Not too long ago this American abroad, with the help of her accountant, finally filed her U.S. taxes for 2011. It was quite an impressive package that I printed out and sent off to the IRS. In it were forms I'd never heard of and one that I'd heard way too much about, the 8938 which is basically a duplicate of treasury Form TDF 90-22.1 (FBAR) which I filed earlier this year. Ah, the U.S. government is such a marvel of efficiency.
I am so thrilled to be done with it. After many hours of work poring over bank statements, my 2011 French income tax declaration and other stuff from my archives, my accountant sent me the final version and I sent it off registered mail with a deep sigh of relief. For 2011 I am in that exalted state of full compliance (knock on wood) with the U.S. reporting requirements. Oh joy.
Especially since my final tax return yielded a rather distressing outcome: I owed a lot more money than I had thought. How did that happen?
Phantom gains: Because we had sold our last piece of investment property that year, I was aware that I would be paying capital gains on the sale and was prepared to the cough up a couple thousand U.S. dollars. What I did not know was that I would "make" more money on paper because of the different exchange rates: from Francs/Euros to U.S. Dollars. That was something of a shock but even so I'd heard that this is a frequent problem for other Americans abroad - this issue of "phantom gains" on property or mutual funds that come about simply because we (Americans abroad) are doing business in local currency but the U.S. government insists that everything be converted to U.S. dollars using the IRS-approved exchange rate for that filing year.
Unemployment is not Earned Income: I was unemployed and collecting French unemployment insurance for the year 2011. To my utter disbelief this income is not excludable under the Foreign Earned Income Exclusion. So basically it appears that I had to pay American taxes on my French unemployment benefits. Amazing.
So what was the final damage? 9,000 U.S. Dollars (late filing fees and interest included).
Now that, mesdames et messieurs, is not at all a trivial amount. All the more because I already paid taxes in France so the money sent to the US is on top of all I paid that year to the French "fisc."
And frankly it is an amount I can ill afford since I am being treated for cancer here in my host country and it will be a few months before I can look for work again.
Now at this point I am sure there is a "donneur de leçon" (know it all) in the audience who is conducting an inner dialogue with him or herself using one of the following rationalizations:
"Surely some of this money came from the U.S. originally or she has assets in the U.S."
No, not one dime of my money came from the U.S. I left America right after university (like 20 years ago) and built my career in Europe. The investment property that we bought a few years ago was purchased with money earned entirely in France and with a loan from a French bank. And I don't own anything in the U.S. - no property or stock or stuff like that. My life is here in France. End of story.
"I'm a U.S. expat and I've never ever owed anything so I don't understand what is going on with this lady but it sounds fishy to me."
For those Americans abroad who have very simple situations (studying, teaching English or working for a company that manages their U.S. taxes for them) chances are that they will spend their time abroad either never having made enough money to file or doing anything to complicate matters like getting married, purchasing property or investing locally. That's fine and I make no judgments about how people live their lives. However, we all need to be very careful here and understand that situations are different and that one should not take one's personal experience as being globally true. To someone who tells me, "I don't have to file or pay U.S. taxes," my reply is simply, "Not yet anyway" and "Are you really so sure about that?" Why? Because here's the thing we know about migrants (even American ones): The road from "temporary" to "permanent" residency happens to the best (and the worst) of us. Live abroad long enough and you will do something that will trigger a reporting requirement. I guarantee it.
"She must have had an incompetent accountant because with the foreign tax credits she shouldn't owe anything to the U.S. government."
I'm very fond of my accountant and the service I use to file every year. God knows I couldn't figure it out all by myself - the tax forms and instructions as applied to someone who lives 100% outside the U.S. are damn near incomprehensible to me. So I rely on an expert to get me through this and I check what she does to the best of my ability. But at some point I have to sign and pay up. It did occur to me when I saw the bill that I might want to get a second opinion but let's think for two seconds what that would entail;. I would have to 1. find another expert and provide all that information again and 2. pay that expert his or her fee while racking up even more penalties and interest. In the end this could cost me much much more than the 9,000 USD I ended up owing. So I paid.
If anyone out there is still thinking that I did a dumb thing by sending that payment off to the IRS then I challenge you to help me out. If you are an accountant then I would be very happy to send everything to you and you can (having waived your usual fee of course) go over it and tell me what my accountant or I did wrong. If you are not an accountant, then please write me a check for at least 5000 USD which is about what I would need to pay to get an expert second opinion from an international tax lawyer. In either case I would happy to post the results on this blog. Perhaps my experience could help someone else out.
So how do I feel about the good old U.S. of A (my home country) after having done what I have been told is my patriotic duty?
Honestly? I feel like I'm paying tribute to a warlord. I don't live in the U.S., I don't use any services there and am unlikely to do so anytime soon. So what is my 9000 USD buying me? Well, according to some homelanders I've talked it's so the U.S. Marines will come and get me if I get into trouble in my host country. Interesting hypothesis but somehow I don't think the local government here (the French) would go for that. No to mention that by offering it up as a reason for me to cough up money every year the homelanders are basically saying that this is "protection money." Alas, this feels a lot more like "If you don't pay up we'll burn down your house, seize all your assets and put you in jail," as opposed to the more positive "You may live abroad but you're still an American citizen and we are here to help you if you get into trouble or you need us and that's why we need something from you." Why they insist on the former instead of the latter is beyond me - do these people have any clue what that message sounds like to those of us who live outside the U.S.?
My U.S. citizenship is looking to be more and more of a bad bargain - a little like having sex with a gorilla. As a citizen of a very powerful and very intrusive state, I'm definitely at a disadvantage when the government decides to throw its weight around. Essentially whatever the gorilla decides is what's going to happen and I just get to sit there and take it as long as that rather aggressive primate decides that I belong to the troop.
