zero in taxes. Or maybe less than zero (i.e. they get refundable tax credits). The phrase I use is _relatively_ well-to-do, which is factually correct.

Current tax receipts from that cohort is not necessarily a useful metric, by the way. Once you open that door you'd then have to explain why it's not worth spending $X more on tax collectors and tax enforcement at the U.S. border which would yield multiples of $X in additional tax receipts. (It would.)



> And if those who are well off are actually resident overseas (in tax havens or not) and not drawing their revenues from the US, why should they be subject to US taxation?


Why _shouldn't_ they? The political burden is on those who would change the status quo, and the status quo is that relatively well-to-do Americans living in low/zero tax jurisdictions overseas, at least some of which have a lower cost of living, pay the difference between their foreign tax rate and the U.S. tax rate.



> As for my income in my "other" country - that should be primarily between me and my other country.


It is. Unless and until the overseas tax rate is lower and earned income is above the Foreign Earned Income Exclusion.



> As it is, I have to report US revenues to France (due to how the taxes here are calculated), but I don't pay tax to France on US sourced income. That seems a reasonable (if slightly imperfect) approach to the issue.


Practically all countries that have income taxes tax the worldwide income of residents, but they also have foreign tax credits.

France is among the countries that has a wealth tax. Maybe the U.S. should also?


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## Bevdeforges

BBCWatcher said:


> That's also true, but those who are earning less than about 2 to 4 times the U.S. median household income who are living overseas (and who don't have other U.S. source income) owe zero in taxes. Or maybe less than zero (i.e. they get refundable tax credits). The phrase I use is _relatively_ well-to-do, which is factually correct.


The assumption seems to be that ALL American citizens living overseas are in "low tax" countries, which really isn't the case. Then you have situations like here in France - which is considered a "high tax" country, but not all the taxes are income taxes, and therefore not all creditable against any US tax obligation.



> Current tax receipts from that cohort is not necessarily a useful metric, by the way. Once you open that door you'd then have to explain why it's not worth spending $X more on tax collectors and tax enforcement at the U.S. border which would yield multiples of $X in additional tax receipts. (It would.)


Given that the IRS isn't collecting some of the taxes due from high income individuals resident in the US, I'm not sure you can assert that they would be any more effective controlling folks at the border. 




> Why _shouldn't_ they? The political burden is on those who would change the status quo, and the status quo is that relatively well-to-do Americans living in low/zero tax jurisdictions overseas, at least some of which have a lower cost of living, pay the difference between their foreign tax rate and the U.S. tax rate.


What is the argument for taxing people based on residence? (Which the US does.) It's that they are benefiting from government programs operated with funding from taxes. Other than a passport that allows you relatively free entry to the US (which may or may not be desirable for expats with few ties back to the US), what benefits do non-resident US citizens have? 



> It is. Unless and until the overseas tax rate is lower and earned income is above the Foreign Earned Income Exclusion.


Yet the US will nick a part of my Social Security simply because I am eligible for a foreign pension, and without regard to the amount of that pension. There are also the various penalties for filing "married, filing separately" when one is married to a NRA. 



> Practically all countries that have income taxes tax the worldwide income of residents, but they also have foreign tax credits.


It may or may not work that way in countries that require residents to report worldwide income. In France, for example, certain categories of income from abroad are allowed a tax credit equal to the French taxes on that income - without regard to what taxes were or weren't paid on the income in the country of origin.



> France is among the countries that has a wealth tax. Maybe the U.S. should also?


Sounds like a plan to me. Heck, Congress can't pass any other legislation anyhow. This would at least give them something to talk about! 
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> The assumption seems to be that ALL American citizens living overseas are in "low tax" countries, which really isn't the case.


I don't think that's an assumption.

The basic rule is IF low/zero tax jurisdiction (relative to U.S.) AND substantially above median income THEN the difference between foreign and U.S. tax rates is owed to the U.S. The overseas American tax bracket is zero (in some cases negative) below $97,600 per spouse for earned income, the same or better brackets for unearned income (better because of the FEIE impact), and never a higher total income tax rate than U.S. income tax rates.

The FEIE is supposed to capture the fact that foreign tax rates are higher in certain non-FTC categories (e.g. VAT) for some overseas Americans. The FEIE is very much like a gigantic standard deduction for overseas Americans.



> Given that the IRS isn't collecting some of the taxes due from high income individuals resident in the US, I'm not sure you can assert that they would be any more effective controlling folks at the border.


Oh, I suspect a tax check at the border would be _very_ effective. It'd be relatively cheap to implement, too, since CBP is already performing entry checks -- it's just another quick database lookup. That's why it's probably inevitable those checks will drop into place in the coming years, particularly if the U.S. adopts exit controls.



> What is the argument for taxing people based on residence? (Which the US does.) It's that they are benefiting from government programs operated with funding from taxes.


Yes, that's _part_ of why U.S. personal income taxes exist.



> Other than a passport that allows you relatively free entry to the US (which may or may not be desirable for expats with few ties back to the US), what benefits do non-resident US citizens have?


"It depends." Some overseas Americans consume lots of U.S. government services -- emergency evacuation from world hotspots, foreign trade promotion, U.S. government purchases of goods and services in foreign countries from Americans overseas (directly and indirectly), subsidized postal services, and U.S. judicial services to pick some examples -- and some don't.

But that's not the only reason why there's a progressive U.S. personal income tax. It may not even be the major reason. If it were, there probably wouldn't be a progressive personal income tax. Instead, everybody would pay for government goods and services exclusively through a series of "user fees," much like shopping at a supermarket.

The vast majority of highly successful (in wealth and income terms) U.S. citizens owe a great measure of that success simply by being born in the right place at the right time in the right circumstances. Yes, "luck" is a big contributor to success, and to argue otherwise is delusional. (I didn't say the only contributor.) The progressive income tax is based partly on the idea that if you win life's lottery, a portion (and only a portion) of those winnings ought to help those less fortunate who didn't. And that's based largely on the philosophy of John Rawls, among others. Moreover, according to that philosophy, simply moving overseas shouldn't have any bearing on that particular social responsibility. Rawls was an American.

Yes, there are many people who disagree with that philosophy -- they're mostly among those who've won life's lottery -- but it's a perfectly reasonable philosophy and one very legitimate way to organize a society.

