Part 15 in series: The Emotional Toll of US Non-Resident Taxation and Banking Policies – “I Just Wanted to Punch, Kick, Scream”

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:


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 11 of this series of posts here.
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 Just Wanted to Punch, Kick, Scream:”
The Emotional Toll of US Non-Resident Taxation and Banking Policies
Post 5 of 5

This is the fifth and last of a series of five posts 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 consists 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 are organized by prevailing theme. More specifically, each post focuses 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 exemplify the experience of that emotion and/or dilemma.
Each post first presents 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 finishes 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.
“The IRS told me the reason they penalized me was that I wrote honest declarations on tax returns…The IRS also stole my US withholdings…Although US citizenship had become unbearable, it still tore me up to go to the embassy and renounce.”
“I was denied banking services…Also the expense of compliance was too much – retired now living on a lower fixed income. [My] bank wanted me to either produce renunciation paper or they would have to close me out – tried to find other banks – after six refusals, I realized I was in a no-win situation – I quite simply had to have access to banking services. I have always been compliant with US tax obligations, but since moving [overseas], my obligation was most often ZERO – yet each year, due to the complexity of the forms and the penalties for errors, I had my taxes done professionally – each year it became more and more expensive – the worst was the year where I owed the tax preparers over five thousand euros to fill out hundreds of sheets of paper that documented that, once again, I owed ZERO in US taxes.”
“I renounced my US citizenship in January 2018. It was a painful decision to take but I do not regret doing so. I filled out my 1040 tax forms religiously for years. When I had only my salary to report it was simple enough and I could fill out the 3 to 4 pages by myself, without having to pay a tax lawyer. The US tax owed always came to zero, as my salary never exceeded the exemption level. I stopped filing in 2005 when I stopped working, and way before French retirement payments started. However, in 2015, one of the banks in which we have an account asked if I was a US person and did I (and they) need to file FBAR. I consulted a tax lawyer who said that not only did I need to report the maximum amount in every single bank account (both in my name only and joint accounts), but that I also needed to file US tax declarations again. I went through the “Streamline Procedure … I had to write a statement showing that my failure to file was not willful. This was extremely stressful and time-consuming not to mention expensive (over 10,000 euros in lawyer’s fees). It would have been impossible for me to do on my own (my US tax declaration for one year is about 54 pages long and totally incomprehensible to me). US tax owed still came to zero. Since going successfully through the Streamline procedure I have filed US tax forms and FBARs yearly at a cost of approximately 1000 € a year in fees (no tax due)…When I went through the renunciation procedure at the US Consul (for which I had to pay 2 000 €), I explained to the Consul that I thought it was a real pity that it had to come to this (i.e., renouncing one’s citizenship due to harassment and stress and unnecessary expenses). His reply: that’s not the first time I’ve heard that reason being given.”
“As a retired senior citizen living off a VERY modest fixed retirement income it became too complicated, expensive and worrisome to maintain US citizenship. I had not lived in US for over 40 years, had no intention of returning so why suffer the daily terror of praying I could keep my bank account, mortgage, fear of entering the bank, getting the mail. Skulking around like a criminal having done nothing wrong, save a few parking tickets, is no way to live. Making the decision was both easy and horrible, there was simply no other rational choice… I felt betrayed by the US and will NEVER forgive them for forcing me to renounce my citizenship; it was part of who I am. On the day of my renouncement I was in a fugue state, the only way for me to emotionally survive. Once there I just wanted to punch, kick, scream at the consular official, tell her how much I HATED the US government but obviously that was not the correct behaviour. I don’t think I really heard what she was saying, just put my hand up, signed my name, took a moment to stare right into her eyes and left. Since that day I live with rage, sorrow, relief and confusion about who I am. I am not a REAL Canadian, I am no longer an American, it feels groundless. In reality it doesn’t really matter but yet it does somehow. Americans abroad have become refugees without refuge, US out to destroy them, home nations will not protect them. We are the citizenry of no one, it is actually terrifying and NO ONE CARES.”
“I was about to lose access to banking system, my pension and brokerage services (shares). I faced financial devastation for me and my family from a country I hadn’t lived in for decades. The UK did not protect me. There was no choice but expatriation. To say that I am angry at the US for forcing me to renounce understates matters.”
“If I had remained a US citizen, it would have financially destroyed my elderly Canadian mother and the rest of my Canadian family, who would have lost the family farmland because of it. I could not find an accountant or lawyer who knew of any solution to this problem. Sadly, I recently renounced my US citizenship. This made me very sad, but I had no choice. It would have been selfish of me to retain my US citizenship at the cost of destroying my entire Canadian family. I am devastated to have had to renounce, but all the regulations and taxes drove me to it.”
“Being very dependent on a few very expensive US accountants in the country I lived since I was a toddler… I was denied by several banks and pension funds. This all drove my family crazy and where also suffering due to CBT. I finally HAD to decide to give up US citizenship. It was the most difficult decision ever and on to this day I am truly sick in my stomach…Since the beginning of FATCA I lived in hell.”
“Americans living on US soil have the mindset that ‘it’s only a tax return,’ and that if we have to pay taxes it’s only because we are making a ridiculous amount of money. They don’t see the threats of massive fines if we misreport something or send in a late company return, which could easily happen as I run on a different financial year here than the US does. Your US passport can be revoked for owing $51,000 to the IRS, which means that as a citizen, you might not see your family again. And with the transition and GILTI tax on businesses this is not far-fetched…Renouncing was absolutely devastating for me… I was holding back tears throughout the process and wasn’t going to say much about why [I was] renouncing, but I was so emotional I just let loose and explained how citizen based taxation is ruining our lives, how unfair it is and how I can’t take the stress and anxiety it gives me anymore. The poor lady just looked at me in sympathy, I’m sure she hears the same story over and over. It felt totally surreal to be there cutting ties to my home country, there is a profound sadness in losing that connection and a feeling of newfound freedom at the same time…I lived in the US until I was 22 and still feel like I’m an American. I love the culture, the landmarks, national parks, friendliness of random people, and the food. But I will always feel a little bit betrayed by CBT and FATCA.”

