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Friday, October 26, 2012

The Tax Implications of a Life Lived Abroad

Another extraordinary resource passed along by Just Me.  The Life of An American Abroad is a twenty minute video that was filmed during a tax seminar earlier this year.

An actor plays the role of a very naive American who moves to the UK to study and work and who ends up falling in love,  getting a permanent residency permit, buying a house, getting married, having children, saving for retirement, and ultimately passing away in his host country.

Now if this person were from any other country in the world (i.e. not the U.S.) you know what we'd call him?  An emigrant/immigrant.  I find it very amusing that, for the most part, we don't and I think that's a problem.  As Camus once said, "Mal nommer les choses, c'est ajouter au malheur du monde." (Calling things by incorrect names is adding to the misery in the world.)

As this American tells his life story, a panel of tax advisors is there to explain to him what he has to do to stay compliant with the U.S. worldwide tax and reporting regime (citizenship-based taxation).  To his horror (and mine) not one thing that he does in that life remains untouched by the IRS.  Well, perhaps that is an overstatement since he is allowed to eat, breathe, and eliminate waste without the U.S. government looking over his shoulder.  How generous of them.

I personally know many Americans who have experienced all the life events talked about this video and I think I'm on very firm ground here when I say that even the folks I know who think they are compliant, probably aren't.  

So I strongly urge everyone to watch this video and I mean everyone.

For those of you reading this blog who are not U.S. citizens or Green Card holders and who think this does not concern them, please think again.  You are indirectly concerned because many of your governments find the American system rather admirable (the French, for example).  Members of other diasporas ( French, German, Mexican, Brazilians and so on) would do well to be aware of how U.S. worldwide taxation works so they can fight efforts to have something similar imposed on them.  As for those of you who are married or contemplating marriage to a U.S. citizen, best to know what you're getting into (or the merde you are already in).

For Flophouse readers who live in the U.S. and who are still under the impression that Americans abroad are making a big deal out of nothing, watch the video and ask yourself:  would you be willing to live like this? And what about your children who may one day wish to live and work abroad?  Do you want them to be captive citizens shut out from all the goodies associated with globalization, unable to take that great job in Shanghai or London because no one will hire Americans anymore or because the cost of compliance with all the U.S. requirements is simply too high?

And finally for my fellow Americans abroad, I'd like you to do something for me before you click "start."  Find a quiet place, take a deep breathe, and relax.  You have options.  Not all of them will make you happy and some will require effort on your part.  What you do with this information is entirely up to you.  I fully understand and empathize with those who are renouncing.  There are others who are fighting like demons:  joining American Citizens Abroad and the Association of American Residents Overseas, writing letters, putting pressure on politicians,  voting this year against those lawmakers who are refusing to listen, and pestering the homeland media to get the story out.  And, yes, there are folks who are doing a Deep Dive and cutting all ties to the U.S., avoiding the U.S. embassy like plague-infested territory, not renewing their passports and so on.  I'm not sure the last is viable given the arrival of FATCA, and I wouldn't do it, but it's a big big world out there and surely some of them will succeed.

Wherever you are in this mess, the important thing is that you do the next right thing and I honestly think that the only wrong answer here is to kick back and pretend it isn't happening at all.

Just my .02.


Anonymous said...

Thanks for the Flophouse video link. After watching, I evaluated my situation: US citizen, long-term visa to stay in France till 2021, married/divorced French citizen, filed IRS tax returns since 1970's in US, have Individual Retirement Account (IRA) in US which is only taxable if I withdraw funds, file French tax returns and CMU (health insurance requirement) returns, have checking accounts in France and US, AND just discovered I made a tax return error in France for 2011. Guess I am now a tax cheat, also. I'm going now to drink some cheap wine. Mike (Dax)

Anonymous said...

Again a wonderful post thank you so much Victoria.

We have to get this video out there, please everyone tweet and blog!

Like you said, many people "think" they are in compliance but actually are not.

I actually had a US tax lawyer whom I was paying 500$ an hour (!) tell me, about 6 years ago, don't worry gifts between spouses are tax free.

Only afterwards did I learn this was wrong after consulting another, and more expensive lawyer. Luckily it did not have any bearing on my situation but it very well could have been a catastrophe.

