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Saturday, May 11, 2013

A Few Ideas for Resolving the American Diaspora Tax War

There is a lively discussion going on over at Mother Jones in response to their article, Rand Paul Wants to Loosen Laws on Offshore Tax Evasion.  The article refers to a bill sponsored by Senator Rand Paul to repeal FATCA.  You can learn more about Paul's effort at Overseas Exile and Repeal FATCA.  The latter is reporting that Paul's bill has been endorsed by the U.S. Credit Union National Association.

In one comment a FATCA supporter asked a very good question, "So if you folks hate FATCA, what is your counter-proposal?"

Aside from the obvious, "We would like you to kill FATCA.  Go Rand Paul!" I thought of a few things that might mitigate some of the worst effects of this law and some of the other reporting requirements.  Feel free to rip them apart.  I'm putting them forward, not because I need to be right, but because we are at risk of falling into a dialogue of the deaf.  Time to do some creative thinking here - it's getting ugly, folks.   So here are a few modest, simple ideas.

1.  Redefine "Foreign Accounts":  Here is the comment I left in response to the Mother Jones article:
At issue here are "foreign" accounts where Americans are alleged to have stashed money in order to escape taxes. But for an American residing in London, that checking/savings account is local. Why can't American tax law reflect that? Why can't we just say that if the account is located in a country where a US citizens lives and/or works, that account is a local, not a foreign, account in the eyes of the US government? This would get rid of many truly useless reporting requirements like the FBAR (which has a very low threshold of 10,000 US or about 7,500 Euros). FATCA could be changed to reflect that as well. Only non-resident accounts of US citizens in the homeland would be subject to reporting. This would mean that the people in the US who have accounts abroad would still have to report them and be subject to reporting but those who are living abroad would be exempt.
I think of this every year as I send my FBAR (Foreign Bank Account Report) off to Treasury. And I just have to laugh because of what possible interest is my daughter's 200 Euro savings account to the US government (unless you want to argue that a 17 year old US citizen living abroad is already suspected of being a tax evader :-). And I laugh even harder when I think that some poor government worker back in the US (paid by the US homeland taxpayer, of course) has to sort through all of this to no purpose whatsoever.
Think about it, folks.  In one bold stroke we would eliminate all that useless and onerous paperwork and save everybody (US citizens and Green Card holders abroad and Americans in the homeland) a chunk of change.  No more FBARs, no more form 8938's for US citizens who are residents or who work abroad.  Since the requirements for Americans living in the US to report their accounts abroad would still stand, this ought to be sufficient to catch those who make their money in the US and "park" it elsewhere to evade taxes.

2.  "No Questions Asked" Renunciation:  As US citizens and Green Card holders have educated themselves (with precious little help from the US government) about the US tax and reporting requirements, many wish to renounce and become citizens of the countries where they live or turn in that Green Card and move on.  As many have discovered, this is easier said than done.  So, why not make it easy?  One trip (instead of several) to the local US Embassy, cut the form down to one page that can be filled out in 5 minutes, no fees, and let the person renounce on the spot if he or she wishes to do so.  The Certificate of Loss of Nationality should also be issued at the same time as the renunciation.  Forget the tax forms - does anyone seriously think that the US government is going to track down the citizen of another country to make him or her pay a non-filing fine?

Again, this would save everyone a lot of money and Life Credit Units.  Fewer useless forms to fill out and less burden on Embassy staff.  For those who argue (and they are legion) that if Americans abroad don't like FATCA or citizenship-based taxation, they should just renounce, this would remove the barriers and everyone (Americans abroad who wish to renounce and those at home who don't think they are "real" Americans anymore) would get what they want.

This would also solve the problem of those "Accidental Americans" - those who may have been accidentally born in the US and left as children or those who were born abroad to a US citizen parent.  If they don't want to be Americans then let them go and wish them well.  A winner all around.

And give up the idea that the US can shake them down (fine the bejesus out of them) before they get their "Get out of jail free" cards.     That is not only stupid but it is a petty act unworthy of any democratic nation-state.

3.  Amnesty and Education:  Most Americans abroad didn't comply with the US tax and reporting requirements because they didn't know about them.  The path to compliance is complex and of what possible use to anyone are years of back tax returns with nothing but zeroes on them?  Or FBAR's with "foreign" (local to us) savings and checking accounts or children's college funds or pensions?  

