U.S. gov't announces intent to slash citizenship renunciation fee by four-fifths(americanexpatfinance.com)
americanexpatfinance.com
U.S. gov't announces intent to slash citizenship renunciation fee by four-fifths
https://www.americanexpatfinance.com/news/item/1089-us-govt-announces-intent-to-slash-citizenship-renunciation-fee
115 comments
One side effect of this inane policy is that it is becomes very difficult for US citizens living abroad to invest their money, due to the tax consequences of holding foreign stocks, as well as the fact that very few US exchanges are willing to open accounts for expats.
I live in Japan, and holding Japanese stocks will get me in trouble with the US government, while holding US stocks can dramatically complicate my Japanese taxes. Because I reside outside the US, I cannot have a 401k or Roth IRA, but it is also impractical for me to take advantage of the Japanese equivalent (NISA) due to the prohibitive cost of correctly reporting my holdings to the US. In some cases there is also double taxation.
I live in Japan, and holding Japanese stocks will get me in trouble with the US government, while holding US stocks can dramatically complicate my Japanese taxes. Because I reside outside the US, I cannot have a 401k or Roth IRA, but it is also impractical for me to take advantage of the Japanese equivalent (NISA) due to the prohibitive cost of correctly reporting my holdings to the US. In some cases there is also double taxation.
Why can’t you have a Roth IRA? Japanese taxes?
Post-tax US retirement accounts (e.g., Roth-IRA/401K, etc.) are generally seen as normal investment accounts by the tax authorities in the US expat's country of residence. Therefore they offer no retirement tax benefits.
Roth's aren't as useful as people make them out.
1) In a traditional (vs a roth), you save taxes at your marginal rate today. 2) In a traditional (vs a roth), you save on state taxes today. 3) you can take those tax savings and invest them in a taxable account (or spend them on things you need to spend them on)
4) In retirement, if your income is lower than your income today, your tax rate will be lower, so the savings of not paying on disbursments from the Roth will be lower.
5) In retirement, you have more ability to choose where you live, i.e. can live in a tax free state (or move overseas) and hence just have federal tax liability on the disbursements (at a lower overall rate if income is lower).
6) A roth is a promise of a benefit in the future vs a traditional giving you a benefit today. It's hard to take away a benefit already given, while I don't expect the roth rules to adversely change, there's still risk.
Now, a big benefit of the Roth is for people who can't save and are bad financial planners. "prepaying" the tax, even if its worse decision overall, is better than blowing the immediate tax savings of a traditional on "hookers and blow".
Another big benefit of a roth is if one expects tax rates to severely rise, prepaying tax at a much lower rate vs a future possibly higher rate is a benefit (but one has to factor in the ability to get out of state taxes in future as well, so if your state tax rate is nearin 10%, does one expect federal future tax rate to really be 10% higher than today).
Over a long period of time if one has high income in retirement, a Roth probably is better (even if the traditional tax savings are invested). However, at those income levels, I don't think it actually matters much as the difference wont be huge (in terms of savings/income). If one expects retirement income to be reduced relative to one's current income, traditionals become much more attractive.
1) In a traditional (vs a roth), you save taxes at your marginal rate today. 2) In a traditional (vs a roth), you save on state taxes today. 3) you can take those tax savings and invest them in a taxable account (or spend them on things you need to spend them on)
4) In retirement, if your income is lower than your income today, your tax rate will be lower, so the savings of not paying on disbursments from the Roth will be lower.
5) In retirement, you have more ability to choose where you live, i.e. can live in a tax free state (or move overseas) and hence just have federal tax liability on the disbursements (at a lower overall rate if income is lower).
6) A roth is a promise of a benefit in the future vs a traditional giving you a benefit today. It's hard to take away a benefit already given, while I don't expect the roth rules to adversely change, there's still risk.
Now, a big benefit of the Roth is for people who can't save and are bad financial planners. "prepaying" the tax, even if its worse decision overall, is better than blowing the immediate tax savings of a traditional on "hookers and blow".
Another big benefit of a roth is if one expects tax rates to severely rise, prepaying tax at a much lower rate vs a future possibly higher rate is a benefit (but one has to factor in the ability to get out of state taxes in future as well, so if your state tax rate is nearin 10%, does one expect federal future tax rate to really be 10% higher than today).
Over a long period of time if one has high income in retirement, a Roth probably is better (even if the traditional tax savings are invested). However, at those income levels, I don't think it actually matters much as the difference wont be huge (in terms of savings/income). If one expects retirement income to be reduced relative to one's current income, traditionals become much more attractive.
its not a huge problem to hold stocks. it's a problem to hold funds as I understand due to PFIC issues. But one could buy individual stocks without a problem (heck, while living in the USA I owned foreign stocks as my company's stock was a canadian company and I took advantage of their ESPP and it wasn't a real problem)
Yes, non-US pooled funds (e.g., ETFs, mutual funds, etc.) as well as most non-US pensions fall afoul of PFIC rules and their complex & expensive reporting requirements. This usually bites people with mandatory contributions, such as Australia's Superannuation.
They shouldn’t complain too much. To make it more fair, we might just try to tax everyone! (Eagle screeching in the distance).
> Eagle screeching in the distance
Fun fact: the "eagle screech" sound is actually that of a hawk.
All too easy to make the analogy that the American (freedom) eagle is really an American (war) hawk.
Fun fact: the "eagle screech" sound is actually that of a hawk.
All too easy to make the analogy that the American (freedom) eagle is really an American (war) hawk.
Hawks are generally cooler than eagles. It is unfortunate that hawks became associated with war, they are just hunters — eagles are known to steal meals from other animals, which seems more warlike to me.
