Category Archives: American expatriates

Buying Their Freedom: Toward A More Efficient Process Of US Citizenship Renunciation

Buying Their Freedom – A More Efficient Renunciation Process – The “Readers Digest” Version Of This Post …

The effects of US citizenship taxation enforced by FATCA are causing great distress to the US citizens who reside in and are tax residents of other countries. They are being constructively forced to renounce US citizenship because of (1) the out of pocket costs of US tax compliance (2) the possibility of double taxation (3) the US taxation of things that are not taxable in their country of residence (4) the “opportunity cost” of their inability to engage in financial and retirement planning and in some cases (5) the threat or reality of bank/financial account closures. In addition, these circumstances are unfair to their countries of residence who are forced to deal with a group of people who are more likely to require “social assistance” in their retirement years. US citizenship is a problem for US citizens who attempt to live outside the United States and for the countries where they live.

Although many people are constructively forced to renounce US citizenship, the US has made renunciation very difficult from both a cost and availability perspective.

The purpose of this post is to suggest that the process of renouncing US citizenship should be facilitated in the US citizen’s country of residence by that government. Renunciation could be achieved more quickly, at lower cost and (under my proposal) partially subsidized by the government of residence (which would justify this as “buying back their citizens” from any US claim of taxation or other regulatory burdens). I believe that this proposal would benefit the individual US citizen, the US citizen’s country of residence and the United States itself. The following post describes how this can be achieved under the existing US laws.

As President Obama once said:

“The circumstances of one’s birth should not determine the outcome of one’s life.”

This post is composed of the following parts:

Part A – Introduction
Part B – The US Government And The Oppression OF Americans Abroad
Part C – The Legal Framework Of Renunciation
Part D – The Logistics – How The New Renunciation Process Would Work
Part E – Reviewing The Benefits Of The New Renunciation Process
Part F – The Revised Renunciation Fee
Part G – Democratizing Renunciation – Making It Available To All – A Financing Proposal
Part H – Sadly this could all be be prevented if the United States were to end citizenship taxation and adopt the world standard of residence taxation. But, …
Part I – Conclusion – “All Roads Lead To Renunciation”

Continue reading

Thinking About Financial And Life Planning For US Citizens Living Outside The United States

Introduction

This week I am giving a (short) presentation on this topic. I created some slides that are designed to provide the categories for discussion. I thought I would share the slides in this blog post.

John Richardson – Follow me on Twitter @Expatrationlaw

H.R. 5800 – To establish a commission to study how Federal laws and policies (except US Citizenship Taxation) affect United States citizens living in foreign countries

The Readers Digest Version

Yes, this post is a bit long. If you don’t want to read it, here is the “Readers Digest” version in the form of a tweet:

Now, on to the explanation …

Continue reading

Moving To Mexico From Canada Or The USA

There is definitely at trend toward moving abroad for retirement or other reasons …

I came across this very interesting answer on Quora. There are many people in both the United States and Canada who are looking for a “kinder and gentler nation”. In a Post-Covid world more and more people are realizing that they are not tied to any particular place.

I came across this very interesting answer on Quora. There are many people in both the United States and Canada who are looking for a “kinder and gentler nation”. In a Post-Covid world more and more people are realizing that they are not tied to any particular place.

John Richardson – Follow me on Twitter @Expatriationlaw

US Citizens And Divorce: It’s More Complicated For Americans Abroad

Prologue – Divorce And US Citizens Abroad

Panel session – US Expat Tax Conference from Deborah Hicks on Vimeo.

Purpose Of This Post …

Divorce is difficult, traumatic and potentially very costly. What follows are links to three posts – written by David Ellis, CPA – which originally appeared at Tax Connections ins 2022. The point is that US citizens abroad are subject to BOTH US tax rules and the rules in their country of residence. The problem is exacerbated when a US citizen is married to a noncitizen.

The following three posts provide an excellent summary and analysis of how the Internal Revenue Code impacts US citizens living inside the United States or abroad …

Dividing Property In Divorce Tax Traps – Part 1

Dividing Property In Divorce Tax Traps – Part 2

Dividing Property In Divorce Tax Traps – Part 3

Dividing Property In Divorce Tax Traps – Part 4

Dividing Property In Divorce Tax Traps – Part 5

Dividing Property In Divorce Tax Traps – Part 6

Dividing Property In Divorce Tax Traps – Part 7

Dividing Property In Divorce Tax Traps – Part 8

Dividing Property In Divorce Tax Traps – Part 9

Dividing Property In Divorce Tax Traps – Part 10

Dividing Property In Divorce Tax Traps – Part 11

Dividing Property In Divorce Tax Traps – Part 12

Dividing Property In Divorce Tax Traps – Part 13

John Richardson – Follow me on Twitter @Expatriationlaw

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

Introduction

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.

https://www.citizenshiptaxation.ca

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

Continue reading

The Road To Tax Reform For Americans Abroad: Part 1 – The Problem Is The System And Not The Party

Introduction – The First Of A Series Of Short Posts

My name is John Richardson. I am a Toronto, Canada based lawyer. I am also a founding member of “SEAT” (“Stop Extraterritorial American Taxation”). I am an advocate for reforming the US laws which apply to US citizens who live outside the United States as permanent residents of other countries. The problems experienced by Americans abroad are at the “boiling point” and something must be done. This post is motivated by the following twitter thread which reveals the pain, desperation, anger and divisiveness experienced by Americans abroad:

This is the first of a series of short posts in which I will share my thoughts and suggestions for how to proceed. I welcome your comments both here and on twitter where I am @Expatriationlaw.

