US Trying to Prevent Americans Giving Up Their Citizenship

Certification of Loss of Nationality (Wikipedia)

I haven't written in this blog for a while, but this story is too important to ignore. The US is trying to solve its public relation disaster of the massive increase in the number of Americans giving up their citizenship by throwing up as many obstacles to renunciation as possible.

The Background
First, Americans back in the US frequently have a distorted view of Americans abroad. In fact, we know from extensive expat research (my own polling, the research of Amanda Klekowski von Koppenfels, and many others), that most Americans move abroad for love, work, study, or adventure. We're not rich, we're just average folks who happen to live in different countries.

Many Americans back home think we're ungrateful, rich sods who've turned our backs on the US. As previously mentioned, most of us aren't rich, polls show that few of us moved abroad for political reasons and we don't hate America. We get up, go to work, hang out with our friends, mow the lawn, love our children, and so on. Not much different from back in the US, except that the food's different, the language is different, the culture is different, etc.

So why are so many Americans abroad giving up their citizenship? Most of them will tell you the same thing: FATCA, a law designed to force international banks to report US customers to the IRS. Thanks to this law:

• Americans abroad are often being denied bank accounts
• Americans abroad are being denied business opportunities (happened to me)
• Some overseas companies have simply stopped hiring Americans
• FATCA is breaking up marriages
• Americans abroad are now going into hiding
• People who didn't know they were Americans are being hunted by the IRS
• US Congressman have been trying to bankrupt US expats
• And so on ...

There are, at the present time, only two countries in the world who tax their citizens abroad: the brutal dictatorship of Eritrea and the US. Taxing Americans abroad was an old law instituted during the US civil war to punish Americans fleeing abroad to avoid the war (and paying for it via taxes). However, the law remained on the books but was largely ignored. Americans abroad were not told about it and they lived, retired, and died in blissful ignorance of this Civil War era law.

In 1970, the Bank Secrecy Act was passed and it contained the Foreign Bank Account Reporting provision (tell the IRS if you have a foreign bank about with more than $10,000), but this was a money laundering measure, not an attempt to enforce the Civil War law.

It was after the Great Recession of 2008 that the US government started searching for other sources of income that it realized it had largely been ignoring this old law on the books. Despite the complete lack of evidence that enforcing this law will work (the US Census Bureau doesn't count Americans abroad, despite repeatedly losing lawsuits over this), law makers are painting expats as billionaire tax dodgers living abroad to avoid paying taxes. Honestly, anyone who thinks I live in France to dodge taxes is an idiot, and as mentioned above, surveys repeatedly show that we're just a bunch of ordinary Americans — not wealthy tax dodgers.

Ironically, this move has been championed by many politicians who are themselves famous for dodging taxes. 

The Government's Solution

All of the above has led to the problem of record numbers of Americans trying to renounce their citizenship. Previously, it had always been free to renounce your US citizenship. Go to a consulate abroad, fill out your paperwork, and wait for your CLN (Certificate of Loss of Nationality). In 2010, the US started charging $450 for allowing Americans to renounce. However, US renunciations continued to skyrocket, though the numbers appear to be seriously underreported. There have been reports of increased waiting times for various countries as a result.

Rather than address the root issues, the US attempted to contain the damage by raising the renunciation fee by 422% to $2,350! This puts it out of the price range of many Americans abroad, particularly those in lesser-developed nations, or those living paycheck-to-paycheck. However, this still didn't work. In 2015, there was a 20% increase in the number of Americans giving up their citizenship. From 2008 to 2015, the number of Americans renouncing has increased 18-fold and, as mentioned earlier, this is probably severely unreported.

So again, instead of fixing the problem, the US government has found yet another "solution." You can't legally renounce without an appointment, so since January 2016, the US embassies in Canada are simply not scheduling renunciation appointments. People are reporting delays of over a year to get an appointment. In Germany, renunciations are now restricted to the US Consulate General in Frankfurt, despite there being an embassy in Berlin and five consulates around the country. Here in France, they've restricted this to Paris and Marseille, despite an embassy and six consulates. If you've ever had the misfortune of wading through the consulate lines in Paris or trying to get an appointment, you know what a high bar they've set for letting Americans abroad renounce.

You would think that a politician might ask the obvious question: why are so many Americans giving up their citizenship? But no, no one cares. Americans abroad overwhelmingly say they don't want to do this, even as they're filling out the forms to renounce. Something has to change.

New banking scam targeting expat Americans

The IRS has FATCA thrust upon them,
but I don't think they're too upset about it.

There's a new banking scam targeting overseas Americans and there's not much you can do to protect yourself. Yesterday the IRS issued a warning to FATCA-compliant banks stating that scammers posing as IRS agents are calling banks and requesting confidential account information of US persons for FATCA compliance.


Ever since Congress passed this insane law demanding that every foreign financial institution on the planet obey US law, regardless of whether this conflicts with their local law, FATCA compliance has been nothing but a morass of unintended consequences. Helpless Americans are losing their bank accounts, some people risk becoming stateless, and the number of Americans renouncing their citizenship has skyrocketed. Further, it's not clear at all that the possibility of extra income from FATCA will be offset the extra costs of verifying compliance. On top of that, FATCA implementation has been delayed in part because foreign banks haven't received clear guidance from the IRS about how to comply. And now scammers are stepping up to help the banks "comply."

Everything about this has been lose-lose right from the very start.

And now some people are going to lose their life savings due to the compliance ambiguity. Please, if you live abroad, translate the IRS warning into your local language and give it to your bank. Make sure it gets to their security department (I guarantee they have one) and not just a teller. People are going to be hurt by this; let's help to contain the damage.

Sixfold increase in Americans giving up their passports.

The ignorant view of renunciation
Image in public domain

Bloomberg has a gloomy article about a sixfold increase in the number of Americans giving up their passports. Unfortunately, it starts out with the following sentence:

Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.

Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Register figures published today. That brought the first-half total to 1,810 compared with 235 for the whole of 2008.

For those of us who following this topic closely, it's very frustrating reading this because it's not accurate. To be accurate, you would state that there's a sixfold increase in the number of Americans the Federal Register reported as having giving up their passports. We in the expat community have known for a long time that the Federal Register reporting is far lower than the actual numbers, but we've never known whether this is incompetence or a deliberate distortion of the data.

