
U.S. Expats Balk at Tax Law: American Citizen Renunciations Are Soaring - wikiburner
http://online.wsj.com/article/SB10001424127887323585604579007860126146566.html
======
616c
I am a citizen that works in an international org abroad and I am exempted
from taxes due to my annual income being under the threshold.

That aside, I am thinking inevitably I would renounce my citizenship given the
opportunity to get a citizenship in Europe. I am no longer interested in
associating with the political shithole my nation has become, and it looks
like that will not change.

Reality tells me however, and from experience: a) whatever country I would
establish in would turn to shit and I cannot shop for citizenship every time
some country loses its mind (which happens frequently these days) and b)
Americans are treated very well as expats in terms of low restrictions on visa
requirements and barrier to entry (unless you are going to Iran and the like).
Point A is minor, while Point B, having been married to an Arab national for
only over a year, has proven that being anything other than American or one of
the European countries of high standing is very uncomfortable for anything
requiring travel, and often humiliating. That is why, sigh, she is clamoring
for her US citizenship ASAP.

~~~
primitur
Australia/New Zealand are pretty attractive, citizenship-wise. As an
Australian, I get the 'reciprocal' treatment - i.e., we will treat you as you
treat our citizens, and since thats pretty good right now (Australia lets many
European citizens in for a working-visa, two years on average), this means I
can move around most of the western world without too much fuss.

I cringe at the hassle my American friends have to go through whenever they
travel through a densely-packaged country region such as Europe .. whereas we
Australians seem to get treated pretty well.

~~~
616c
What are their requirements? I remember hearing about Wozniak but I never
checked. I should do that soon.

~~~
ajtaylor
For Australia, the easiest path IMHO is a 457 visa => Permanent Residency
after 2 years => citizenship after 1-2 years as a PR. They definitely are
pretty generous. I'm working on the paperwork for my PR now.

~~~
jacques_chester
Like NZ, we have a points system. Young, highly qualified professionals can
get in much easier.

------
idan
I'm a dual citizen (US and Israel) currently residing in Israel. I'm not
remotely wealthy.

US tax laws are inconceivably, horribly bad for expats like me, even if you
are just a working dude. The amount of paperwork and headache I undergo yearly
just to stay within the law on taxes is ridiculous—that translates into direct
costs to me, mainly for employing two accountants (one for each tax
jurisdiction). They're constantly communicating about how best to structure
things—not so I can save some money on the imaginary millions I don't have,
but to simply not be a criminal.

It gets worse from year to year, as the US passes ever more complex tax laws.
Some of them are a major financial burden (double taxation). Some of them are
just expensive to comply with (accountant hours).

I'm not going to renounce my citizenship anytime soon, and I get that expats
are probably a tiny group, but it's a major pain. Almost every other country
on earth taxes based on location, not based on citizenship. Don't reside in
Germany all year? Great—no taxes, and no state services for you.

------
Fizzadar
To be expected really when the IRS seems to think that, even if you live
outside the US for a full tax-year, you are taxable as a US citizen just
because you hold a passport/green card.

It was a long time dream/plan of mine to try get sponsored and on to the green
card system (because I think the US is a beautiful country - and I would love
to live there for multiple years) until I discovered these taxation laws.

~~~
yardie
If you're on a greencard these tax laws don't apply to you. You're only taxed
for what you make while in the US.

~~~
gsb
(User woe, you have been hellbanned which is a shame because your points in
this thread have been quite true.)

------
InclinedPlane
So stupid, and it ruins the perception of the US worldwide. The result of this
change is going to be exactly as described, a lot of US citizens living
outside of America are going to renounce their citizenship and not a single
dollar is going to flow into the federal budget. No upside, a lot of downside.

~~~
Aloisius
Really? What upside is there to having US citizens living outside the US and
not paying taxes? They enjoy the benefits of being a US citizen without any of
the shared sacrifice.

I say, let them renounce.

~~~
tallanvor
What benefits do you think we're getting when we live overseas? Having to fill
out a lot more tax forms? Getting charged $50/document you need notarized at
the embassy because they're the only option available if you're not in the US?
And if you do decide to renounce your citizenship, they charge you $450 just
to do that!

