Category Archives: Renounce U.S. citizenship

Tax, culture and how the USA uses #citizenshiptaxation to impose US culture (and penalties) on other countries

Civilizations and countries define themselves in part by their tax policies

In 1993 Samuel Huntington wrote “The Clash Of Civilizations“. His basic thesis is captured in the following paragraph from Foreign Affairs Magazine.

World politics is entering a new phase, and intellectuals have not hesitated to proliferate visions of what it will be-the end of history, the return of traditional rivalries between nation states, and the decline of the nation state from the conflicting pulls of tribalism and globalism, among others. Each of these visions catches aspects of the emerging reality. Yet they all miss a crucial, indeed a central, aspect of what global politics is likely to be in the coming years.

It is my hypothesis that the fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural. Nation states will remain the most powerful actors in world affairs, but the principal conflicts of global politics will occur between nations and groups of different civilizations. The clash of civilizations will dominate global politics. The fault lines between civilizations will be the battle lines of the future.

Tax policy and the possible “clash of civilizations”

To what extent does the insistence of the USA on imposing the Internal Revenue Code (“citizenship-based taxation”) on the citizen/residents of other countries, foreshadow a “clash of civilizations”?

This post was motivated by the article by Virginia La Torre Jeker which is referenced in the above tweet. It is an excellent discussion of how the Internal Revenue Code might (or might not) accommodate the reality of Sharia law. The post raises many questions and alerts practitioners to the challenges of applying the Internal Revenue Code to the lives of people whose culture is largely outside the United States. The post raises many “technical issues”. I expect there will further discussion of this issue on Virginia’s blog.

Taxation does NOT exist in a cultural vacuum. A country’s tax system reflects the counry’s cultural values. As the tax historian Charles Adams has noted, the rise and fall of civilizations can be linked to its tax policies. To impose the Internal Revenue Code on people who live outside the United States is to export U.S. cultural values and impose those values on other nations. The United States claims the right to impose the Internal Revenue Code on U.S. citizens who live outside the United States. The reality is that there are millions of people with no connection to the United States (other than a place of birth). U.S. citizenship is acquired automatically if one has the fortune (or misfortune depending on your point of view) of having been (as Bruce would sing) “Born In The USA!

FATCA and the tax compliance industry are working hard to identify those who may be U.S. citizens and do NOT live in the United States. What the United States views as a good source of tax revenue should be seen more broadly. Leaving aside basic issues of fairness, to impose U.S. taxation (according to U.S. rules/cultural values) on the residents of other countries, is sure to create problems. As part of tax reform, the United States must stop imposing the Internal Revenue Code on people who are NOT residents of the United States!

The following “Storification” is an attempt to explain the problem from an “outside the USA” perspective …

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Citizenship showdown coming: Has Australia ceded control of its sovereignty to foreign countries?

Shades of Larissa Waters

Oh My God! Think of it:

My sources in Australia tell me …

This time it’s the Deputy Prime Minister – http://www.abc.net.au/news/2017-08-14/barnaby-joyce-is-a-new-zealand-citizen-nz-government-confirms/8804620 – and the first member of the lower house to be tainted by dual citizenship. This is significant. With the Senate they usually go to the next person on that party’s ticket from the last Senate election. With the House of Reps they have to have a by-election – and Turnbull’s government is hanging on by a single vote. So, if the High Court rules that Barnaby Joyce must vacate his seat, it could topple the government!

And I thought that Politics in Canada was dirty. And we all revel in the daily stench of the toxic partisanship in the USA. But, hey at least these two countries do NOT have constitutional provisions that (as they have been interpreted) allow other countries to interfere in who the elected representatives are! (We let them interfere in covert ways – think “From Russia With Love” ….)

But Australia. This really is unique. Think of it. Once a person is accused of being a dual citizen – AS DEFINED BY THE LAWS OF ANOTHER COUNTRY – then the person is disqualified from serving in the Senate or the Lower House. I had always thought of Australia as a sovereign country. Can it really be true that Australia allows eligibility for service in the Senate or the lower house to be determined by another country’s citizenship laws? Does it matter whether these “foreign laws” confer citizenship by force rather than citizenship by consent?

Think of the possibilities here. There have always been suggestions that “The USA via the CIA” had been (wonderful melody) instrumental in the dismissal of Australian Prime Minister Gough Whitlam. Why go to so much trouble? The way Australia is interpreting its own constitution, all a future U.S. Government would have to do is confer U.S. citizenship on the Prime Minister of Australia and he would be forced to resign. But this would be the intentional “weaponization of citizenship”. (But, the FATCA is that: the USA would NEVER use citizenship as a weapon now, would it?) Australia has already surrendered much of its sovereignty to the United States through a combination of the FATCA IGA and the “savings clause” in the Australia U.S. Tax Treaty.