For the record I am not OK with paying nearly 10,000 USD a year to the U.S. on top of the substantial taxes I already pay to the French government just to have a pretty blue passport, no services to speak of, lots of stress and anxiety and the very very strong sense that I am being royally screwed over.
If anyone has another take on it, I'd be more than happy to hear it.
All I can say is Wow! With that kind of payment, I would certainly consider other options.
Yours is another voice in the growing chorus of Americans living abroad whose lives have been made unbearable by the US's sacred cow of stupidity, citizenship based taxation. With you and so many others raising the alarm, and only our objections and renunciations as recourse, will we go out with a bang or a whimper?
I am tax lawyer with (too) many years experience with these issues.
The first thing that occurred to me in reading your account is the possibility that your accountant did not include the value of your French unemployment benefits in your total foreign source "general limitation" income on Line 1 of Form 1116 (Foreign tax credit).
A common error in computing the total of foreign source general limitation income upon which the FTC is computed is to leave out income items that are not taxable by the foreign country. But whether foreign taxes were paid on such items is irrelevant for inclusion on Line 1 Form 1116. The only criteria for inclusion is that the income's character fits within the "general limitation" type of income and is "foreign sourced" as defined by US rules. Those rules do not require foreign taxability in order to conclude that an item is foreign sourced.
In addition to French general limitation items that may not be taxable by France either under its own domestic tax laws (like e.g. unemployment or disability benefits) there are also items or portions of items paid by American corporations or even the US government - e.g. military retirement pensions - that may have been earned during active service abroad. Thus, even though the F-USA treaty prevents France from taxing a US military retiree living in France on any portion of his US military retirement benefits, he may nevertheless be able to characterize the portion of those benefits earned in Vietnam (or Korea, Thailand, Japan, Spain, France, Germany, Iraq, Afghanistan, etc., etc. ad nauseum )as "foreign sourced" for purpose of computing his foreign tax credit on general limitation items paid to any country.
Remember also that if you didn't generate enough French GL tax credits in 2011 to cover the US taxes on the unemployment benefits, you can carry over any excess general limitation credits from prior years.
Don't have any excess general limit credits from prior years because you wiped them out when you elected the FEI exclusion in those years? Consider filing amended returns for earlier years (2009 and 2010 are still open) in which you claimed the FEI and retroactively revoke your FEI election. Instead use the foreign tax credit to compute your US taxes in those years; the result is usually the same or very close. If French taxes on that FEI excluded income in those years greatly exceeded the US tax, then there will be a surplus that can be carried over (for up to 10 years) and applied to a later year like 2011 when you may have had insufficient foreign tax credits to cover something like non-taxable French unemployment, social security (or pension) benefits.
Look into it.
FWIW if you renounce by the end of the year you can wind up the US tax paperwork by mid-2013.
Found my way over here from Reddit. What a mess! Just a question - have you considered renouncing your US citizenship or do you have plans to go back at some point? Just thinking about what I would do in this situation, and cutting the cord seems like the option that makes the most sense financially.
Yikes...that little blue book is mighty expensive. It is really easy to understand why you would think there is a serious value problem here.
The tax you are paying is for your rights as a U.S. citizen. Right or wrong, that's how it is. You argument is like saying, "My house has never caught on fire, so I shouldn't pay for a fire department." In your case, if you needed the U.S. government's help you could still call on them. If this seems like a bad deal, then you should become a French citizen.
Victoria, I love the whole post, but particularly like the gorilla metaphor! Very apt, and very creative. Made me laugh and cry. And believe me, I need to find any scrap of humour in this situation.
Perhaps if they could read your so very well written and reasoned posts, they would be able to understand.
And as for the ongoing and unacceptable cost of US citizenship and 'compliance': I have paid a very high price - which has tested and threatened my relationship with my non-US spouse, compromised our emergency funds, and jeopardized my mental health and overall wellbeing. To be able to reconcile the singular meaninglessness and expense of my attempt to comply (in order to still be able to see remaining US family) I must explain - to myself and to my non-US spouse, that I am being forced against my will, to buy my way free and clear of the US (which hasn't been my home for many decades, since I was very young) - as a sort of effective hostage, paying ransom in accounting and legal fees. The thousands I have spent is the extortionate price of my eventual freedom, and quite possibly, at one point, seemed to be the price of being able to hold on to my mind and life.
Every day now, I curse the US.
Back from the clinic and I see all these comments. Thanks to all who read the post and double thanks to those who left a word.
@Kirk, Good to see you again. Yeah it is quite a chunk of change. :-)
@bubblebustin, Damn good question.
@Octavist, Thank you very very much for sharing your expertise. I will look into it. I suspect that I am going to have to talk to a tax lawyer at some point. The problem is that 1. it is very expensive and 2. the need to find someone reputable. A lot of Americans abroad really got burned by the cross-border professionals and the OVDI programs.
@broken man, That is good to know. :-)
@robert, the answer is "yes" and I'm in good company. Most of the folks I know are also thinking about it. Some have already talked to the embassy and others have already checked out of the hotel.
@P. Moore, I'd feel so much better about it if there were some services for us. I can think of all kinds of ways that the US could be more supportive of her citizens abroad. Other countries do it - why doesn't the US?
@anonymous, I understand what you are saying and I'm already working on becoming a French citizen. But I will say that I am not sure that it's such a good idea to link rights as a citizen to payment. If that were the case then those Americans who don't pay federal taxes would be in big trouble, wouldn't they?
Just a thought :-)
What can we say to Anonymous re;
"...The tax you are paying is for your rights as a U.S. citizen. Right or wrong, that's how it is....." First, as we know, outside the US we have very few effective rights at all, only obligations. And the willingness to force us to accept something 'right or wrong' doesn't say much for the US as a society. I thought that is why the US fought a War of Independence against Britain - and what about that Boston Tea Party?
