Why Americans Abroad are Giving Up U.S. Citizenship

Wednesday, October 02, 2013

(Theo Fitzhugh/Shutterstock)

If the state of our government today isn't making you want to renounce your U.S. citizenship, another law might.

It's called the Foreign Account Tax Compliance Act, otherwise known as FACTA. The law was passed in 2010 and takes effect in July 2014. It requires all financial institutions around the world to report to the IRS the earnings and assets of American citizens abroad.

In essence, the law is designed to crack down on tax evasion and offshore tax havens. But it doesn't feel that way for many of the 6 million Americans living abroad.

Under FACTA, Americans abroad must provide detailed information on their overseas financial accounts and any income associated with that. Failure to do so could mean a minimum fine of $10,000. The process is long, complicated and expensive.

The result: More Americans abroad are relinquishing their U.S. citizenship.

Ruth Freeborn is one of those people. She has long lived in Canada with her Canadian husband, and recently decided to relinquished her American citizenship. Today she holds a Canadian passport.

Jackie Bugnion knows many stories like Ruth's. She's the head of the tax team for American Citizens Abroad in Geneva, a nonprofit advocacy group for American expats. She says FACTA has made life increasingly difficult for U.S. citizens living overseas.

Guests:

Jackie Bugnion and Ruth Freeborn

Produced by:

Arwa Gunja, Peggah Navab and Mythili Rao

Editors:

T.J. Raphael

Comments [14]

Stephen from Europe

Tom Hunter had made a good point. Ruth is not the type of person who FATCA, FBAR and double taxation were intended to single out. They were targeted at high net worth individuals who move their accounts offshore and avoid taxes. Unfortunately for expats like Ruth and me, we are victims to the law of unintended consequences. If the US government would be so kind as to adjust to avoid punishing middle class taxpayers like us, we would be much obliged. As for Mr Hunter's insinuation that all expats are ungrateful, un-American assholes, I can only suggest that he go take a long walk off a short pier, as he obviously needs to get a life.

Mar. 27 2014 02:58 PM
Ruth

Tom Hunter, I am indeed representative of the type of person FATCA affects in Canada and I invite you to come here and meet us. We are NOT "rich" and we are NOT "tax evaders" In fact if you want to catch those "off shoring" look at Nevada, Delaware, Utah, Florida and Wyoming.

How can you say I am not representative of those FATCA affects when you have not talked to expats living outside the U.S. most of whom live in high tax countries.

People ARE being forced to renounce over this and other countries you say are all for it do NOT tax on citizenship the way the U.S. does and so there is very little benefit to them at all.

Oct. 15 2013 03:03 AM
Ruth from kingston, Ontario Canada

I am Ruth Freeborn. I want to state that had FATCA not affected my Canadian spouse and child I would NEVER have relinquished my U.S. citizenship. I came to Canada at the age of 19 the first time when I was dating my Canadian boyfriend.

I came with one suitcase and 200 dollars and not much else. The 200 dollars was for me to fly back home if things didn't work out. As things stood I simply knew early on this was the right person for me. His parents were much older than mine. Twenty years older. His father was very ill then. His father was dependant upon him. So I could hardly ask him to move to the U.S. thousands of mile away.

A few years later when our son was born with disabilities I could NOT afford to move back to the U.S.and I became a stay at home mom to a kid with disabilities.

Under FATCA the U.S. wants all my Canadian spouses bank acct. numbers, his balances, his transactions upon threat of huge penalties. He refuses to give a foreign nation this information and we pay our taxes in full to Canada where we live. Not only that but, our son who is Canadian is expected to turn over his information to the U.S.A. because he is deemed a "U.S. person" for having been born to one U.S. parent here in Canada.

It costs over 2000 dollars per year for our family to file forms to the U.S. showing I the only U.S. person in this family would owe zero taxes. We do not make a high income and our family cannot afford this. Had my spouse married someone from any other nation than the U.S. or Eritrea these burdens would not be expected of him. Citizenship based taxation is wrong. It places burdens on low and middle income families abroad that some simply cannot comply with and thus you will have some people forced to renounce.

Oct. 15 2013 02:56 AM
calgary411 from Calgary

Sara Castro Ortiz,

You are a US Person who was abroad for employment only -- you seem to have planned to and have now returned to the US to live.

