Tag Archives: citizenship tax

How U.S. Citizenship Tax, The Treaty “Saving Clause” and FATCA Create A Fiscal Prison For Dual Tax Residents

Introduction – The Problem Of Dual Tax Residency For U.S. Citizens

A “Hell greater than the sum of the parts”

There are people in the world who really don’t understand (or say they don’t) what exactly is the problem with U.S. citizenship based taxation. They claim to not understand why defining “tax residency” based on the “circumstances of birth” rather than the “circumstances of life” is a problem. They fail to consider how taxation based on “circumstances of birth”, interacts with U.S. tax treaties and FATCA to create a “hell that is greater than the sum of the parts”.

This is the third post in a series designed to explore and facilitate the understanding of the U.S. “citizenship based” extra-territorial tax regime. The first post explored the practical meaning of U.S. citizenship-based taxation (it’s primary effects are on people who live outside the U.S.). The second post explored the fact that tax residency based on “citizenship” is tax residency based on the “circumstances of one’s birth” rather than the “circumstances of one’s life” (its effects are primarily based on the circumstance of birth in the U.S.). The conclusion drawn from these first two posts was that the U.S. citizenship based extra-territorial tax regime is one in which:

The circumstance of a U.S. birthplace is used as a justification to regulate the lives of people with no connection to the United States and impose U.S. taxation on income that has no connection to the United States and is received by someone who does not live in the United States.

Citizenship taxation has practical and contextual meaning only its application to tax residents of non-US countries. The U.S. uses the circumstance of a “U.S. birthplace” to reach out and “claim” the tax residents of other countries as U.S. “tax residents”.

The purpose of this post is to explain how the interaction of U.S. citizenship taxation (claiming those with a U.S. birth place as U.S. tax residents when they are tax residents of other countries), the “saving clause” (not allowing U.S. citizens with dual tax residency to assign tax residency to the country where they actually live) and FATCA (the tool to hunt, find and enforce the extraterritorial U.S. tax and regulatory regime on the residents of other countries) creates a whole hell greater than the sum of the parts.

Many people understand the three components of “citizenship taxation”, the “saving clause” and “FATCA” as separate entities. Few appear to understand how those three components interact together to destroy the lives of U.S. citizens with dual tax residency. The U.S. has created a “fiscal prison” for its citizens. Seven video accounts of the impact of the U.S. citizenship tax regime are available here.

This problem can be solved ONLY by the United States redefining its rules for “tax residency” so that “citizenship” (the circumstances of one’s birth”) is not relevant to “tax residency” (the circumstances of one’s life).

This post is to identify the component “Part”(s) of the problem. It is organized in “Sections” and “Parts” as follows:

Section I – How The Problem Was Created

Part A – Tax, Residency and Tax Residency
Part B – The general problem of dual tax residency
Part C – Introducing the treaty tie break and how it can be used to end “dual tax residency” under a relevant Canadian tax treaty”
Part D – The general principles of the U.S. Canada “tax treaty tie break – How “circumstances of life” are used to assign tax residency
Part E – Food for thought – Citizenship the least important factor for the treaty tie break
Part F – Two possible examples of assigning residence to one country by using the “treaty tie break” – Green Card Edition
Part G – U.S. Citizens CANNOT Benefit From The “Tax Treaty Tie Break” – Hello “Saving Clause”
Part H – The “Saving Clause” And The Inability For U.S. Citizens To Use The “Treaty Tie Break” Is How The United States Captures The Residents Of The Treaty Partner Country And Claims Them As U.S. Tax Residents
Part I – The Tax Treaty Tie Break And Implications For U.S. Tax Compliance And For FATCA And The CRS Reporting

Section II – How Dual Tax Residents Experience The Extraterritorial Tax Regime

Part J – The U.S. exports a more punitive from of taxation to tax residents of other countries
Part K – The Problem Of Investing, Retirement planning and Retirement Planning – The Punitive Taxation And Reporting Requirements of PFICs and Foreign Trusts
Part L – The Problem Of Non-U.S. Pensions – How Are They Treated Under The Internal Revenue Code? – Different Rules For Different Countries
Part M – Discouraging U.S. Small Business Abroad – The Treatment Of Small Business Corporations Generally And On A Country By Country Basis
Part N – The “FBAR Marriage”: How Marriage To An Alien Results In Higher Taxation, More Reporting, Difficulties With Asset Transfers, Higher Divorce Costs And Possibly A Requirement To File A Tax Return With As Little As $5 Of Income

Section III – How The U.S. Extraterritorial Tax Regime Attacks The Sovereignty Of Other Countries

Part O – The U.S. taxation of residents of other countries attacks and erodes the tax base of those other countries

Section IV – Solving The Problem: Regulatory And Legislative Solutions

Part P – Regulatory Solution: “A Regulatory Fix For Citizenship Taxation
Part Q – Regulatory Solution: Amending The “Saving Clause” In U.S. Tax Treaties
Part R – Territorial Taxation For U.S. Citizen Individuals
Part S – Redefining U.S. Tax Residency To Move To Residence-based Taxation”

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July 5/22: An Opportunity To Educate Resident Americans About The Horrors Of Citizenship Tax

Updated July 5, 2022 …

Great discussion with Bob Paxton and Bob Scarborough:

An Opportunity To Educate Resident Americans About The Horrors Of US Citizenship Tax

First a special thanks to Joe Howard who arranged for this opportunity.

On Tuesday July 5, 2022 at 8 pm EST (20:00) I (John Richardson) will appear on the Fair Tax Power Radio Show. The Fair Tax Power Radio Show is hosted by Bob Paxton and Bob Scarborough. The show is for the purpose of educating US residents about the (1) the problems of the U.S. income tax system and (2) the solution by moving to the Fair Tax. You can learn more about the Fair Tax in my recent blog post found here and on the Fair Tax site. I suggest that you follow their Twitter feed at @FairTaxOfficial.

The Topic: How The US Tax System Disables Americans Abroad From Financial and Retirement Planning and How The Fair Tax System Would Solve This Problem

You understand the problem. You understand the pain. You understand the fear. You understand that you may be forced to renounce U.S. citizenship.

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Comments from Americans abroad about the effects of #FATCA and @CitizenshipTax

Those contributing to conversations on Social media about FATCA and US citizenship-based taxation would find the following to be of great value.

Those who are trying to provide education on this topic should use this book.

Those who are trying to learn about this topic should use this book.

Submission_SFC

Also, see the following video accounts here:

http://www.vimeo.com/citizenshiptaxation

John Richardson – Follow me on Twitter @Expatriationlaw

Why ALL individuals should support the @RepHolding Tax Fairness For Americans Abroad Act

What: You are invited to a live conversation with Solomon Yue and John Richardson to discuss the Holding bill

When: Tuesday January 15, 2019 – 12:30 EST/17:30 GMT (Toronto, Canada) time (one hour)

Where: http://www.uberconference.com/orgop2 or by calling: 503 – 773 – 9640

Pre-Registration: Required – please visit http://www.facebook.com/RepublicansOverseas for instructions (or leave a comment at the bottom of this post which includes your name, email and country of residence).

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