Heck, I reported over a year ago that far more Americans are giving up citizenship than reported, but it's hard to prove. However, after numerous FOIA requests from various people, much reporting of numbers that don't match the official tally, and the discovery of the FBI NICS index which gives a much better accounting of Americans who have given up their citizenship (because under US law, they can't own guns), we've finally started getting a better picture of what's going on and it may just be that the renunciation numbers being reported to the Federal Register are being quietly fixed to avoid the continual embarrassment, such as Swiss embassy renunciation figures alone suggesting that Switzerland had over half the reported renunciation figures worldwide, a figure that beggars belief.

However, from what I read on Bloomberg, Forbes, Reddit, and other sources, many Americans are saying "so what? It's such a small number." This shows a lack of knowledge about what's going on. For example, during my trip to Kiev, one American told me he tried to relinquish his US citizenship on the grounds that he took citizenship in another country. The US State Department denied him this because after he took that citizenship, he had to travel to the US and used his US passport. Using his US passport was considered grounds for denying his relinquishment. However, because the State Department hadn't yet approved his relinquishment, he was legally obligated to use his US passport. Now he's forced into the long, tiresome process of renouncing his citizenship formally (see the difference between relinquishment and renunciation). Thus, he's not yet counted as an ex-American.

Other ex-Americans are reporting that they're not showing up on any reports as having given up their citizenship, despite receiving their CLN (Certificate of Loss of Nationality).

On top of that, I've spoken to several Americans here in Europe who want to renounce, but are afraid to do so due to the heavy punitive damages the US often places on renunciants (and some Americans abroad simply can't afford the $450 renunciation fee or the exorbitant cost of getting their international taxes in order).

Then there are Americans like myself. I don't have plans to give up my citizenship, but I am painfully aware that there's a time in the future where I may not have any choice, due to financial considerations. Having expats like myself worried about their financial security due to US tax laws impacting us helps to turn an estimated six million Americans abroad from informal ambassadors abroad to walking advertisements about why you don't want American citizenship.

Another annoying aspect of that Bloomberg article is this misleading quote:

“With the looming deadline for Fatca, more and more U.S. citizens are becoming aware that they have U.S. tax reporting obligations,” said Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich. “Once aware, they decide to renounce their U.S. citizenship.”

While that may appear to be technically correct, it sounds like Americans are renouncing to avoid paying taxes. From my experience, this is generally not the case. Americans are renouncing due to the incredibly punitive nature of the US tax system vis-a-vis expats. For example, let's say you're trying to save for the downpayment for a home. You could well have over $10,000 in your bank account. Even if you've faithfully filed your taxes every year and paid all you owe, you could easily face five figure fines and possible criminal charges because you didn't know about FBAR reporting requirements. What's FBAR? That's the Foreign Bank Account Reporting act which was passed many years ago, but not well-advertised until a couple of years ago. Thus, many Americans are 100% in compliance with their taxes, but face huge penalties for not knowing about this law.

Or maybe you've been living overseas most of your professional life and you've been working for a non-US corporation which has no business in the US. If you have signing authority or significant shares in that corporation, under the new FATCA (Foreign Account Tax Compliance Act) law, you now have to file corporate financial reports with the IRS for this non-US company. I was rejected for one position here in Europe because the company in question didn't want the expense of preparing financial information for a country they don't do business in, but if I took that position and didn't report, I could be facing fines up to $50,000 and possible criminal charges.

I was also in Metz, France a few days ago and spoke with a lawyer from Luxembourg who told me that when he gets a potential US client, as a direct result of FATCA, he often turns them away, saying "I can't help you." With foreign banks now starting to turn away US clients, you have the problem of not even being able to have a bank account to pay your bills! In fact, many companies here pay employees via direct deposit; if you can't get a bank account, the company can't pay you.

Americans abroad giving up their citizenship aren't traitors. When I speak to them, they generally tell me they don't want to give up their citizenship, but they feel backed into a corner. Being denied bank accounts, jobs, or facing bankruptcy-inducing penalties for not filling out the correct paperwork (or making a mistake on said paperwork), is what's driving the renunciants I talk to. We still want to return to the US, visit our family and friends, perhaps even retire their one day, but then we face the harsh reality of US law and have to make a tough decision.

Bloomberg did US expats a disservice by not getting the real facts behind the renunciations.

A Grab Bag of Expat Related News

Angkor Wat
Photo CC by Sam Garza 

There's a building going up near us. They workers have torn down an old, crumbling building and they're putting up a new, shiny building. And cutting a cable to our building along the way. One of these things is not nice.

So for the past couple of weeks, I've been limping along with little to no internet service. It's unclear who actually owned the cable that was cut, but our (former) internet provider, free.fr, insists that our service is working fine and no, they have no record of a repair request from us. In fact, our entire building is almost completely without phone, television, or Internet access as those services tend to be bundled together and there's a lovely note on the front door saying "please be patient, no one knows what's going on, no one is sending repair people and please keep hassling your ISPs."

For us, this is the fourth extended outage we've had in 18 months and while it's not free.fr's fault this time, they're response has been so consistently awful that we've cancelled our contract. As one friend of mine with a phone contract from them once said: with free.fr, you'll never be late for a meeting because you'll never be able to call ahead and tell your colleagues.

And so, I've had precious little to say on this blog for a while, so here's a few tidbits to help you pass the time.

The Wall Street Journal, despite turning into a bit of a rag now that Murdoch has gotten his slimy little paws on it, has an excellent essay about how FATCA is hurting Americans abroad and has this paragraph to explain the underlying problem:

[Imagine] this: You were born in California, moved to New York for education or work, fell in love, married and had children. Even though you have faithfully paid taxes in New York and haven't lived in California for 25 years, suppose California law required that you also file your taxes there because you were born there. Though you may never have held a bank account in California, you must report all of your financial holdings to the State of California. Are you a signatory on your spouse's account? Then you must declare his bank accounts too. Your children, now adults, have never been west of the Mississippi but they too must file their taxes in both California and New York and report any bank accounts they or their spouses may have because they are considered Californians by virtue of one parent's birthplace.

That, of course, is how US expats abroad are treated.

The article goes on to be pretty scathing about FATCA and if you've been reading this blog for a while, you know what FATCA is. For those who don't, here's the executive summary: the US government has demanded that all foreign financial institutions (FFIs) in the world turn over records of their US account holders or face potentially massive financial penalties.

