Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:
"What Is The Future Of Citizenship-Based Taxation?" Prof. William Byrnes (Texas A&M Law), Prof. Edward Zelinsky (Cardozo Law), John Richardson (Canadian attorney who represents US-Canada dual nationals), Kat Jennings (CEO Tax Connections) https://t.co/LP63MHEFYS
— William Byrnes (Tax Monk) (@williambyrnes) May 5, 2019
You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.
Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.
Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).
You will find Part 1 to Part 10 of this series of posts here.
Psychological harm and the pain of living as an American abroad – Why this next series of posts is important
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 12, 2019
I began this “Citizenship Solutions blog” in 2014. The blog included a page (not very visible) called:
Origins of the psychological torment of those targeted by the extra-territorial application of U.S. tax and banking laws
The campaign of Barack Obama will be remembered by the slogan “Change You Can Believe In”. For Americans abroad the election of Barack Obama was the beginning of a nightmare that they will never forget. Although U.S. citizenship- based taxation had always been the law in theory, it was never applied in practice. This changed with the Obama administration in three ways:
First, a toxic mix of Obama’s IRS, the tax compliance industry and the media worked to create an environment where individuals living outside the United States were led to believe, that the U.S. was enforcing U.S. citizenship-based taxation on Americans abroad. During the summer of 2011 innocent Americans abroad (some who had relinquished U.S. citizenship years earlier),were ushered into the OVDI program.
Second, the rollout of FATCA enlisted banks in the process of searching for U.S. citizens living abroad, who were not filing U.S. taxes.
Third, many Americans experienced their “Oh My God” moment where they learned about U.S. extraterritorial tax policies. For many the “Oh My God” moment permanently changed their perceptions of themselves. One day they were proud Americans. The next day they were threatened by the fact that they either were or had been U.S. citizens. Furthermore, they became (or at least believed) that they were a threat to their non-U.S. citizen families.*
The simple truth is that U.S. citizens are terrified of the U.S. Government. The vast majority of Americans abroad were not (and are still not) filing U.S. taxes. Their failure to file was because, they didn’t know that they were required to. Those individuals who were financially responsible and compliant with the tax laws where the live, were most impacted emotionally. They couldn’t believe that they had done something wrong. After all, they had lived their lives “trying to do the right thing”. The realization that they were not compliant with U.S. laws evoked a range of very damaging emotions. They experienced a range of emotions that they had never experienced before.
The emotions experienced were somewhere between “anger” at one extreme and “fear at the other extreme”. The experience of either too much fear or too much anger is a dangerous thing. The best an individual can hope for is to live life somewhere between fear and anger. It’s important to understand how intense and how damaging the psychological impact of the experience of being criminalized by the U.S. Government, has been and continues to be.
Laura Snyder discusses the “emotional toll of U.S. non-resident taxation and banking policies
Laura Snyder has written (in addition to her original four posts) a series of five posts describing and exploring “The Emotional Toll of US Non-Resident Taxation and Banking Policies“. Part 10 of this series (comments of Nando Breiter) was a prologue to Ms. Snyder’s five posts.
Now, over to Laura …
“I Feel Threatened by My Very Identity:”
The Emotional Toll of US Non-Resident Taxation and Banking Policies
Post 1 of 5
This is the first of a series of five posts (designated as Parts 11 – Part 15 in this series) relating to US taxation and banking policies as they relate to persons who do not live in the United States.
As John Richardson has reflected in prior posts, it is important to hear from people who are actually impacted by those policies and who have the courage to speak about their experiences. As John also observed, their experiences bear little if any relation to the theory. Further, their experiences belie the prejudices commonly held against them.
The bulk of each of the five posts of this series will consist of comments that current and former US citizens and green card holders living outside the United States submitted in response to a recent survey. The comments will be organized by prevailing theme. More specifically, each post will focus upon a particular emotion and/or dilemma that Americans commonly experience as result of US non-resident and banking policies. The comments presented in that post will exemplify the experience of that emotion and/or dilemma.