The U.S. exit tax is also rooted in the same principle. That is, if you don't like paying your life's lottery's percentage on the installment plan, you can renounce your U.S. citizenship and pay a one-time exit tax instead.



> Yet the US will nick a part of my Social Security simply because I am eligible for a foreign pension, and without regard to the amount of that pension.


The U.S. Social Security Windfall Elimination Provision (WEP) has nothing to do with place of residence. You can be subject to WEP even if you never left the U.S. And the WEP doesn't apply at all if you have 30 or more years of U.S. Social Security contributions. And the WEP penalty is reduced if your non-covered employment period yields only a modest government retirement benefit, so the formula actually does have sensitivity to the amount of that pension -- _if the pension is modest_. And the penalty is capped if you have a generous government pension accruing from non-covered employment.

A lot of people don't like the WEP, but it's actually pretty fair. Much as I hate to admit that. 



> There are also the various penalties for filing "married, filing separately" when one is married to a NRA.


No, if there are penalties for filing "married filing separately" they are not based on the citizenship of your spouse. The U.S. allows every legally married opposite sex (and perhaps soon same sex) couple to opt for married filing jointly if they wish, regardless of place of residence and regardless of the citizenship of your spouse.

The fact non-U.S. citizen spouses living outside the U.S. may not _want_ to participate in a U.S. tax filing is not the government's problem. The option is the same for everybody.

No, that's not where the discrimination against foreign spouses occurs. The discrimination occurs in the gift and estate tax areas of the U.S. tax code. Granted, those particular gift and estate tax provisions only affect the well-to-do -- those with estates valued above $5.25 million -- but that's where the discrimination is found.



> It may or may not work that way in countries that require residents to report worldwide income. In France, for example, certain categories of income from abroad are allowed a tax credit equal to the French taxes on that income - without regard to what taxes were or weren't paid on the income in the country of origin.


France is weird in many ways.  Delightfully so, usually.


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## Bevdeforges

I'm literally aghast at your rebuttals. But if that's how you think, I don't really feel the need to rebut point by point. Obviously, we will continue to agree to disagree on these and other points.
Cheers,
Bev


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## maz57

@ BBC. I suppose I could be considered to have won "life's lottery". The thing is, I won it in Canada, not the US. For me, the US government has only been a life long source of misery and disappointment. For the US to now claim a portion of my totally Canadian earned, taxed, and accumulated wealth because I happen to have been born on their soil 68 years ago is perverse, repugnant, and despicable. 

You keep repeating the scenario of the 'black helicopters" coming to rescue me or some other imagined benefit of being a US citizen, I repeat what I stated earlier, I don't need or want the protection of the US government. What I need is protection from the US government. If I actually derived some benefit from US citizenship I'd remain a citizen, just shut up and pay the taxes. It's Canada that has allowed to prosper financially, Canada that pays me my retirement pension, Canada that provides a good health care system (US propaganda to the contrary), and Canada that picks up the garbage, maintains the roads, and generally provides "peace, order, and good government". The US is none of the above. Instead it's a bum that has decided to come visit me late in my life.

Whether you care to admit it or not, we are witnessing the slow decline of a once great bastion of freedom, prosperity, and opportunity. It started when they decided to invade a harmless Vietnam that was absolutely no threat to the US. Once they got on the wrong side of history it's been a downhill slide ever since with one war after another, official or unofficial. And the countries they didn't actually bomb or invade they have done their level best to take advantage of economically. I have witnessed that personally in their dealings with the Canadian government. The US cannot be trusted to honour any agreement if they think it's advantageous to ignore it. 

And as far as citizenship-based taxation is concerned, they'll eventually give it up, but not before they do untold damage to their own economy and status in the world. The great realisation probably won't be in my lifetime.


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## Nononymous

It's gonna be so super-duper fun when FATCA actually hits the news up here...


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## BBCWatcher

Bevdeforges said:


> I'm literally aghast at your rebuttals. But if that's how you think, I don't really feel the need to rebut point by point.


How I think is that people making political arguments about why and how the U.S. Congress ought to change the tax treatment of Americans living overseas need to be much more persuasive in order to have any chance of success. I'm providing the likely counterarguments for perspective. It seems to me they are politically powerful ones, but I am not commenting on their merits which are to some degree subjective anyway.

According to Rawlsian philosophy, "life's lottery" includes one's parents. The lottery aspect (its American-ness) fades with each additional disconnected generation. But so does U.S. citizenship which only lasts one generation overseas (and only then if a parent obtains a CRBA for his/her child, practically speaking).

Frankly most Americans are unaware of the FEIE and would be quite surprised to know that Americans living overseas have a "free pass" up to $95,700 per spouse of earned income and that many don't pay U.S. Social Security and Medicare payroll taxes. I'm really not wrong about the political realities here, and the politics are everything in a democratic republic.


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## maz57

Well, BBC, personally I don't care whether the US changes it's tax laws or not ; it's not my problem any more. I do believe that they might get better results if they got on the same page as the rest of the world by moving to a residency based system. But when it comes to Congress any argument about any subject at all falls on deaf ears. They have demonstrated time and again they are incapable of accomplishing anything. I don't see any progress until it all blows up in their faces. If the Federal Register ever quits lying about the number of renunciations maybe some of them would notice and make the connection between US tax policy and people giving up their US citizenship as an act of self preservation. On second thought, nah, they won't get it.

Most Americans are not only unaware of the FEIE, they don't even know expats are supposed to file returns no matter where in the world they live. The homelanders I've explained it to all have a look of disbelief when they hear all the details. Not really surprising when you have the most complicated tax code in the world. To their credit, most instinctively think it's a little outrageous. As far as FEIE being a 'free pass", are you kidding? We've already paid taxes where we live, remember. Besides, retired folks don't have earned income so it's totally useless to us. And with respect to SS and Medicare, what's unreasonable about not paying for services we will never receive?

They do get slightly alarmed when I tell 'em about 8938 and FBAR They can imagine having to list everything they own year after year after year. But in the end they don't really care; it's not their problem. 