Trust me, unless you're very well connected, you're not getting any benefits
of US citizenship when you live overseas.

~~~
vacri
Forest for the trees.

I met a triple Dutch/UK/American citizen. Sounded English, self-identified as
Dutch, but always travelled on her US passport (she was a world traveller, big
time). Why? Because the US actually does things to support its citizens when
they travel in foreign lands, whereas everyone else just gets "well, you were
stupid, weren't you". She was quite clear on the point that Americans get more
assistance than others do, and she wasn't well-connected in the US (being
early-mid 20s European)

~~~
deerpig
Wrong. If you aren't on CNN, they won't lift a finger to help you. About 12
years ago my life was in very real danger, my best friend at the time was the
British embassador to the country I was in. He told me if I was a British
citizen he could help me and told me to go to the Us Embassy, because that's
what they are for. When I went I was interrogated by four guys with buzz cuts
and shiny shoes who obviously had no clue about what was happening on the
ground outside the embassy walls. I refused to talk until they told me what
they could do to help. Finally a woman came in who appealed to my patriotic
duty, and finally pushed a piece of paper across the table and told me to
write down an address in the States where they could ship my body, saying "it
is not the policy of the United States Government to help citizens abroad." I
was floored, but finally declined her generous offer and took my chances.
Luckily it only cost me a few broken ribs, though one of our offices was
firebombed, another partner chopped up with a machette in another part of the
country.

If you're in trouble abroad, don't hold your breath.

Hell, you can't even walk into embassies any longer for citizen services, you
have to make an appointment for all citizen services and even then, they still
make you wait for half an hour in an empty waiting room with bullet proof
glass before they get around to seeing you.

~~~
ars
"I refused to talk until they told me what they could do to help"

That's not exactly the best way to ask for help. You are asking them, not the
other way around.

"who appealed to my patriotic duty"

She appealed to you?? Shouldn't it be the other way around?

I suspect your experience is not shared by most people, and has more to do
with you than with the US embassy.

------
adamcik
This tax scheme also causes a lot of trouble for kids who had the bad fortune
of being born in the US, without growing up there or any other real ties to
the country. You are still subject to the tax rules, are technically breaking
the law every time you entry the US with you real passport (as you must use
the US one even if you never got it as you as still technically a citizen).

Getting rid of the citizenship is then best done around the age of eighteen,
but chances are no one will tell you how much of a pain in the ass all of this
is, and likely you won't even be aware of the tax potential tax burden and
paperwork. Alternative is to pretend like nothing and hope you never get
caught.

When you finally get around to renouncing the whole thing becomes a never
ending process of getting all the IRS papers and possibly back taxes in if you
earn enough, getting a SSN as you can't file taxes without it, actually
renouncing, and likely getting the SSN after you renounced as the whole thing
takes bloody ages, and then finally figuring out exit taxes and if you are
actually exempt from paying them. The exit taxes of course have two loop
wholes, one of which is you were born a dual citizen _and_ still pay taxes to
the other country, which means you are screwed if you are working abroad.
While the other test checks net-worth, average income over the last five years
and a few other things. Oh, and for the exit tax the states assumes you have
sold all you assets and will tax you on the capital gains of those fictive
sales...

Whole system is a mess, there is no way in hell expats can fix it as their
votes don't in essence don't count and it's "free" money for the state. The
level at which taxes kick in for expats of course stopped being adjusted long
ago as the state realized that if they stop increasing the min. amount they
get more money. Though it is still being moved slightly up, it's long since
stopped targeting the truly wealthy and is now hurting more and more regular
people (especially if you live in a high cost country with high wages that has
crept above the threshold).

Throwing money and/or time out the window is no fun, so I have no problem
understanding why people want to get rid of their citizenship if they can
without becoming stateless.

~~~
jacques_chester
Having access to American universities and jobs on Amercian-citizen terms give
those troubled children a helluva worldwide advantage.

As an Australian I have no advantage on the education front over any other
foreign student. I at least have a leg up in the E-3 visa.