Second, we know that ONLY the US (in august company with Eritrea) force their citizens abroad to pay extortionate amounts based merely on an inherited or birth citizenship.
Surprised that our deep thinker Anon (November 28, 2012 5:01 PM) didn't add that increasingly stale, but still perennial favourite - "and don't let the door hit you in the a-- on the way out"!
Funny, I see no evidence that those living INSIDE the US refrain from raising inequities and problems they have with the US tax system by saying 'Right or wrong, that's how it is.' And they only pay taxes to ONE country - the one in which they actually live.
And we should be happy to pay to two tax systems?
In fact, lobbying and trying to change the US tax system is a perennial preoccupation of large segments of the US population - its actually an industry. During the election, did Obama and Romney and Co. say to the US population: 'right or wrong, that is the price you have to pay" for being an American? Would any American at home just swallow and pay 9000. US 'just in case'?
@Victoria. Wow. I feel for you.
I hope your husband is supportive in what's happening.
The pill is difficult to swallow.
I have a couple questions:
Dumm one: How do you pay them?
Does the accountant/tax lawyer you're using is taking care of that for you? Do you need a bank account in the US? How easy is it to pay the IRS from abroad?
How difficult is it to become a French citizen, being married to one? Would you mind describing the procedure?
Has your husband ever had a green card?
If French unemployment benefits are payable under French social security legislation the following language from the F-USA income tax treaty may interest you and your tax return preparer:
1. Payments under the social security legislation or similar legislation of a Contracting State to a resident of the other Contracting State, and pension distributions and other similar remuneration arising in one of the Contracting States in consideration of past employment paid to a resident of the other Contracting State, whether paid periodically or in a lump sum, shall be taxable only in the first-mentioned State. . . . .
The Germany-USA treaty has similar language. Thus, because German unemployment benefits are paid under German Social Security legislation they are taxable only by Germany under the treaty and trump US tax law that would otherwise allow US taxation of unemployment benefits.
So if your unemployment benefits are paid to you under French social security legislation, you should not be including them in US taxable income. You should instead file a Form 8833 invoking Article 18(1)of the treaty to exclude them.
Nor does the so-called "savings clause" of the treaty stand in your way. US tax exemption of benefits paid under French social security legislation are one of the rare treaty benefits available to US citizen residents of France that is specifically exempt from the provisions of the "Savings Clause".
See Article 29:
3. The provisions of paragraph 2 [the savings clause] shall not affect:
(a) the benefits conferred under . . . paragraph 1 of Article 18 (Pensions), and under Articles 24 .....
So, instead of going to some cutthroat American tax lawyer (like me) why don't you just make a return visit to your tried and true tax return preparer and have a little chat about these tax-savings possibilities.
If, on the other hand, it was your capital gain on the sale of your property that was the real cause of your US tax liability well, then I'm afraid you're just SOL.
Since you're getting the French citizenship, why didn't you wait to renounce before selling your investment property, knowing that this would trigger a huge amount of US tax owed?
Some recent stories from Canada re FATCA and extraterritorial taxation by the US
Thanks for taking the time to explain your situation. It helps others to get a better understanding of how things really are. I don't have the right to tell you what to do and I don't know you, so I can't make any recommendations. But, what I can do is to mention an article which was published today. It may or may not help you with your situation:
"Those Fleeing Obama’s America: Prepare to be taxed"
David Rushton. Wednesday, November 28, 2012
Ouch! That's a lot. As a Canadian my US taxes owed were $0 (luckily), but I still spent $3000 on expensive tax preparation by professionals. My 2011 US tax forms were more than 80 pages, while my 2011 Canadian tax forms (where I reside!) were only 8 pages.
Having never lived or worked in the US, but been born into US citizenship through my American parent, I decided enough was enough this year. I renounced and am very glad I did.
You'll find more discussion at Reddit's /r/renounce.
It is also a thing to take into account for persons like me that would maybe like to be dual citizens... Doesn't seem like such a good idea anymore.
BTW, i love the argument "Good or bad, that's how it is". Hey you know what, I got herpes, good or bad, that's how it is. Now kiss me. tss...
Disgraceful. And sorry, Anonymous, but becoming a French citizen does NOT change anything in this lunacy. It's still double taxation. I'm French and I'm still filling out the damned forms - no tax accountant on general principle (or stubbornness on my part, which I may regret). Victoria's statement is right on the button. This said, instead of all of us just therapeutically airing our views here - and stopping there - why don't we band together and start a CLASS ACTION SUIT ? Or whatever ? Sure it's a hassle - but so is all this misery.
Holy cow, Victoria. That is way beyond the level that I would be able to keep paying. It would be like having a second mortgage, without the house.
To quote John Sebastian "did you ever have to make ip your mind" pick a country......
As a 3rd generation Ballardite who renounced his U.S. citizenship this year and paid the expatriation tax, I can only say I'm very happy with my decision and I don't even have another citizenship, I do have perm residency in the country I live and will be able to apply for citizenship in a few more years.
You know what the costs are for renunciation today, they can change these rules at anytime and expats are a very easy target so I would keep that in mind.
I think you having to go through this process of stress and huge expense is unjust and unfair, and I support the idea of you ending your American citizenship. The sooner the better. Hope you will report to us all how well that goes (or not). Good luck to you, good luck to us all. I am also an expat, with a meager income as I am retired, but still have to file and report to what I consider a police state intruding on me on the other side of the world. There was an old bumper sticker that said "America - Love it or Leave it". Well, I left, so leave me alone, dammit!
@Christophe, Good to see you. And good questions. Since I don't have a US account (I think my husband still has one but it hasn't got any money in it) I have to find another method. I use a service (the links are on the IRS website) that allows me to pay my US taxes via credit card. There is a hefty fee for this - I paid 186 USD to make my final 2011 payment.