Each post will first present the comments. As you read through them, the emotion and/or dilemma that is common to them should become obvious. However, in case it isn’t, each post will finish with a brief explanation both of the commonality and of its significance for any defense of US non-resident taxation and banking policies.
The comments have been edited in part to protect anonymity and in part to facilitate analysis.
“When I discovered in 2016 how high the penalties were for not filing FBARS and that I was supposed to have been reporting on my small business with the 5471 and also my [retirement plan], I was in shock and have been operating since then in a state of extreme anxiety… It now costs me about $3500 a year for continued compliance and I realize that each tax accountant interprets the IRS rules differently…My life has been turned upside down since 2016, a real paradigm shift in my consciousness of having thought of the US as the greatest country in the world and I was very proud to be a citizen, now I feel threatened by my very identity.”
“I was considering joining a small partnership with some friends. We examined the impact of FATCA and US double taxation and concluded that my participation would harm the company. I am approaching retirement and FATCA and double taxation have wiped out my retirement savings by hitting me with extraordinary taxes on [passive foreign investment companies] and locking me out of simple retirement schemes. It’s been 5 years locked out and I’m desperate and worried. I’ve often had trouble sleeping at night because of the fear and intimidation of US tax compliance. I can no longer afford these tax attorneys. I can’t use [the foreign-earned income exclusion] because my job situation is unstable and if I lose my job, I’ll have to file for unemployment and will get hit with full double taxation by the US.”
“Having retired I find I can get no advice on my pension choices because I am an American person…American investment companies are no longer able to handle accounts for Americans resident outside the USA. I cannot invest in stock and shares in the UK because I am an American person. I have lived in the UK for over 50 years. I have no life in the US, no social security, I don’t qualify for Medicate. It is a nightmare. I feel frightened.”
“I have been denied the opening of new bank accounts. I live in fear of the accounts I do have being closed – as a result simply receiving a monthly bank statement is a traumatic experience for me because until I’ve opened the envelope, I can’t be sure that it isn’t a notice to close my accounts. I have been removed as a joint holder from my husband’s accounts. This is because his bank refuses accounts to US citizens and told my husband that his accounts would be closed if he did not remove me… I am very worried about this situation. If my husband dies before me I will not have access to those accounts. This will result in very serious hardship for me and my kids. As a result I pray that I die before my husband. I know that if he dies first, my life as a US citizen living outside the US will become a living hell.”
“I am unable to obtain a bank loan or to invest. Remaining a US citizen costs me thousands of dollars a year in tax preparation fees, though I end up owing no taxes, as well as double taxation of some revenue. But more so, it severely restricts my ability to function in the society where I live – difficulty obtaining and keeping basic bank accounts, no loans, no investments; the threat of exorbitant penalties for failing to file US forms which I might not even know about; the threat of new laws with retroactive taxes, such as the repatriation confiscation, even though following the existing rules for years; and the wasted hours upon hours trying to figure it all out. My US citizenship currently represents only fear, embarrassment, and harassment.”
“Middle class people who try to comply with IRS rules are the ones in trouble, not being able to afford expensive international tax consultants and therefore living in fear of exorbitant fines for mistakes or omissions.”
“I am nearly 10 years away from retirement. I worry about my [non-US state and private] pension[s] being taxed, any income from [non-US] investment decisions [with my partner] being taxed, paying capital gains on any [non-US] property we sell – I worry about the financial blackmail I will live under if I keep my US citizenship, AND my relationship with my partner, who is the major financial contributor to all our investments and our home. Why should he have to pay this burden?”
“I’m afraid to file. I’m afraid to become compliant … and I’m afraid not to!”
“I have not entered the American tax system as I cannot afford a professional tax preparer, and I am unable to do my taxes by myself… I am a student and I work part time, so although my income is above the threshold, it is meager. As I am not in the American tax system, I am unable to open any new bank accounts or take any loans which affects my possibilities for saving for my retirement. I can’t afford to renounce my American citizenship, but I wouldn’t want to either, as I still have close ties to my family there. I feel like my hands are tied, and I worry about my financial future because of this unfair system.”