Dual citizenship can smooth the edges too, depending on the 2nd citizenship.
Lots of countries have reciprocal tax treaties with the US that will excuse
American citizens earning in the foreign country from paying American income
tax, because they are paying local taxes. And vice versa.

~~~
adamcik
The way the US tax treaties work you get tax credits for your local taxes. So
if you live in Scandinavia with high taxes, say 40% you have enough credits to
offset all of your ~30% US taxes. But if you are in a low tax country, say 20%
you would end up still paying ~10% taxes to the US.

edit: And yes, if the citizenship is a good or bad thing is of course highly
dependent on your other citizenship, your plans to study/work/live in the US,
the country you intend to live in instead of the US and a number of other
factors.

~~~
jacques_chester
Thanks, I didn't know that.

------
seanmcdirmid
It sucks, I go through this every year: file a tax return where I crunch a
bunch of numbers to eventually figure out I owe...nothing, and of course file
my fbars so the gov knows about all my bank accounts. I'm also never sure if
I'm doing it right since its so complicated, and I don't trust tax accountants
to do it right either. There is also the matter of double taxation if you do
business trips to the states but work in a country without a decent US-
oriented tax treaty (e.g. China...).

But I wouldn't renounce my citizenship over this, that would just be stupid.

------
patio11
Because people occasionally get worried about this: here is the actual FBAR
form: [http://www.irs.gov/pub/irs-pdf/f90221.pdf](http://www.irs.gov/pub/irs-
pdf/f90221.pdf)

Mine took five minutes to fill out. Four minutes to find the postal address
for my bank branch, one to flip through my bank statements to find the peak
balance and covert it to USD.

It may get slightly more complicated if you control an account in the Cayman
Islands with $30 million which you might have forgotten to file on your taxes
for the last 30 years.

~~~
a035bb942
> Mine took five minutes to fill out. Four minutes to find the postal address
> for my bank branch, one to flip through my bank statements to find the peak
> balance and covert it to USD.

Sadly, it's not that simple!

Suppose you in the year 2013 have 200k units of Foreign Currency X (FCX) in
your non-US savings account, and the money has never had anything to do with
the US (it's all been earned and saved abroad, where you live and work). Let's
say the conversion rate in 2013 is 2 FCX to 1 USD. OK, so you report 100k USD
on your FBAR. Let's say 2013 is a bad year for you, so you haven't been able
to put anything in your savings account - in 2014 it still stands at 200k FCX.
But lo and behold, the value of the USD has fallen against the FCX, so the
dollar equivalent in your account has now in 2014 become 150k USD. This means
[1] that you have to put 150k USD on your FBAR and _that the difference of 50k
USD is taxable as capital gains_. This is _utterly_ , entirely, completely
insane! It's nothing short of international robbery. (I repeat: I'm _not_
talking about money earned in or brought into or out of the US here - I would
understand if it were taxed. This money has never had anything to do with the
US, and has never been converted from one currency to another, except on the
FBAR form.)

This cannot be OK. Not at all. I understand that the laws were made for
catching US money hid away overseas. That goal makes perfect sense. But the
way it works now is just insane.

[1]
[https://www.youtube.com/watch?v=CfWk6yRdwMo](https://www.youtube.com/watch?v=CfWk6yRdwMo)

~~~
patio11
First of all, merely having a number increment on your FBAR in year N and year
N+1 does not cause that delta to become taxable income. (And, for that matter,
failing to have a delta does not show absence of income. For example, if you
earn 100k euros in a year and consume 100k euros, your accounts will show a
delta of nothing, but you still earned 100k euros.)

Second, the US does not tax unrealized capital gains. In the situation you
have just described, you have not realized any capital gains and have no
taxable income, even if you believe that receiving currency in year N and
disbursing of it in year N+X counts as capital gains if the currency has
appreciated against the dollar. This interpretation is contrary to what the
IRS will tell you is the law.

Should you want to actually use the money, you should say that "My cost basis
in the 200k Euros is 200k Euros. I liquidated them at their fair market value,
of 200k Euros. This gives me a capital gain of 0 Euros, which when I put it on
forms I will convert into dollars, for capital gains of $0." There are more
complicated things you'll want to do if you operate a currency exchange
business, but that isn't relevant to you.