The people we are talking about here, for the most part, are those who have made their lives in, raised their families in, earned their livings in, paid their taxes to, are good citizens of, and some now retired in the countries of their choice -- we are never returning to the US to live. Many, many of us were even told (no, WARNED as that was the 'punitive' spiel) decades ago by US Consulates that we would be losing our US citizenship if we became citizens of the countries we chose. We don't want to return to the US to live.

I have lived in Canada since 1969, becoming a Canadian citizen in 1975 because I wanted to live in Canada and thus give my allegiance to Canada. I should be able to visit the US as any other Canadian citizen for what turns out to safely be four months of the year, without documentation due to the US. Even though most of us would owe the US $0.00 or very little in taxes due to tax treaties, the problems are complexity of and huge administrative costs of yearly compliance (which does not go to the IRS or benefit the US) -- for what? I have officially renounced US citizenship -- my benefits come from and my taxes should only be paid to Canada.

Taxation by Residence makes sense to the rest of the world. The US, though, will not change to something that makes sense -- thus FATCA plus US Citizenship-Based Taxation and the vast collateral damage it will bring to many innocent people who have made their lives abroad.

Oct. 03 2013 08:17 PM
Sara Castro Ortiz

I was an expat in Asia from the early 90's till just 6 years ago. It has been my understanding that US citizens always paid US taxes plus taxes to the country they lived and worked in.We were the only country that taxed its people worldwide. I was tax exempt for a certain amount but not my entire salary. Further all my perks like clubs, car , household help etc. were added to my salary and counted if they were paid for by the employer as revenue. But companies tax equalized you so you never were taxed more than you would have been having stated in the States. I don't know how much it has changed but if you look at the consequences of giving up your citizenship to penlites imposed it hardly seems worth it. You still have to pay taxes for a certain amount of years and your visits to the States are curtailed to 30 days or your a liable for taxes again. Or that is my understanding.

Oct. 03 2013 04:15 PM
calgary411 from Canada

Mike Mitka?, Max Murdoch? -- google them / wonder if they appreciate their names being used by this person.

I believe whatever the real name of this commenter says he frowns on "Copy and Paste". Here is as Mike Murdoch in quest to call us "Myths" as the recipents of collateral damage with FATCA and US Citizenship-Based Taxation consequences: http://www.fsitaxposts.com/2013/09/25/myth-vs-fatca-truth-treasurys-effort-combat-offshore-tax-evasion/#comment-283

Oct. 03 2013 12:08 PM
Kathleen from Ottawa

@Mike Ditka,

I am happy for you that you are fine with continuing to file US tax returns while living outside USA, and that you don't find the task overly burdensome or expensive. I'm betting that you left USA as a taxpaying adult, and knew all about USA's unique to the world policy of taxing people who do not live in the USA, and do not earn income in the USA.

Unfortunately, many people with US birthplace, particularly those who left USA as children, had no clue that USA had such vastly 'different' - many would say 'immoral' - tax laws. Ever heard of the term 'international norms'? I think Obama used it recently. Anyway, it is not 'normal', or just or fair, to tax people who have nothing to do with USA other than to have a US birthplace. Please don't counter-argue by talking about the FEIE; it mitigates but does not do away with double taxation; the unemployment earnings I collected from the Canadian government a couple years ago, are taxable by USA and not covered by the FEIE.

You don't have to be rich to have complicated US filing. Just do normal Canadian things as an average 'Joe' like buying Canadian mutual funds to save for your kids education. Being a US taxpayer in Canada takes away the benefits in investing in many Canadian registered savings plans such as RESPs (registered education savings plans) and TFSAs (tax free savings plans). Why should some Canadians be able to save for their retirement and children's education, while those of us with US birthplace are effectively restricted from doing so.

Want to know a way to guarantee you will pay more than $500/year on filing? - buy a Canadian mutual fund; it is a PFIC (passive foreign income corporation) according to IRS. Good luck trying to get the data from your bank in order to correctly report the required information about your PFIC to the IRS, and good luck finding an accountant in Canada who knows how to do it, and won't charge an arm and a leg. Better yet, just do not buy Canadian mutual funds at all if you are a Canadian with a US birthplace.

Mike, you are free to pay tribute to your home country if you want. But for many of us with a US birthplace, USA is anything but home. It is a tyrant, forcing homage to it, by people who have no economic connection to it, don't live there, and never will. Average, tax paying people living in countries other than USA, are NOT TAX CHEATERS simply because they refuse to bow down to USA's antiquated, immoral laws. USA needs to focus on the real tax cheats - the ones that live and earn within its borders.