What is common feature of these experiences with US non-resident taxation and banking policies? It is reflected in the same word as the previous post (Post 4 of 5). Only this time the word is in the past tense: “renounced.”
Here are the words used in association with the experience of having renounced US citizenship: “tore me up,” “no-win situation,” “painful decision,” “pity it had to come to this,” “felt betrayed,” “decision was both easy and horrible,” “in a fugue state,” “wanted to punch, kick, scream,” “I live with rage, sorrow, relief and confusion about who I am,” “to say that I am angry understates matters,” “very sad,” “devastated,” “drove me to it,” “most difficult decision ever,” “sick in my stomach,” “holding back tears,” “so emotional,” “feel a little bit betrayed.”
As was the case in the previous posts in this series, 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.
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Further reading
Read John Richardson's answer to Did you regret renouncing your citizenship? on Quora

KATIE from CitizenshipTaxation on Vimeo.

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John Richardson – Follow me on Twitter @ExpatriationLaw

1 thought on “Part 15 in series: The Emotional Toll of US Non-Resident Taxation and Banking Policies – “I Just Wanted to Punch, Kick, Scream”

  1. Nando

    I don’t see this elaborated on often, but an American person living overseas faces a considerable degree of legal risk associated with the multiple means through which the United States attempts to impose and enforce extraterritorial taxation on them. This risk has been escalated over the last several years, and it is nearly impossible to properly evaluate because of the complexity involved.
    Failing to file an FBAR carries a civil penalty of up to $10,000 (nope, it’s more) $12,459 (nope, it’s now more) $12,921 for each non-willful violation, and the greater of $100,000 (wrong, it’s now more) $124,588 or 50 percent of the amount in the account for each willful violation. Each year is a potential separate violation. Those fines are now helpfully inflation adjusted …
    https://www.irs.gov/pub/irs-utl/irsfbarreferenceguide.pdf
    … at a faster rate than the IRS can maintain their documentation
    https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
    According to the IRS ( see http://www.woodllp.com/Publications/Articles/pdf/Part_4_Examining_Process.pdf ), a conscious effort to avoid learning about FBAR reporting might be “willful”, or failing to learn of foreign account reporting requirements can be evidence of “willful blindness.”
    Criminal penalties for FBAR violations include a fine of $250,000 and 5 years of imprisonment, or $500,000 and/or 10 years of imprisonment if another law, such as tax law, is broken at the same time.
    “Civil and Criminal Penalties may be imposed together. It is possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account.”
    These penalties are threatened for not filling out a form, or not filling it out properly.
    The base sentence for involuntary manslaughter under US federal sentencing guidelines is a 10 to 16 month prison sentence. As an example, a certain Tommy Morgan was found guilty of killing a man while driving recklessly under the influence of alcohol in 2011 and was sentenced to 12 months in prison.
    https://criminal.findlaw.com/criminal-charges/involuntary-manslaughter-penalties-and-sentencing.html
    That examining process document referenced above says that the examiner should apply discretion when determining if a penalty should be levied, and specifically says the examiner can send a warning letter instead of levying a fine, with the overall objective to ensure compliance.
    “Dear Ms Boyd,
    According to our records, it seems you may not be aware of a US Treasury Department requirement to file a Foreign Bank Account Report for each foreign account you have signatory authority over. We therefore are sending you this letter to warn you that there are penalties for non-compliance.