If you disagree that this is the correct interpretation of US tax law, you can
do what I did and phone the IRS. They'll explain it to you.

If you doubt this is correct, use some of the 200k Euros to have a brief chat
with a tax accountant. I know this sounds new and scary for you. It was new
and scary for me, too, eight years ago. It's a lot easier than you think it
is.

~~~
gsb
The parent may have been confused about when a transaction takes place. They
would only have a taxable event for their currency at the time they converted
between different currencies. However, the advice you give about calculating
capital gain in foreign currency is VERY bad. You may have been given bad
advice. In particular, the IRS helplines are completely inaccurate for issues
arising from foreign residence. If you get a personal letter ruling then their
advice is binding. Advice over the phone is not binding.

For a US citizen, the functional currency for personal taxation is ALWAYS the
US dollar. See particularly points 12 and 13 of
[http://openjurist.org/93/f3d/26/quijano-v-united-
states](http://openjurist.org/93/f3d/26/quijano-v-united-states)

Basis must always be converted to US dollars using the exchange rate at the
time of purchase, and sale price likewise converted to US dollars using the
exchange rate at the time of sale. The US capital gain is then the difference
between these two US dollar values.

This can easily (and frequently does) lead to having to pay a capital gain on
a transaction that lost money in the currency in which it actually took place.
Particularly the last decade was bad for this with the falling US dollar.

Many expats (if they are aware of their obligation to worldwide taxation which
most are not) may calculate this incorrectly. This will often be ignored by
the IRS, because they have no matching information to use to flag the foreign
transaction for audit. However, with FATCA coming, the IRS will finally get
some matching information and it is a strong possibility for nasty surprises
in the future.

------
northwest
Btw, the whole "I renounce b/c I'm just losing cash" problem also applies to
Green Card holders abroad who either haven't "moved in" yet or have
temporarily "moved out". AFAIK they also pay US taxes abroad.

~~~
seanmcdirmid
If they don't live in a high tax country, sure.

------
tdicola
The numbers don't seem to be that concerning--1000 people/quarter or let's say
5000 people renouncing per year. Out of 6 million citizens living abroad
that's less than 0.1% renouncing their citizenship. Can you really draw any
conclusions from such a small group?

~~~
bretpiatt
It could have a massive impact if the ones renouncing are top earners,
"Meanwhile, Americans in the highest 0.1 percent of all income-earners — these
are the very rich, with incomes of at least $1.974 million — paid 16.4 percent
of the total federal tax burden.". ( source:
[http://www.weeklystandard.com/blogs/top-01-percent-pays-
more...](http://www.weeklystandard.com/blogs/top-01-percent-pays-more-income-
tax-bottom-80-percent_594000.html) )

Anecdotally this is happening, ex. Eduardo Saverin. ( source:
[http://www.forbes.com/sites/briansolomon/2012/05/11/eduardo-...](http://www.forbes.com/sites/briansolomon/2012/05/11/eduardo-
saverin-renounces-u-s-citizenship-ahead-of-mega-facebook-ipo/) )