And when it come to life's lottery, I won it again with my parents; something I'm acutely aware of as one of them is undoubtedly living out their last few months. From them I got my sense of self reliance, honesty, fair play, moral integrity, and justice. (They were supportive when I objected to Vietnam and moved to Canada and they were supportive when I relinquished US citizenship). These are very typical American values but something the US government is noticeably lacking these days. In the end I will always be an American; it's my heritage and not something one ever loses. But I'm no longer a US citizen. There was once a time when US citizenship was something many aspired to. Now it's become a distinct disadvantage it you live anywhere except within the US. A sad state of affairs, really, and a direct result of stupid tax policy.


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## BBCWatcher

maz57 said:


> If the Federal Register ever quits lying about the number of renunciations....


Is there any evidence to support that assertion?

According to this article, 1,781 Americans renounced their citizenship in 2011. For perspective, in the same year 694,193 individuals naturalized as U.S. citizens. U.S. naturalization was 389 times more common than renunciation in 2011. The current debate in Congress is whether to significantly increase the number of U.S. naturalizations -- there's a tremendous demand for them.

I've seen many people in this forum and elsewhere assert there's an epidemic of U.S. renunciations. That's just factually incorrect and, frankly, immediately undermines one's credibility if trying to make that argument with even a slightly informed policymaker. It's more common than being struck by lightning, but it's not particularly common. There's even some recent evidence renunciation is getting less common.



> As far as FEIE being a 'free pass", are you kidding? We've already paid taxes where we live, remember.


Many countries have lower personal income tax rates, and some have zero rates.



> Besides, retired folks don't have earned income so it's totally useless to us.


That's why there's also a Foreign Tax Credit, with nice carry forward and carry back provisions.



> And with respect to SS and Medicare, what's unreasonable about not paying for services we will never receive?


There's no way to know that and no credible way for an individual to promise that. They're mandatory, universal (or near-universal) insurance programs for several reasons.

For the record, I would be in favor of extending Medicare benefits to Americans obtaining healthcare services overseas, starting with EHIC-style reciprocal treaties similar to what Australia has with the European Union. I'm particularly in favor of that improvement because I think it would be politically possible. Exempting overseas Americans from all U.S. taxation simply is not.

I'm not sure what you mean by "services we will never receive" regarding U.S. Social Security. If you contribute into U.S. Social Security for at least 10 years (at a low minimum level), you receive retirement benefits, and they can be paid worldwide (with few exceptions). If you fail to collect those benefits that's your problem, but you can collect them.


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## Bevdeforges

I have no idea how many renunciations there are in a given year - but the US consulates are actually starting to recognize the "demand," at least in those countries where FATCA or other US legislation has caused problems.



BBCWatcher said:


> Many countries have lower personal income tax rates, and some have zero rates.
> 
> 
> That's why there's also a Foreign Tax Credit, with nice carry forward and carry back provisions.


Why should US citizens living abroad be obligated to pay the rate of tax they would be subject to were they resident in the US? Tax rates are related (or supposed to be) to the country in which a person is residing, because that's where they are most likely drawing their income from. I don't see you arguing that US citizens abroad should be paid at US standard rates. And, there is the argument of other taxing systems. Many countries with a VAT obtain most of their tax revenue from the VAT, which is not deductible nor creditable on US income tax forms.




> There's no way to know that and no credible way for an individual to promise that. They're mandatory, universal (or near-universal) insurance programs for several reasons.


Like in most national health care systems, you aren't covered if you don't pay in for a certain minimum period of time. I paid into Medicare/Medicaid while I was working in the US. That's fine, and to be expected. I no longer live and work there, and I have not contributed for the last 20 years or more. I expect to receive the Social Security (retirement) benefit I earned while working there, but the Medicare benefit is a non-starter for me. We've had much the same issue here on the forum with EU nationals who return to their "home" country after a career abroad and find they have no entitlement to the national health care and retirement system.



> For the record, I would be in favor of extending Medicare benefits to Americans obtaining healthcare services overseas, starting with EHIC-style reciprocal treaties similar to what Australia has with the European Union. I'm particularly in favor of that improvement because I think it would be politically possible. Exempting overseas Americans from all U.S. taxation simply is not.


I'd say your proposal is FAR less likely than making adjustments to the US taxation system. Medicare benefits are only for those in retirement, whereas the EHIC reciprocity is far more comprehensive. Given the aversion in the US to government control of the health care system, I suspect it would be next to impossible to offer reciprocity via the current "free market" insurance system to those coming from a government mandated system.



> I'm not sure what you mean by "services we will never receive" regarding U.S. Social Security. If you contribute into U.S. Social Security for at least 10 years (at a low minimum level), you receive retirement benefits, and they can be paid worldwide (with few exceptions). If you fail to collect those benefits that's your problem, but you can collect them.


In most other government retirement systems, you receive the retirement benefits based on the time you worked in the country and contributed to the system. That's as it should be. When I retire, I'll draw small pensions from three different countries where I worked - even though I didn't work long enough in either of the two European countries to qualify for a "full pension." Citizenship has nothing to do with the retirement situation - it's a matter of residence and work/contributions.

I think the biggest issue with the US taxation system is that it has run up against the law of unintended consequences. Tax legislation is passed in the US to address problems as they are perceived in the US, with little or no recognition of how they will affect those of us living overseas. (And frankly, with little or no ability to enforce most provisions outside the US anyhow.) Then, even when the issue of "overseas residents" comes up, there is a very distorted image of the American expat - namely that of either a corporate transferee, replete with expat perks (housing paid for, car provided, high salary, etc.) or a "tax exile" looking to hide their millions in a tax haven and to "take advantage" of phony corporate structures to evade taxes on money made in the US. 

Even you keep referring to the expat with an income slightly above the median US income - whereas I would love to see some attempt made to analyze the actual situation of "average" or "median" US expats abroad. I'd be willing to bet that most US expat taxpayers are well below the US averages in terms of income and personal wealth. Once again, it's the "1%" they're after, but all the rest of us wind up suffering.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> Why should US citizens living abroad be obligated to pay the rate of tax they would be subject to were they resident in the US?


First of all, it's the same rate _or less_ (primarily due to the FEIE). That's a very important point.