𝐍𝐎 𝐓𝐀𝐗𝐀𝐓𝐈𝐎𝐍 𝐖𝐈𝐓𝐇𝐎𝐔𝐓 𝐑𝐄𝐏𝐑𝐄𝐒𝐄𝐍𝐓𝐀𝐓𝐈𝐎𝐍!
Just swap the tax requirement to "if you've ever traded in the US dollar this year". How else are they going to maintain the most stable world currency?
The intent of this law was to prevent wealthy individuals from avoiding taxes through offshore accounts. I'm sure there are dozens of threads on HN lamenting this very practice.
Why is this mind boggling?
Taxes are for social services and benefit of the public. If you never experience those benefits and never use any social services, why should you be forced to pay those taxes?
Many of us pay for government services we will never use, though. As a man, for example, I'll never be a recipient of WIC. By your logic, I should never have to pay for these benefits. However, that seems wrong. Even if I never use WIC, Social security, government housing, addiction recovery programs, etc. I should still pay for them because it's good for society as a whole.
Plus, there's the fact that even if you're not living in the US doesn't mean you're not benefiting from citizenship. You still enjoy the privilege of American consulates, being able to travel to certain countries, and certain limited protections and privileges. So it's not like it's _nothing_.
Plus, there's the fact that even if you're not living in the US doesn't mean you're not benefiting from citizenship. You still enjoy the privilege of American consulates, being able to travel to certain countries, and certain limited protections and privileges. So it's not like it's _nothing_.
Citizenship-based taxation was brought in as a way of punishing deserters during the civil war and simply never dropped.
It doesn't make sense to tax citizens who aren't resident when you are also taxing residents who aren't citizens. That's having your cake and eating it too - which I can only imagine is part of the reason no other country on Earth does this (except Eritrea, who obviously cannot enforce).
If resident aliens have to pay taxes while resident, and can stop when they leave - doesn't it also make sense for resident citizens to be afforded the same luxury?
The state department operates on a cost-recovery basis anyways so if you avail yourself of emergency or consular services you get mailed a bill no matter what.
[edit] Remember if you live abroad you have to pay taxes to that government too! So the question is why is it a fair impingement on your freedom to live abroad to have to pay taxes to two different governments simply because you're an American?
You're being punished as a de facto civil war deserter! The war is over, friend. The North won! Let freedom ring! lol.
[edit2] As @drewcoo pointed out I used the term 'deserter' inappropriately in context, I should have said 'deadbeats.' I was in fact referring to citizens who left the United States around the time of the war and the way they were viewed by congress as not paying their fair share while retaining a vested interest in the outcome of the war. It was a colloquialism used as flourish that was wrong in context. h/t.
It doesn't make sense to tax citizens who aren't resident when you are also taxing residents who aren't citizens. That's having your cake and eating it too - which I can only imagine is part of the reason no other country on Earth does this (except Eritrea, who obviously cannot enforce).
If resident aliens have to pay taxes while resident, and can stop when they leave - doesn't it also make sense for resident citizens to be afforded the same luxury?
The state department operates on a cost-recovery basis anyways so if you avail yourself of emergency or consular services you get mailed a bill no matter what.
[edit] Remember if you live abroad you have to pay taxes to that government too! So the question is why is it a fair impingement on your freedom to live abroad to have to pay taxes to two different governments simply because you're an American?
You're being punished as a de facto civil war deserter! The war is over, friend. The North won! Let freedom ring! lol.
[edit2] As @drewcoo pointed out I used the term 'deserter' inappropriately in context, I should have said 'deadbeats.' I was in fact referring to citizens who left the United States around the time of the war and the way they were viewed by congress as not paying their fair share while retaining a vested interest in the outcome of the war. It was a colloquialism used as flourish that was wrong in context. h/t.
This is not what it seems.
The exemption amount isn't exactly a windfall level ($120K). Amounts earned over that are taxed in both countries - the US and the foreign country - and the only way to avoid double-taxation on that is if the US has a tax treaty with the country [1]. But that treaty generally means you end up having to pay whichever rate is higher: the US rate or the local rate, in aggregate.
More importantly you're not exempt from filing even if you have no net tax obligation to the US.
These returns are not easy to prepare, and so you may end up spending thousands of dollars per year paying one of the likely very few people with experience filing returns to both countries and properly attributing income and deductions.
It gets much, much worse if you want to start a business in the foreign country in which you live because then you're the owner of what the IRS considers a Controlled Foreign Corporation. The paperwork for this is a waking nightmare and will cost you thousands more per year, if you're even in a position to complete it. [2] Notice in [2] the US definitely on of a CFC is also different than the rest of the world.
[1] https://www.irs.gov/businesses/international-businesses/unit...
[2] https://www.investopedia.com/terms/c/cfc.asp
The exemption amount isn't exactly a windfall level ($120K). Amounts earned over that are taxed in both countries - the US and the foreign country - and the only way to avoid double-taxation on that is if the US has a tax treaty with the country [1]. But that treaty generally means you end up having to pay whichever rate is higher: the US rate or the local rate, in aggregate.
More importantly you're not exempt from filing even if you have no net tax obligation to the US.
These returns are not easy to prepare, and so you may end up spending thousands of dollars per year paying one of the likely very few people with experience filing returns to both countries and properly attributing income and deductions.
It gets much, much worse if you want to start a business in the foreign country in which you live because then you're the owner of what the IRS considers a Controlled Foreign Corporation. The paperwork for this is a waking nightmare and will cost you thousands more per year, if you're even in a position to complete it. [2] Notice in [2] the US definitely on of a CFC is also different than the rest of the world.
[1] https://www.irs.gov/businesses/international-businesses/unit...
[2] https://www.investopedia.com/terms/c/cfc.asp
> ..the US definitely on of a CFC..
Ugh. ..the US definition of** a CFC...
Ugh. ..the US definition of** a CFC...