~~~
spullara
Population: 313.9 million Top 0.1%: 314,000 people Lose 5000: 1.6% Revenue
paid: 16.4% Revenue loss: 0.26% Total federal rev: $2.7 trillion Total loss:
$7 billion

~~~
vacri
The article is stating that the exflux is due to the additional difficulty of
hiding assets, so it's not at all like this is a straight loss.

------
spullara
Where Facebook users are immigrating:

[https://twitter.com/Amazing_Maps/status/366328072066187264/p...](https://twitter.com/Amazing_Maps/status/366328072066187264/photo/1)

------
a035bb942
It's all an insane mess. I do feel for US expats that have to go through this,
when no other expats have to (the US and Eritrea are the only countries that
practice citizenship based taxation [1]), but I'll bring to this thread
another group of people that I haven't seen mentioned so far in this thread.
Again, I'm not trying to detract from US expats. Your problems are real
enough, and you are unfairly treated, but here's a rant about another group of
people:

Some of us are US citizens _born abroad_. We are the children of one or two US
parents, born outside the US. We have lived our entire lives as citizens of
another country, and our ties to the US may be as slim as having been there on
vacation a couple of times. We are still subject to all of this. And while it
is true that most (all?) won't be double-taxed, the reporting requirements are
so complex and so strict - and made all the more complicated by
incompatibilities of the tax codes of our native countries and that of the US
- that it's almost impossible not to make a mistake. And mistakes are punished
severely - at least in theory. Even trying to evaluate whether university
scholarships in my country is taxable by the US (an obscene idea on the face
of it) seems to take a lawyer or accountant. Where does it end? What about
child benefits? Pensions?

Yes, we could renounce our US citizenships when we turned 18. In my case,
however, I was not told I was a US citizen. It's now more than a decade on,
and I've never filed with the IRS because _my US parent did not tell me I was
a citizen_ until recently. What on Earth do I do? So far, I've frozen in place
and not dared do anything. I am not a US person in any common sense of the
word, but I feel entirely trapped by that foreign country. The benefits of a
US citizenship that have come up in this thread have an entirely opposite sign
for me: I'm a researcher, and would love to spend significant time at US
institutions, but now I can't - I can't stay beyond a tourist visa as a
foreigner because as far as the US is concerned I'm not a foreigner. And I
can't travel on a US passport because I don't know what will happen to me if I
get one and do. And I can't fix things with the IRS (which I'd love to do),
because I have no idea how many laws I've accidentally and unknowingly broken.
I'm sorry that I have, and I wish I hadn't, but how could I possibly have
known? You might say that my parent should have told me - and I agree - but
that didn't happen. While ignorance of the law is no excuse normally, I
certainly am not going to do anything that places me in danger (financially or
otherwise) from a foreign nation - so here I am, frozen in limbo. As for any
social service the US might provide, I can tell you that every one of these is
provided better and more generously by my liberal European homeland. I don't
want anything from the US - I only want to either be let go and leave the
club, or be treated fairly. Either one is fine by me, but the current
situation is not.

Incidentally, any pointers from HN would be much appreciated. I know my status
quo of "do nothing, sit still" won't be good in the long run, but I also have
no damn idea on how to approach the matter.

Let me summarize again: I've never earned a dollar in the US. I've never
received a dollar from any US entity, save the odd birthday present from
relatives as a kid. I've never been to the US for more than a couple of weeks
at a time - and only as a tourist. I've never voted in the US. I've never
brought money into or out of the US - except ordinary tourist amounts. I pay
(comparatively) high taxes where I live - in my country, my home, which is
_not_ the US. I never knew I was a US citizen. Now all of these benefits that
people bring up apply to me with a negative sign. I'd gladly give up my US
citizenship - but you can't unless you've proven that you're good with the IRS
going back 5 years, and that you're not renouncing for tax reasons. As for
that latter part - some might say I am... I am, afterall, trying to avoid
being haunted by a foreign nation's tax collecting agency for the rest of my
life. Is that renouncing for tax reasons? God knows...

(Sorry for the rant - this has just constanly occupied 10% of my head for a
while, and it's not like there's a lot of people nearby in the same situation
to talk to... any pointers from you guys would be great).

[1]
[https://en.wikipedia.org/wiki/International_taxation#Citizen...](https://en.wikipedia.org/wiki/International_taxation#Citizenship)

~~~
adamcik
Last year in September a tax delinquent program for expats was enacted, what
this means is basically that you need to file the last three years of taxes,
and the last six years of FBAR (for the years you had more than 10K USD in
your accounts). This is instead of the last five years of taxes that you would
normally be required to do. You would only need to actually pay taxes if you
are over ~90K USD a year and don't have enough foreign tax credits to cover
it.

To be able to actually file the taxes you need a SSN. You can get this by
going to a consulate or embassy, bringing the proper original documentation
(get in touch with them for the details). They will make certified copies,
mail those up the chain until it gets to the state department and 3-6 months
later you will have your SSN.

For actually doing the taxes one option is to pay someone to do it. You still
end up doing a lot of prep-work yourself, so you are basically paying to some
peace at mind that they've signed of on things being correct.