Not only is this a gross violation of national sovereignty for the US to demand that foreign institutions submit to the IRS, it's also in violation of the privacy laws of many countries. Worse, the US did this unilaterally without bothering to ask other nations if this was OK. How would the US feel if roughly 200 countries returned the favor and started demanding that US banks turn over records of all their citizens to all the countries on the planet or face penalties? You have to be very, very stupid to not understand why that's a problem.

And what a problem it's turned out to be! The US demanded that all FFIs begin turning in this information starting January 1st, 2014. The world's FFIs asked a very interesting question: "how?".

So the Treasury has pushed the FATCA deadline back six months while they try to figure out an answer to this question. Awkward.

Meanwhile, proving the old adage that even a stopped clock is right twice a day, Senator Rand Paul, paleolibertarian extraordinaire (paleolibertarians are liberterians who embrace misogyny and bigotry), has called for an end to FATCA.

Meanwhile, the US is continuing its crusade to bankrupt Americans who are so unpatriotic as to live abroad.

On a more positive note, here's a lovely story about what we can all learn from expats. Of course, that's an Australian Web site. The US still seems to hate us.

A Trio of Painful Stories for Americans Abroad

IRS Logo

Given the recent scandals involving the IRS, it's probably no surprise to anyone that the IRS has now been accused of "entrapment" of Americans who live abroad and — gasp! — have bank accounts where they live. Many of the punitive US laws against offshore bank accounts, such as FBAR, FATCA and others, and programs such as OVDP and OVDI are specifically intended to catch tax evaders. This is the IRS description of their objective for the OVDP (Offshore Voluntary Disclosure Program) (emphasis mine):

The objective remains the same as the 2009 OVDP and 2011 OVDI – to bring taxpayers that have used undisclosed foreign accounts and undisclosed foreign entities to avoid or evade tax into compliance with United States tax laws.

But the problem is that many people abroad who have met all of their tax obligations but never knew about little-publicized laws are having huge portions of their assets confiscated, despite no demonstration of intent to avoid or evade taxes. The American Citizens Abroad director has this to say (again, emphasis mine):

“By luring them into the OVDP in a form of entrapment then hitting them with ruinous penalties based on the overseas assets, instead of using the discretion which was within IRS purview for benign actors, the IRS treated ordinary, hard-working Americans like criminals. Most of the unreported accounts were pension funds and basic financial accounts used for living expenses and were not being used to hide assets.”

In the next painful story, the Atlantic writes about the unintended consequences of these laws against expat banking. In particular, the article points out that the laws being passed will have little effect on the wealthy they're designed to target but will continue to hurt middle-class Americans who live abroad and have bank accounts for the sole purpose of paying their bills. After all, as I live in France, it would not be particularly easy or convenient for me to drive all of my banking through a US account.

Americans living abroad are also sometimes getting their bank accounts frozen due to the new US laws. Writes one lawyer from the Atlantic article:

“I know of one client whose parents live outside the US. They are in their 90s, and have a bank account in their home country. They added their son as a signatory because if they become incapacitated, they want him to have access to money to pay their bills. But their account has now been frozen because he's American. The bank wants the son to provide the last five years of his tax returns before it will unfreeze the account. He has had to hire a lawyer to sue the bank to let his parents access their own money.”

That article also discusses how some companies have simply stopped hiring Americans for jobs with signing authority over accounts because that would require these foreign firms to spend money and time reporting to the IRS, even if they have no US business. I have personally lost a business opportunity as a result of this. 

And for the third painful story, a tax lawyer writes to the House Ways and Means committee to explain how US tax law for expatriates is hurting many innocent people. He talks about how Americans are often double-taxed on social security (this is usually in countries without tax treaties with the US — about two-thirds of the world's countries), how we're taxed on our retirement plans, and many other areas. While I've read that the Committee on Tax Reform was interested enough in the letter to fix the problem, I've no evidence that this is true. I list this as a "painful story" because this problem is still very real and I do not believe the government wants to fix it. When you have such factually void stories as this Mother Jones hit piece against Rand Paul (a man I otherwise don't particularly care for), it's hard to get politicians to look past the emotion and try to get to the truth. Nobody cares about the one in fifty Americans living abroad.

On the bright side, for most Americans living abroad, this actually won't impact you very much. You'll annually spend several hundred dollars filing a tax return with the US government but not owe any money. However, for those unlucky enough to get caught up in the IRS' web of hunting down those who fall afoul of little-publicized laws, it's a tough time being an expat. Of course, that's why we have far more Americans renouncing their citizenship than ever before.

The Public Hearing That Wasn't Public

I'm just a little creeped
out by what's going on.

Over on her blog, Victoria Ferauge has an interesting account of her attendance at an EU Parliamentary meeting on FATCA. The meeting's exciting title was:

The fight against tax evasion - FATCA as a 

step towards international automatic 

exchange of information?

And it was described as a public hearing. I heard about it on short notice and wasn't able to attend, but Victoria and others around Europe took the trouble to head to Brussels to ensure their voices would be heard. The meeting was public, but you weren't allowed in the building.

Here's how Victoria described it:

When we presented ourselves at the front desk of the Altiero Spinelli building they said we couldn't go in because we had to be "invited." When I replied that it was a public meeting, they told me that the meeting was public but getting into the building required that someone vouch for us.

Evidently this meeting was held at the Ministry of Truth, though I suspect this is more bureaucratic incompetence than something Winston Smith would need to explain away (if you missed that, it's a reference to 1984, a book I highly recommend, though I still think Brave New World more accurately describes the world today).

That being said, Victoria and the others managed to contact MEP Sophie in 't Veld's office and her staff got the problem sorted out by sending people down to escort the group. Victoria's brief description of the meeting sounds like it didn't go as well as one might hope (though she promises to write more later).

Seeing the title of the meeting, noting the speakers, and reading what others had to say, it appears that this "hearing" was one in name only. I suspect it was merely a necessary formality and many of the major players have already made up their minds. What we may be witnessing is the birth of a global system of inter-governmental sharing of information about the whereabouts and finances of their citizens. Somehow, I don't feel terribly comfortable with this idea and I feel like a conspiracy nut for even saying this, but the US government is finding that other countries aren't agreeing to FATCA unless it's packaged as a reciprocal exchange of information. Read that title again:

The fight against tax evasion - FATCA as a 

step towards international automatic 

exchange of information?