> Citizenship-based taxation was brought in as a way of punishing deserters during the civil war and simply never dropped.
Have a resource for this? From what I remember, income tax started around the 1910's with the 16th amendment and grew to take out a large portion of citizens' income when prohibition severely cut sales tax proceeds from alcohol.
Have a resource for this? From what I remember, income tax started around the 1910's with the 16th amendment and grew to take out a large portion of citizens' income when prohibition severely cut sales tax proceeds from alcohol.
> Citizenship-based taxation was brought in as a way of punishing deserters during the civil war and simply never dropped.
It was started in 1861 as a way to raise revenue to fight a war.
https://nomadcapitalist.com/global-citizen/citizenship-based...
Deserters would most likely have gone home, remaining citizens and living in the US. And I'm unaware of US IRS attempt to collect taxes from the CSA during the war.
https://teachinghistory.org/history-content/ask-a-historian/...
It was started in 1861 as a way to raise revenue to fight a war.
https://nomadcapitalist.com/global-citizen/citizenship-based...
Deserters would most likely have gone home, remaining citizens and living in the US. And I'm unaware of US IRS attempt to collect taxes from the CSA during the war.
https://teachinghistory.org/history-content/ask-a-historian/...
The situations are so different though. No matter how hard you try, if you are living in a country, you are going to use SOMETHING that is paid for by taxes. Roads, walking down the sidewalk even, snow removal, throwing away a wrapper in a city garbage can, NOT stepping in glass because someone picked it up, ambulance if you get in an accident, etc.
Whereas if you live in another country for years, you use pretty much NOTHING (except for some consular services MAYBE). Huge difference.
Whereas if you live in another country for years, you use pretty much NOTHING (except for some consular services MAYBE). Huge difference.
You pay for the political, economic and military power that ensures you are somewhat protected when in another country.
Would you rather have a US passport living in UAE or Bali or Australia, or would you prefer to have an Iranian one?
I'm not saying the taxation is "right", as nearly all other nations don't care, just highlighting what folks would argue it's for.
Would you rather have a US passport living in UAE or Bali or Australia, or would you prefer to have an Iranian one?
I'm not saying the taxation is "right", as nearly all other nations don't care, just highlighting what folks would argue it's for.
US taxation applies to dual citizens who don't hold US passports though.
Heck, it applies to people who don't even realize that they are US citizens -- a number of Canadians have been hit by large bills from the IRS after discovering at advanced age that they have a parent born in the USA.
Heck, it applies to people who don't even realize that they are US citizens -- a number of Canadians have been hit by large bills from the IRS after discovering at advanced age that they have a parent born in the USA.
To add more to your point, if one has unknowingly US citizenship (through parents at birth or something) && a local citizenship (where one is living, like India, Canada, UAE, anywhere), that host country is not going to give same protections as compared to somebody with "only" US citizen. For example , US citizen having Iranian Passport in Iran are simply Iranian citizens in Iran Government eyes. (Replace Iran with any country). US citizen working/visiting in Canada, but having no Canadian citizenship, can go ask US embassy in Canada for help.
I've never been to UAE or Bali, but I wouldn't mind having an Iranian passport in Australia. I can't imagine I would ever benefit from the "protection" of the USA while in Australia. And one could argue that if you are living in UAE, then having a US passport doesn't protect you more than having a Canadian one, so you're not really getting anything more of value from the much more powerful American one over the Canadian.
I realize folks are arguing what it's for, but I don't think their argument holds water.
I realize folks are arguing what it's for, but I don't think their argument holds water.
Trust me. You would mind that citizenship.
I can assure you from personal experience that holding an Australian passport when in trouble abroad will provide precisely 0 value.
If I'm not mistaken, you don't need to file taxes if you relinquish citizenship, right? It's not exactly a secret that a large amount of US taxes go to defense, which maintains the US' position as a world superpower, which you benefit from via your citizenship and US passport.
That benefit comes up only if you are not a citizen of host country. If you are a citizen of host country, most of the times US embassies can't help, even if you hold US citizenship.
India specifically prohibits holding two or more, and expect its citizens to renounce Indian one in 6 months or less from acquiring other one. No repercussions as long as you don't go to India or deal with Indian Embassy (which almost every ex Indian has to, family, relatives, stuff in India). Although one can get an equivalent of green card (OCI) without requirements of residency.
India specifically prohibits holding two or more, and expect its citizens to renounce Indian one in 6 months or less from acquiring other one. No repercussions as long as you don't go to India or deal with Indian Embassy (which almost every ex Indian has to, family, relatives, stuff in India). Although one can get an equivalent of green card (OCI) without requirements of residency.
No, generally one must provide evidence from the IRS of 5 years worth of tax compliance in order to relinquish.
The majority of US taxes go towards Social Security, healthcare (Medicare), benefits for US veterans/federal employees, etc.[1] Most of these systems are not available to "US persons" who haven't lived/worked in the USA. Those that have worked there will see their US benefits decreased by amounts paid into non-US tax systems.
[1] https://www.cbpp.org/research/federal-budget/where-do-our-fe...
The majority of US taxes go towards Social Security, healthcare (Medicare), benefits for US veterans/federal employees, etc.[1] Most of these systems are not available to "US persons" who haven't lived/worked in the USA. Those that have worked there will see their US benefits decreased by amounts paid into non-US tax systems.
[1] https://www.cbpp.org/research/federal-budget/where-do-our-fe...
Bit of nuance. https://en.wikipedia.org/wiki/Accidental_American#Tax_obliga... asserts:
> Tax compliance is not required for renunciation of US citizenship, but only to formally exit the US tax system after expatriation. Consular officials will not inquire about a person's tax status during the renunciation interview, nor is a potential renunciant required to supply a Social Security Number at any point during the process. The common but mistaken belief that tax compliance is required prior to renunciation is encouraged by the US tax preparation industry, often at great cost to unsuspecting Accidental Americans. It appears, however, that a significant number of former US citizens have renounced without any attempt at tax compliance.