Why _shouldn't_ U.S. citizens living overseas (who are relatively well-to-do) pay the difference (or less) between their foreign tax rate and the U.S. tax rate? Philosopher John Rawls says they should (most probably), and he was pretty smart.

Again, I'm talking politics here. There is no audience in Congress for a "why should?" argument, because they'll ask (properly so) "why shouldn't...?" That's the question to answer.

I haven't heard or read the winning argument yet. Here are the ones that I've heard so far:

1. "Because other countries don't." Most people in Congress would think that's just fine -- the United States is exceptional in their view.

2. "Because U.S. citizens are at a disadvantage." Proof? It sure doesn't seem like it. The wealthiest individuals in the world tend to be Americans.

3. "Because taxation of U.S. citizens living overseas isn't generating much revenue." Well, OK, then let's hire more IRS employees to collect more -- and (after a Congressional Budget Office study) it'll be confirmed that hiring more IRS employees would generate a tremendous return on investment. There's lots of overseas American tax evasion to pursue.

4. "Because overseas Americans have too much tax complexity." They do, but that problem is not unique to overseas Americans. The primary sources of tax complexity are exemptions, credits, deductions, etc. So should the U.S. tax code eliminate the Foreign Earned Income Exclusion and Foreign Tax Credit? That'd be simpler. Be careful what you wish for! 

Seriously, what's the winning political argument here? I agree with Maz: there isn't one.



> Many countries with a VAT obtain most of their tax revenue from the VAT, which is not deductible nor creditable on US income tax forms.


I'm not sure I buy that. Most U.S. states have sales taxes. Sales taxes often apply to multiple stages in the production process for goods and services, while VATs are supposed to apply to the final step so that no more than the VAT rate applies to the final purchase. The U.S. tax code already takes into account sales taxes, primarily through the standard deduction and personal exemption. I guess it'd be nice if there were the option to itemize VATs similar to how sales taxes can be itemized, but frankly that'd add a lot of complexity for not much benefit.

With respect to health and pension benefits, U.S. Social Security is rather good. Americans living overseas generally do quite well with respect to Social Security. U.S. Social Security is not particularly citizenship-connected. The only overseas exception is non-covered self employment. In that case U.S. citizens have to pay into the U.S. system -- but that U.S. citizen accrues benefits.

The biggest change I'd like to see to U.S. Social Security is to allow Americans living overseas to contribute voluntarily. That's a feature of many countries' social security systems.

Medicare is another story since it's currently not possible to receive benefits when living overseas. Many countries in Europe have highly regulated, subsidized private medical insurance systems. Switzerland is a good example. That's the model the U.S. is moving toward with "Obamacare," particularly starting next year. There's no particular technical obstacle to EHIC-like cross-border coverage now that the U.S. is moving closer to Europe. I think it'll happen, but it'll take a few years.

The reason why it's likely to happen from the U.S. perspective is that every patient who consumes medical services in Europe versus the same in the U.S. would save the U.S. government money. There are representatives in Congress who are pushing for allowing Medicare and Medicaid recipients to get their medical care practically anywhere they wish in part for cost saving reasons, so there's at least some political support for that idea.



> Then, even when the issue of "overseas residents" comes up, there is a very distorted image of the American expat - namely that of either a corporate transferee, replete with expat perks (housing paid for, car provided, high salary, etc.) or a "tax exile" looking to hide their millions in a tax haven and to "take advantage" of phony corporate structures to evade taxes on money made in the US.


Is it distorted? Maybe, but the tax compliance rate among Americans overseas really is lower than within the U.S., even discounting truly "latent" Americans.

It'd be one thing to say, "Let's really make it easy and simple for genuinely well-to-do Americans living overseas to pay U.S. taxes (if owed)." That's politically achievable. It's quite another to say, "No Americans living overseas should ever pay U.S. taxes nor should they pay U.S. exit taxes." That's a political nonstarter.



> Even you keep referring to the expat with an income slightly above the median US income - whereas I would love to see some attempt made to analyze the actual situation of "average" or "median" US expats abroad.


The FEIE plus personal exemption and standard deduction represents a minimum of about twice median _household_ U.S. income. That's more than "slightly."



> I'd be willing to bet that most US expat taxpayers are well below the US averages in terms of income and personal wealth. Once again, it's the "1%" they're after, but all the rest of us wind up suffering.


If they are well below U.S. means and medians, they'd pay zero or very low differential U.S. tax rates -- and in some cases negative tax rates. That's the current tax code.


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## Bevdeforges

Obviously, your experience with the US tax system from abroad is radically different from mine.

I agree with you both that there is no winning argument. The whole issue of taxation of non-resident citizens is simply a non-starter because no one resident in the US (including the legislators) gives a damn. And frankly, they have other "sexier" issues to fulminate about in front of the cameras. Overseas voters have trouble getting through to their representatives (because most politicians reject communications from outside their district). It boils down to estimating the ability of the IRS to actually enforce their policies outside the US.

VAT (at least in Europe) runs about 20% in most countries. Sales tax in the US doesn't seem to go about about 10 or 12%, even in the highest paying districts. And, sales tax does not provide 50% or more of the national government's revenue, as the VAT does in many countries that use it.

I really don't believe we'll ever see an EHIC reciprocity on Medicare, for a couple of reasons. First, Medicare only applies to "old people." And probably more importantly, a reciprocal agreement would mean that the US would have to offer Medicare benefits to "foreigners" who have not paid into the system. In the current climate, I don't see too many politicians pushing for MORE public benefits for "foreigners" (legal or not). 

Also, in many of the reciprocal arrangements here, it's possible to get the same health benefits from your state of residence, however your state of residence is actually billing back the cost of those benefits to your "home" state - the state where you paid in initially. It probably would be no problem for most European countries to bill the US back for medical coverage extended to US citizens, but most will balk at being asked to reimburse the US for benefits extended to those who paid into the European systems. US health care simply costs too much to attract much interest in "reciprocity" deals.



> It'd be one thing to say, "Let's really make it easy and simple for genuinely well-to-do Americans living overseas to pay U.S. taxes (if owed)." That's politically achievable. It's quite another to say, "No Americans living overseas should ever pay U.S. taxes nor should they pay U.S. exit taxes." That's a political nonstarter.