Blind Partisanship Is Not Productive

I want to state at the outset that I am an independent and am not a member of any political party. I have been and continue to be supportive of independent candidates in Canada (and anywhere else). I state this because during this series of posts, I will express sentiments that are critical of political parties. When I criticize the Democrats it’s not because I am a Republican. It’s because the Democrats are deserving of criticism (or vice-versa). Healthy democracies are dependent on accurate observations and objective analysis. Excessive partisanship is simply an excuse for reasoned analysis.

The Difficulty Of Living As A US Citizen Outside The United States

First, if you are a “retiree living abroad” where all of your income is US sourced this post is NOT for you. You are filing the same US tax return while “retiring abroad” that you would if you were living in the USA. You are probably filing tax returns ONLY in the USA. Therefore, the US citizenship tax regime does not impact you in the same way. This post is for those who live permanently outside the United States and your income sources, assets and retirement planning are associated with the tax systems of other countries (foreign to the United States).

Second, As permanent residents of other countries, US citizens are treated as BOTH tax residents of the United States and tax residents of the countries where they live. In other words, they are subject to the full force of two (often incompatible) tax systems. Think of it. US citizens living outside the United States are subject to the tax systems of two countries at the same time. Leaving aside the anxiety this induces, the time that it takes to comply, the heightened threats of penalties and the outrageous costs of compliance (think tax accountants and lawyers), this puts Americans abroad in a position where:

1. They are subjected to a tax system that is more punitive than the tax system imposed on US residents

2. They are often subject to double taxation (the foreign tax credit rules and the Foreign Earned Income Exclusion do not prevent many forms of double taxation)

3. The US tax rules prevent them from engaging in the normal financial planning and retirement opportunities (Canadian TFSA and UK ISAs are not tax free for US citizens)

4. In many countries, because and only because of their US citizenship they are prevented from maintaining the normal financial accounts they need to live in a normal way (this is the direct result of the 2010 Obama FATCA law)

The cumulative weight of these problems is that US citizens living outside the United States are being constructively forced to renounce their US citizenship in order to survive. But, it gets worse. Since June 16, 2008 certain Americans abroad who renounce US citizenship (“covered expatriates“) are forced to pay a special expatriation tax on their non-US assets to achieve this goal. (You can find a video of my discussing US citizenship renunciation here.)

Americans abroad are NOT renouncing because they don’t want to be Americans. They are renouncing because the US tax and regulatory regime is forcing them out of their US citizenship!

It’s The System Not The Parties

Regardless of which political party is in power, tax laws will continue to change.

As long as the United States employs citizenship-based taxation, changes in US tax laws will continue to have dramatic (sometimes intended and sometimes unintended) effects on Americans abroad. These negative effects and outcomes will continue regardless of which political party is in power.

For example:

The 2017 TCJA became law under the Republicans. The effects on Americans abroad were horrible. (Examples include: Transition Tax, GILTI, those using the “Married Filing Separately” category were required to file with zero income)

The 2010 FATCA law was enacted under the Democrats. The effects on Americans abroad were horrible. (Examples include: Form 8938, FATCA bank account closures, etc.)

Therefore, it is a mistake to bicker over which political party has done more or less damage to Americans abroad. As long as citizenship-based taxation continues and tax laws continue to evolve, whatever political party is in power will – by changing tax laws – continue to damage the lives and finances of Americans abroad.

Individual American Abroad Must Unite To Get This System Of Law Changed

Conclusion for today: The problem is the system! It’s not the political parties.

You have the right to vote. The question is not which party to vote for. The question is how can you most effectively use your vote to end US citizenship-based taxation and encourage FATCA repeal.

To be continued …

John Richardson – Follow me on Twitter @Expatriationlaw

Take 1: Digging The Foundation To Build The House Of US Residency-based Taxation

Prologue

This is the fifth of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. The third post was “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“. The fourth post explains why some Americans Abroad actually OPPOSE changes to citizenship-based taxation. This fifth post in the series is to begin a discussion of what would be the basic changes (to the existing Internal Revenue Code) that would move the United States toward the world standard of pure residency-based taxation.