I wrote a few posts about becoming a French citizen and I think I will write an update soon. Here is one that describes the papers required. http://thefranco-americanflophouse.blogspot.fr/2011/11/path-to-french-citizenship-papers.html
@Octavist, That is great information and once again I thank you so much for your words and for checking it out. I will look into it with my tax preparer. What I am not sure of is whether or not unemployment is under social security here. I will have to inquire. But that info will be very helpful for me for 2012 when I was taken off unemployment and put on disability because of the cancer. Am already feeling a bit better about next year's tax preparation. :-)
In an earlier life, the US approach of tax returns for expatriates was an interesting approach to citizenship policy, including the ability to pass citizenship down to one's children born abroad. Nice to have a practical illustration of some of the issues - and you certainly provoked some good discussion! Andrew
@stateless, I am surprised you were able to renounce your citizenship without acquiring a new one first. I thought that was a prerequisite. Am I wrong?
Or is permanent residency enough?
Does that mean you can't travel outside your country of residence until you acquire your new citizenship?
Victoria, I'm sorry to hear about this. You are able to write about a truly unjust situation with a more level head than I would be able to. It's good that you are writing about it and speaking up. Let's hope others have the courage to speak up too. I know many who do not because of fear of reprisal from the U.S. government. It really does feel like protection money. Pay up or face the threat of draconian penalties or even imprisonment for non-compliance...even though you don't live in the US or use any services which is the very point of collecting taxes in the first place.
It's a sad shame. America was founded by people who so greatly resented being taxed by a king in a foreign land that they fomented a revolution that Americans celebrate every year as Independent day. Yet the blind homelanders know it only as a day to grill burgers and light fireworks while mindlessly forgetting the moral underlying reality of Independence day. Today the US federal government is doing exactly what the founding Americans had so greatly resented originally, and is levying taxes on its subjects all across the world, like the British did to us originally. America has come full circle. It's sad.
I am also a breast cancer survivor as well as a US person. You are, in addition to being an excellent writer and observer of society, an amazingly strong person. You have to deal with a lot, one of them which is the US tax situation. I know how much strength you must need to muster up each day right now.
It sounds like you are aware of the position that can be taken with respect to your disability payments for 2012. You will have to check the US-F tax treaty to see what it exactly states, but for the 8 months that I underwent treatment for breast cancer, I was placed on disability in the social security system of the country I reside in. I was able to exempt/not include these payments in my US income on the basis of what was in the tax treaty. We filed Form 8833 and explained that as these payments were taxed in my country of residence, under paragrah x of article y of the tax treaty they were taxable only in my country of residence. I hope this helps.
As for phantom gains, I have also had that wonderful experience. In one year, in my retirement plans (mutual funds and thereby PFICs in the eyes of the US) that are non-taxable where I reside, I had huge losses in my currency of operation. However, the dollar dropped so much from when I bought into the plan that in dollars it looked like I had capital gains in dollars and I ended up paying taxes in the mid 4 figures on money I cannot touch until I am 65 and that was only theoretically in dollars that year. The US taxes I have paid on phantom gains in that plan exceed any earnings I have made on that plan if my currency of operation was translated to dollars today. Maybe I will come out ahead when I am 65. Who knows what the exchange rate will be? However, it still seems like a loss to me because I never had dollars when I invested the money and it is highly unlikely that I will convert this money to dollars when I am 65.
The surprise you had when you learned you had phantom gains was probably equivalent to mine, although my phantom gains had consequences I am struggling hard to rectify. Due to bad advice from a laywer, who said to just to go into OVDI and we would figure out if I owed anything as part of the program, I did. As I had been a self filer every year, all I understood was that I had had net losses so how could I owe any taxes to the US? So I know how you felt. In my case, these phantom gains have cost me a lot more than a tax payment.
@stateless, I had heard that you don't have to have another citizenship to renounce your American one but you are the first person I've heard from who actually did it. Yes, I hear what you are saying - it probably isn't going to get any better and "get out while you can" is sensible advice. Best of luck to you.
@greg, Just loved your "America - Love it or Leave it". Well, I left, so leave me alone, dammit!" This could become our mew motto :-)
@michael, thank you for your kind words. Compared to times past a lot of Americans abroad are starting to speak out. But not enough I think. We need to share our stories even if we are afraid that we are going to look stupid or call attention to ourselves. Most of us are already on the radar in one way or another. So do we go out as lions or lambs?
@Lisa, Wow. What a story. I think you and Just Me should get together and talk. His experience was pretty grim too. Reading what happened to you I think I still have some research to do.
And thanks for sharing that are a breast cancer survivor. I want to be where you are a year from now. Knock on wood. You take good care.
The sadder part of this story to me, is the response of a so called friend of mine who fits the typical Right Wing American T-party stereotype who doesn't follow these issues closely.
Simple answer from his perspective, "Quit whining and renounce."
I am always sobered by that answer, as it makes me realize how little sympathy or understanding there is in the homeland to the problems the IRS jihad and new found focus on Expat taxes and form filing requirements plus penalties has caused.
He doesn't even recognize what a loss this is to the country, when so many Expats now feel ill will towards their homeland, or renounce any ties because of how the IRS has responded to the UBS tax evasion schemes for homelanders, by launching this FBAR jihad plus FATCA.
He doesn't understand the negative message this spreads around the world and possible impacts to the new skilled immigrants that the country wishes to entice to it's shores.
Look at the comments you have gotten here, and the number of hits you have received. That is a message multiplier which does untold damage to the image of America in the world, but he doesn't seem to fathom that.
I think some of that issue relates to how people prepare taxes these days, and how in spite of the complexity, even in the homeland, they don't feel the pain as much as they should for all the effort that is required to get their forms correct just to pay their taxes.