Why, in this example, does the noun "American" have to be paired with "well-to-do"? Not all Americans overseas can be considered "well-to-do" by any means. I've got no problem with the idea that overseas residents who derive their income from the US should pay US income taxes on that income - as I will do when I start to withdraw from my IRA in a few years. There is a huge range of possibilities between the two extremes you present, however, which would allow for people to pay their fair share of tax to the US for income derived from the US (in which case, I agree it should be taxed in the US) without penalty for the fact of living abroad. But the US does not have an inherent "right" to tax the income a citizen derives from their legal residence overseas - whether it's "earned income," pensions, or public benefits, which are subject to local law. Unfortunately, US law doesn't see things that way - which is why the issue of renunciation is becoming more interesting to some (and not just the upper income folks).
Cheers,
Bev


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## BBCWatcher

I wouldn't assume. I pay lots of U.S. tax. I'm fortunate enough to have earned income above the FEIE, unearned income above personal exclusions and standard deductions, and I live in a lower tax jurisdiction. I don't like it -- who likes paying taxes? -- but I'm a political realist.



Bevdeforges said:


> Why, in this example, does the noun "American" have to be paired with "well-to-do"? Not all Americans overseas can be considered "well-to-do" by any means.


Because that's how the U.S. tax code applies to Americans living overseas. It primarily or exclusively (generally the latter) taxes relatively well-to-do Americans who live in comparatively low tax jurisdictions.



> But the US does not have an inherent "right" to tax the income a citizen derives from their legal residence overseas - whether it's "earned income," pensions, or public benefits, which are subject to local law.


Sure it does. The U.S. Supreme Court determined that taxation of Americans living overseas is entirely constitutional. They decided that all the way back in 1924 (Tait v. Cook), and there is no appeal above them. The U.S. government began taxing some Americans living overseas well before 1924, otherwise there wouldn't have been standing for a court case. U.S. taxation of Americans living overseas is much older than U.S. Social Security, for perspective.

As an interesting historical fact, over 50 years ago President Kennedy proposed eliminating the foreign earned income exclusion entirely for Americans living in developed countries. That is, he would have taxed all U.S. citizens living overseas in developed countries (e.g. France) right up to U.S. rates.



> Unfortunately, US law doesn't see things that way - which is why the issue of renunciation is becoming more interesting to some (and not just the upper income folks).


There are reasons lower and middle income Americans living overseas (a very few) renounce U.S. citizenship, but a nontrivial nonzero U.S. tax calculation just isn't one of them, assuming they're calculating correctly. Moreover, U.S. citizenship-related taxation is not even a particular burden if you're quite wealthy. Ask Mitt Romney and his accountants. The part of the income scale where it might be financially attractive is when you're both well off and living in a low tax jurisdiction but not so well off such that you can justify advanced tax avoidance assistance. I guess I'd fit in that category.


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## Bevdeforges

> It primarily or exclusively (generally the latter) taxes relatively well-to-do Americans who live in comparatively low tax jurisdictions.


This is where we will have to agree to disagree. I've seen US taxes hit overseas residents with low incomes. While the amounts of tax being charged them may be trivial to you, they aren't to the taxpayers affected. 



> over 50 years ago President Kennedy proposed eliminating the foreign earned income exclusion entirely for Americans living in developed countries. That is, he would have taxed all U.S. citizens living overseas in developed countries (e.g. France) right up to U.S. rates.


And abolishing section 911 of the tax code (the FEIE part) gets proposed every 5 to 7 years these days. It has come up at least a couple of times since I've been living over here. It will be real interesting if they should ever manage to do that, though. 



> There are reasons lower and middle income Americans living overseas (a very few) renounce U.S. citizenship, but a nontrivial nonzero U.S. tax calculation just isn't one of them, assuming they're calculating correctly. Moreover, U.S. citizenship-related taxation is not even a particular burden if you're quite wealthy. Ask Mitt Romney and his accountants.


Depends on the population you're looking at. I suspect the lower income folks just fall into the "non-compliance" category - given the IRS' limited resources for tracking that sort of thing and all. But Mitt Romney isn't relevant here at all - he's US resident. No matter what country he was resident in he'd be likely to have to report and pay tax on his worldwide income, unless he had foreign tax credits. Talk to that founder of one of the techie companies who renounced last year or so to move to Singapore. Though I'd agree that with all that money, paying a little extra tax probably doesn't really hurt all that much. But I'm reading a fascinating book about psychology and economics, and the risk of loss is perceived much more acutely at that level.
Cheers,
Bev


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## maz57

@ BBC. Re: Federal Register understating numbers of people who lost citizenship. 

The IRS is required under Section 6039g of the IRC to list the names of all individuals who have lost US citizenship within the meaning of Section 877a. (The so-called "name and shame" list.) This would include renunciations, relinquishments, and those who turned in their green cards. This information is supposed to be published quarterly, but the IRS is typically several months tardy in releasing the information.

In a rather curious system, the FBI, under the Brady Handgun Violence Prevention Act of 1993, is required to list the names of all renunciants (but not relinquishers or ex green card holders) added to the National Criminal Background Check System (NCIS). This is because renunciants are prohibited under Brady from purchasing or possessing guns. The publishing of the names on this list was formerly somewhat haphazard but now occurs monthly. Obviously, the numbers on the NCIS list should be smaller than the numbers on the Federal Register list because they are less inclusive. The fact is the FBI numbers are considerably higher. In addition, there are people who have renounced who have been monitoring the Federal Register and have never seen their names appear.

There is no way of knowing how accurate the information on either of these lists is, but the fact remains that the available info shows that the IRS list is understating the numbers compared to the FBI list. Whether this intentional or just sloppy bookkeeping is impossible to know. 

As I previously stated, US citizenship is a good thing if you live in the US. For many of those thousands of new Americans I'm sure their new status represents a major improvement compared to their country of origin. I'm also sure many of them who kept accounts in their old country are totally (and benignly) unaware of FBAR and all the other filing obligations they have assumed. For green card holders the magic number seems to be eight years. That's the point at which the lifelong obligation to file endless IRS forms even though the person later leaves is triggered. 