Oct. 03 2013 11:36 AM
Kathleen from Ottawa

@Tom from Indianapolis,
Ruth may not be representative of who FATCA is INTENDED to target, but she is representative of who is ACTUALLY AFFECTED by FATCA. 'US persons' - a definition wide enough to included people with nothing more than a US birthplace - necessarily have bank accounts in the countries that they live in. USA has no right to know the contents of these normal bank accounts simply because they are 'foreign' to the USA. They are LOCAL to the people who do not live in the USA. How would you like it if say, China, demanded to see what was in your bank accounts? You'd be complaining too.

In any event, Ruth may not have needed to renounce to protect her privacy in Canada; it is not looking good for the FATCANATIC in Canada. The Canadian government is stalling USA by not signing an IGA, and more and more pressure is continuing to being applied to the Finance minister and other politicians to refuse to support FATCA. Even IF a FATCA IGA gets signed in Canada, which I doubt, reporting on Canadians with a US birth place is discrimination based on place of birth conflicting with the Canadian Charter of Rights and Freedoms. The Canadian government knows this, and knows it will be sued by 1000's of the 1 million so-called 'US persons' who are also Canadian citizens, should it accept FATCA. It won't. Soon it will be 'good riddance' all right - GOOD RIDDANCE to FATCA in Canada!

Oct. 03 2013 10:54 AM
Unicorn

@Mike

Are you Robert Stack in disguise?

"It is a myth that complying with your tax obligations will cost you $2-5000.00..." I'd love to hear who does your US taxes because I would really like to pay a fraction of what I currently pay.

"It is a myth that life altering fines and penalties await those that make errors in reporting all foreign accounts through FBARs or since 2011 Form 8938." Please tell that to the US citizens abroad who had never heard of FBAR and were told by the IRS that the only way to rectify their situation was to enter OVDI/OVDP.

We can safely assume you are not a brokerage customer of RBS. Clause 2.2.2 from the RBS customer terms and conditions for an RBS Sharedealing account says: "The Services are not available to residents, citizens or passport holders of the United States of America..." That is a major high street bank (82% owned by the UK government) that, because of FATCA, has adopted national origin discrimination because its US citizen brokerage customers are worth less to them than the cost of reporting the accounts to the IRS. The RBS terms and conditions are the same for an ISA stocks and shares account which isn't even a FATCA reportable account. And, sadly, RBS is not alone.

Just because it hasn't happened to you doesn't mean it isn't happening.

Oct. 03 2013 10:45 AM
calgary411 from Canada

Mike Ditka from London

Emphatically, yes, before more of other countries funds for making their banks part of the IRS with FATCA goes down a black hole. Scratch FATCA before it is in force, before it is too late. One has to ask over and over why the US is the only country in the world (other than little Eritrea) that uses Citizenship-Based Taxation. Why? It is, for the US, the obvious cash cow. Any collateral damage, which will not be a small minority and which could be remedied with US Resident-Based Taxation as a start, is unwarranted.

Kudos to you and your wife who pay only about $500 per year for your US tax compliance. Please forward the contact information so others may employ those professionals for their US tax compliance if they wish to remain US citizens.

And, no, I do not want my developmentally delayed son and others like him (whose parents, guardians, trustees cannot renounce on behalf of, even with a court order) part of the ACCEPTABLE COLLATERAL DAMAGE because he is entrapped into a supposed US citizenship he had no choice in. He has absolutely no benefit from the US and that he is entrapped shows the moral decay of US thinking.

How can my son have your good riddance? My husband, my adult daughter (born in Canada) and myself have already received your good riddance and that of others who think like you. We choose to be Canadians and have never had any plan to return to the US, so the forced US citizenship is extraneous; a HUGE cost from my retirement savings and time from a life to be lived for yearly compliance using US professionals (sorry can't do it myself and neither can many others); do not owe the US IRS anything.

Nice, collateral damage acceptable in the name of the cause.

Oct. 03 2013 10:41 AM
Tom Hunter from Indianapolis

The one person you chose to highlight in this story--Ruth Freeborn--is not at all representative of the people who FATCA was intended to target and by singling her out you give a wildly misleading impression of who is affected by this law.

The United States and other countries around the world are facing an epidemic of tax evasion in a variety of secrecy jurisdictions such as the Cayman Islands, Bermuda, the Bahamas, the British Virgin Islands--all UK Crown Dependencies--and in the UK's Channel Islands of Guernsey, Jersey and the Isle of Man. In those places and others too numerous to detail, high-net worth individuals are moving their money to avoid paying taxes. In essence, they want to benefit from being US Citizens without paying for it.