> Tax compliance is not required for renunciation of US citizenship, but only to formally exit the US tax system after expatriation. Consular officials will not inquire about a person's tax status during the renunciation interview, nor is a potential renunciant required to supply a Social Security Number at any point during the process. The common but mistaken belief that tax compliance is required prior to renunciation is encouraged by the US tax preparation industry, often at great cost to unsuspecting Accidental Americans. It appears, however, that a significant number of former US citizens have renounced without any attempt at tax compliance.
The US Dept. of State Foreign Affairs Manual used by consular officials, who have wide latitude in this area:
https://fam.state.gov/fam/07fam/07fam1260.html#M1266
100% though on the US tax preparation industry.
https://fam.state.gov/fam/07fam/07fam1260.html#M1266
100% though on the US tax preparation industry.
It used to be that ex-citizens needed to pay taxes on US sources for 10 years. In 2008 it switched to having to pay a worldwide capital gains tax. https://en.wikipedia.org/wiki/Renunciation_of_citizenship#Ta...
I believe that someone renouncing citizenship specifically to avoid paying US taxes, for example, to not fund the war machine, is subject to the Reed Amendment and may be denied entry into the US. As the above link points out, this is nearly unenforceable.
In practice, I believe most US citizens living overseas pay no actual taxes to the US. The Foreign Earned Income Exclusion excludes "your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023)." - https://www.irs.gov/individuals/international-taxpayers/fore... and a number of countries have a bilateral agreement with the US to prevent double taxation.
> which you benefit from via your citizenship and US passport
The large majority of "accidental Americans" don't have a US passport, and may even be surprised that they have US citizenship.
] The very first such [private letter request] request came from a British citizen who stated that he was unaware of his U.S. citizenship; Willard Yates, a retired tax attorney then with the IRS' Office of Associate Chief Council (International) who handled that PLR request, initially expressed disbelief at the possibility that anyone could be unaware of their U.S. citizenship, but states that later, "after working a bunch of 877 PLRs, I realized we didn’t know anything about anything when it came to U.S. citizens working overseas, accidental or otherwise." - https://en.wikipedia.org/wiki/Accidental_American
For these people the benefits are minuscule compared with the negatives, like loss of access to local banking services should the bank not want to deal with FATCA, the expense of finding an accountant who can handle both sets of taxes, and the difficulty of dealing with capital gains, retirement accounts, etc. which may be tax-free in one's home country but not the US, or which may be subject to double taxation.
I believe that someone renouncing citizenship specifically to avoid paying US taxes, for example, to not fund the war machine, is subject to the Reed Amendment and may be denied entry into the US. As the above link points out, this is nearly unenforceable.
In practice, I believe most US citizens living overseas pay no actual taxes to the US. The Foreign Earned Income Exclusion excludes "your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023)." - https://www.irs.gov/individuals/international-taxpayers/fore... and a number of countries have a bilateral agreement with the US to prevent double taxation.
> which you benefit from via your citizenship and US passport
The large majority of "accidental Americans" don't have a US passport, and may even be surprised that they have US citizenship.
] The very first such [private letter request] request came from a British citizen who stated that he was unaware of his U.S. citizenship; Willard Yates, a retired tax attorney then with the IRS' Office of Associate Chief Council (International) who handled that PLR request, initially expressed disbelief at the possibility that anyone could be unaware of their U.S. citizenship, but states that later, "after working a bunch of 877 PLRs, I realized we didn’t know anything about anything when it came to U.S. citizens working overseas, accidental or otherwise." - https://en.wikipedia.org/wiki/Accidental_American
For these people the benefits are minuscule compared with the negatives, like loss of access to local banking services should the bank not want to deal with FATCA, the expense of finding an accountant who can handle both sets of taxes, and the difficulty of dealing with capital gains, retirement accounts, etc. which may be tax-free in one's home country but not the US, or which may be subject to double taxation.
Citizenship of all countries comes with some rules and expectations on the holder.
In some cases it is national service, others it is a requirement to vote, in the U.S. case it is to declare and pay taxes.
I would expect that most people like the idea of the option to live and work in the U.S. and keep their citizenship even if not residing there.
I think it is a difficult call to renounce citizenship but if the tax requirements are onerous on the individual they are least have the choice.
In some cases it is national service, others it is a requirement to vote, in the U.S. case it is to declare and pay taxes.
I would expect that most people like the idea of the option to live and work in the U.S. and keep their citizenship even if not residing there.
I think it is a difficult call to renounce citizenship but if the tax requirements are onerous on the individual they are least have the choice.
In a few countries you are required to provide a service to the community (ie national service) - in a few you need to adhere to the "must vote" requirement.
But in America all we want is your money. In America its _always_ about the money...
But in America all we want is your money. In America its _always_ about the money...
Citizenship of _some_ countries come with rules and expectations on the holder. As far as I can tell, if I leave India for good I don’t owe India anything after 1.5 years. That sounds correct.
Not exactly, you still have rules and expectations should you return that are not imposed on non-citizen visitors. They also may choose to, in the future, impose restrictions on you but these are (unless you're Uncle Sam) very difficult to enforce on expats.
True. Everything has up & downside. The downside of Indian Citizenship is you can't have two citizenships. (Although OCI card gives you almost every right except voting, gov jobs etc).
Most countries that don't recognize dual citizenship also don't prohibit it; they just treat you as their citizen regardless of what other citizenship you might have. Is that not the case with India?