If you go for a renunciation, the date you renounce is the date your tax
obligation ends, this has recently changed and not all tax accounts, even the
ones that specialize in expats seem to know this. This means you might end up
with renouncing before you have a SSN, and thus your taxes in order, so look
into the laws and/or ask an expert before deciding how to handle this.

Last bit is figuring out exit taxes, there the tax accountants seem to be
useless as it makes no sense for them to specialize in one time customers. But
it seems they will happily charge you for looking over and sanity checking the
form once you fill it out.

You can also forget calling the IRS and getting any help about renunciations,
they consider such matters "advanced" and will only tell you to get a lawyer
and/or tax accountant.

[http://web.archive.org/web/20130626160026/http://www.renunci...](http://web.archive.org/web/20130626160026/http://www.renunciationguide.com/)
used to have a very comprehensive coverage of the renunciation process, but
seems to have disappeared :(

As for how to proceed, and what makes sense to do is a highly personal matter
and depends on so many things. The act of renunciation is irrevocable, and
should not be taken lightly. I wish you the best of luck as having this type
of stuff looming over you is really draining.

~~~
a035bb942
I appreciate your comments.

------
gadders
For the people that don't know/appreciate the difference, the US taxes its
citizens on their earnings globally. You can normally net this out against the
taxes you pay locally via double taxation agreements.

~~~
gadders
One other thing - can we set something up so people who renounce their
citizenship can give it to someone who wants it? I'm a Brit but I'd love to
live and work in the US.

------
chrischen
Maybe they should get Chinese citizenship. I hear they're economy is growing
and if you have the money you can get away with anything over there.

In all seriousness, if you don't at least support the American gov't with your
wallet or with your life (military service), you aren't really American. Why
should you always have the option to go back to the US?

~~~
tsotha
>In all seriousness, if you don't at least support the American gov't with
your wallet or with your life (military service), you aren't really American.

Supporting the US government is not a prerequisite of citizenship. Not at all.

~~~
chrischen
Every US citizen is required to pay tax that they owe to the government. You
can oppose the government, but you do that throw voting, civic engagement, not
tax dodging.

~~~
madaxe
Renouncing citizenship is not tax dodging. It's renouncing citizenship.
Believe it or not, plenty of folks who have renounced their US citizenship
have done so not only for tax reasons, but also because they have the freedom
to choose to not associate themselves with a nation that is doing so much
wrong in what was their name.

~~~
chrischen
Yes which is _exactly_ what I'm arguing for. If you're not living in the US,
have no immediate intention of returning to the US, then you should renounce
your citizenship. The best way to enforce this is to tax overseas so that you
really have to value your citizenship.

------
marme
How does someone become a citizen of hong kong? hong kong is not a country and
all native hong kong people a chinese citizens who hold permanent residence
cards in hong kong. If you want to naturalize in hong kong you must become a
people's republic of china citizen

~~~
werrett
Hong Kong is only part of China in the same sense Puerto Rico is part of the
United States.

If you are a citizen then you can hold a Hong Kong passport. The majority of
the population is either Cantonese or Han Chinese in ethnicity (Han Chinese
being the largest ethnic group in Mainland China).

Hong Kong has a pretty liberal immigration policy. After 7 years continuous
residence you are eligible for Permanent Resident status. Gaining temporary
residence is pretty much as easy as landing a job there.

(I'm an Australian who has been living in Hong Kong for the past few years.)

~~~
barry-cotter
This is misleading. I can't remember if Puerto Rico still issues passports but
I do know all US citizens resident in Puerto Rico are/were entitled to them,
there is no separate citizenship. One can definitely be a HKSAR passport
holder without being entitled to Chinese citizenship. All the people with
Right of Abode in Hong Kong who it can be proven don't have Mainland (or
Taiwan) ancestry who want a Chinese passport need to be naturalised as
Chinese. This is really, really hard. Last I heard about 700 people with Right
of Abode had done it. China (including Taiwan), Japan and Korea don't really
naturalise foreigners.

On a side note Cantonese people are as Han as Northwsterners. It's a strong
regional identity and it could have supported a nationalism, like Ukrainian
did in the Russian/Soviet context but the time is gone.

------
FellowTraveler
The US tax system is exorbitant and immoral.