Yeah, this gives me the creeps.

For those coming late to the party, here's my original writeup on FATCA. It's pretty damned scary.

The End of FATCA?

Rand Paul, US Senator for Kentucky

For those outside the US who do not know who Rand Paul is, he's the son of Ron Paul, a US politician who's perennial quest for the presidency was at first met with mockery but eventually garnered enough support that it's widely believed that the Republican party deliberately locked him out of contention for the Presidency.

So why would I talk about Rand Paul in an expat blog?

Senator Paul has introduced a bill to repeal FATCA. Here are two different takes on it:

• In lieu of journalism, the Wall Street Journal has posted a poorly written press release about it.
• In lieu of journalism, Mother Jones has posted a hysterical rant about it.

This just kills me. As I wrote near the end of Stateless Americans and Renunciants, nobody seems to give a damn about the actual facts regarding expats. Of the two stories above, the Wall Street Journal article strongly praises Paul's bill and Mother Jones strongly opposes it. Of those two publications, I would lean more towards Mother Jones than Wall Street Journal (particularly after Rupert Murdoch's yellow journalism "News Corporation" bought it), but in this case, the enemy of my enemy is my friend.

The Mother Jones article completely gets it wrong, implying that the six million plus Americans living abroad are mostly wealthy tax dodgers. We're not. We're taxi drivers, teachers, software engineers, retirees, accountants, waiters, spouses, and so on. There might be a higher percentage of rich Americans amongst expats, but no one will ever know since the Census Bureau refuses to count us and Congress repeatedly rejects bills whose aim is get information about expats upon which they can base their laws.

In the case of Rand Paul, a man I don't particularly like but who I'm beginning to at least respect (ironically, I used to feel that way about his racist father), the Wall Street Journal article avoids pointing out that Rand Paul isn't necessarily driven by compassion for expats, but perhaps is acting more in line with his virulent anti-tax beliefs driven by that starry-eyed conviction that Libertarianism is the path to nirvana.

Of course, Paul's beliefs do cause him all sorts of problems. He's backtracked on his civil rights views, for example, such as his beliefs that government laws to end private discrimination are wrong and that public pressure, which had already failed repeatedly, is the tool of choice. You don't want to hire black people or serve gay people? Paul thinks that's your right.

So I can't say I'm excited to have this man as an advocate of such an important issue, but nonetheless, he's articulate and he does appear to be following his beliefs. And given that Rand Paul will be running for the presidency in 2016, he's getting a fair amount of political traction and maybe, just maybe, we can have the mess that is FATCA ended.

Are US renunciations five times higher than reported?

Image by Chuck Coker

Back in February, the final quarterly figures for Americans giving up their citizenship were released.  For 2012, 932 Americans were reported as giving up their citizenship, leading to one Web site claiming that there was a 48% Decrease in Number of Expatriates in 2012. Had the article referred to reported number of expatriates, it would be correct: the reported number of expatriates is indeed 48% lower than in 2011.

For those not aware of the background, section 6039G of the Health Insurance Portability and Accountability Act has a bizarre provision about reporting US renunciants in the Federal Register. Thus, for those of us who are interested in such matters, we can download reports of Americans who have given up their citizenship. These reports have been widely criticized for a variety of reasons, not the least of which is their terrible inaccuracy. Names are omitted, misspelled, double-reported and so on.

But just how inaccurate are these reports? One year ago I wrote a post entitled More Americans Giving Up Citizenship Than Reported (read the comments, they're hilarious). In the replies to a follow-up to that post, an anonymous commenter has been leaving some rather interesting information and I've started to dig a little bit.

Given news reports that the US Embassy in Switzerland states they processed 411 renunciations in the first nine months of 2012, the official Treasury Department numbers seem low. If the renunciations are evenly distributed throughout the year (a questionable assumption), then Switzerland likely had over 500 renunciations, or over half of US renunciations I worldwide.

Tina Turner is no longer an American
Photo by Helge Øverås

If you think about, it's possible that Switzerland has a disproportionately higher number of renunciants. First, Switzerland is expensive and you're more likely to have high-earning expats there, meaning that they're more likely to be impacted by US taxation of expats and FATCA. Further, US expats in Switzerland must wait 12 years to claim citizenship, meaning that if everyone renouncing in Switzerland has Swiss citizenship, they, like Tina Turner, are probably more acclimated to living abroad than in countries which will give you citizenship in a much shorter time.

But over half of all renunciants in Switzerland? I don't buy it.  Given the numerous reports of US renunciants claiming they've had to wait months for appointments (and the US Embassy in Bern has redeployed people to keep up with the backlog of Americans trying to renounce), the number of renunciants being reported seems wrong. People have reported gone from waiting a few days for a renunciation appointment to five months. Enter NICS data.

The National Instant Criminal Background Check System, or NICS, is a system which requires Federal Firearms Licensees (FFLs) to consult it prior to selling many types of firearms. According to the NICS fact sheet:

The FFLs conducting business in these states will contact the NICS either by telephone, via one of the contracted call centers, or electronically by the NICS E-Check via the Internet. The FFLs will provide the descriptive information requested on the ATF Form 4473, which is required by law to be completed and signed by every prospective firearm transferee. The FFL will receive a response that the transfer may proceed or is delayed. This response is typically provided within 30 seconds.

So, to sell a gun to someone, you can usually find out within 30 seconds whether or not you can legally sell them the gun.

Interestingly, you can deny someone the right to purchase a gun if they've renounced their US citizenship. However, in the entire history of this NICS, only 58 people have been denied the right to purchase a gun based on having renounced citizenship (pdf). In other words, about five people a year fall into this category. However, if you dig further, you'll find out that the FBI publishes a report entitled "Active Records In The NICS Index".

Their January 2013 report (updated at the end of February, 2013), lists 21,308 people as being ineligible for buying firearms based on their having renounced citizenship. The January 2012 report lists 16,269 renunciants, for a total of 5,039 renunciations in 2012, or more than five times the official figures.

Where is the FBI getting these numbers from? I believe they are provided with CLNs (Certificate of Loss of Nationality) from the State Department as those are the only way of proving (that I know of) who are renunciants. However, I've not been able to prove this.