It’s about “pure residency-based taxation” and not citizenship-based taxation with a “carve out”

I have previously advocated that the United States should move to to a system of pure residence-based taxation. A system of pure residency-based taxation, means that:

Citizenship is NOT a sufficient condition for tax residency. If citizenship is not a sufficient condition for tax residency, income sourced outside the United States, which is received by people who are not residents of the United States, should not be taxable by the United States.

Note that pure residency-based taxation is NOT citizenship-based taxation with a “carve out” for US citizens living abroad. To put it another way: US citizens, simply because they are US citizens, would NOT be defined as US tax residents and subject to US worldwide taxation. This is different from US citizens being defined as US tax residents, but allowing (like the FEIE) for their foreign income to be excluded from US taxation. Note also that this is a legislative proposal. It is therefore different from our earlier proposal for “A Regulatory Fix To Citizenship Taxation“.

It is my opinion and the opinion of the members of SEAT, that only a system of pure residency-based taxation will solve the many problems of Americans abroad!

How is residency to be determined?

Residency is commonly determined in various ways. For example, Canada determines residency based on an objective deeming provision (number of days spent in Canada and through a “facts and circumstances” test described as ordinary residence). Generally, citizenship (if it is a factor at all) is not a significant issue in determining ordinary residence. The Canadian experience is proof that it is possible to have very sticky tax residency without citizenship being an issue.

Purpose of this post:

The purpose of this post is to propose some simple amendments to the Internal Revenue Code which would provide a foundation for the United States to transition from citizenship-based taxation to pure residence-based taxation. The goal is modest. The post is not intended to (I will write a separate post) deal with those who are CURRENTLY US citizens living outside the United States. It is NOT to address all the issues. That said, most of the Internal Revenue Code focuses on the taxation of those who are US tax residents. Little in the Code focuses on the actual definition of US tax residency.

The purpose of this post is begin with the fundamentals and ask:

How could the existing Internal Revenue Code be modified to provide a framework for residency-based taxation? Of course, readers will be left with many questions. But, the proposed foundation would allow for:

1. US citizens to move from the United States and sever tax residency with the United States.

2. US citizens to move from the United States and continue to be treated as tax residents of the United States.

Under either scenario, US citizens would remain US citizens. They would NOT be required to relinquish US citizenship in order to sever tax residency.

Obviously there will be many complications. But, every journey begins with a modest beginning. This is intended to be only a modest beginning. It is to begin digging the foundation to build the house of “residency-based taxation”.

The post is composed of the following parts:

Part A – Residents Are Subject To Worldwide Taxation

Part B – Nonresidents Are Not Subject To Worldwide Taxation

Part C – Definition Of Resident and Nonresident- 7701(b)

Part D – Definitions That Require Change “US Person”, “Relinquishment Of Residency”, etc.

Part E – Relinquishment Of Residence

Part F – Living abroad without relinquishing US residence

Generally, I believe that amendments to a small number of sections of the Internal Revenue Code provide the foundation from which to grow. Note that this proposal solves the problems of the “Retirees Abroad” (they don’t give notice under the new 877(a)(g)) and the problems of accidentals (they were never tax residents in the first place). There would be regulations (like the Canada Revenue Agency folio) for what constitutes residence. In Canada tax residency is defined largely by “ordinary residence” – a concept that is very sticky).

I am identifying the building blocks that could define tax residency under a US system of residency-based taxation, with few modifications to the Internal Revenue Code. (These building blocks are generally compatible with the existing Internal Revenue Code.) Once the foundation has been built we would then build our way out. This initial foundation solves the PFIC problem, the CFC problems and most problems related to foreign source income. The FinCEN 114 (FBAR) rules currently reference Internal Revenue Code 7701(b). Therefore, the proposals in this post would solve the FBAR problem.

I will discuss other issues impacting Americans abroad in subsequent posts.

I have included only the sections of the Internal Revenue Code that I consider the foundation of US tax residency. When a word is IN CAPS that means that there has been a change to facilitate a change to pure residence-based taxation.

Continue reading

Toward An Explanation For Why Some Americans Abroad Oppose Changes To Citizenship Taxation

Prologue

This is the fourth of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. The third post was “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“. This fourth post explains why some Americans Abroad actually OPPOSE changes to citizenship-based taxation.

My last post discussed those who were complacent about citizenship-based taxation. In other words people who are actually indifferent. Their indifference contributes to the difficulty in cultivating a strong movement in support of pure residence-based taxation.

The purpose of this post is to discuss those who actually support the current system of citizenship-based taxation because they fear any change will harm them. They are NOT indifferent. They support the current system fo citizenship-based taxation.
Continue reading

Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation

Prologue

This is the third of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. This third post is “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“.

Why are some Americans Abroad not concerned about citizenship-based taxation? Why will many Americans Abroad continue to vote for the same political party that continues to damage them? What does this imply for unifying Americans Abroad in support of a movement toward residency-based taxation? This post will explore these issues.

In The Life Of Many Americans Abroad: Citizenship-based taxation is not a problem until it is!!

Continue reading