Additionally, these days, the effective rate these American's are paying are very low, for all the whining they do about being 'Taxed enough, already'. Yes, my T-party friend still doesn't recognize how little he pays back there.
The friend I mention just gives tax information his to a CPA to do. He pays a small amount, and gets the forms back, all completed and ready to mail. I am sure he has no idea what is really in them, or what the real knowledge, effort or LCUs would be entailed in submitting them himself.
Even you have taken your forms to an International Tax preparer, and trusted that they got it right. I don't blame you. You certainly paid a premium price for the service rendered, but may not yet fully appreciate the pain of doing it yourself, other than the $9,000 plus surprise, which I am not negating as that is painful enough.
I think the way to really get tax reform, is to require every American to give up Turbo tax, and be forbidden from using a CPA to prepare their taxes. Without the CPA, Mitt would have paid a higher effective rate, I am sure, and his forms would be less than the 250 pages they were reported to be. He wouldn't have had the tolerance to read the crap that goes with getting them right.
If everyone had to struggle with the forms themselves, and spend the LCUs required to read the instructions and complete the complex forms by hand, I think there would be a real revolt. And if all Americans had to complete the same forms as the Expats in a uniformity of effort initiative, they would hit the roof!
To counter my friends 'stop whining comment', I am sending him the extra US forms for Americans abroad to fill out, with this response"
"Would to God renouncing was as simple as standing out in the public square and saying, I am done with you America! If that were so, I would take your point."
Too bad we don't have the "triple-talaq." equivalent available to Expats that is available to the Muslim man divorcing his wife. If we could say, "I renounce you" 3 times, and be done with it, maybe there wouldn't be the whining! LOL
Thanks Victoria for continuing the education via your blog. I know this must be an energy drag on you, with all your physical problems to boot! I don't think you are a whiner, by the way! :)
In response to Anonymous who wrote: "The tax you are paying is for your rights as a U.S. citizen."
When I was working and living in the US, I made a silly innocent mistake. As a result of such, I lost my job, my employer-friendly bank closed my account, my employer-tied retirement savings got cashed and taxed, and my unemployment benefits would have barely covered my basic housing expenses. With no job prospects during an economic crisis and massive debt, I fled to Europe.
Europe helped me to get back on my feet, to pay off my debts and to advance in my career. As such, I don't see any reason why the US government needs to stick its nose into my affairs abroad. America did nothing to help me to be where I am today, other to ensure that I would not live or work in America.
As such, upon learning that banks were denying me financial services for being a US person, I renounced US citizenship. So, you can take your lousy and worthless US citizen and shove it, because it ain't worth a dime for me.
Living abroad, I continued to be a US citizen, until recently, because I have American ancestry, American heritage and American family. Yet, such doesn't require American citizenship. What you need to understand is that many Americans living abroad don't need to be US citizens and it is becoming more and more beneficial for them to not be such. Yet, each renunciation is a loss for America. America is losing skilled workers, talented individuals, little ambassadors who promote a good image of America, etc. In an age where terrorists are seeking to harm Americans, America is pushing away its loyalists and allies, just when it needs them the most.
Yes you can renounce your U.S. citizenship without having citizenship elsewhere, the U.S. is one of the few countries that allow for this, I only know of three other cases from my research but I suspect there could be a lot more since there is no published data on the topic.
I can get a certificate of identification from my country of residence to travel but need to acquire a visa from each country I plan on visiting in advance, not a big deal really but visa free travel is nice.
I've been told by many people what I did is not possible so I've provided the U.S. State Dept info below.
From the U.S. State Department renunciation manual.
"Renunciation and statelessness: Potential renunciants who do not possess another nationality or a claim to one are nonetheless permitted to renounce U.S. nationality. In doing so the individual becomes stateless. You should explain the extreme difficulties that a stateless individual may encounter trying to establish residency in a foreign country or traveling between countries in order to ensure that the individual understands the consequences of statelessness. See 7 FAM 1215 for additional information about statelessness. If the individual still desires to proceed with the renunciation, you may proceed."
"U.S. citizenship is looking to be more and more of a bad bargain - a little like having sex with a gorilla."
Absolutely hilarious! Brilliant analogy.
OK.. so we've established that we want, most of us to get rid of it. But WE STILL HAVE TO PAY A H.... OF A LOT TO DO SO ! Can we go back to my first question? Why not start a CLASS ACTION SUIT or GO TO THE INTERNATIONAL COURT OF HUMAN RIGHTS ? Yes, you've read right. If French car drivers could win a case for not being able to appeal wrongly-attributed driving violations, why can't we do the same or similar about the unfairness of this now invasive and unjust taxing system? Is there a lawyer out there who can provide some advice here ? H..! We have to pay even just to renounce! Thanks.
@Rosy, yes it's hard to believe there isn't one expat lawyer in this field who'd be willing to take this on! If each USP abroad gave $1, we'd have at least $6M to start the case, but there's got to be some out there who'd do it pro bono! I'm no lawyer, but I'd even volunteer to so menial research if it helped!
@Rosy, You are where I have been for months - FRUSTRATED! While I am sure that letter-writing helps, and talking to journalists helps and spreading the word helps I'm getting to the point where I think we should seriously start considering other avenues. You mentioned one, legal action, and I think that is a good one. However I think any discussion of that should probably be held off-line and ideally face to face.. What do you think?
Right you are. See your mail ;-)
My husband is a Us citizen and I'm french. We moved back to France in September in the west of Paris.
We found out last spring that all resident aliens in the US had to declare any revenue, bank account etc... above $10000. (even if it is a very old bank account created before going to the US).
We understood the French government will do the same very soon. Basically people will soon be taxed everywhere (where they live and where they're from).
More than 6 years ago we were living in France, the US gov was asking my husband to pay some taxes (he had not work in the US at all for the past years). He went to the Consulate. All they did was to give him a huge book with all the rules. He found 1 sentence/article that got him out of it legally (in a 500 pages book!).