However, for those US citizens who have left the US never intending to return, US citizenship is nothing but a ball and chain. The fact remains, there are presently numerous places in this world that offer as good or better opportunities than the US. And those other places allow their tax residents to come and go at will. Only the US attempts to impose this lifelong ownership of the individual. I don't understand it and I never will. The claim that it's because the US is "exceptional" just doesn't fly nowadays. The US is exceptional alright, but for all the wrong reasons.


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## BBCWatcher

Bevdeforges said:


> Talk to that founder of one of the techie companies who renounced last year or so to move to Singapore.


Eduardo Saverin. Yes, he won "life's lottery": born to well-to-do parents who brought him to the U.S., then he attended Harvard then had the right roommate at exactly the right moment in history. He was both very smart (in the book sense) and very dumb (particular documents he signed). Both parts were dramatized in the 2010 film "The Social Network," although the film takes liberties. Even dumb he did OK.



> Though I'd agree that with all that money, paying a little extra tax probably doesn't really hurt all that much. But I'm reading a fascinating book about psychology and economics, and the risk of loss is perceived much more acutely at that level.


Yes, that's a problem among many wealthy individuals. I'd also add many corporate executives, and there's overlap between those two groups. The top line is way more important than the taxes -- "high" absolute tax burdens are highly correlated with high incomes -- but way too many people think they can cut their way to prosperity.

I have no way of knowing for sure, but I think Saverin was badly advised. He probably cut himself off from Silicon Valley, more or less, which isn't the best move in his industry. Singapore is many things, but a hotbed of Internet entrepreneurship isn't one of them, and Saverin doesn't change that. Plus he got to pay an exit tax for the privilege (and perhaps at or near the peak of his wealth), and he's got lots of U.S. source income but now with the IRS keeping 30% withholding interest free. And his personal reputation took a hit. Maybe I'll be proven wrong, but I don't see him turning his remainig wealth into much more wealth. (And he reportedly spends a lot of money on a lavish lifestyle.) We'll see.


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## Bevdeforges

BBCWatcher said:


> I have no way of knowing for sure, but I think Saverin was badly advised. He probably cut himself off from Silicon Valley, more or less, which isn't the best move in his industry. Singapore is many things, but a hotbed of Internet entrepreneurship isn't one of them, and Saverin doesn't change that. Plus he got to pay an exit tax for the privilege (and perhaps at or near the peak of his wealth), and he's got lots of U.S. source income but now with the IRS keeping 30% withholding interest free. And his personal reputation took a hit. Maybe I'll be proven wrong, but I don't see him turning his remainig wealth into much more wealth. (And he reportedly spends a lot of money on a lavish lifestyle.) We'll see.


From the accounts I heard, I doubt he has any further "need" of turning his remaining wealth into much more wealth. I thought he sold off his remaining stock, and so probably settled up his capital gains tax so as to have no further income coming from the US. 
Cheers,
Bev


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## Zendo

BBCWatcher said:


> The progressive income tax is based partly on the idea that if you win life's lottery, a portion (and only a portion) of those winnings ought to help those less fortunate who didn't. And that's based largely on the philosophy of John Rawls, among others. Moreover, according to that philosophy, simply moving overseas shouldn't have any bearing on that particular social responsibility. Rawls was an American.


The philosophy of John Rawls is based on the concept of distributive justice. But, the key to his Theory of Justice was what he defined as the "original position". This definition is not compatible with the argumentation you are using to back up your uncritical response to what is presently happening at the global level. In fact, Rawls would probably not bother with getting involved in discussions of who should or shouldn't be paying taxes to the US government. His theory won't help us go shopping or decide whether to fill out a FBAR. Forget it! Like Kant, Rawls is concerned with higher values as a *reasonable* guide to decision making. He refined his theory many times during his career. And, by the way, he would have probably taken offense at your remark that he was "American". If anything, he was a cosmopolitan thinker concerned with universal values.

But, good try!


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## BBCWatcher

Zendo said:


> And, by the way, he would have probably taken offense at your remark that he was "American". If anything, he was a cosmopolitan thinker concerned with universal values.


Whether he would have taken offense or not is immaterial. He was born in the U.S., educated in the U.S., served in World War II for the U.S., taught in the U.S., spent almost all his life in the U.S., and died in the U.S. He was factually an American.

Rawls himself didn't spend much time talking or writing about tax systems, but I don't think I claimed that. However, his philosophy influenced and continues to influence tax policy -- possibly in ways he didn't intend, but he's no longer around to complain.


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## WhatAmI

US tax law-makers and citizens seem to be united in their resentment of Americans who leave the country. I think the resentment comes from the fact that these expats have left after taking advantage of US education and business opportunities, which is all at a cost to the American tax-payer. Then these people leave and stop paying. To me, this isn't quite the same as US-resident taxpayers who cheat the system and hide their money offshore, but the US views the two in exactly the same light. 

Douglas Shulman (ex-Commissioner of the IRS) made the following remark more than once. Note that he always singles out "wealthy" people:



> We view offshore tax evasion as an issue of fundamental fairness. Wealthy people who unlawfully hide their money offshore aren’t paying the taxes they owe, while schoolteachers, firefighters and other ordinary citizens who play by the rules are forced to pick up the slack and foot the bill.


OK, so the justification for the tax laws, exit tax, etc, is that American expats earned their "wealth" from the advantages they had from US education and business opportunities. If you accept that, then what possible justification is there for applying all the same laws, rules and requirements on, say, a person born in the US to Canadian parents and who left the US as a child and never even entered the US workforce?

Canada has a long history of "brain-drain", where we lose highly trained professionals to the US. The US seems all too happy to receive these trained people "for free", but doesn't allow their own people to leave because of the debt they owe. I'm not going to bother researching it, but I'd bet the US recieves more skilled people than it loses.


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## SoninlawofGus

Good discussion, folks, but there are whole bunch of other things that are missing from the argument that BBCWatcher might want to consider:

- Filing obligations and recordkeeping. Consider the time spent, money spent (on accountants, etc.), and the general intrusiveness and privacy issues. Is not just about the tax -- there are many hidden costs to compliance. 
- Draconian penalties. Many folks would like to get and stay compliant, but getting there can be a downright terrifying prospect. 
- Accidental Americans (born in the US or abroad to American parents), and all of their obligations -- which are the same as everyone else's. Would you argue that a 90-year-old dual-citizen granny who has lived 89 1/2 years in Calgary -- with no US property or investments -- should today be subject to the IRS tax code, Treasury regulations (FBAR), including the prospect for estate taxation? And let's not forget all those penalties for years of non-compliance. Forget US law for a moment -- answer the question logically and reasonably: Is this fair? Is there justice in this practice? 