I know that "amnesty" is a bad word in the U.S. but wouldn't it be simpler and easier to just ask Americans abroad to start filing now?  And that means this year or the next.  Forget the past - it's too complicated to sort out and the US government deserves some of the blame here for 1.  Sitting on the law for years and not trying to enforce it, 2.  Making no attempt to educate Americans citizens living abroad about their reporting obligation and 3. Not providing a clearer path to compliance for those Americans abroad who are willing to do so voluntarily.

Let's start over with a clean slate.  And let's start thinking of ways we could avoid the problem altogether by providing people with information:  What about:
  • A short note explaining the tax and reporting obligations of Americans to be slipped into the passport when any American leaves the country.
  • The same note slipped into a new passport issued to any American abroad or to someone picking up a Green Card at their local US Embassy.
  • Full disclosure of these tax and reporting requirements to be made at all classes preparing immigrants for US citizenship.  And a note to be sent to them before they take the oath to be sure that they understand what the US will be asking of them once they become citizens.
It doesn't have to be a novel - just an outline with links to more information.  It won't reach everyone but I'm looking for progress, not perfection.

And if people don't care for it, well, they would have options like renouncing or not becoming a US citizen or remaining one and working through the political process to get it changed.

Sure, surely, all this is possible?

What do you think, folks?



Blaze said...

Great ideas Victoria. Unfortunately, they are far too sensible and practical for International Robbery Society?

What would IRS do with it's 72,000 page Tax Code if everything was this simple?

Plus, if US taxes were so pragmatic, what would that do to employment for accountants, lawyers and IRS agents?

P. Moore said...

Of course those are sensible suggestions. I would add simply changing to residence based taxation as well, leaving Eritrea as the only country that practices this 'Citizenship based' extortion. I know you have mentioned this in the past as well. I can see this whole thing turning into a bigger and bigger fiasco as the US Treasury & IRS move towards more aggressive enforcement and more IGAs. In the end, I am very confident the costs to all will far outweigh the alleged benefits.

Blaze said...

@P Moore: Here's the problem. An IRS official said yesterday, "I'm not very good at math."

The reporter pointed out "You're with the IRS."

Her reply? "But, I'm a lawyer."

That explains it!

We know now why this whole shemozzle is happening.

Anonymous said...

I think it be wonderful, fantastic. I doubt it will happen soon, so my family will go the renouncing route - sad that it must be done, but it is a question a living a complete life, versus feeling constrained and threatened. I do believe that the original founding fathers of the US would renounce too, given the current treatment of expats and green card holders. I fully agree that prospective citizens/greencarders should be warned. I did just that yesterday, to a fairly highly placed political person from my EU country - he was absolutely shocked when I explained the consequences if he decided to become a dual.

Jacques said...

I have friends who live in Germany. Their daughter was born in the US while the parents were here getting an advanced degree 50 years ago. The daughter considers herself German and has a German passport but the US is now after her for taxes because she was born in the US. She does not even speak English. Is resignation of her US citizenship her only option?

Victoria FERAUGE said...

@Jacques, I don't know the particulars of the case but based on what you said this lady is indeed an "Accidental American". This post sums it up very well:

Yes, she will have to renounce. Here is how I would go about it and perhaps some others who've already done it can add their thoughts:

1. Contact her political representatives in Germany outlining what is happening and ask for their help.

2. Contact one of the German EU MEPs (member of the EU parliament) and explain what is happening. Copy the mail to these MEPs who have been instrumental in raising questions about FATCA/citizenship based at the EU level:

Member of European Parliament
Sophie In't Veld(Netherlands)

MEP Sylvie Goulard (France)l

MEP Sharon Bowles(UK)

3. On the US side write to Nina Olsen of the US IRS Taxpayer Advocate service
and the American Citizens Abroad and the Association of Americans Resident Overseas.

4. Talk to someone from Isaac Brock (I can refer her to a few people) who has been in the same situation for advice and support. If an international tax lawyer is required the Brockers can help her find a good reputable one.

5. Then, and only then, she should go down to the local US Embassy and talk to someone face to face.

Those are my ideas (and I'm thinking I might throw them into a post). Any I missed, folks?

Victoria FERAUGE said...

@Blaze, I still remember my father explaining to me that "government regulation sent you to college, Victoria." Complexity is in the interest of many because it requires people to seek out expensive professionals in order to comply. Yep, all the folks you mentioned would see their custom great reduced and we can't have that, can we? :-)

@P. Moore, I agree with you 100%. Alas my take in it (and this engages no one but myself) is that a radical change like RBT will only occur when their is massive civil disobedience on the part of American emigrants and immigrants.