It is very upsetting to waste time and money (when you have to pay) when normally double taxation is illegal. One of my relative is a "fiscaliste" for a big french company that is implemented in a lot of countries (US included). It is her job to avoid double taxation.... Come to think of it.... it is a full time job! Most people don't have the time or competences to do it. So we pay!
When I was in the US last year and found out I had to declare bank accounts above $10000 (and that's exactly what I had from some money I got from my grand-parents years ago before they died). The only idea I had was to put the account under my 4 year old daughter's name.
My husband is also going for the french citizenship (though he is not thinking about renouncing the US one). He's doing it to be able to work anywhere in Europe.
But I am not sure it is the wisest choice either if we go back to the US one day...
Very complicated situations!
Yours is a very interesting story, but not unlike many others. Reading 500 pages of US tax rules is unusual however! I am curious, what was it your husband found that allowed him to avoid being taxed?
Thanks so much for stopping by and leaving your comment. Yes, the French government wants to know about those foreign bank accounts and the fine is pretty stiff. We declared ours - my husband has an old checking account in Seattle that he just never closed. It has almost nothing in it but apparently there is a 7000 Euros fine if the French fisc discovers it. Amazing. :-)
I strongly suspect as well that the French will implement some sort of citizenship-based taxation in the future.
As I read your story and thought again about my own, the more I think we need some sort of diaspora organization that takes into account not just the interests of US citizens like ACA and AARO but also the interests of those with connections to the US, the foreign spouses, children and grandchildren of US citizens, former Green card holders and other US residents, and even former US citizens.
All these people, I would say, are stakeholders in this and many other issues and they deserve to have a voice too. I'd like to have an organization that reflects that and American homelanders be damned if they don't care for it.
That's kind of where I'm at right now. I want a larger org with a much bigger umbrella. What do you folks think?
Tonight I heard on a French TV station (think it was BFM TV)one of the under ministers, a rather snibby looking female laud the US system of taxation based on citizenship (and more) and proned doing the same thing for French citizens, with a "fichier" or database that would keep track of the person wherever she/he goes - and even spends some time, whether the person works in that country or not. I hope I didn't hear right. But I think I did. of course, this in answer to Johnny Halliday's infamous move a mile over the Belgian border. Too bad the rich are hiding the fact that it's the modest being taxed. In all this tax talk, why doesn't any French minister start to wonder WHAT'S WRONG with the tax system here ? This should bring light to a previous comment here. No doubt, the reciprocal nature of FATCAT will soon cause problems for people with accounts on either side of the ocean.
you stated "I left America right after university..built my career in Europe...I don't own anything in the U.S..."
My question is: why on earth would you pay anything to the US? they can only seize US properties! and apparently you don't have future US retirement benefits, you are home free!
@justmesaid: Umm, most of the tea party conservatives want nothing to do with the IRS. THey want to repeal the ammendment that created the IRS and go to a different type of taxation such as a flat tax. Please DO NOT use tea party as a standard description for something you don't understand. My advice to Victoria, as an expat who agrees with fundamental tea party goals, is to make sure you vote a tea party representative into presidency the second you have an opportunity. Once that happens only goods purchased in America will be taxed for ANYBODY (including the huge amount of illegals not paying taxes) and won't affect expats who are not spending time or benefitting from being on American soil. Please read up on things people, will help you in your search for answers.
@anonymous, "They can only seize American assers." Not sure that is true. I think there are tax treaties that would allow them to collect. Let me look into this.
@Joshua, I think what stymies most people is the sheer volume of information out there these days. What to read and who to trust? It's a big problem. To be honest I don't really know anything about the Tea Party in the US and when I looked in-line I found a number of different organizations claiming to represent them all with their own particular ideas. Is a flat tax a good idea? Not sure. I think I would personally settle just for the right to pay taxes only in the jurisdiction where I actually live and earn that money. And if I don't care for that tax system or how my money is used I would take that up with my local government and that means FRANCE.:-)
Inquiring minds would like to know, Victoria: Did you in the end pay US taxes on your unemployment income?
Good question. To be honest I still haven't figured it out.
I read the tax treaty and then went looking for the form that one reader proposed. I didn't find it.
I think the vast majority of what I owed was in fact due to capital gains (grossly inflated by changes in the exchange rate over time). To know for sure I would need to turn to another tax expert who could over the returns with me. After already sending off thousands of dollars to the US treasury I find that I'm not really motivated to spend more.
I think this is a common problem. It's just too damn complicated and too damn costly to be 100% sure.
Thank you so much for bringing your experience to light to be shared by all. I am in the process of gathering info and to weigh the pros & cons of dual citizenship etc. This topic of discussion really "tombe à pic"!
Question of curiosity: Where did all your writing energy come from?
Wishing you a steady recovery with a prayer to Mother Mary in Lugdunum (Lyon), Jaime
Hi Jaime, Thanks for stopping by the Flophouse, for your comment and, above all for the prayers. Dual (we should really say "plural" these days) citizenship is a fascinating topic. All those national laws coming together through one person and intersection in ways that are not obvious. I'm glad this piece helped.
Writing for me is sheer pleasure. I literally don't see the time pass when I'm writing a post. I think it's called "flow." The words just tumble out of my head....
Not sure why you had to pay so much if the house you sold was your main residence and you lived there at least two years.
Was it because of capital gains (but there is a $250,000 exclusion)? or was it because of the new law on taxing overseas accounts that are over a certain amount -- and the sale of the house automatically put you into that upper bracket?
Preparer firm with IRS enrolled agent on staff, who did US returns and forms last year now will not - citing liability and risk issues. Just not worth it for them even for those 'in compliance'.