Why _shouldn_'t non-resident expats be taxed? 
Um, how about really high-brow stuff like basic fairness and common decency -- simple things that a just society would support. And let me turn this around: Why is that United States the only industrialized country that gets away with taxing its non-resident citizens in this way? Don't go back and quote the Supreme Court on this. What are the underlying factors that make this uniquely possible? (Hint: the word "power" would be part of any correct response.)

Can anyone prove that the Federal Register understates its numbers? 
Yeah, I can. I renounced a few years ago. I have the CLN to prove it and written confirmation from the IRS. And, no, my name was never published. I also personally know several other renunciants whose names are not in the Federal Register. Small numbers, I know, but there you go. I'd be happy to take my CLN to Congress to "prove" it, if that's what it takes....

To be clear, I think its fine to tax wealthy people. And I think that an exit tax (based on residency) is probably a workable idea. That's what a lot of other countries do. But US claims a special right of ownership to its citizens.


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## BBCWatcher

I never said I _agreed_ with all the arguments. However, I think I'm describing the political realities well. Government is essential, somebody has to pay for it, and the U.S. long ago decided that relatively well-to-do U.S. citizens living in comparatively low tax foreign jurisdictions must help pay to support the U.S. government. That's certainly not a _crazy_ idea, though some people -- particularly relatively well-to-do U.S. citizens living in comparatively low tax foreign jurisdictions -- may disagree with it.

On edit: For the record I'm not thrilled with paying U.S. taxes, but I do, and I understand the political realities.


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## CdnAllTheWay

Well, actually, it is a crazy idea, when you take into account the ridiculous fashion in which the US IMPOSES citizenship upon people who are not residents.

It IS crazy, to expect me, as a former dual citizen from birth, with no US ties, not US raised, having never sought benefit of any kind from the US, to support the US government in any way. I will receive no benefit from my birth in the US, I've been lied to by the DOS about my citizenship status in the past, when it benefited the US in the 90s. Now they want an annual list of my assests, and those of my Canadian family. They can provide all of their ridiculous laws that they want, the answer is no. They can provide all of the ridiculous justifications they want, the answer remains no. 

During these discussions it's a good idea to keep in mind that not all "citizens" (slaves) left the US as adults. My heritage in Canada goes back beyond the Europeans and Vikings arrival. A blip in that history, caused by my birth 15 minutes over the border, does not constitute tax slavery to the US.


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## BBCWatcher

I disagree. The U.S. Constitution's Fourteenth Amendment is a legal masterpiece, and it was the direct result of enormous bloodshed during the U.S. Civil War that ended slavery. In my view the racial and sometimes racist citizenship laws that many other countries have are not admirable, resulting in huge numbers of individuals with many legal disadvantages. These include descendants of Koreans in Japan, some ethnic Russians in Estonia, and many other examples.

The U.S. is by no means the only country that bestows its citizenship on every child (except children of foreign diplomats) born within its territory. Canada also does, to pick an example.

Anyone possessing another citizenship has the option to renounce U.S. citizenship outside the U.S. from his/her 18th birthday. There is no requirement to maintain the citizenship granted by virtue of the Fourteenth Amendment. If you do not wish to retain U.S. citizenship, don't.

None of this is crazy, sorry. Crazy is not granting citizenship to children born and raised their entire lives in one country. Crazy is also not allowing citizens who possess another citizenship to renounce their first citizenship (e.g. Iran). The U.S. Fourteenth Amendment is one of the sanest legislative documents in the world, and not just for the Citizenship Clause. The Due Process Clause and the Equal Protection Clause are awesome.


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## CdnAllTheWay

It's great for Americans if all those things are awesome, however many of us claimed by the US know squat about them. Once again, the assumption that all claimed citizens have been raised in country, or have American parents to pass that knowledge on to them. My parents were British/Canadian and Canadian. I do not live in the US, I do not represent myself to anyone as a US citizen. Amendments and constitutions outside of Canada do not affect me. The American government does not represent me, even while they lie to me about my status to their perceived benefit, and claim me as a tax slave.

The US is master of enforcing their god given right to have it ALL ways.


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## Bevdeforges

I think the real problem here is that all the various bits of the tax code, as well as the "citizenship code" (if there is such a thing) get passed in response to an immediate situation or crisis, or to satisfy a particular group of interests that get vocal.

Back in the 1970s, the expat groups got organized and lobbied hard and long for the "right" to pass on their US citizenship to their children born overseas - just because they couldn't imagine their kids NOT being US citizens. No one at the time gave a thought to how these new citizens were going to vote (because they have no US state of residence) nor to the tax implications of making kids US citizens who might never actually live (or set foot in) the US.

In some ways, it was much better (for some folks, at least) in the "good old days" when a kid with parents from two different countries had to choose one nationality or the other when they reached the age of 18.
Cheers,
Bev


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## CdnAllTheWay

"The U.S. is by no means the only country that bestows its citizenship on every child (except children of foreign diplomats) born within its territory. Canada also does, to pick an example."

Certainly. Those countries however, such as Canada, don't go huffing and puffing around the world, toting threats of criminal prosecution, and financial ruin upon individuals that it claims as citizens.

Quite frankly, if the US was an individual, I would seek a restraining order in this situation. The US is the abusive, stalker, ex-boyfriend, that my parents set me up on a blind date with. His claims that he "could" provide me with a home, a family, a nice lifestyle, protect me from evil, all fall flat while he is attempting to beat the crap out of me, and drain my bank account. He is no prize, and despite his claims that we married, he is a liar. I did not enter into such an agreement.


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## BBCWatcher

Hogwash. Canada has demanded much from its citizens, as most governments have. I'm referring of course to wars and conscription. There are many thousands of dead Canadians who lived overseas who would disagree if they could. Young male Koreans, Singaporeans, and citizens of several other countries are vigorously pursued by their governments no matter where they live to satisfy their compulsory military service obligations. Most rational people would consider that government requirement to be far more onerous than tax reporting.