@anonymous, Good for you for spreading the word. I try to do the same. Some listen and are in shock, others don't want to hear it. My own spouse was only half-convinced until the tax bills started rolling in. Now he's congratulating himself for not becoming a US citizen when he had the chance. As for me, I may be going in the same direction as you. But until I get to that point I plan on being a thorn in their side as long as I can. :-)

Anonymous said...

Round 2 for sending comments to the Joint House Ways and Means and Senate Finance Committees:

Lets give these guys another ear full!

Anonymous said...

one commenter keeps repeating
"how can a law not yet in effect can affect individuals"
he never lived near a newly planned highway, long before any drives on it, there is an impact on property values, businesses make decisions to locate etc.
Banks and governments are already deciding how to deal with the fallout from FATCA.

Anonymous said...

Please help!

Anonymous said...

Some Guidelines:

Victoria FERAUGE said...

@anonymous, Thanks for the links. Yep, some of the comments on the Mother Jones article were pretty uninformed and provocative. I'd add that I think a letter to the author of the article might be in order. I hope she's getting and education from all the comments she's received. :-)

Anonymous said...

Hi Victoria
It is time to face reality. Mr Smith Goes to Washington is just fiction. No big money, no big lobby then forget it. Things that used to be so simple, straight forward and logical no longer are. Americans are leary of anyone who does foreign things such as live in a foreign country. It is un-American. This less-than-worldly attitude is not likely to change any time soon. A piece of paper or a blue booklet is not a determination of who you are. So for anyone who has made their life outside of the good ole USA, I will paraphrase a now famous quote from an American tax specialist "Get out while the going is semi-good".

Unknown said...


As you know,Victoria, "redefine foreign" is something that four organizations I know of (FAWCO, AARO, ACA and Democrats Abroad) have officially recommended to Treasury and, in theory at least, it would be far easier than a total overhaul of the US Tax Code.

It would, as you say "in one stroke), eliminate the problem for the Americans with little or no income/investments of their own and with foreign spouses understandably unhappy with reporting their joint pension and investment accounts to the IRS. In FAWCO, renunciation is the solution more commonly chosen than divorce, but neither is a good solution and neither would be necessary if those accounts were no longer "foreign". (There would have to be a rule that you cannot be a resident of more than one country, or it would take about 2 days for at least some people to figure out a "fix.)

And "education" is another thing our organizations have asked for - including a joint IRS/Treasury website specifically for overseas Americans, so wandering aimlessly around would no longer be necessary...

This blog wonderfully well put! I'm going to see it gets around... thank you!

Rosy the Riveter and Thorn in the Side said...

Hello fellow Thorns in the Side of the US IRS. Did you miss anything Victoria? Perhaps one: that the reciprocity part of the FATCA also must go into the trash. Why? Because US citizens residing abroad but having US-origin cash in the US also have the same problem in the other direction: that US banks will also have to report those accounts to the person's country of residence - something which, logically, the countries which signed on to FATCA demanded - and got. This occurs easily in questions of inheritance or US citizens having US accounts although they reside abroad for purposes of ensuring college expenses. In other words, what's in the US and comes from the US gets taxed in the US. What's in the person's country of residence and comes from that country gets taxed in that country. Period. Meanwhile, I'm attaching a statement to the IRS, under the First Amendment right to be read to the end, telling them of the grief this has brought about - the denial of banking services abroad, the complexity of the forms, the double taxation, idiocy of reporting the highest balances which artificially inflates a person's true wealth, etc. The more who do that, the more the IRS has to read ! See my point ??? Let it all crumble under its own weight.

Anonymous said...

Interesting summery about the FATCA Tax War:

Thank you for your great support.

Anonymous said...

Future Passports including SSN:

Anonymous said...

US Explores Using Your Passport for Tax Collection:

Tim said...

What is amazing about this whole thing and what makes compromise so difficult I feel is that if any given day you search FATCA on Google and see who supports it most strongly it tends to not be people in the US(who have never heard of it for the most part) but people like Eva Joly and Pierre Moscovici in France who despite coming from a very different political culture than the US seem to be bigger cheerleaders for the concept of FATCA than anyone in the US.

On the other hand Anglo Canadians who might not want to admit it are probably the closest people on earth culturally to the population of the US but seem to me to be the most adamantly opposed to FATCA. So the pro FATCA-ites tend to be a very weird coalition.