It’s worse than you think. The problem extends to the ongoing changes in the citizenship laws of other nations

What about the change in one country’s citizenship laws conferring citizenship on an Australian citizen without his/her knowing about it? For example, Canada has made significant amendments to its citizenship laws in 2009 and 2016. In both cases Canadian citizenship was conferred on people who did NOT have Canadian citizenship. One example is that prior to 1977, a person born abroad to a married couple where the father was NOT Canadian (say Australian) and the mother was Canadian would NOT have become Canadian by descent. In 2009 people in these circumstances were given Canadian citizenship. What if a person affected by this was in the Australian Senate in 2009 when the Canadian law was changed. Would that person be forced to resign?

Can the citizenship of country A be forcibly imposed on a resident of country B who has NEITHER ACCEPTED NOR ACKNOWLEDGED THAT CITIZENSHIP?


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13 Reasons Why I Committed #Citizide: (Inspired by the television series, 13 Reasons Why)

Introduction – Guest post by a perfectly ordinary person who renounced U.S. citizenship for perfectly ordinary reasons

In a recent submission to Senator Hatch  I argued that what the United States thinks of as “citizenship-based taxation”, is actually a system where the United States imposes U.S. taxation on the residents and citizens of other countries. That submission included:

On July 4, 2017, Americans living inside the USA celebrated the “4th of July” holiday – a day that Americans celebrate their independence and freedom.

On that same day, I had meetings with SEVEN American dual citizens, living outside the United States. This “Group of Seven” were in various stages of RENOUNCING their U.S. citizenship. Each of them was also a citizen and tax paying resident of another country. They varied widely in wealth, age, occupation, religion, and political orientation. Some of them have difficulty in affording the $2350 USD “renunciation fee” imposed by the U.S. Government. Some of the SEVEN identify as being American and some did NOT identify as being American. But each of them had one thing in common. They were renouncing their U.S. citizenship in order to gain the freedom that Americans have been taught to believe is their “birth right”.

On August 2, 2017 posts at the Isaac Brock Society and numerous other sources, reported that that there were 1759 expatriates reported in the second quarter report in the Federal Register. The number of people renouncing U.S. citizenship continues to grow.

Now on to the guest post by Jane Doe, which is a very articulate description of the reasons why people living outside the United States feel forced to renounce U.S. citizenship.

John Richardson

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The biggest cost of being a “dual Canada/U.S. tax filer” is the “lost opportunity” available to pure Canadians

The reality of being a “DUAL” Canada U.S. tax filer is that you are a “DUEL” tax filer

“It’s not the taxes they take from you. It’s that the U.S. tax system leaves you with few opportunities for financial planning”.

I was recently asked “what exactly are the issues facing “Canada U.S. dual tax filers?” This is my attempt to condense this topic into a short answer. There are a number of “obvious issues facing U.S. citizens living in Canada.” There are a number of issues that are less obvious. Here goes …

There are (at least) five obvious issues facing “dual Canada U.S. tax filers in Canada”.

At the very least the issues include:
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Why is the United States imposing an “Exit Tax” on the Canadian pensions of Canadian citizens living in Canada?

This post is based on (but is NOT identical to) a July 17, 2017 submission in response to Senator Hatch’s request for Feedback on Tax Reform

“Re the impact of the S. 877A “Exit Tax” on those “Americans living abroad” who relinquish U.S. citizenship:

Why is the United States imposing an “Exit Tax” on their “non-U.S. pensions” and “non-U.S. assets”? After all, these were earned or accumulated AFTER the person moved from the United States?”

Part A – Why certain aspects of the Exit should be repealed

In a global world it is common for people to establish residence outside the United States. Many who establish residence abroad either are or become citizens of other nations. Some who become citizens of other nations do NOT wish to be “dual citizens”. As a result, they “expatriate” – meaning they relinquish their U.S. citizenship. By relinquishing their U.S. citizenship they are cutting political ties to the United States. They are signalling that they do NOT wish the  opportunities, benefits and protection from/of the United States.

Yet Internal Revenue Code S. 877A imposes a separate tax on “expatriation”. The “expatriation tax” is discussed in a series of posts found here.

Specific examples of HOW the “Exit Tax Rules” effectively confiscate pensions earned outside the United States are here.

Assuming, “covered expatriate status” and NO “dual-citizen exemption to the Exit Tax“, the S. 877A “Exit Tax” rules operate to:

  1. Virtually “confiscate” non-U.S. pensions that were earned when the individual was NOT a  United States resident; and
  2. Allow for the retention of “U.S. pensions” which were earned while the individual WAS a resident of the United States.

(One would think that the result should be THE EXACT OPPOSITE!”)