Other firms asking for signed letter of engagement - and will provide no estimate or range of cost for a 'simple' US return with NO US tax owed - and barely enough income to be taxed here at home outside the US.
HRBlock charging incredible 350. as base rate + all the forms extra a la carte.
The US preparer fees will end up being a substantial size in comparison to the miniscule part-time wages and savings interest being reported.
How soon before even the smallest simplest US return from abroad will cost us 1000. to have prepared? Which is what the big accounting firms were charging in 2011 for those trying to backfile - plus they would only do those under the direction of a US tax lawyer. 1000-3000 per 1040 plus an FBAR, 8891, and maybe a 3520 and 3520A, no matter how simple - and how obvious that zero US tax could be assessed.
That is a US tax imposed on all those who live 'abroad'. The IRS and Treasury sees nothing wrong in saddling those with zero US tax owed with preparer fees of hundreds and thousands in accounting fees. No-one can afford to be a US citizen living 'abroad'. That is in addition to the savings we lose by being confined only to the most basic of savings - because most everything else is deemed a taxable and penalizable 'foreign' trust or other suspect type of account in the view of the IRS and Treasury.
We who live and/or were born outside the US are not allowed to save, or have the right not to be double taxes. We are merely taxable fodder for the US - in order to harvest our account and asset information and to pay for the US endless wars and aggression.
@Anonymous, That is incredible. So how in the heck are we supposed to get the help we need if we try to stay compliant? We are indeed facing a situation where we might not be able to AFFORD to be US citizens any longer. Thanks for the info. I'm going to look into it further and see if a post is in order.
Perhaps you have already seen this link, but I think it explains the double taxation problem simply and clearly, so homelanders can understand what we are going through and what it is costing the US economy. "Residence-based taxation for Americans Abroad", posted on the Facebook group "Massachusettans Abroad" : http://www.youtube.com/watch?v=DKFEpAWjeu4&feature=share
I am just finishing my 2 year degree here in the states with phi theta kappa and magna cum laude honors Grade A/CGPA 3.76 and considering finishing my bachelors in Ghent, Belgium at Ghent University to be close to my girlfriend that I plan on marrying after graduation and can afford my ideal wedding. I'd rather not just elope.
I have considered dual citizenship so I could stay with her there and for investment purposes in real estate in the U.S., I am not certain now if that is a great idea. I know if I purchase mortgage promissory notes and take payments that I will be only taxed based on the amount of revenue I gain however I am now unsure about if I'll be taxed on the revenue gained from this in Belgium or vice versa with my revenue gains from employment in Belgium.
This leaves a lot for me to consider. I know I'm more then likely going to be staying and building a family in Europe as my girl doesn't wish to come to the states and leave her family and mine has mostly passed or isn't in great contact so it isn't a big loss for me.
Thank you for your blog bringing me awareness to a topic I never considered before and will have to look into more if I decide to pursue my investment plans for retirement with mortgage promissory notes in the states.
Hi Jeremiah, Thank you so much for reading the Flophouse and for your comment. Quite a pickle, isn't it? There is so much to co nsider and it's not obvious what to do. This might be a good one for a very competent international tax attorney. I wish you all the best and please let us know what you find out and, if you don't mind, your decision. All the best. Victoria
I have got a new listing in Tiba Resort from £8,140
As an expat living in AU since leaving the USA in 2007, I'm now at the point, too, of ending the "ties that bind".
I am a dual-citizen AU/USA, so I don't have that worry. I did read that I'd need to bring along my AU passport (I don't have one- so another $2**+ dollards out!) to renounce.
Now- the query- & I really hope someone here knows: relinquish (vs. renounce)= no fee, no consulate visit. Does the same thing & saves $450 "exit fee" (one last gorilla screw).
Question is: how to actually perform this paperwork act legally so I can shift this yoke?
Thank you, Victoria.
I was also born in Seattle, but left the States in 1977 and have been living in Switzerland since 1980 as a dual citizen. I am in the same quagmire of IRS demands as you. When the company I worked for went bankrupt in 2011, I received Swiss unemployment benefits for a number of months. Although the total amount is declared on Form 1116 "Foreign Tax Credit" I feel cheated that I can't declare it as foreign income since it obviously is. For that reason, I was relieved to find some good advice from tax lawyers concerning exemption of the unemployment benefits.
Thank you for creating this page which I'm sure is very appreciated by many fellow ex-pats.
to anonymous from seattle or anyone else who is educated in the swiss-US tax boondogle....:-)
please, please could you possibly elaborate on this Switzerland unemployment benefits exemption, it will help us immeasurably next year, since we are currently in that situation and will possibly be for the foreseeable future to come due to my age, i.e. over 55, female and my non-german/french/italian speaking handicapping my in my swiss jobsearch, though i am highly qualified and have worked here for many years for a swiss pharma company where english was the language of choice......and i do have a german husband who translates everything for me... ....and no, we do not want to leave switzerland, its too nice here.....so we need all the help we can possibly get......we have a good swiss based US tax accountant but she is so overworked that she does not have the time to research this specific subject, except for additional swiss-adjusted hourly cost ( i.e. very, very expensive)......and since i am unemployed at this time i have enough of the same.....lol.....my thanks also goes out to victoria and all those who have posted helpfull comments here previously....sincerely susan
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform and Investor Protection Act of 2002 was signed into law on July 30, 2002 by President Bush. In the aftermath of Enron, Arthur Andersen, Global Crossing, and WorldCom, SOX promises greater corporate accountability and transparency. Named after Senator Paul Sarbanes and Representative Michael G. Oxley, SOX focuses on the importance of ethical behavior in corporate governance-across the United States and now…overseas.
