Category Archives: Renounce U.S. citizenship

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!!

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A simple regulatory fix for the problem of US citizenship taxation

Background

In 2016 I first made the suggestion that citizenship-based taxation could be changed through Treasury regulation. In October of 2020 John Richardson, Dr. Karen Alpert and Dr. Laura Snyder completed a paper titled “A Simple Regulatory Fix For Citizenship Taxation”. The idea advanced is that:

Although Congress and the Internal Revenue Code created the problem of “citizenship-based taxation”, Treasury has the authority and moral duty to fix the problems of citizenship-based taxation.

Discussion

In 1924 the Supreme Court of the United States considered U.S. citizenship-based taxation in the case of Cook v. Tait. Of course in 1924, the laws of both citizenship and taxation were very different. I have previously explored the evolution of citizenship, taxation and citizenship-based taxation.

The article has received fairly wide distribution (including in the academic community).

Abstract

This article explains the simple regulatory actions that United States Department of the Treasury can take that would, in the absence of legislative change, improve the lives of Americans living overseas and permit the IRS to better focus its limited resources to more effectively administer the U.S. tax system.

The article can be read at SSRN here.

The 2020 article can be at Tax Notes here.

I welcome your comments.

John Richardson – Follow me on Twitter @Expatriationlaw

FinCEN Changes FBAR Deadline Again AND AGAIN

Republished with permission. This post was written by Helen Burggraf and originally appeared on October 16, 2020 on the American Expat Financial News Journal website.

Another Update October 19, 2020 – The Filing Deadline Is Now October 31, 2020

And back to the original post …

The U.S. Financial Crimes Enforcement Network has quietly removed from its website its surprise announcement, posted just two days ago, that the final deadline for Foreign Bank Account Report (FBAR) filings had been moved to Dec. 31, from Oct. 15 (yesterday).

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Fascinating discussion with @Scaramucci: They want the #expat vote, but don’t want to understand the #FATCA life! #Citizide continues

Fascining discussion. In this election season the politicans are agressively courting the vote of Amerians abroad. Yet, they seem unwilling to take the time to understand the problems of Americans abroad and how FATCA has destroyed many life – resulting in many renunications of US citizenship.

Renunciation is a process of transitioning from US citizen to nonresident alien. How does this affect your tax situation?

On June 25, 2020 Dr. Karen Alpert and I did a series of podcasts where we discussed how renunciation will affect your interaction with the US tax system. The key point is that you will still be taxable by the United States on US source income. What does that mean? Under what circumstances could renunciation of US citizenship actually increase your US tax liability?

John Richardson – Follow me on Twitter @ExpatriationLaw

Good discussion on renouncing US citizenship AKA #citizide: The good, the bad and the ugly

This is one of the better interviews regarding US citizenship renunciation, covering a wide range of important issues.

Does the US provide #Americansabroad any benefits? Shouldn’t US #expats who find US @taxationabroad onerous just renounce their US citizenshp?

On May 30, 2020 the following question appeared on Quora and prompted some interesting answers and discussion:

As a defender of American “freedom”, how do you justify the fact that US citizens have to pay taxes to the US even if they live and work abroad (even if they have never been to the US but got their citizenship through their parents)?

I along with others attempted to answer the question. Here is my answer.

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Some of the most interesting analysis comes from the comments to the answers. See the following answer and comment. I have turned David Johnstone’s comment into a post.

One of the answers to the question included the suggestion that:

If someone lives and works abroad as an American citizen, he or she must be enjoying SOME benefits or they would logically renounce their US citizenship instead of paying US taxes. That would be a good solution for anyone facing this question. Just go!

David Johnstone responds to this answer with the following comment:

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Podcast – US Citizenship: Retain or Renounce – Streamlined, Relief Procedures For Former Citizens

(Interesting discussion in the above twitter feed.)

On April 30, 2020 I hosted a discussion with Karen Alpert, Laura Snyder, David Johnstone and Keith Redmond. The discussion touched on a variety of subjects of interest to Americans abroad and Accidental Americans.

The discussion included a segment on the September 2019 IRS Relief Procedures For Former citizens and how they compare to Streamlined compliance.

Bottom Line: It’s complicated. People are different. Different solutions for different people. But, for many:

“All Roads Lead To Renunciation”.

Recent economic upheaval creates expatriation opportunities for “US Persons” living abroad

This post was motivated by a thread on Reddit …

At the end of this post, I have included the Reddit thread. (Note that I am trying to develop a “RenounceUSCitizenship” thread on Reddit – you will find it here.)

As you know the US Section 877A Expatriation Tax applies to U.S. citizens and “Long Term Residents”. A “Long Term Resident” is an individual who has had a Green Card (as defined by the rules in Internal Revenue Code Section 7701(b)(6) for at least eight of the fifteen years prior to expatriation). This has become a serious problem for Green Card holders who simply move from the United States and and don’t take formal steps to sever their U.S. tax residency. (They must either file the I-407 or use a tax treaty tie breaker election to expatriate. Otherwise they may be in a situation where they have no right to live in the United States (having lost the immigration status) but are taxable on their worldwide income (still being tax citizens).

That said, whether you are a U.S. citizen wishing to renounce U.S. citizenship or a Long Term Resident wishing to sever U.S. tax residency, you do NOT want to be a “covered expatriate“. Generally, (unless one is subject to two exceptions – dual citizen from birth or expatriation between 18 and 181/2 – that are beyond the scope of this post), one is treated as a “covered expatriate” if one meets any one of these three tests:

1. Net worth of 2 million USD or more (which this post will focus on)

2. Average U.S. tax liability of more than approximately $165,000 USD over the five years prior to expatriation

3. Failure to certify U.S. tax compliance for the five years prior to expatriation.

The COVID-19 Panic – Falling asset values – more favourable exchange rates -2 million USD net worth test

The last couple of weeks have changed and continue to change our world. We are experiencing human misery on an unprecedented and global scale. This includes physical illness, fear of illness and social distancing. I live in a large city and I am beginning to see less variety in the food available. Self-employed people are seeing disruptions to their revenue streams, etc. I don’t want to keep listing examples. But it is very bad. On the economic front, we are seeing unprecedented and incalculable damage to the world economy. This includes (but is not limited to) falling asset values – how is your stock portfolio doing? We see currencies that are weakening relative to the U.S. dollar. (This means that a higher Canadian or Australian dollar net worth would equal 2 million USD.) As I write this post I just received a message, from someone advising me that the shares in a certain cruise ship stock, have fallen from $136 to $22. (My advice would be: Don’t spend money on the cruise. Instead buy the shares in the company.)

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