So, if they want to renounce their US Citizenship, good riddance. They will find that FATCA is not an isolated phenomenon. Countries around the world are cracking down on this epidemic of freeloading rich people. You need only read the two books by David Cay Johnson "Perfectly Legal" and "Free Lunch" as well as Nicholas Shaxton's awesome book "Treasure Islands" for the full picture. This is an epidemic and it needs to be stopped. Though the rich like to claim they are paying a lot in taxes, in actual fact they are not. They're paying 3% or at most 15%. Their complaints about allegedly high taxes are merely a smokescreen for the actual tax evasion that is happening. They complain about their allegedly high tax rates on income as insurance for the day when their scam is over.

Oct. 03 2013 09:28 AM
Tom Hunter from Indianapolis

The one person you chose to highlight in this story--Ruth Freeborn--is not at all representative of the people who FATCA was intended to target and by singling her out you give a wildly misleading impression of who is affected by this law.

The United States and other countries around the world are facing an epidemic of tax evasion in a variety of secrecy jurisdictions such as the Cayman Islands, Bermuda, the Bahamas, the British Virgin Islands--all UK Crown Dependencies--and in the UK's Channel Islands of Guernsey, Jersey and the Isle of Man. In those places and others too numerous to detail, high-net worth individuals are moving their money to avoid paying taxes. In essence, they want to benefit from being US Citizens without paying for it.

So, if they want to renounce their US Citizenship, good riddance. They will find that FATCA is not an isolated phenomenon. Countries around the world are cracking down on this epidemic of freeloading rich people. You need only read the two books by David Cay Johnson "Perfectly Legal" and "Free Lunch" as well as Nicholas Shaxton's awesome book "Treasure Islands" for the full picture. This is an epidemic and it needs to be stopped. Though the rich like to claim they are paying a lot in taxes, in actual fact they are not. They're paying 3% or at most 15%. Their complaints about allegedly high taxes are merely a smokescreen for the actual tax evasion that is happening. They complain about their allegedly high tax rates on income as insurance for the day when their scam is over.

Oct. 03 2013 09:28 AM
Controller from Europe

FATCA has been making my life miserable as an American abroad and financial controller. FATCA requires non-US companies to report their bank accounts to the IRS if an American is a bank account signatory. Recently I accepted a new job as the controller for a company in the European country where I reside. The company, however, after learning that it would have to report its bank accounts to a "foreign tax authority" (IRS) requested that I withdraw my application, i.e., the company cancelled the job offer. Their board did not wish to accept the risk of having to deal with the IRS by hiring an American as its controller.

After more than 20 years abroad and previously content to live as an American with a permanent resident permit, I am now applying for citizenship in the country of my residence and then plan to renounce my US citizenship. This decision is driven by economics - I need to work.

Oct. 03 2013 06:12 AM
Mike Ditka from London

no - I am not renouncing nor will my wife who is a dual passport holder because this whining and complaining is getting ridiculous. It is a myth that complying with your tax obligations will cost you $2-5000.00 depending on your facts of course. We are paying approx. $500 per year and our AGI is in the 7 figures. Keep in mind that for every expatriation there are > 100 naturalizations. We have lived and worked abroad for 26 years now but our checking and savings accounts have not been closed. We still have a mortgage with the same bank and no problem keeping our brokerage account open. It is a myth that life altering fines and penalties await those that make errors in reporting all foreign accounts through FBARs or since 2011 Form 8938. The IRS has widened the guidelines for their Streamlined Program that does NOT raise any civil penalties. It is not new that you have to pay taxes on any worldwide income but it is being more enforced now . Cheating is cheating with or without FATCA - there is no de minimis exception. Of course there is always a very small minority that faces tougher challenges than others and some collateral damage to a global initiative has to be expected. Has FATCA made it harder for those of us who reside outside the US? Yes. But the blame should be placed on those who hid their assets and income, not on the US government for finally forcing those evaders to pay their share for the benefits of their US citizenship. Should FATCA have been limited to the real fat cat evaders? Yes - the $50,000 limit is pitifully small. Should FATCA have simpler rules for those US citizens legally resident outside the US, allowing them to maintain financial accounts in their country of residence? Yes. But do away with FATCA entirely, and allow wholesale tax evasion once again? Emphatically no.

Oct. 03 2013 05:37 AM

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