The Road To Tax Reform For Americans Abroad: Part 2 – Citizenship Taxation And The Seven Deadly Sins


Life is full of rude awakenings. More and more people are experiencing their OMG moment …

This is Part 2 of the series. In Part 1, I identified that it is essential that individuals (and governments) unite to bring an end to the US tradition of “citizenship taxation”. “Citizenship taxation” – what a phrase. The words are not descriptive of anything. It clearly has something to do with some form of taxation. The inclusion of the word “citizenship” makes it sound almost patriotic. But maybe, not. Maybe it’s just part of what means to be a citizen. Since only the United States has citizenship taxation, perhaps taxation is what it means to be a US citizen. If so, then perhaps US citizenship should be called “taxation based citizenship”. The concept of citizenship means different things in different countries. Is this a statement that the essence and the meaning of US citizenship is taxation and only taxation?

Citizenship Taxation – Theory vs. Reality

A supporter of citizenship taxation is someone who THINKS about “citizenship taxation”. An opponent of citizenship taxation is anybody who has tried to LIVE under citizenship taxation.

I guarantee you that there is not a single supporter of US citizenship taxation who actually understands it!

Toward An Understanding: Citizenship Taxation And The Seven Deadly Sins

1. Citizenship taxation is the “original sin”. It is the direct cause of ALL the problems suffered by ALL the people impacted by its immoral and insidious nature. When describing the pain that citizenship taxation causes them (PFIC, double taxation, phantom capital gains, transition tax, GILTI, Foreign Trusts, Subpart F, closure of bank accounts, etc) you are describing the symptom of the disease and not the cause.

If one or more of these symptoms is alleviated the original cause remains. Therefore, the appropriate treatment is to attack the cause and not the symptoms.

2. Citizenship taxation by definition implies double taxation for any US citizen who is also subject to taxation in another country. After all, Americans abroad, who are subject to taxation by other countries and the US (because of citizenship taxation) are presumptively double taxed.

At best things like Foreign Tax Credits and the Foreign Earned Income Exclusion mitigate double taxation and do not prevent it.

3. Citizenship taxation is reinforced in US tax treaties. All US tax treaties contain a “saving clause“. The SOLE purpose of the “saving clause” is to ensure that individual US citizens (with limited exceptions) are NOT entitled to the benefits of the tax treaty.

The purpose of US tax treaties is to ensure the double taxation of US citizens and to prevent it only in limited and specified circumstances.

4. The effects of citizenship taxation cannot be understood in their totality. It’s obvious that very few people experience ALL of the symptoms of the disease of citizenship taxation. Therefore, most Americans abroad actually (as painful as it is) grossly underestimate the extent of the problem.

The problem of citizenship based taxation is far greater than the symptoms experienced by any individual! What doesn’t impact you today, could easily impact you tomorrow.

5. Citizenship taxation hurts families and American women in particular. Citizenship taxation impacts any family where one member is a US citizen and the others are not. It makes responsible financial and retirement planning difficult. It deprives the family of the ability to participate in the financial planning opportunities available in their country of residence. Anecdotal evidence suggests that citizenship taxation is a common attack on US citizens living outside the United States who are married to non-US citizens. This is because of the necessity of keeping financial assets in the name of the non-US citizen partner.

Citizenship taxation is NOT a private matter between a US citizen and the US government. It directly affects the families where some members are US citizens and others are not.

6. Citizenship taxation is imposed on certain individuals who have never lived in the United States nor earned any income in the United States! How is this possible? If a child is born outside the United States to two US citizen parents (or in some circumstances one US citizen parent) that child is subject to the disability of US citizenship.

This is regarded by many as “forced US citizenship”. If so, like FATCA and citizenship taxation in general, it is an outrageous extra-territorial application of US law.

7. Citizenship taxation attacks sovereign nations. Citizenship taxation not only affects individuals. It is also a direct attack on the tax base (and therefore sovereignty) of the countries where those individuals reside! Any time, residents of other countries are required to send money to the United States because of US tax laws and penalties, that money is extracted from the economies where those individuals reside. FATCA (the Obama/Biden tool) to enforce citizenship taxation cost non US banks billions of dollars to implement.

The problem of citizenship based taxation is not restricted to US citizens. It is an issue of international importance. I would argue that it is US sanction on the rest of the world.

But, there is no reason for you to believe me. So, why don’t you explore this 190 page document (part of a 2014 submission to the Senate Finance Committee) which includes the comments of real people just like you. (By the way hundreds of individuals made submissions to this committee. All of the submissions are available here.)


Q. Okay, so what then is citizenship taxation?

A. Citizenship tax is how the US imposes worldwide taxation on people who do not live in the United States and are tax residents of other countries. To put simply US citizenship taxation is a system where:

The United States imposes its full system of worldwide taxation, reporting and penalties, on the non-US source income of people who do not live in the United States!!

(For fun, why not match each of these examples with one of the “Seven Deadly Sins“?)

The Objective …

All individuals impacted by US citizenship based taxation must unite to impose a political cost on any candidate or party that does not commit to ending US citizenship taxation. It’s that simple.

John Richardson – Follow me on Twitter @Expatriationlaw

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