All countries have government-required laws like Sarbanes Oxley. In the UK, it’s the "Combined Code on Corporate Governance," in The Netherlands it’s the "Code Tabaksblatt," Germany has a "Bilanz Reform" and a "Bilanz Kontroll Gesetz." But then, why do we need SOX overseas since we already have the required laws? It’s because companies with U.S. headquarters must ensure that all foreign outposts meet federal standards. This is the major cause of concern in the management and accounting circles. According to some experts, the Sarbanes Oxley Act might have dictated convoluted rules and regulations on the U.S. businesses. While the rules are concrete ideologies that prevent accounting scandals, the constant flux in the policies confuses businesses around the globe.
Read More here http://accountingtippsandtricks.blogspot.com
Great post Victoria!
Here it is 2015, two and a half years after your post and life has only gotten harsher for US citizens living abroad when Uncle Sam comes to crush us with his gorilla punch.
I've had enough and will renounce my citizenship as soon as my second citizenship goes through. I like the US just fine as a tourist destination and wish the US well. But getting crushed by the IRS is just too much for small fry like me. It's hard enough to scrape together time and energy and money to keep going in what has become a very tough economy worldwide. I don't even owe any US taxes but the cost of doing all the paperwork on top of my resident taxes and the fear of being targeted by an IRS drone strike in case they or I make an error is just too much. And then there are all the jobs I don't get because companies in my industry are reluctant to hire Americans given all the extra bureaucratic hassles that brings them.
What's really stooopid about all this "let's crush our citizens abroad with brutal IRS compliance woe" is that 96% of the world's customers are outside the US and that to reach those customers the US economy benefits from having many Americans abroad. We are the tip of the spear when it comes to winning export business.
Americans abroad provide a ready pool of know-how and local contacts for exporters, shock troops in the effort to compete with the supremely competent export wizards from European and Asian countries. But nope, none of that common sense, good-for-export business savvy is going to make even the slightest dent in Leviathan's gorilla brutality against Americans abroad.
Sigh! It's a sad, tragic, hard choice to give up US citizenship. I have resisted for many years but the time has come.
@anonymous, Phil Hodgen called it a couple of years ago. He said things would get a lot worse before they got better. I respect your decision to throw in the towel. On bad days I lean that way myself.
First and foremost, I hope that your battle with cancer is over or at least looking hopeful since you are still responding to posts. As @stateless predicted back in 2013, the renunciation fee hiked up over $2300. And I concur that it will really get worse. What's to stop Dept. of State. hiking the fee to $5000 or $10000. Simply put, supply and demand.
I both applaud you and am baffled by you for keeping U.S. citizenship. I still live in the U.S. citizenship, but plan to study abroad on my own demand in an Asian country. After extensive research, holding U.S. citizenship is looking like a liability, especially when other countries are already safer and more hospitable.
I wouldn't go as far as @stateless, because if things don't work out, I'd always have a home--even if it is crumbling from the inside.
The previous Anonymous comment was mine.
Did you get any resolution to your problem? I have the same issue for my 2014 taxes, but because I live in Switzerland, where unemployment benefits are very high, my tax bill is coming to 16k and I am looking for options
Thanks for any input
@Unknown - no, alas, I didn't. But then I only had unemployment for a limited time so it has not been an issue since.
Here's my second try at leaving a comment... my computer's been playing tricks on me all day... I enjoyed your article and am in a similar situation regarding the taxes. Any chance that you've found a highly competant and professional accountant to file US taxes without simultaneously removing what little savings are left in the bank?
Preferably somewhere near Paris but at a pinch anywhere in France will do. Any ideas would be much appreciated... thanks!
@bcms, Thank you persisting with your comment and for reading. Welcome to the Flophouse. :-)
Like a lot of people I can't afford an international tax attorney so I went a different route - Greenback. I like them and I really like the woman who has done my taxes for the past few years. The price is reasonable. Ask around because there are others. I think ACA has a list. But I've been pretty happy with the one I have.
100% on your side and thank you for posting clear articles I can link to. Any US expat who is not upset about how the US treats all of us is not paying attention.
@Julie, Delighted to see your note and thank you for linking. Yep, there are a lot of upset people out there. In today's post msot of the articles I mention also note our tax issues. Are the politicians paying attention? I certainly hope so....
I live in Germany and do my own U.S. tax returns, although it has taken me years to figure out what the IRS really wants -- the instructions supplied for tax forms are an utter farce and gloss over all of the fine points (more accurately, all but the very bluntest points).
What especially annoys me about U.S. taxation of citizens abroad is that it doesn't even benefit the United States. In countries with higher tax rates than the U.S. the Foreign Tax Credit will cover most or all of the U.S. tax. And it will do this even for income like dividends on U.S. securities on which non-U.S. taxpayers do owe considerable U.S. tax, usually at a flat rate of 15%.
The fact that U.S. taxpayers will pay little or no tax on this income costs the Treasury money, obviously, but strangely enough it doesn't help the taxpayer much, either. Non-resident aliens, who are subject to the flat tax, can credit it against their foreign tax, so their total tax bill is unchanged. U.S. taxpayers can only credit part of their lower tax against the foreign tax, so their total tax bill goes up! If, as in my case, the foreign country is Germany this effect is magnified, since the credit is applied against the base tax, but Germany has been imposing a surcharge of 5.5% ever since reunification a quarter of a century ago.
If the United States would simply do what every other country except Eritrea does, namely, accept taxation on the basis of residence rather than citizenship, everyone would benefit. Expatriates would not have to go through the extreme hassle of filing two tax returns every year, the IRS would save the paperwork associated with these returns and the Treasury would get more money, not less, at least from me, and I would save considerably on my total tax bill.
Incidentally, I am in much the same situation as you are -- born and raised in the United States, I moved to Germany 49 years ago! and am still subject to U.S. tax, as are my three daughters, who with one very recent exception have never lived in the U.S.
Keep up the good work -- maybe they will come to their senses one day.
Post a Comment