The Fourteenth Amendment does not assume anything about nuture, and that's the profound beauty of it. If you're born within U.S. territory you're an American with full legal standing. It doesn't matter what color your skin is, whether a parent was a war criminal, whether you spent 50 years in a Turkish prison, whether you attended school but some bureaucrat forgot to keep records -- none of that matters. U.S. citizenship is yours as a birth right, and only you can give it up of your own will.

It's legally beautiful.

If you're not happy being a U.S. citizen, don't be! If you're not happy you were born a U.S. citizen, blame your parents!


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## CdnAllTheWay

I have renounced, and I do blame my parents somewhat. I blame my father for CHOOSING to serve in the US military, causing me to be born in the US.

Unfortunately, I was not raised in the US, and indoctrinated into the Rah Rah Patriotism Trumps All Club. Make that fortunately.

We shall have to agree to disagree. No one will ever convince me the US is a great place. The kindest thing I can say about the US is that it is a land of myths.

And incidentally, if you are born in Canada, you are a Canadian, unless born to a foreign diplomat temporarily in country. The US has no lock on that situation.


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## maz57

Unlike the US, Canada doesn't hound it's citizens to the ends of the earth trying to force useless tax filings and endless rules and penalties upon them. The Canadian government readily allows it's citizens (and others who are tax residents) to leave and re-enter the Canadian tax system at will. 

While it's true that Canada taxes world-wide income, that is only if you are a Canadian tax resident. And yes, if your tax home is some other jurisdiction (whether you are a Canadian citizen or not) and you have Canadian source income, tax generally is withheld at source. There are various mechanisms for crediting/refunding that withheld amount depending on the treaty in place with your tax home. Once a Canadian has checked out of the system there is no further obligation until such time as he returns to the system. In short, the Canadian government doesn't act like it owns it's citizens by forcing a lifelong obligation to pay obeisance to the homeland.

Aside from the basic stupidity of US citizenship-based taxation, the US tax code interacts badly in innumerable ways with the tax codes of other countries. In short, it's an unworkable system. Congress doesn't care, the IRS doesn't care, and the homelander US public doesn't care. The US is so wrapped up in the flag and "exceptionalism" that it is blind to the damage it is causing to innocent expat US citizens everywhere. The renunciations will continue, the public criticism will continue, the widespread ignorance and flaunting of unwise tax policy will continue, and the resentment of abusive US government policies (read FATCA) will continue. 

You've got it backwards BBC. Power flows from the people to the the government; not, as the US government currently seems to believe, from the government to the people. Even within the US, people generally believe the government has lost it's legitimacy. The Constitution is a wonderful (although somewhat dated) document. To bad they generally ignore it these days.


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## BBCWatcher

I don't think I have it backwards at all. Show me the groundswell of public opinion in the U.S. for eliminating the tax reporting of U.S. citizens living overseas and for eliminating the tax liabilities of relatively (and more) well-to-do Americans living in comparatively low tax jurisdictions. It doesn't exist. These are not old tax policies, as I've pointed out. They stretch back practically a century.

U.S. tax laws will not change on this point unless and until there's a groundswell of public support pressuring elected representatives. I rate the chances of that low.

That's why I always advise people who are concerned about this issue to focus on simplifying the process to comply. For example, does the U.S. need two separate forms (FBAR and FATCA) which aim to collect substantially the same information but which do so with slightly different rules and procedures? I'd say no, and I think there'd be some political agreement on that viewpoint.


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## maz57

As I pointed out in my previous post, BBC, there is no "groundswell" of homelander opinion to move to residence-based taxation. They don't know and don't care. There is. however, a groundswell of expats renouncing their citizenship. This is because the 'unique" US tax policy which was previously largely unknown and ignored is now (with modern technology and communications) causing expats a great deal of financial hardship and distress. I lived in Canada for 40 years before I accidentally discovered this lifelong obligation, dutifully tried to comply, and ultimately found out that it was virtually impossible (at least if I had a normal financial life in Canada). I gave up and relinquished. 

I'm sure you meant to say "not new tax policies". I think the citizenship-based taxation dates back to the civil war era when it certain wealthy individuals fled to Europe to avoid the heavy taxation that was imposed to support the war effort. This tax policy might have made sense a century and a half ago, but it sure doesn't in the present day. It's not only senseless, it flies in the face of the rest of the civilised world. Coupled with FATCA, citizenship-based taxation is causing the US image much harm in other countries. 

I like your idea of eliminating FBAR, but that would really be only minor tinkering and doesn't address the fundamental problem. In the end the IRS and I have a profound disagreement: I don't have any "foreign" accounts. I have ordinary accounts in the town where I live. They say otherwise and I'll be damned if I'm going to report them to what to me is a foreign government for the rest of my life. While there is no movement to eliminate CBT, there is mounting support to overhaul the bloated US tax code and there is hope the change to RBT could be incorporated in a revised US tax system. 

In the words of Winston Churchill, "You can count on the US to do the right thing, but not before they've tried everything else".


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## BBCWatcher

maz57 said:


> There is. however, a groundswell of expats renouncing their citizenship.


Except for the fact there isn't, and, moreover, there's no reliable evidence that I'm aware of which quantifies the motives for U.S. renunciation, many of which are not tax-related.

According to the latest available data reported, U.S. renunciations are running at a pace of something less than 3,000 per year. Contrast that with the number of births in U.S. territory (over 4 million per year) and U.S. naturalizations (about 800,000 per year) and that "groundswell" is pretty damn small.

There is a "groundswell," though, but it has always been so. There's a groundswell of wealthy people who don't want to pay taxes. But actually there's a much, much bigger reason why "friendly" media are pushing these arguments. It's not for the middle class expat having to fill out a FBAR. It's for the big push from corporations to make U.S. corporate tax residence-based. They'd also like to make their current record low corporate tax burden permanent and lobby over time to reduce it further from that new low base. The non-residence individual income tax is a political obstacle in that objective -- it's really tough politically to argue why corporations should have residence-based taxation while individuals should not -- so they're working on both. It doesn't hurt that there's some overlap in these small numbers of very wealthy people.


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