    But prosecuted cases suggest the IRS is instead pursuing an aggressive approach of levying severe fines for unintentional failure to file FBARs, and US courts are backing them up. A Law360 article from May 16, 2019 states
    “Based on a recent U.S. District Court for the Central District of California decision, United States of America v. Jane Boyd, significantly higher financial penalties may now be the reality for United States taxpayers in connection with an unintentional failure to comply with certain foreign financial reporting requirements. Specifically, the court held that a breach of the reports of foreign bank and financial accounts, or FBAR, filing obligations could incur a penalty of up to $10,000 per foreign financial account, rather than only $10,000 per year. In light of this case, United States taxpayers with multiple foreign financial accounts could be at risk for more substantial cumulative penalties if they are not in compliance with the FBAR rules.”
    “The IRS … determined that she committed 13 nonwillful FBAR violations for the 2010 taxable year and assessed total penalties of $47,279.”
    See: https://www.law360.com/articles/1160217/fbar-taxpayers-may-face-steeper-failure-to-file-penalties
    All of us expats should KNOW our filing obligations. Ignorance of the law is no excuse, right?
    Here https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
    It says that “you don’t need to report foreign financial accounts that are held in a retirement plan of which you’re a participant or beneficiary.” That’s a direct quote from the IRS’s webpage.
    Here
    https://www.fincen.gov/sites/default/files/shared/FBAR%20Line%20Item%20Filing%20Instructions.pdf
    It says “Participants in and Beneficiaries of Tax-Qualified Retirement Plans. A participant in or beneficiary of a retirement plan described in Internal Revenue Code section 401(a), 403(a), or 403(b) is not required to report a foreign financial account held by or on behalf of the retirement plan.” Again, that’s a direct quote.
    Here’s the text of section 401
    https://www.law.cornell.edu/uscode/text/26/401
    Here’s the text of section 403
    https://www.law.cornell.edu/uscode/text/26/403
    If an expat does not report their retirement plan on an FBAR (maybe because he or she is not a lawyer specialized in international taxation issues and decides to trust what it says on the IRS website) and an IRS examiner interprets this to be a violation, would that be willful or non-willful?
    If the examiner imposes a fine because the examiner interprets the fact that a foreign retirement account was not reported on a series of FBARs as multiple violations, and that fine exceeds an inflation adjusted limit, currently at $52,000, and the expat can’t pay it because they are not allowed to withdraw money from their retirement account, the expat risks their passport being revoked and becoming functionally stateless if they do not have another citizenship.
    https://www.irs.gov/businesses/small-businesses-self-employed/revocation-or-denial-of-passport-in-case-of-certain-unpaid-taxes
    The expat in our story was not driving under the influence and killed someone while doing so. All he or she did was trust what was written on the IRS website instead of interpreting the Internal Revenue Code in a legally defensive manner.
    If our hapless US expat happens to own their own company to conduct their financial activity (nearly 50% of US expats in France do), then they are required to file a form 5471. Complete failure to do so incurs a penalty of $100,000 if schedules M and O are both required. The instructions, which are exceedingly difficult to understand, ( go ahead and try if you like https://www.irs.gov/pub/irs-pdf/i5471.pdf ) state “Any person required to file Form 5471 and Schedule J, M, or O who agrees to have another person file the form and schedules for him or her may be subject to the above penalties if the other person does not file a correct and proper form and schedule.”
    So that’s another easy way for a US expat to get into significant legal and financial difficulty and risk having their passport revoked.
    Common sense would dictate that the US does not have any legal / tax jurisdiction over a company in another country. Germany does not collect extensive financial information from American companies in an attempt to indirectly tax them through, say, anyone living in America of German heritage. And yet, a US expat living in Germany, operating say a German bistro offering burgers and fries, is subject to extremely complex reporting requirements with harsh fines that certainly exceed his or her ability to pay them.
    So if you are not exposed to any of this and you read one of these comments about how difficult and unfair all of this is, now you know a bit of what they are referring to and have some references to back it up.

    Reply

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