Hmm ... and in researching this, I find that Eric has reported about this over at the Isaac Brock Society web site. About 3,000 of the above renunciants were reported in October of last year. Did they get a large batch of CLNs from State? Who knows?

Interestingly, the Department of Treasure has filed a comment request about eliminating the publication expats names entirely. The comment period has closed. Let's hope it gets adopted.

US expat evacuations: not what people think

We've turned your country into a parking
lot. The least we can do is evacuate you.

Over on Reddit, I asked people's opinions about why more Americans are planning on leaving the US. As is to be expected, when an expat pointed out that we're taxed by the US government and get nothing in return, there was the silly comment of "I wouldn't say you are paying taxes for nothing. If shit hits the fan in your country the US tax payers usually shell out to get your ass out of the country."

I hear this constantly. It seems like it's the last line of defense for those trying to justify the USA's unique worldwide taxation schema. However, Reddit user prezvdi replied to the above with a stunning response:

Do you have ANY experience to back this statement up?? I'm an American living & working in the UK since 2006. I was in Cairo, Egypt for work when the fun kicked off. I sat in the Cairo Marriott Hotel and watched the UK, the French, the Russian, the Dutch, the Chinese governments arrange for evac of their citizens. My company arranged my "departure" with no governmental assistance. I was safe at home in London when I saw on the BBC that finally the USA was going to send help. So yes, the US government will come to your aid. After nearly every other country on earth. Just hope your hotel isn’t overrun first.

I already knew that other countries often simply go in and rescue their citizens, but I didn't realize quite how bad it is for Americans abroad. After all, I live in France and I don't worry that much about the US needing to fly into Paris and rescue me.

So how does the US handle this situation? If they need to evacuate US citizens abroad, they will charge the full commercial rate. That's a US government document, but let me focus on some key bits:

Who will pay to evacuate me and my family? 

If commercial carriers are operating, the Embassy will recommend that you depart on your own and at your own expense. If you don’t have money to pay the fare, the Embassy can help you contact family and friends and assist in transferring money from them. In extreme circumstances, a destitute American wishing to return to the U.S. may qualify for a repatriation loan. The conditions for making such loans are stringent, and your passport will be limited until you repay the loan.

It goes on to say that if commercial carriers are not operating, the US government will charter aircraft, but still bill you the full commercial rate. While other governments are busy getting their citizens the hell out of danger, the US has the cash register open.

So do they bring you home? No. The FAQ explains: In most cases, the U.S. government will bring Americans to the nearest safe location, which is generally not the United States.

So if you're being evacuated from Pakistan, enjoy your stay in sunny Tadjikistan!

I've been trying to find out the evacuation procedures of other countries with little success. France appears to be quite willing to evacuate their citizens as needed and I can find no mention in French law about charging for said evacuation. The UK might charge for evacuation, but unlike the US, apparently has procedures in place to waive said charges when applicable.

So no, the US tax payers will not "shell out to get [my] ass out of the country." That again leaves me in the curious position of wondering why the US demands payments from expats when it gives nothing in return.

In reading through the US evacuation procedures, I noticed something else curious, but first, a digression.

My wife and I have agreed that if we ever have a second child, it will be by adoption. However, US adoption laws are quite clear about how I can pass on US citizenship to an adopted child:

1. One parent is a U.S. Citizen by birth or through naturalization; and
2. The child is under the age of 18; and
3. The child is residing in the United States as a lawful permanent resident alien (that is to say has entered the U.S. on an immigrant visa and has an alien resident card) and is in the legal and physical custody of the U.S. citizen parent; and
4. If the child is adopted, the adoption must be final. If the adoption is to be finalized in the United States, the child becomes eligible for citizenship once the adoption process is completed.

Due to point 3 above, our adopted child wouldn't be a US citizen. One of my children would be a US citizen and the other one would not. Under French law, there is absolutely no legal distinction between biological and adopted children. Under US law, adopted children aren't even second-class citizens if they're living overseas! Of course, this isn't the only way that US parents can discover that their children aren't allowed to be US citizens, but it does have one unlikely, but particularly nasty, consequence.

Imagine that we've adopted a second little girl, my family up and moves to somewhere in the Maghreb and a civil war breaks out and I get killed. If the US is evacuating their citizens, according to their evacuation plans (emphasis mine):

If a child does not have an American parent or guardian in-country, the U.S. government will allow one adult to travel with the child on an evacuation flight. If there is more than one American child in the same family, only one adult escort will be permitted. Non-American siblings will not be provided evacuation assistance.

Got that? The US would be kind enough to allow my non-American wife to accompany our French-American daughter, but her sister would have to be left behind. Fortunately, the French would step in and help out, but honestly, does the US really need to be that explicitly cruel? How often does this situation happen that the US has felt the need to explicitly deny non-American siblings of American children the right to be evacuated to safety?

USA: the land of the cold-hearted cash register.

Congress Again Gunning for Expats

US Capitol Building
Photo is public domain

In the latest round of attacks against expats, the US "do-nothing" Congress is nonetheless very, very concerned about making life more difficult for expats abroad. In a fairly angry post on isaacbrocksociety.ca, user Eric provides details of the latest bills targeting expats.

Self-Employed US Expats

Home Office photo by geishaboy500

Today's post is US-centric again, I'm afraid. My apologies to all of my non-US readers.

According to one expat survey I've read, almost 25% of US expats (who responded to the survey) are self-employed. I find this number astonishingly high given that other countries don't hand out work permits for self-employed people, though the Dutch-American Friendship Treaty is an interesting counter-example. What would surprise me, however, is most expats abroad knowing about the self-employment tax. When most didn't know about the US's curious citizen-based taxation system, they would probably be astonished to find out that if they're living and working abroad, self-employed US expats still have to pay an extra 15.3% of their income to the US to cover Medicare and Social Security.


If you plan to return to the US at some point, this is fine. However, if you're a permanent expat like myself, this is particularly galling because you're required to pay for Medicare, but you're not allowed to use it. Additionally, if you collect a foreign pension, your Social Security benefit gets cut. Never mind that you paid for that Social Security benefit; as far as the US is concerned, you're a filthy-rich expat trying to take advantage Uncle Sam. Personally, I think that if the US government explicitly denies me services because I live abroad with my wife and daughter, they shouldn't be charging me for said services, but what do I know?