Nope, India specifically prohibits it, and expect its citizens to renounce Indian one in 6 months or less from acquiring other one. No repercussions as long as you don't go to India or deal with Indian Embassy (which almost every ex Indian has to, family, relatives, stuff in India). So for them, the process is, get US naturalization certificate. The 6 month clock starts. Get US passport (its mandatory to cancel the Indian passport). Then apply for Indian Renounce process (4 months). Now, if you want to go to India, apply for 30 day e-visa (a week at most).
Because you are reserving the right to obtain them with your citizenship? If you want to declare that you're not going to use them (abandoning your citizenship), you don't need to pay taxes.
Then why should we give it back to you when you come back? If you could just turn your citizenship on and off with no penalty, it wouldn't be fair to the people who stay in the US if those who leave could just stop paying taxes and then come back whenever they want. And if things don't go well in the US, those who stayed are stuck but those who left have another option. So them not paying taxes to the US would be like having their cake and eating it too. They could leave and stop fulfilling all their obligations, but with the option to come back whenever.
Because that’s not how it works? If you give up your citizenship, it is irreversible. You’ll need to immigrate like you never were.
It's actually harder. I think when you apply for a visa, they'll make a special note if you once gave up your citizenship. Legislation to never admit entry to expatriates have been proposed before.
It's not just when applying for visa; it comes up in all kinds of laws. For example, 18 USC § 922(d)(7):
"It shall be unlawful for any person to sell or otherwise dispose of any firearm or ammunition to any person knowing or having reasonable cause to believe that such person ... who, having been a citizen of the United States, has renounced his citizenship"
And yes, this is actively enforced as part of the federal background check system.
Ironically, legal non-citizen residents can lawfully purchase firearms, even on a student or a work visa (although there are more hoops to jump through).
"It shall be unlawful for any person to sell or otherwise dispose of any firearm or ammunition to any person knowing or having reasonable cause to believe that such person ... who, having been a citizen of the United States, has renounced his citizenship"
And yes, this is actively enforced as part of the federal background check system.
Ironically, legal non-citizen residents can lawfully purchase firearms, even on a student or a work visa (although there are more hoops to jump through).
Quite a lot of countries have a fast-track for restoring citizenship if you had one. Not on the “when you feel like it” basis, but often without onerous requirements of foreigner naturalization.
> Then why should we give it back to you when you come back?
Because it's in the constitution, and changing that is very hard. That's the answer.
Because it's in the constitution, and changing that is very hard. That's the answer.
But you are being required to pay money to drop your citizenship, so it's a tax being charged to people who have no other interaction with the US.
Not much money and it's a controversial fee that is being reduced for the very same thinking that it is unreasonable
Should those without children be required to pay the school portion of property taxes?
Sure, if they're residents. Not if they live in Mongolia where they're paying for Mongolian schools via Mongolian taxes.
The real question you should be asking is why are you ok double-taxing non-resident citizens?
The real question you should be asking is why are you ok double-taxing non-resident citizens?
Most school expenses come from local property taxes and most of the rest from state taxes. Very little comes from federal taxes.
Indeed, but I strongly suspect the parent was positioning this as a thought exercise.
In that vein, do you think it's right for the town in which you lived right before moving abroad to charge you property taxes on a home you buy in a foreign country? What if there was an exemption on the first $250K in property value? After all you may one day return to your home town and they were providing bus service while you were gone...
What about your home town charging you property taxes on the place you buy in the big city a few years after you move away for college? After all your family is still there and those schools won't fund themselves.
In that vein, do you think it's right for the town in which you lived right before moving abroad to charge you property taxes on a home you buy in a foreign country? What if there was an exemption on the first $250K in property value? After all you may one day return to your home town and they were providing bus service while you were gone...
What about your home town charging you property taxes on the place you buy in the big city a few years after you move away for college? After all your family is still there and those schools won't fund themselves.
If you’re a US citizen you can move back get welfare or qualify for Medicaid if low income. Or get a heavily subsidized healthcare plan. All paid for with tax dollars.
Not saying I agree with paying US taxes if not living there, but there are financial benefits to US citizenship.
Compare this to say Canada, where you can leave, never pay taxes, then retire in Canada with free healthcare that you never paid into. It’s “privatize the gains, socialize the losses”.
And to be honest, most Americans living outside the US will pay no US taxes. It’s just the filing burden that is the issue.
Not saying I agree with paying US taxes if not living there, but there are financial benefits to US citizenship.
Compare this to say Canada, where you can leave, never pay taxes, then retire in Canada with free healthcare that you never paid into. It’s “privatize the gains, socialize the losses”.
And to be honest, most Americans living outside the US will pay no US taxes. It’s just the filing burden that is the issue.
If I had to guess it’s about money laundering and general tax avoidance versus not getting services. If you make $100,000/year or so while abroad if I recall correctly you don’t owe any taxes. The US will also actually come save you, not that this is necessarily “worth the cost”.
Department of state always semd bill (although most of the time doesn't persue it). I think one still need to file the return ( no owing) the tax return even under the threshold.
The US government will look out for your interests if an incident goes down in your country of residence. A rare occurrence for most but still a service that some may end up needing\using.
Only if one is not a citizen of country in trouble. Canadian (having Canadian Citizenship) living in Canada will not get rescued even if he holds US citizenship. Dual Citizenship, each country has full rights, laws & responsibilities for citizens on their own land.
... and then bill you. State operates on a cost-recovery basis.
At least there is the option to get rescued and then billed for it. Non-citizens don't get rescued, evacuated, etc by the US at all.
Other countries provide repatriation services too, for their citizens.
Somehow the UK does it without subjecting all British citizens worldwide to UK taxes.
I read once that UK repatriation was funded as part of the passport fee, but can't verify it. In any case, if this were the justification for the policy, it might be good to know how much it costs the US vs. what extra revenue the US generate from this taxation, and the number of non-resident/non-passport holding Americans are also covered by this repatriation.