“My husband is not a US citizen. We don’t have a joint bank account because of this mess. I’m afraid I will be turned away from receiving a mortgage, which means everything will have to be in his name.”
“I employ a slew of good professionals at significant cost to manage my affairs yet still always feel that I am drowning in absurd paperwork, vague decision-making and a feeling that someday it will all fall apart and I will face serious legal and financial consequences simply for trying to live a normal life.”
“I hide from my financial institutions for fear of being forced out for being American. I avoid speaking to my financial institutions so my accent doesn’t give me away.”
“The risks associated with expat small business ownership seem to have grown exponentially. It seems to me that nobody knows how we will be treated yet under these new laws. The consultants of course want to paper this uncertainty over and assure potential clients that they know how to handle these taxes. Otherwise they will lose business. It’s become a potentially very dangerous situation for people like me.”
“I felt blindsided a few years ago when I found out what having been born in the US meant for me from a financial perspective. I have had sleepless nights over US taxation and only because my parents decided to have a baby while my Father was serving his country at the United Nations.”
“I earn a modest income and my (non-US citizen) spouse is the main bread winner. I worry that if I start working full-time once my children are older that I will be blocked from making any sort of savings for my retirement. I worry that if we ever decide to buy a home, everything will have to be entirely in my husband’s name because no bank would be willing to have an American citizen listed on the mortgage. I am very worried that I might still overlook something and/or make a mistake on my tax returns for which I will be heavily penalized.”
“It’s very stressful and is impacting my health, my family, I feel depressed and I can’t sleep well. It’s driving me insane.”
“As an old person US demands are stressful, menacing and unfavorable to health.”
“I want to comply with the law and have made several attempts to do so and sort out all of my tax filing obligations. But I cannot afford the fees and most accountants have told me they are unsure of how to proceed with new tax code laws and for my specific situation. I have visited the IRS in my state and called them and I have never really gotten the answers or support I have sought. I am really afraid of getting in trouble or being penalized in some way simply for being ignorant.”
“I live in constant fear that the IRS is going to come after me and brandish massive fines. I don’t have the thousands of pounds needed just to pay an accountant to look at my records.”
“My impression is that it is not possible to report correctly due to mismatches between the tax systems. I fear that will cause mistakes that will cause me trouble later. That’s even using professionals. Therefore, I’ll probably change citizenship, but don’t want to. I’m also afraid of the cost and tax danger of changing citizenship. I’m a bit paralyzed.”
What is the emotion common to all these experiences with US non-resident taxation and banking policies? It is fear, or some variant thereof. Look at the words these Americans use: “constant fear,” “extreme anxiety,” “life turned upside down,” “threatened,” “desperate,” “worried,” “menacing,” “intimidation,” “trouble sleeping,” “nightmare,” “traumatic,” “living hell,” “embarrassment,” “financial blackmail,” “stressful,” “harassment,” “dangerous,” “blindsided,” “drowning,” “I hide,” “impacting my health,” “unfavorable to health,” “depressed,” “insane,” “paralyzed.”
These are not the words of people who are merely inconvenienced by the preparation of their annual tax returns. These are not the words of people who are shirking their tax obligations in the countries where they live. These are not the words of wealthy people who moved overseas for the purpose of avoiding US taxation.
These are the words of ordinary Americans seeking nothing more than to live ordinary lives in the places where they live. But US non-resident taxation and banking policies make it impossible.
Any credible defense of current US non-resident taxation and banking policies must take these words into account. It must acknowledge the experiences that are behind these words. It must either propose realistic means to end the anguish such policies cause or, if not, then it must own this anguish and make clear in what manner it is acceptable and justified.
Further reading …
* On the issue of feeling threathened by U.S. citizenship: See this video interview which explains how the Oh My God moment led to this proud American renouncing her U.S. citizenship. Notice (1) how hard she tried to understand her tax obligations to the United States and (2) the extent to which she views her U.S. citizenship as a threat to her Canadian family. Additional videos are available here.