It gets even worse when you realize that you may be paying for identical benefits in the country you're living in. However, the US has a handful of Totalization Agreements designed to avoid double-paying Social Security. These are mostly with European governments, so if you live elsewhere, tough luck. I cannot help but wonder if the US government has ever commissioned a study showing how much they spend to enforce and to offset the damage of our unique citizen-based taxation scheme relative to the income generated.

White House Petition to Enact Residence-Based Taxation

Photo courtesy Matt Wade photography

For those of you who are aware of the issue, there's a petition to change the US federal income tax from a citizen-based tax system to a residence-based tax system like the rest of the world. Please sign this petition. I doubt it will do much good as there aren't many in the US government who seem to give a damn about expats, but we have to try.

US Congress Again Going After Expats

US Tax Forms photo by David Reber

US Treasury Secretary Tim Geithner is one of the people pushing FATCA, the onerous law which is, in theory, designed to catch overseas tax cheats. In a Treasure Department press release regarding FATCA, Geithner is quoted as saying (emphasis mine):

Today’s announcement is an important milestone in our joint efforts to combat offshore tax evasion and make our tax systems more efficient and fair. This agreement implements FATCA in a way that is targeted and effective, while also providing a foundation for further international coordination.

So, FATCA is about catching tax cheats, right? How many people remember that in Geither's 2009 Senate testimony on his confirmation hearing, Geithner apologized for not paying $34,000 in taxes. Apparently forgetting $34,000 in taxes was a "careless mistake" (his words, not mine).

And then there's Senator John Kerry, the former Democratic presidential candidate, who was one of the senators who introduced FATCA. Seems he owns a 76-foot New Zealand-built Friendship sloop with an Edwardian-style, glossy varnished teak interior, two VIP main cabins and a pilothouse fitted with a wet bar and cold wine storage. However, he berths this yacht in a state he doesn't live in and, as a result, dodged almost half a million in sales tax and about $70,000 a year in excise taxes. Meanwhile this multi-millionaire tax dodger is going after alleged offshore tax dodgers.

Or you may remember Representative John Tierney, a man who has tried to bankrupt US expatriates living abroad by forcing them to pay full taxes to both the US and their country of residence. He may be clean, but John Tierney's wife was convicted of tax fraud. Millions of dollars were involved and both the Representative and his wife deny knowing about the alleged fraud (though she pleaded guilty). She got a mere 30 days in jail for this.

While it's mildly interesting that so many tax dodgers are so gung ho about going after alleged foreign tax dodgers, why bring this up again? Because there's another bill before Congress to remove the Foreign Earned Income Exemption. If the bill passes, the FEIE would be phased out over five years. Removing the FEIE would bankrupt many Americans and force them to move back to the US. Do Americans at home really want a bunch of bankrupt, unemployed Americans moving back and competing for already scarce jobs? (I could talk about fairness, but it doesn't appear to be an issue that resonates with many homelanders when it comes to expats).

Given that most expats abroad didn't even know about the US's unique practice of taxing her citizens abroad, you might think that the IRS would offer some sort of program to help people straighten out this mess. Unfortunately, they haven't. The Offshore Voluntary Disclosure Initiative, or OVDI, was an attempt by the IRS to help expats, but OVDI, like its successor, OVDP, starts as a criminal process and you, the hapless expat, have to prove your innocence (and pay $8,000 to $16,000 for the cost of preparing eight years of tax returns). Or you could pick the new, streamlined process where the IRS offers a true amnesty: but only if you meet vaguely defined criteria. If you don't, you're not even eligible for the OVDI programs.

In short, the IRS has never offered a true amnesty for the millions of Americans abroad who are caught in this mess.

Oh wait! That's not quite true. The IRS has, once, offered a true and full amnesty to US tax payers with assets abroad. In 2009, wealthy Americans who were knowingly hiding money in Swiss banks were offered the opportunity to declare their Swiss assets and face no criminal prosecution.

Now think about that very carefully: FBAR, FATCA, the Ex-PATRIOT act and the repeated attempts to destroy the FEIE are all attempts by the US Congress to go after the alleged hordes of wealthy Americans abroad. Yet the only amnesty offered to the people caught up in this mess specifically targeted those the US Congress was going after.

Why yes, I do have a problem with that.

Update: How could I forget Representative Charlie Rangel, the sponsor of FATCA? How does Charlie Rangel keep his job when he repeatedly gets caught not paying his taxes?

US Renunciation Numbers Aren't Adding Up

I've been tracking US renunciation rates for a while but lately I've been seeing numbers that don't make any sense. The Federal Register lists 1,009 Americans who have renounced their citizenship this year. Even though we still have to wait for another quarter's figures, this is still a sharp drop from last year's 1,781 total. However, the US Embassy in Switzerland claims it has processed 411 renunciation requests in that that time period. As near as I can estimate, Switzerland has somewhere between 2% to 5% of the US expat population. To imagine that they comprise over 40% of total renunciations is quite a stretch. However, it turns out that we might actually be able to reconcile these numbers.

Photo by Vince Alongi

We have an article from Fox News with the ridiculous title Americans Renouncing Citizenship at Record Levels to Protect Wealth. I won't go into detail as I've covered this in many posts before, but I've been following this issue for a long time and it's not greed driving Americans abroad, but the word "greed" makes for great headlines at the expense of expats.

So while the Fox News article has a sensationalized title, it also has one very intriguing tidbit:

As many as 8,000 US citizens are projected by immigration officials to renounce in 2012, or about 154 a week, versus 3,805 in 2011, or about 73 per week.

I want to know who those "immigration officials" are. Those renunciation numbers are far greater than the official renunciation numbers, but they're much closer to my estimate (er, guess) of four to six thousand Americans annually renouncing their citizenship. In short, the current year's renunciation data published in the Federal Register seems much lower than it should be and with only one quarter of reporting left, we have to see a threefold increase in renunciations for that quarter to beat last year's renunciation figures. This is confusing because every indicator I've come across — except for the Federal Register — suggests that renunciations are increasing.