Somehow the UK does it without subjecting all British citizens worldwide to UK taxes.
I read once that UK repatriation was funded as part of the passport fee, but can't verify it. In any case, if this were the justification for the policy, it might be good to know how much it costs the US vs. what extra revenue the US generate from this taxation, and the number of non-resident/non-passport holding Americans are also covered by this repatriation.
> If you never experience those benefits and never use any social services, why should you be forced to pay those taxes?
That describes way more people than overseas US citizens.
That describes way more people than overseas US citizens.
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Arguably, US Navy power projection services are provided worldwide.
Jessica Buchanan was sure glad she was a tax paying US citizen when she was kidnapped by Somali gangsters and rescued by a SEAL team.[0]
I saw interviews about this and the Danish kidnap victim rescued with Ms. Buchanan said something to the effect of "the best thing that happened to me given this scenario was getting kidnapped with an American."
Citizenship has its privileges. I've been an US expat and will likely be one in the future and have no problem with paying taxes as a citizen either here or abroad.
[0] https://en.wikipedia.org/wiki/Rescue_of_Jessica_Buchanan_and...
I saw interviews about this and the Danish kidnap victim rescued with Ms. Buchanan said something to the effect of "the best thing that happened to me given this scenario was getting kidnapped with an American."
Citizenship has its privileges. I've been an US expat and will likely be one in the future and have no problem with paying taxes as a citizen either here or abroad.
[0] https://en.wikipedia.org/wiki/Rescue_of_Jessica_Buchanan_and...
FBOW Navy as well as AF/Army (At least in Europe and parts of Oceania) provide power protection that may or may not contribute to economic prosperity.
I'd be interested in seeing how frequently the US government "saves" accidental Americans around the world.
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If we’re talking about the navy’s power projection, the routine benefits are in reliable global trade, not random people being “saved”.
It certainly makes it harder for US citizens to do business overseas. Puts them at a competitive disadvantage vs the citizens of pretty much any other country.
A business created by a US citizen does not need to pay US taxes. If by doing business you mean just having a job... sure I guess. If the taxes are significantly lower there?
Incorrect, as until the business reaches a certain size it is considered a Controlled Foreign Corporation [1]. In addition, it is subject to GILTI[2] (pronounced "guilty").
[1] https://www.investopedia.com/terms/c/cfc.asp [2] https://www.investopedia.com/global-intangible-low-taxed-inc...
[1] https://www.investopedia.com/terms/c/cfc.asp [2] https://www.investopedia.com/global-intangible-low-taxed-inc...
shrug. find a business partner.
Not OP. I wouldn't use the word mind-boggling. Perhaps non-sensical, over-reaching or unfair.
I have two USA born children under the age of 4. My wife and I are in USA on work VISAs. When we leave this year, we'll have to research all this stuff and file all the right paper work so my kids don't potentially have trouble ~16 years later.
I have two USA born children under the age of 4. My wife and I are in USA on work VISAs. When we leave this year, we'll have to research all this stuff and file all the right paper work so my kids don't potentially have trouble ~16 years later.
They will also be able to apply for you to become citizens when they turn 21 via an Alien Relative Petition.
They will likely not pay much tax between now and then so the cost of the opportunity (if you would ever consider living in the U.S. permanently) is minimal.
They will likely not pay much tax between now and then so the cost of the opportunity (if you would ever consider living in the U.S. permanently) is minimal.
Boris Johnson offers a case study of why one might wish to renounce US citizenship: https://www.forbes.com/sites/robertwood/2022/07/10/boris-joh...
Or--they could juat stop taxing people who dont live there.
More countries should oearn from this. Any country can decide to tax citizens. And who is a citizen? Well, it's determined by that nation's laws.
Why should citizenship only be granted to children citizens? Why not grand children? Or great grant children?
Could ireland or italy pass laws giving 3rd generation Immigrants citizenship, and then send them all a tax bill?
More countries should oearn from this. Any country can decide to tax citizens. And who is a citizen? Well, it's determined by that nation's laws.
Why should citizenship only be granted to children citizens? Why not grand children? Or great grant children?
Could ireland or italy pass laws giving 3rd generation Immigrants citizenship, and then send them all a tax bill?
> Could ireland or italy pass laws giving 3rd generation Immigrants citizenship, and then send them all a tax bill?
They could, but it's harder for a small country to enforce such laws compared to the US.
Of course if they can get the EU to help enforce those laws, perhaps the sky is the limit.
People living far away are the ideal tax base. For one thing, they can't effectively vote against the tax.
They could, but it's harder for a small country to enforce such laws compared to the US.
Of course if they can get the EU to help enforce those laws, perhaps the sky is the limit.
People living far away are the ideal tax base. For one thing, they can't effectively vote against the tax.
>People living far away are the ideal tax base. For one thing, they can't effectively vote against the tax.
US expats can vote from abroad from the last state, county, and municipality they held residency in prior to going abroad, as I understand.
Obligatory IANAL.
US expats can vote from abroad from the last state, county, and municipality they held residency in prior to going abroad, as I understand.
Obligatory IANAL.
Yes expats are split across multiple locations which makes their votes too dilute to matter.
> Could ireland or italy pass laws giving 3rd generation Immigrants citizenship, and then send them all a tax bill?
Here's the kicker: when you are born to US parents, you are automatically a US citizen, even if USA doesn't know about you. So you may have been born abroad and never set foot in the US, and theoretically, you should have been filling tax reports. I wonder if you owe backtaxes if you decide to inform USA about yourself later in your life...
Here's the kicker: when you are born to US parents, you are automatically a US citizen, even if USA doesn't know about you. So you may have been born abroad and never set foot in the US, and theoretically, you should have been filling tax reports. I wonder if you owe backtaxes if you decide to inform USA about yourself later in your life...