After several incidences like this I was forced to admit there was no alternative but to renounce. Any kind of family succession planning or retirement planning was absolutely impossible.

My heart goes out to people who have local community property marriage contracts with a NRA spouse and don't realize the implications.

I also wonder if banks around the world should not start to warn customers about holding US securities; I read in the early days of FATCA, anyone who held over 10,000$ in US securities (for example via a UK pension fund or French mutual fund), would be subject to US probate and the full US tax system for allocation of his estate upon death. Even if he has absolutely no link personally to the US beside his investment fund holding. Can anyone validate this?

KalC said...

Reply to Anonymous re US holdings and estate taxes.
Your information is not quite correct. Holdings of US stocks in a UK pension fund for example would not create a problem. Holding $60,000 or more of US property directly is problematic in theory. EG 60,000 worth of Apple or Microsoft or an apartment in Florida.
In theory, the executor of an estate is obligated to file a US estate tax return. In most cases, because there is a high exemption, taxes would not be due but the reporting is onerous.
If the executor has no US ties, this so called obligation would usually be ignored for estates of those with no personal link to the US.

Just me said...

Thanks for giving this video some prominence, along with your fine prose.

I have no expectations that this video will ever go viral, but I have been watching the views go up slowly since I discovered it, and while small, at least there is another person who may not fall into an trap unawares. I hope.

That said, I do believe, there are many of those abroad who would rather not know, and so remain, dare I say it, "Willfully blind".

PS, if you are up to it Victoria, no pressure, but this would be a good one to also post over at Isaac Brock for more circulation. It has been mentioned there, but it deserves its own post.

Anonymous said...

Thank you Victoria. I will circulate this poster. As a dual citizen living abroad I feel you have described very well our plight. You forgot to mention one thing: we have no representation hence we are helpless when dealing with members of the US Congress. Many regards.

Victoria FERAUGE said...

@mike, yeah that very nearly happened to me. I found out just in time about the capital gains business and had to pay up with fines. Really made me wonder what else I don't know. I just got my tax return from my accountant and I don't understand any of it but it looks OK. Oh well progress, not perfection, right?

@anonymous, I've hear stories like yours. Even the "pros" don't necessarily know as much as they should. Scary, isn't it?

@just me, thank you from the bottom of my heart for the link. It's quite an education. Good idea and I will post at Isaac Brock as well.

@anonymous, I would greatly appreciate your circulating it. I hear you about our representation which frankly SUCKS. :-)

Rosy said...

Hi, back from a conference tour in Italy on - guess what ? - the US elections (Religion, morality, populism...politics.. bla bla in US Political Discourse). I avoided the word "lies", and the "Baby Bean" story by Ruan got a good laugh.
Victoria, your posts are always a pleasure. Of course, a lot of us come by here to let off steam, but that shouldn't distract from the excellent quality of the cultural topics which appear here. I knew nothing about that park in Versailles and shame on me! About the video link, I'm trying to get up the courage to view it. Anyhow, thanks for keeping thie Flophouse alive, and bravo for doing it in spite of the problems you're dealing with !

Victoria FERAUGE said...

@Rosy sounds like a scintillating conference and you got to go to Italy - I am jealous.

As soon as I feel well enough (and get done with the radiation treatments) I plan to get on an airplane or a train and get out of town.

And yet, being forced to stay close to home has been an education. Rosy, in addition to the domaine de Madame Elisabeth there was another on the Viroflay side that belonged to the comtesse de Provence. Only two buildings remain: the Pavillon de musique and the laiterie. Now I have walked by both buildings many times over the last 5 years and I had no clue that they were at all significant.

Ah well, live and learn, right? :-)

Rosy said...

May I, with red face and much shame, ask you where those properties are ? I live opposite Viroflay Rive Gauche and play tennis at the Chaumière.

Victoria FERAUGE said...

@rosy, we are but one train station away from each other. :-)

I am red faced too - I had to look up la Chaumière. Sounds like I need to stop by Viroflay.

The two properties (of the two Madames) are on the avenue de Paris on the Viroflay side. Come by one day and we'll go for a walk.

Oh and here's the latest gossip - some soccer star, it is said, has rented the Pavilion de musique. It is a scandal - there goes the neighborhood. :-)