Naturally this makes me suspicious of the Federal Register numbers. Americans abroad with whom I've spoken who've told me they're trying to renounce their US citizenship have also told me about waiting weeks and months to get appointments to do so. Consulates are claiming a backlog of renunciants jamming the system and one financial firm reports handling a 22 percent increase in this year's renunciation requests. That's rather odd given the Federal Register's reported drop in this year's renunciations. Something isn't adding up here. However, if the 8,000 renunciation number reported by Fox News is correct, than Switzerland's reported renunciations drop to around 5% — roughly proportional to the number of US expats living in Switzerland. That makes a lot more sense.

For a slightly more balanced view of the situation with US renunciants, I recommend reading this independent.co.uk article, along with its comments.

Or to see a first-hand account of the damage US law is causing US expats, read about how Victoria found herself paying $9,000 in taxes this year to the US government, despite not having lived there in over 20 years, having no assets in the US, receiving no benefits from the US government, but being taxed by the US on her French unemployment benefits.

Conversations with other expats

Whoops! I wrote this a few weeks ago and forgot to post it. Also, if you like this post, please share it on Facebook, Twitter, Google+ and other sites.

Update: Apparently I did post this. Not sure how this software reported this as a "pending" post.

I've been in Germany all this week (note: 3rd week of August, 2012), first speaking at a conference and then visiting my father in Idstein, where I've been introducing my father to his granddaughter.

Your author giving a keynote speech at YAPC::Europe 2012
Photo by Claudio Ramirez

One of the things I love about my profession is that I get to travel to conferences all over the world. At this conference, I was surprised to speak with several readers of my blog and I've learned a few things:

• One reader is thinking about renouncing their US citizenship.
• One reader is in the process of renouncing US citizenship.
• Another reader is afraid to respond to my blog posts unless they can do so anonymously.

For those who wish to renounce their citizenship, it all boils down to one thing: the US is demanding they pay taxes but offering nothing in return. It's a common refrain I hear. Many Americans back home are unaware of the US witch hunt against expatriates so they don't understand why so many Americans are giving up their citizenship. The word "traitor" is frequently used by those who fail to understand that it's not a political argument, it's an economic one. Hell, we even have Congressman Tierney trying to bankrupt US expats (but let's not talk about the irony of Tierney's international tax fraud scandal).

Photo by Alan Cleaver

The anonymous comment issue really surprised me. I don't allow anonymous comments because I already have enough troubles fighting spam. People also complain about the captcha's used on this site to fight spam. Now a reader pointed out an interesting dilemma: they might want to chime in about their tax situation but are afraid of the US finding them.

If you wish to comment anonymously, one of your best options is to download the free Tor Browser Bundle. From their Web site:

The Tor software protects you by bouncing your communications around a distributed network of relays run by volunteers all around the world: it prevents somebody watching your Internet connection from learning what sites you visit, it prevents the sites you visit from learning your physical location, and it lets you access sites which are blocked.

Tor is somewhat controversial outside of "geek" circles because it's software that some people use to search for and distribute illegal content. Tor really offends a lot of people due to the high level of privacy it provides. However, human rights activists all over the world use it to communicate with each other and press for democracy. The US military uses Tor to protect its information. Journalists, law enforcement and business whistleblowers use Tor. Like anything, it has both good uses and bad, but unlike many other things, the good uses are really good and the bad uses are really bad.

If you use Tor, be sure to read through their Web site carefully so you can understand both how to use it and why. There are a few caveats you should understand that I'll omit here (caveat emptor!), but be aware that Tor is slow. Very slow. It has to encrypt and redistribute all of your internet traffic in such a way that you'll feel like you're on a dial-up modem.

It was nice to meet fellow expats and readers of my blog and discuss their situation. Not one of them at the German conference who talked about renouncing was happy about the situation. They felt like they were trapped and had no other way out. I can offer people a lot of advice about how to become an expat, but I've no advice to give here. It's a matter of your personal conscience and how bad US law is directly hurting you.

A new wrinkle in the IRS war against expats

Photo by John Morgan

I have to say that while I know nothing about Forbes magazine, the fact that they're banging the drum about FATCA makes me a happy man. In an article entitled Should U.S. Citizens Abroad Pick Streamlined IRS Program Or OVDP?, they mentioned an amusing (cough) fact that I wasn't aware of.

As you know if you've been reading this blog, there are many Americans living abroad who have only just found out that they owe many years of back taxes to the US government. Some are being driven into bankruptcy while others are being driven into hiding while the vast majority of us are just trying to catch up and figure out what the heck is going on.

To deal with this, the United States created the Offshore Voluntary Disclosure Program, or OVDP. At first it sounds like a program to help overseas Americans catch up on their back taxes, but in reality, it's a fairly draconian program which starts, amongst other things, as a criminal process. It's a very long, complicated affair with the potential for massive financial penalties and the possibility of a criminal conviction. You have years of back returns and FBARs (Foreign Bank Account Reporting) to complete, but don't worry, you won't be fined more than $500,000 or spend more than half a year in jail for making a mistake with your FBARs.

So the new reports of an IRS amnesty for expats is welcome. It's a much lighter weight process, doesn't assume you're a criminal, and doesn't contain penalties or fines. However, there's a couple of tiny catches. First, the IRS must assess you as a "low risk" offender, but they don't tell you what "low risk" is, other than to say that you must not have owed much in taxes or shown signs of "sophisticated" tax planning (whatever that is). So you might be eligible for an amnesty, but you have no way of knowing if you are. If you're aren't, you're still eligible for prosecution.

And the other tiny catch? From the Forbes article linked above (emphasis theirs):

Besides, the IRS [amnesty program] does not guarantee immunity from prosecution. What’s more, a taxpayer who applies for this streamlined program becomes ineligible for the OVDP. Suppose you apply for streamlined relief but the IRS examines your case and thinks you are high risk, not low? 

You can’t complete the streamlined program, but are ineligible for the OVDP! What’s left could be a full civil audit and high fines or even prosecution.

Lovely, just lovely. If you're a US expat whose just found out about the US tax system for expats and you want to pay your back taxes, you may have absolutely no safe way to do so. While I'm generally familiar with this area of the US tax law, this was a wrinkle I had no idea about. I actually find myself in the ugly position of thinking that those who innocently got caught up in the mess would be justified (morally, not legally) in hiding from the IRS.

US immigration policy blunting its high-tech edge?