I will also add that throughout American history there have always been certain figures and groups who want to make the US more like France and less like Anglophone Canada or Australia for example. Obama is probably one of the most pro France American presidents on the other hand you can be pretty certain that whoever Obama's successor is they will probably be much more pro Canada and less pro French.

bubblebustin said...

I don't know when you've read the last page of your passport but it's been in there since I think about 2003, in the smallest of mouse type:

D. U.S. taxes All US citizens working and residing abroad are required to file and report on their worldwide income, blah, blah, blah.

This is the extent of their educational outreach, something that can be easily missed by anyone over 40 without reading glasses, and certainly anyone without a US passport.

With the Congress and the IRS's propensity for moving goal posts, I think the only resolution that will work in the long run is to move to a residency based tax model. And it now appears that the Congresscritters may be willing to consider doing just that! In the US Senate Committee on Finance's recent statement on International Competitiveness, it has been suggested that tax reform:

1. Provide an election to citizens who are long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions (Schneider, “The End of Taxation Without End: A New Tax Regime for U.S. Expatriates,” 2013; similar to the law in Canada) Read all at:

Isaac Brock discusses it here:

and Bernard Schneider's paper here:

Rosy the Riveter and Thorn in the Side said...

I've just posted this idea under a different Victoria post, but just a question: What if, after "complying" with Fatca, we began to request unemployment or retirement benefits on our foreign professional lives ???

Anonymous said...

Can all the Fbar/FATCA be tied into the current investigation into IRS abuse of power? It might seem a stretch on the service, but it cannot be a coincidence that the abuses and targeting of powerless groups happened since 2010.

Victoria FERAUGE said...

@Rosy, I like the idea. It's a variation on the "work to rule" form of protest. Let's all start complying and inundate them with paperwork. :-)

@Lucy, Wonderful to see you here? Thank you for stopping by. I like the idea of a website - it would make things so much easier and we could give feedback when things are not clear. Really fine idea.

@bubblebustin, Good links. Thank you. Yes, there are some positive signs. Good thing too otherwise I think we'd be getting out the pitchforks...

@anonymous, I think FATCA could. Those IGA's? Who authorized Treasury to sign them and make all those reciprocity promises?

Anonymous said...

Thought you and other readers would be interested to see this:

'The Financial and Emotional Costs of U.S. Citizenship Abroad'

"Strategies will be discussed on how to cope with the stress caused by the IRS and the difficulties of living as a U.S. person abroad."

"..The IRS has literally threatened millions of innocent persons living outside the United States with fines exceeding their personal wealth–up to 380% of their financial assets. For many, this experience has taken a toll on their mental and physical health, and that has been even greater than the financial damage...."

"You may feel you need help because:

You are or have been threatened by the imposition of life-altering fines for failing to file information returns you had no reason to know existed;

You feel victimized by the Canadian and other non-U.S. media, who have constantly referred to you as a “tax cheat” and advised you to “come clean”;

You feel “taken advantage of” by the so-called “cross-border professionals”.

You just want to be compliant with the law, but you receive conflicting advice, and nobody seems to be able to tell you how to do it, yet they are asking for “huge” fees;

You feel completely misunderstood by the non-U.S. citizens in your life. They can’t understand the feelings of fear, betrayal and injustice that you feel. In some cases, this experience has put your marriage at risk;

Your health has been dramatically affected by all of this. You can’t sleep. You worry. You have gained or lost weight. You are no longer the happy person you were. You feel that your life has been stolen from you."


Victoria FERAUGE said...

@Badger, Oh year, the rhetoric around all this is really hurtful. Lots of accusations and really nasty comments on the part of the homelanders. Sometimes I have to stop reading some of this stuff before I blow my stack. It's just not worth getting too emotional about it - it's like letting them rent space in my head.

Velda said...

This is cool!

Anonymous said...

Interesting notes.
I was in for a surprise myself when last year ed , while on an international journey and at a transit point, the guy checking passports asked me for my 'American Passport'. (For the record, I am an Indian who was born in USA while my parents were there...but never held a US passport as in those days it was not mandatory). Back home , and after much reading, I understood the perils of this 'accidental' citizenship and within the next 3 months got the necessary 'Renunciation' done. I am very happy as an Indian citizen and would like it that way ...thank you. However, the cost of being a US citizen is USD 450 to renounce + Incidental costs :-(

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