I did not write this letter. It is a blend of a number of them I have received enunciating reasons that record numbers of Americans are renouncing their U.S. citizenship. Despite the huge protests President Trump has already drawn over social issues, and despite petitions for him to release his tax returns, other reasons motivate these renunciations. They are personal to many Americans living overseas, and are issues President Trump inherits. There is some room for hope, but whether he will remedy them remains to be seen.
Dear Mr. President,
I am writing with a heavy heart as I prepare to give up my U.S. citizenship. My spouse too. We are not doing so to avoid paying U.S. taxes, but because we object to a system that is discriminatory and unfair to law-abiding Americans living outside the country. I hope you continue reading, as I get the sense that homelanders typically shrug off our complaints as sour grapes and tax avoidance. It is anything but.
It has become too expensive, too difficult, and frankly, too frightening, to try to comply with all of the tax filing requirements that now apply to U.S. citizens living abroad. With FATCA, even opening a local–but to the U.S. a “foreign”–bank account is difficult because I am American. In Canada where I live, many of us are dual U.S. and Canadian citizens. Having two citizenships comes with privileges—such as voting in both countries. It also has burdens, such as paying taxes in both countries. Up to a point, that is OK.
Notably, despite our U.S. status, many of us do not receive U.S. Social Security or Medicare. That means we take nothing from the U.S. Yet, we now feel like second class citizens or even criminals. For many of us, including many dual U.S. and Canadian citizens, taking on another citizenship, was not disloyal to America. In some cases, job requirements make a second citizenship either required or a good idea.
But whether or not Americans abroad acquire a second citizenship, living abroad subjects us to burdensome tax and disclosure rules and unfair retirement account treatment by the U.S. The FBAR forms we must file every year, detailing the amount in every single financial account we have, from savings to checking to investment to retirement accounts, are filed with the Financial Fraud Division of the U.S. Treasury Department. The message given here, along with the enormous fines for improper filing, make U.S. citizens feel like they are guilty until proven innocent.
Simple investments such as mutual funds, easy for those living in the U.S., are not easy for Americans abroad. Unless we are very careful, we end up with funds classed as foreign by the IRS. The taxes and compliance can be excessive. Banking and retirement accounts rules are truly discriminatory for U.S. persons abroad. Some retirement accounts abroad are still taxed by the IRS, even though they are held for retirement.
Even a Canadian mutual fund is treated far different than an American one. These are not funds that are investing in terrorist activities in the Mideast. These are funds that are invested heavily in U.S. bonds and U.S. companies, as well as in Canadian bonds and companies. The IRS considers Canadian mutual funds as “foreign investments“, they are local investments for those living in Canada.
American citizens living abroad are at a distinct disadvantage in planning and saving for our retirement. What have we done to deserve this discriminatory and second class treatment? Some costs and inconveniences are to be expected. Filing taxes in multiple countries means extra professionals and extra expense. But how much extra is fair?
The broader context is America’s global tax system and FATCA, which has also made life difficult for U.S. persons abroad. This is especially true when it is the Fraud Division that investigates even the most innocent errors in filing some of the necessary forms. Today, the overall burden and the unfairness have become too heavy to reasonably bear.
There are approximately one million Americans living and working in Canada, and millions more in other parts of the world. We are not alone in taking the previously inconceivable step of relinquishing our U.S. citizenship. What a sad state of affairs for America.
A Canadian–and American
For alerts to future tax articles, email me at Wood@WoodLLP.com. This discussion is not legal advice.
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