High-tech is high-value
Photo by Jamesongravity

TechCrunch has an interesting article entitled For The First Time In Decades, US Is Bleeding High-Skilled Immigrants. The situation is very complicated, but much of it boils down to a Byzantine legal system for immigration. It's hard to get a work visa for the US and easy to lose it. On top of that, Republicans attempted to shift 55,000 US visas for immigrants from lesser-developed nations to foreign-born graduates of US universities. The idea being to ensure that high-skilled talent that studies in the US stays in the US. This makes sense as they're already likely to be more integrated into US culture.

Democrats have objected, claiming that Republicans are trying to shift visas from immigrants the Republicans don't want to immigrants they do want.

While I agree with the Democratic reasoning here, I'm unsure of how this is an indictment against Republicans. All developed nations control immigration tightly because they have to. Unrestricted immigration would overload the the social services of states and "low value" (in economic terms) immigrants are more likely to cost the state more money than they generate. Thus, "high value" immigrants are not only desired, but sought after. After all, they benefit an economy. The US, however, appears to be ignoring the benefits and focusing only on the costs.

Part of the problem is probably due to the anti-immigrant sentiment sweeping across much of the US. As a politician, it can be tough tackling immigration reform when many people would be happy to stop immigration. I've explained why importing workers in a bad economy is still often a good idea, but I doubt policy makers read this site. Further, given the current combative nature of US politics, I don't see a compromise happening any time soon.

There are other issues which are going to play into this long-term. The US PATRIOT Act has made US-based cloud services less popular outside of the US, hurting the ability of US cloud businesses to compete. Thanks to FATCA, "US persons" are now losing banking services abroad which, in turn, means that foreign businesses are now more reluctant to operate in the US market, a potential long-term drain on the US economy. It's going to be harder to attract high-tech talent when your economy is struggling and the cost of being a US person can mean lack of access to banking services in your home country.

And then we have the charming case of an immigrant to the US being imprisoned in Leavenworth for sending money home to this family. Regardless of whether or not you feel imprisoning him was justified, it's hard to argue that this will not have a chilling effect on other would-be immigrants to the US.

On top of that, EU countries are launching their European Blue Card programs in an attempt to attract more high-value immigrants. Though I initially speculated that it wasn't going to help the EU much, seeing the actual implementations has changed my mind. It's going to be much easier for many high-value workers to move to Europe. I've written before about how 5% of high-value workers go to Europe and 55% go to the US and I expect the combination of many factors is starting to shift the numbers to the EU. In this case, the US's loss will likely be the EU's gain.

Long-term it's even worse. The US cost of education has risen so dramatically that young Americans have gone from #1 worldwide in terms of having university degrees to #12. Thus, the US is not only less likely to import high-value workers, she's getting less likely to produce them. Of course, with almost half of Americans believing in the decidedly anti-science Creationist viewpoint, it's perhaps an uphill battle to promote the sciences in the US.

It seems that the deck is stacked against the US, but for the most part, the US has done the stacking.

Will the French start taxing their citizens abroad?

Bernard Arnault, richest man in Europe
Photo by nicogenin

Regular readers will be familiar with the saga of Eduardo Saverin, the Brazilian living in Singapore who cause a national uproar in the US when he gave up his US citizenship. Though it appears that only a handful of rich Americans renounce their citizenship, the US was outraged enough to try and pass laws to punish them severely. Panem and circenses and all that ...

France, sadly, is not immune to this idiocy. Bernard Arnault, the richest man in Europe, the 4th richest man in the world, and a Frenchman living in Paris, has generated howls of outrage (from the left) over Arnault's plans to take Belgian nationality. The communist newspaper  l’Humanité had the headline France, love it or leave it (American rednecks and French communists should have a party or something).

Why? Well, it seems the current president, François Gérard Georges Nicolas Hollande, who famously stated that he doesn't like rich people (and apparently owns over a million euro in property on the French Riviera), has decided to impose a 75% tax on people in France earning over one million euros a year. This has been a bit scandalous (on the right) because it generates virtually no revenue, is widely seen as symbolic, and has led to speculation of the rich fleeing France.

Many news sources, both French and US, get some details wrong, but most US news sources have really missed the subtleties here while the Guardian has pointed out what should be obvious:

Furthermore, let's be clear, in Europe tax residence has nothing to do with citizenship. It has in the US, where having the passport means paying tax as the membership fee, but elsewhere that's not the case.

Remember that aside from Eritrea, the US is the only country in the world which demands that citizens living in other countries send taxes back to the US. Thus, all Arnault needs to do to escape these punitive taxes is move out of France. That's it.

The press have been having a field day ripping Arnault to shreds and there's a lot of nonsense out there. Taking Belgian nationality to escape taxes is killing mosquitos with hand grenades, so there's likely something else going on. Of course, the previous president, Sarkozy, announced plans to collect taxes from French "tax exiles", so maybe Arnault is just hedging his bets. In today's Le Point.fr, we have the following proposal to solve certain tax issues:

Avec la création d'un impôt lié à la nationalité, comme aux USA, qui a fait consensus entre François Hollande et Nicolas Sarkozy pendant la présidentielle - donc, en théorie, il pourrait être voté sans problème ! Et pour que l'impôt soit réellement un élément de la citoyenneté, il faut que tous les Français le payent, même de façon purement symbolique (la moitié aujourd'hui ne le paient pas). Les USA ajoutent une "taxe de sortie" pour ceux qui abandonnent la nationalité américaine pour échapper à l'impôt. Ça ferait passer le goût du voyage même à certains fabricants de bagages...

And in English:

With the creation of a US-style tax linked to nationality, which both François Hollande and Nicolas Sarkozy agreed on during the presidential election - in theory it could be voted on without a problem! And that the tax is actually an element of citizenship, all French must pay, even if it's purely symbolic (half today do not pay). The USA adds an "exit tax" for those who renounce U.S. citizenship to escape taxation [note: this claim is misleading]. It would increase the desire for travel even some luggage manufacturers ...

That last line is a reference to Arnault himself, implying that he might be laying the grounds for escaping France entirely. Getting Belgian citizenship means he could drop his French citizenship if Hollande makes the unlikely decision to tax rich French people living abroad. It's been such a nightmare for the US that surely France won't make the same mistake, will they?

If every country in the world started to tax their expats abroad, this could easily shut down international migration. It would be a disaster and I'm sure many politicians understand this, but when you need bread and circuses to appease the unhappy masses, it's a popular move.