Nationality & tax laws are two different though, in the case of the USA, intertwined things.
One can be born abroad to a US citizen and not be eligible for US citizenship; Keanu Reves is a great example of that.[1] However, that child would be considered a "US Person" by the IRS and subject to US taxes.
[1] https://en.wikipedia.org/wiki/Keanu_Reeves
One can be born abroad to a US citizen and not be eligible for US citizenship; Keanu Reves is a great example of that.[1] However, that child would be considered a "US Person" by the IRS and subject to US taxes.
[1] https://en.wikipedia.org/wiki/Keanu_Reeves
> One can be born abroad to a US citizen and not be eligible for US citizenship;
Note that I wrote "parents", not "parent", although full rules do specify additional residency requirement, so my statement may be considered incorrect, but not because of what you are pointing out. : - P
Reference for whoever's interested: https://travel.state.gov/content/travel/en/legal/travel-lega...
Note that I wrote "parents", not "parent", although full rules do specify additional residency requirement, so my statement may be considered incorrect, but not because of what you are pointing out. : - P
Reference for whoever's interested: https://travel.state.gov/content/travel/en/legal/travel-lega...
Keanu was born in 1964. I believe the rule at the time was that you needed to be born to a US mother in order to automatically have US citizenship at birth. Otherwise you needed to go through a processes.
No doubt this was to avoid having all the children of anyone a US serviceman interacted with abroad claim US citizenship.
No doubt this was to avoid having all the children of anyone a US serviceman interacted with abroad claim US citizenship.
No, though that was the case pre-1934 [1]. Remember that Hawaii, where his father is from, didn't become a state until 1959 and there are physical residence/presence tests required to pass on citizenship[2]; ex:
"A U.S. citizen may have automatically acquired U.S. citizenship based on birth in the United States, but never actually resided in the United States. This U.S. citizen will not have established residence in the United States, and may be unable to transmit U.S. citizenship to his or her own children."
[1] https://en.wikipedia.org/wiki/Birthright_citizenship_in_the_... [2] https://www.uscis.gov/policy-manual/volume-12-part-h-chapter...
"A U.S. citizen may have automatically acquired U.S. citizenship based on birth in the United States, but never actually resided in the United States. This U.S. citizen will not have established residence in the United States, and may be unable to transmit U.S. citizenship to his or her own children."
[1] https://en.wikipedia.org/wiki/Birthright_citizenship_in_the_... [2] https://www.uscis.gov/policy-manual/volume-12-part-h-chapter...
From the article, there were 6705 renunciations in 2020. Essentially nobody does this. Those that do must be in a very unique situation.
(1) Many people don't know that they're "US citizens"
(2) Even if you are aware of (1) you have to know of this unique bit of US taxation BS, and know that that means you have to file a US tax return (something that functionally costs money) to not be breaking the law and so be subject to fines.
(3) Even if you do realize that you need to renunciate your citizenship you have to do it in person, so you have to have the ability to also get to a US embassy, and hilariously prove you're a US citizen.
(4) As the article states: renunciation itself also costs money, in addition to the other costs incurred.
Given (1), many impacted people don't ever actually interact with the US government, and with (2) never occurs to them that they need to do anything. (3) and (4) then add an actual barrier to renunciation, couple with the potential "immigration" impact (Flying through LAX, NYC, etc can become questionable, which is a problem given they're major hubs), means that you actually get stuck in a damned if you do, damned if you don't.
Finally, despite it being ostensibly a legal right, the US government has a track record of denying basic constitutionally guaranteed rights, and renunciation is no different. Because of (3) it's necessary to make an appointment and visit in person, and the US has actively ensured that that isn't possible by understaffing and even simply canceling appointments. So while only ~2700 may have renounced citizenship, the actual backlog is in the tens of thousands.
(2) Even if you are aware of (1) you have to know of this unique bit of US taxation BS, and know that that means you have to file a US tax return (something that functionally costs money) to not be breaking the law and so be subject to fines.
(3) Even if you do realize that you need to renunciate your citizenship you have to do it in person, so you have to have the ability to also get to a US embassy, and hilariously prove you're a US citizen.
(4) As the article states: renunciation itself also costs money, in addition to the other costs incurred.
Given (1), many impacted people don't ever actually interact with the US government, and with (2) never occurs to them that they need to do anything. (3) and (4) then add an actual barrier to renunciation, couple with the potential "immigration" impact (Flying through LAX, NYC, etc can become questionable, which is a problem given they're major hubs), means that you actually get stuck in a damned if you do, damned if you don't.
Finally, despite it being ostensibly a legal right, the US government has a track record of denying basic constitutionally guaranteed rights, and renunciation is no different. Because of (3) it's necessary to make an appointment and visit in person, and the US has actively ensured that that isn't possible by understaffing and even simply canceling appointments. So while only ~2700 may have renounced citizenship, the actual backlog is in the tens of thousands.
To be honest, if you’ve never interacted with the US government you can let sleeping dogs lie.
For example if you’re born in a foreign country to a US citizen who can pass down citizenship. You’re a US citizen, but there is no record of it. USCIS doesn’t know, the IRS doesn’t know. Nothing will ever happen if you travel to the US on a foreign passport.
I know a couple people in Canada like this.
For example if you’re born in a foreign country to a US citizen who can pass down citizenship. You’re a US citizen, but there is no record of it. USCIS doesn’t know, the IRS doesn’t know. Nothing will ever happen if you travel to the US on a foreign passport.
I know a couple people in Canada like this.
> For example if you’re born in a foreign country to a US citizen who can pass down citizenship. You’re a US citizen, but there is no record of it.
Unless you've had a FS545, DS1350, or FS240 filed.
