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| Blind Justice Photo by Shawn Rossi |
There's an expat I'm calling "Alice". Alice is an American who moved to Europe 40 years ago. Like most expats, she had no idea that she was required to pay taxes back to the US government. She's regularly renewed her passport and had a couple of trips to the US, but aside from that, she's drawn no benefits from the US government and has never lived in the US or worked for a US company since she left. Aside from the fact that she still has her US citizenship and never taken European citizenship, she is, for all intents and purposes, a European.
She's happy in Europe. She has friends and family here. She has permanent residency, but one thing she doesn't have is a job. Most of her life she didn't make huge amounts of money, but in the last few years, she had a job that paid her well. She used this to save up a small nest egg for retirement.
Then her company laid her off. Due to the recession, they couldn't afford to keep her and she's old enough now that she can't find work. She gave in and declared herself a pensioner and now draws a small pension from the country she lives in, supplemented by her savings. Thanks to FATCA and the recent IRS crackdown on US expats, she is now aware of her obligation to file tax returns, but she's stuck. She can't file because FATCA and FBAR penalties will bankrupt her, but due to FATCA, she's terrified that the country she's lived in for decades might turn her in.
She's going to be a criminal, bankrupt, and quite possibly homeless, even though only in the past few years did she earn enough to owe tax to the US government. If she gets a criminal conviction, she might even find herself deported to the US, a country she no longer knows, where she no longer has friends and only a couple of family members left.
Alice did nothing wrong, but the US is hunting her down and is going to destroy her. She has lived the vast majority of her life in Europe and almost all of her working life in Europe. The US doesn't know about her yet, but there's a good chance they will.
Is this fair? Is this what a free society does to its citizens?
Yep. I know a fair number of folks in this situation. None of them have enough money to hire a high-powered international tax attorney to sort it all out and they are scared to death. What might be helpful is if we (all the folks fighting the FBAR fundraiser/citizenship-based taxation/FATCA) could find some international tax attorneys willing to work pro bono to get these folks some decent legal advice. I'm going to suggest it over at Isaac Brock.
ReplyDeleteI also know of many people in this situation. We have to get the word out. NO other free country treats its expats in this way.
ReplyDeleteThe problem is, these people are terrified of being identified and nobody will come out with their personal story for fear of persecution by the IRS.
Even if the IRS does not persecute Alice to the full extent of its power as written by its regulations, Alice will probably be bankrupted by the legal fees and accountancy fees she will have to endure to defend herself. How about that, US fiscal policy pushing taxpaying, la abiding residents of foreign countries to depend on the social services of those countries because of reporting issues.
The press plays up the idea that any US expat abroad is rich and what's more went abroad with the intention of paying lower taxes and cheating the US out of its "fair share".
This is absolute nonsense.
I went abroad in order to go to affordable university in Europe as my parents could not afford US university. I pay higher taxes in my European country than any American ever dreamed of. And yet 30 years later (after never having worked in the US or taken any US entitlements), I am required to report all of my European husbands European savings and European earnings to the IRS under penalty of total confiscation.
Nobody in the United States really gives a damn about us, but once we start to humanize the problem, maybe it can change?
DeleteHow many husbands do you have? And where do you live with multiple husbands?
DeleteAnd the country where she lives will not grant her citizenship? Not that I defend the US tax rules on expats, but if 40 years of residence in country X don't allow you to easily gain citizenship of X, I tend to think that's also pretty bad.
ReplyDeleteAnother point is that many (most?) countries have a kind of limitation / expiry / prescription (whatever you might call it) on tax fraud conviction, so you can't be prosecuted for failing to pay taxes, or declare your income, of 20 years back. If the US does not have such a statute of limitations (whatever the correct generic legal term may be), it's something worth underlining.
Acquiring citizenship in her current country has been examined. For legal reasons I can't discuss, acquiring citizenship in her current country will automatically trigger a tax review from the US. The only thing gaining citizenship in a new country will do (at this point) is minimizing her chances of being deported, not minimizing her bankruptcy or criminal charges.
DeleteIf, by some bizarre chance, someone recognizes the situation that would trigger the tax review, I would appreciate if you do not mention it here. I generally don't delete comments, but I will delete that one.
From what someone else told me (who tried to emigrate to Canada), when you give up your US citizenship, it triggers an audit by the IRS. I've also read as much in the US tax return forms, on my own. Alice's lesson for those of us still stateside, is to make the decision for citzenship as early as it makes sense, to avoid stuff like this.
ReplyDeleteI wish you could provide some more details on this situation as I feel strongly there has been some incorrect information passed on along the way. Most who see my postings think I am pretty knowledgable about these issues but I have a hard time figuring out how taking up citizenship in another country would trigger a tax audit.
ReplyDeleteTim, it's pretty straightforward: she lives in a country that would require her to provide proof of renunciation of her US citizenship if she acquires the citizenship of her new country. However, to avoid being a "Covered Expatriate", she has to meet a compliance test certifying that she's met her tax obligations for the past five years. She can't do that.
DeleteBy the way, I previously mentioned that I would delete comments explaining why the tax review would be triggered, and then I post one! That's because I did some basic math and realized that so many European countries fall under this situation that I didn't do anything to narrow down Alice's whereabouts.
DeleteIts personal decision that "Alice" or anyone else has to make but their is nothing during the actual renounciation process that requires you to fill out any sort of tax returns. The requirement is after the fact during the normal tax filing deadline(For this year would be June of 2013). I will note that many in Canada are simply refusing to certify their tax compliance and are just collecting their CLN and going on their merry way. I guess the questions are what is Alice's home country going to do to help the US in this situation and what need does Alice have to travel to the US again(Many Canadian former Americans have decided to take their chances so to speak). I do strongly believe Alice should become a citizen of her country of residency sooner rather than latter and then deal with the tax filing requirement at the normal time period.
ReplyDeleteBy renouncing one's citizenship and getting their certificate of loss nationality (CLN) do not free you from your previous tax obligations. Above actions only put a stop to your future obligations.
ReplyDelete