Specific request: The S. 877A Exit Tax should be repealed. If the United States is to impose a tax on expatriation, the tax should not extend to “non-U.S. pensions” earned while the individual was NOT a U.S. resident. Furthermore, the tax should NOT extend to “non-U.S. assets” that were accumulated while the individual was NOT a U.S. resident.

But, that’s assuming that the United States should have ANY kind of “Exit Tax!”

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More #Americansabroad will pay capital gains tax on sale of principal residence in Canada

The price of Toronto real estate continues its upward trajectory.

This morning I met with yet another (who could have known) Canadian resident who wishes to renounce U.S. citizenship. This person is completely compliant with his U.S. tax obligations. He is renouncing for a very common reason.

The reason for renouncing U.S. citizenship is to:

Protect the tax free capital gain, which results from the sale of his Canadian principal residence in Canada.
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“It’s better in the Bahamas – Combining your renunciation with a vacation

For years I have seen the slogan “It’s better in the Bahamas”. It’s a great place to vacation. It’s a short flight from Toronto. It’s relatively inexpensive to visit. It’s was the home of one Sir John Templeton (one of the most famous renunciants of U.S. citizenship). And when it comes to “renouncing U.S. citizenship”, it might be “Better in the Bahamas“, because you can schedule a renunciation appointment on a predictable date!

What follows are some recent reports about the renunciation process in Nassau, Bahamas.

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Tax residency vs. physical presence: The four questions you must ask before making a country your home

An introduction to “tax residency” …

Most people equate residency with physical presence. They assume that where you are physically presence determines where you live. They further assume that where you live is where you pay your taxes. Conclusion: The country where you live is the country where you must be “tax resident”. Not necessarily!

There is no necessary correlation between where one lives and where one is a “tax resident”. In fact, “residency for tax purposes” may be only minimally related to “residency for immigration (where you live) purposes”. It is possible for people to live in only one country and be a tax resident of multiple countries. The most obvious example is “U.S. citizens residing outside the United States”.

The concept of “tax residency” is fundamental to all systems of taxation. The fundamental question, at the root of all tax systems is:

“what kind of connection to a country is required to assume tax jurisdiction over an “individual”, over “property” or over an “entity”?”

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The “Exit Tax”: Dual US/Canada citizen from birth, no Canada citizenship today = no exemption to US “Exit Tax”

The above tweet references a “guest post” written by Dominic Ferszt of Cape Town South Africa. The post demonstrates how the “dual citizen from birth” exemption to the S. 877A “Exit Tax” relies on the citizenship laws of other nations. In some cases those laws of other nations are arbitrary and unjust. If these laws were U.S. laws, they might violate the equal protection and/or due process guarantees found in the United States constitution. For example, Mr. Ferszt describes how the “dual citizenship exemption” to the “Ext Tax” is dependent on South African “Apartheid Laws”. He describes a situation where a “black” U.S. citizen from birth is denied the benefits of the dual citizen exemption to the Exit Tax, which are available to a “white” dual citizen from birth. (During the “Apartheid Era” Blacks were not entitled to South African citizenship.)

So, what’s the S. 877A “Exit Tax”  dual citizen exemption and how does it work?

The dual citizen exemption, which I have discussed in previous posts,  is found in Internal Revenue Code S. 877A(g)(1)(B) and reads:

(B) Exceptions An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if—
(i) the individual—
(I) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
(II) has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for not more than 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs, or

Entitlement to the “dual citizen exemption” depends entirely on the citizenship laws of other countries …


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Why Boris Johnson must relinquish US citizenship on the occasion of his appointment as British Foreign Minister

A recent post (July 7, 2016) on this blog began with:

Prologue – U.S. citizens are “subjects” to U.S. law wherever they may be in the world …

Yes, it’s true. In 1932 (eight years after the Supreme Court decision in Cook v. Tait), Justice Hughes of the U.S. Supreme Court, in the case of Blackmer v. United States ruled that:

While it appears that the petitioner removed his residence to France in the year 1924, it is undisputed that he was, and continued to be, a citizen of the United States. He continued to owe allegiance to the United States. By virtue of the obligations of citizenship, the United States retained its authority over him, and he was bound by its laws made applicable to him in a foreign country. Thus, although resident abroad, the petitioner remained subject to the taxing power of the United States. Cook v. Tait, 265 U.S. 47, 54 , 56 S., 44 S. Ct. 444. For disobedience to its laws through conduct abroad, he was subject to punishment in the courts of the United States. United States v. Bow- [284 U.S. 421, 437] man, 260 U.S. 94, 102 , 43 S. Ct. 39. With respect to such an exercise of authority, there is no question of international law,2 but solely of the purport of the municipal law which establishes the duties of the citizen in relation to his own government. 3 While the legislation of the Congress, unless the contrary intent appears, is construed to apply only within the territorial jurisdiction of the United States, the question of its application, so far as citizens of the United States in foreign countries are concerned, is one of construction, not of legislative power. American Banana Co. v. United Fruit Co., 213 U.S. 347, 357 , 29 S. Ct. 511, 16 Ann. Cas. 1047; United States v. Bowman, supra; Robertson v. Labor Board, 268 U.S. 619, 622 , 45 S. Ct. 621. Nor can it be doubted that the United States possesses the power inherent in sovereignty to require the return to this country of a citizen, resident elsewhere, whenever the public interest requires it, and to penalize him in case of refusal. Compare Bartue and the Duchess of Suffolk’s Case, 2 Dyer’s Rep. 176b, 73 Eng. Rep. 388; Knowles v. Luce, Moore 109, 72 Eng. Rep. 473.4 What in England was the prerogative of the sov- [284 U.S. 421, 438] ereign in this respect pertains under our constitutional system to the national authority which may be exercised by the Congress by virtue of the legislative power to prescribe the duties of the citizens of the United States. It is also beyond controversy that one of the duties which the citizen owes to his government is to support the administration of justice by attending its courts and giving his testimony whenever he is properly summoned. Blair v. United States, 250 U.S. 273, 281 , 39 S. St. Ct. 468. And the Congress may provide for the performance of this duty and prescribe penalties for disobedience.

It’s that simple. If you are a U.S. citizen, some would argue that you are the property of the U.S.government.

On the other hand (and this will be the subject of another post), the Supreme Court decisions in Cook v. Tait and Blackmer v. The United States were decided in an era where there was no U.S. recognition of dual citizenship. It is reasonable to argue that these decisions have no applicability in the modern world.

There will be those who will say: Come on! Get real! The United States would never rely on these old court decisions. Well, they still do cite Cook v. Tait. Mr. FBAR lay dormant until it was resurrected by the Obama administration as the “FBAR Fundraiser“.

Dual Citizenship: What is the “effect” of a U.S. citizen also holding the citizenship of another nation?

The State Department description includes:

However, dual nationals owe allegiance to both the United States and the foreign country. They are required to obey the laws of both countries. Either country has the right to enforce its laws, particularly if the person later travels there. Most U.S. nationals, including dual nationals, must use a U.S. passport to enter and leave the United States. Dual nationals may also be required by the foreign country to use its passport to enter and leave that country. Use of the foreign passport does not endanger U.S. nationality. Most countries permit a person to renounce or otherwise lose nationality.

The life and times of Boris Johnson – A United States taxpayer by birth

Assumptions about Mr. Johnson’s citizenship …

I am assuming that he became both a U.S. and U.K. citizen by birth. I also assume that he remains both a U.S. and a U.K. citizen.

A U.S. Centric Perspective: As a U.S. citizen, Mr. Johnson is defined primarily in terms of taxation. On the occasion of Mr. Johnson’s recent appointment as the U.K. Foreign Minister, the Washington Times published the following article.

The article referenced in the above tweet provides an interesting summary of the Mr. Johnson’s adventures with the U.S. tax system. The article demonstrates how U.S. “place of birth” taxation is used to extract capital from other nations and transfer that capital to the U.S. Treasury. (As always the comments are of great interest.)

A non-U.S. Centric Perspective: Mr. Johnson is a “poster boy” for the problems of the U.S. “place of birth taxation” (AKA “taxation-based citizenship”). Mr. Johnson’s “IRS Problems” resulted in raising the profile and awareness of U.S. tax policies. A particularly interesting article was written by Jackie Bugnion and Roland Crim of “American Citizens Abroad”.

At a minimum, Mr. Johnson is subject to IRS jurisdiction, IRS reporting requirements, IRS threats and penalties and IRS assessments.

Boris Johnson has now been named the U.K. Foreign Minister …

How does his United States citizenship impact on this situation? Is it possible for him to be both a U.S. citizen and the British foreign minister? The “logical answer” is “Yes he can”. That said, having a U.S. citizen as the U.K. foreign minister raises many questions.

These questions include:

1. What effect (if any) does Mr. Johnson’s acceptance of this position have on his retention of United States citizenship as a matter of U.S. law?

2. If his acceptance of the position were a “relinquishing act” (under U.S. law) would Mr. Johnson be subject to the United States S. 877A Exit Tax?

3. Assuming that Mr. Johnson were to retain “dual” U.S./U.K. citizenship, how would his “divided loyalties” impact on this ability to serve as the British foreign minister?

4. Assuming that Mr. Johnson were to retain “dual” U.S./U.K. citizenship, how does the fact that the IRS has the jurisdiction to threaten him with fines and penalties impact the situation? What about the reporting requirements?

5. Should Boris Johnson formally relinquish his U.S. citizenship in order to avoid the conflict of interest that would arise because of divided loyalties?

Each question will be considered separately. Here we go …

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