Unless you've had a FS545, DS1350, or FS240 filed.
don't travellers to US on any type of visa need to fill up lengthy forms called DS-160 where you declare details about your parents and their nationality, your own nationality and citizenship,answer questions about whether anyone in your family is a US citizen, and then swear that you are being truthful?
Sure but citizens of 60+ countries don’t need a visa at all.
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The UK embassy at least was closed for renunciations most of 2020 due to COVID. They didn't reopen until halfway through last year, so maybe that year wasn't the best data point.
Incidentally I know this because I paid the $2350 last month, so timing couldn't be more annoying. I hadn't been in the US since being 1 year old and yet financial institutions refused to take my money due to the whims of another country.
If there's anything unique, it's the US doing this to people. It's an insane amount to charge just to declare you have no ties to somewhere.
Incidentally I know this because I paid the $2350 last month, so timing couldn't be more annoying. I hadn't been in the US since being 1 year old and yet financial institutions refused to take my money due to the whims of another country.
If there's anything unique, it's the US doing this to people. It's an insane amount to charge just to declare you have no ties to somewhere.
I read an article a while ago that said for high net worth individuals there is a backlog of people waiting for US to process giving up US citizenship, US is under no obligation to hurry processing.
Quick google search shows articles citing "30,000 backlog" of people wanting appointments to cancel.
Quick google search shows articles citing "30,000 backlog" of people wanting appointments to cancel.
This reminds me of the insane backlog of FBI background checks for NFA items (suppressors, machine guns, SBRs). Government has no incentive to process these things in a timely matter. People have to contact their congressmen sometimes just to push the sludge along. From what I've read it's not even a different background check than when you buy a gun either, just that the extra steps and the willful laziness to slowdown something the government probably doesn't like doing but has to.
You can buy a gun in 15 minutes at a gun store normally. Want to put a suppressor on it or that gun just happens to be 1" shorter than 16"? You're going to wait 9-24 months longer. Ridiculous doesn't even begin to describe it.
You can buy a gun in 15 minutes at a gun store normally. Want to put a suppressor on it or that gun just happens to be 1" shorter than 16"? You're going to wait 9-24 months longer. Ridiculous doesn't even begin to describe it.
Government as a whole does have an incentive to process these things fast enough to avoid a backlog, since they get $200 for every transfer.
The problem is that government is so large that, in practice, the ATF doesn't care, because that $200 just goes into the US Treasury general fund. If they actually kept most of the tax they collect, I think we'd see much faster processing times, and eFile would have happened many years ago.
The problem is that government is so large that, in practice, the ATF doesn't care, because that $200 just goes into the US Treasury general fund. If they actually kept most of the tax they collect, I think we'd see much faster processing times, and eFile would have happened many years ago.
Most embassies have been canceling and not scheduling these appointments, since 2019. The wait at a lot of them is still several years. I had to travel to Azerbaijan to get it done in a timely fashion.
That’s quite a large number especially considering Americans have one of the lowest emigration rates of any country. I think one reason it’s “low” is many destinations Americans permanently move to allow dual citizenship and Americans don’t deal with the hassle of renouncing when they can generally just ignore taxes and for the most part have no problems. Or the process of renouncing is such a pain in the ass they prefer to get a long term residence visa for their new country that doesn’t allow dual citizenship and just accept that America makes leaving difficult as a form of punishment and just not bother with the insane process at all.
If it were free and doable with a single signed page, a passport to hand over, and proof of new citizenship, I think numbers would be way higher.
If it were free and doable with a single signed page, a passport to hand over, and proof of new citizenship, I think numbers would be way higher.
The USA is ~330 million people. ~6000 annual people is not enough to register on any kind of metric as a signal. Even if the "true" number were a 100k, you are talking about 0.03% of the total population.
Because as I stated, very few people emigrate from the US to begin with.
Within the group this affects (permanent emigrants from the US), it’s not a small number. Especially considering it’s such a difficult and expensive process that most don’t bother with it for those reasons.
There were more US citizenship renunciations than there were total births in Wyoming in 2020. But we don’t just ignore the existence of issues affecting people from Wyoming because “essentially nobody lives there.”
Within the group this affects (permanent emigrants from the US), it’s not a small number. Especially considering it’s such a difficult and expensive process that most don’t bother with it for those reasons.
There were more US citizenship renunciations than there were total births in Wyoming in 2020. But we don’t just ignore the existence of issues affecting people from Wyoming because “essentially nobody lives there.”
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This number is limited by the amount of renunciante interviews the state department allocated in a given year. It is supply driven rather than demand driven. Knowing someone who has been working on this for years, the wait list for each interview was long before COVID and is now apparently unknowable. It’s become, effectively, a lottery.
Is anyone aware of an organization that lobbies against the non-resident tax filing requirement for US Citizens and/or FATCA? The burden placed on expats is extreme and I'd like to donate to help fix this, however unlikely.
That's nice, I just completed it at full price and it felt like extortion.
The icing on the cake is you have to give them a prepaid envelope to send the certificate back to you. As if the $2350 isn't enough to cover postage...
Just renounced last month so I feel your pain. I've made peace with it by, in my head, amortising the cost over the rest of my life, but it sure would've been nice to do that with the lower fee!
Just renounced last month so I feel your pain. I've made peace with it by, in my head, amortising the cost over the rest of my life, but it sure would've been nice to do that with the lower fee!
It should be free. Not aware of any charge in the UK or Canada.
“At issue, as many American expat critics of FATCA are quick to point out, is the fact that the U.S.'s citizenship-based tax regime – famously unique in the world, apart from Eritrea – obliges anyone born in the U.S. to file tax returns every year, and potentially to pay U.S. taxes and even penalties for failing to file such documents as Foreign Bank Account Reports, even if they have never lived in the U.S., or earned money there.”