Dual Citizenship – American style – All Americans are both “Citizens” and “Tax Citizens”
One Country – Two Citizenships
First Citizenship – Citizenship for Nationality Purposes
Americans have always been proud of their U.S. citizenship. Most U.S. citizens regard their U.S. citizenship as the most valuable thing they have. Most Americans will fight for their citizenship. They will die for their citizenship. They believe that their U.S. citizenship gives them rights and privileges that citizens of other nations simply do not have. Whether true or not, this is how U.S. citizenship is regarded. Citizenship for “Nationality” is what gives people the “rights of citizenship”. At present, these rights include: the right to enter the United States (as long as you have a U.S. passport), the right to work and the right to vote (as long as you meet the voting requirements of your State). That’s all. No more and no less (as long as you have a U.S. passport).
Second Citizenship – Citizenship for Tax Purposes
What could be better than U.S. citizenship? Why not a second U.S. citizenship? The United States Congress rewarded U.S. citizens by giving them all a “Second U.S. Citizenship”. On June 3, 2004 the American Jobs Creation Act gave all U.S. citizens a second citizenship. To be specific, on June 3, 2004 all U.S. citizens became U.S. “Tax Citizens”. Interestingly, the U.S. public never asked for “Tax Citizenship”. The status of “Tax Citizen” was simply conferred on them. “Tax Citizens” have no rights. They have only obligations. The obligation is pay taxes. I recently heard it said that:
“U.S. citizenship is the gift that keeps on taking.”
In September of 2014, I conducted a “Problems of U.S. Citizenship Session” in Montreal, Canada. As usual many of the attendees were in the midst of their OMG (“Oh My God Moment”). The phrase “OMG Moment” is well known. But, what is the “OMG Moment”? I suggest that the “OMG” moment is one of two things. It is either:
1. The moment that those who believe that they are U.S. citizens (or other “U.S. persons”) learn that they are required (even though they don’t live in the U.S.A.) to obey U.S. tax laws, file U.S. tax and information returns, and are subject to the draconian life altering penalties that are part of membership in Club U.S.A.; or
2. The moment that they learn for the first time that they may be considered to be a U.S. citizen (or other U.S.person). This post will focus on those in the second group. That is on:
Those who do NOT believe and have not believed they are U.S. citizens and are learning that they “may be considered to be a U.S. citizen”. Continue reading →
The above tweet references an interesting article by Rachel Millios. Rachel is an Enrolled Agent with competence in managing the tax requirements of Americans abroad. She has had an interesting career – including a stint in Iraq with the U.S. military. What I find particularly interesting about her post is that she is NOT a U.S. citizen abroad. She is a “Homelander”. Her insightful post (I have highlighted parts of particular interest) includes: Continue reading →
On October 10, 2014 Kelly Phillips Erb (AKA @TaxGirl) published a “Guest Post” on the question of whether one one would give up U.S. citizenship because of taxes. It was a very will written post which detailed the horrors that Americans abroad experience in attempting compliance with a tax code that “puts most of their lives in the penalty box”. I recommend the post to you. There are a number of comments about the post at the Isaac Brock Society. The post concludes with:
So will I renounce to avoid taxes? Not exactly, because I DON’T OWE taxes due to my very low income. BUT IN ORDER TO AVOID THE CONSTANT THREAT, like a huge hammer hanging over my head, of “INFORMATION FILING PENALTIES” as I grow older and less able to cope. To protect my executors from those same things?
YES, I’m afraid I shall have to. I have put off taking this step until now, partly because of the cost and my fear of the long journey to the embassy in a distant city; but mainly in the hope that my beloved homeland would regain its wisdom and fix its mistakes by switching to an equitable system of residence-based taxation with penalties that reflect only a percentage of tax actually owed.
And now it seems I have waited too long. A price increase from $450.00 to $2,350.00 was just announced. I may be trapped. I am becoming desperate to escape, but unable to afford it.
What a silly situation this would be, if it weren’t so very tragic.
Oh my dear, sad homeland. I do so wish you happiness and a return to shared prosperity. Please do the same for me. Thank you. *Tisha (who prefers not to be identified by last name) remembers fondly her years in Pennsylvania and its wonderful people. She now feels she is too old to start over again, and so remains in her mother’s country.
The video referenced in the above tweet is almost three hours long. The current 877A (U.S. Exit Tax Rules) have their genesis in 1995. It also makes it clear that it was the Clinton administration that developed the current draconian Exit tax rules. They became law in 2008.
You will also note that there is (I believe) no discussion of the plight of Americans abroad. Yet, the complete philosophical justification was the idea of people using U.S. resources, building assets and then escaping.
Any U.S. citizen living outside the United States, who is NOT a covered expatriate (income test, asset test, compliance test) should understand the consequences of becoming a “covered expatriate”.
Virginia La Torre Jeker is a U.S. tax lawyer practising in the Gulf. She has shared the text of her recent interview with Newsweek. Although I highly recommend the complete interview, the following is of particular interest.
8. NEWSWEEK: Do you think more and more people will give up their US citizenship? VLJ: Absolutely – I have them as clients and am seeing more and more of them each day. I understand that many Consulates and Embassies in Europe have waiting lines for those wishing to expatriate. Think about it – let’s say you are a Saudi Arabian national and are very happy living and working in Saudi Arabia or some other tax-free Middle Eastern country. You plan to remain in the region because this is where you grew up, your family is here and your roots are here. Perhaps you became a US citizen after studying in America over a decade or two ago. You also have ownership in the family business and plan to build it up with your siblings. The US tax laws require you to report extensive information about that foreign-owned business causing disharmony in your family (including for example, provision of profit and loss statements, as part of your US tax return); you may have to file information returns about the financial accounts owned by that business; you will be paying US tax on your world-wide income and many potential business partners may no longer wish to do business with you because you are an American. Wearing those shoes, a decision to expatriate may become more understandable
Many people are confused about the difference between renouncing U.S. citizenship and relinquishing U.S. citizenship. To put it simply:
There is ONLY “relinquishment” of U.S. citizenship. “Renouncing U.S. citizenship” is just one way of relinquishing. This is described in S. 349 of the INA.
I refer you to an interesting post at the Isaac Brock Society. For those having trouble understanding the different ways one can “relinquish”, I recommend this post and (more importantly) the comments.
Significant Quotes: London Lawyer: “If you compare it to “romance” the U.S. is like fatal attraction, once they have got you, they will never let you go. You have to renounce your citizenship or you have to die.” Government Officials off the record: “Nobody in Congress represents overseas Americans.” Government Officials off the record: “It might be worth it lose a few thousand American citizens to catch some tax cheats.