Another expatriation driven by U.S. tax complexity and the time it takes – Expatriation is on the rise!

Cross posted from RenounceUScitizenship

An interesting  post appeared today on Phil Hodgen’s blog. It appears that expatriation is on the rise. (Who could have known?) Note that the reasons have nothing to do with the payment of tax. They have everything to do with the the inability to live a normal productive life as a U.S. person living outside the United States.

What follows is an excerpt from his post:

Why He’s Bailing Out

Here’s why.  Paperwork.  The cost and complexity of U.S. tax returns for American taxpayers abroad is insane on stilts.  If he has mutual funds, he has Form 8621 problems.  Things that are tax-free in his current country of residence are not necessarily tax-free in the USA.  And in fact you can usually guarantee that Uncle Sam wants a piece of it.  While the tax load can usually be eliminated in the USA (because he pays so much income tax abroad) it is still messy and adds complexity and cost to his U.S. tax return.

But what really kicked it off was a business opportunity.  He has the opportunity to enter into a startup business with some friends.  Because he is a U.S. taxpayer, the tax compliance costs are monstrous.  If they use a corporation, he has a Form 5471 problem.  If they use a partnership, he is a U.S. taxpayer with an interest in a foreign partnership.  He has FBAR and Form 8938 problems.  The financial structure of the proposed startup was optimized for the European tax/fiscal landscape, but worked very badly indeed for US purposes.

So, faced with the alternative of about $10,000 of U.S. tax advice (and possible loss of his startup business opportunity) vs. giving up the green card, he chose the obvious one.  Give up the green card and cut ties with the United States.

Paperwork Burden, Not Tax Cost Burden

I want to be crystal clear. This is an important point:

    • – He is paying a metric ton in tax.
    • – It is annual compliance cost of dealing with CFC, PFIC, foreign tax credit, foreign earned income exclusion, and the like that really gripes him.
  • – The U.S. tax complexities would force him to lose an opportunity to participate in a startup business.  His tax situation is so anomalous compared to the other participants that he would either have to absorb enormous compliance costs himself, or be barred from participating in the business as too much trouble.

So there you have it.  A person who gets things done.  Who builds businesses.  He’s been pushed out of the USA because of U.S. tax compliance burdens.  Not U.S. tax.  U.S. paperwork.

U.S. citizenship has been priced out of the market. It can be retained by only the very poor and the very rich!

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23 thoughts on “Another expatriation driven by U.S. tax complexity and the time it takes – Expatriation is on the rise!

  1. This is more than true. Any American living abroad is strangled with mind-numbing complicated reporting and paperwork requirements that are almost impossible to comply with if one owns their own small business.

    For small business owners and entrepreneurs, renunciation is a matter of survival.

  2. Fear, of making an inadvertent error – and the insane FBAR (and now FATCA) fines makes hands shake and sweat – not conducive to accuracy or clear headed thinking. The reporting asks for numbers (ex. largest value occurring on any one day) that don’t correspond with the way bank statements and reconciled balances are calculated, produced or recorded. And usually on assets (ex. paychecks) already taxed and reported…..and reported again and again if moved from chequing to savings, to RRSP etc.

  3. Hey all;
    Look, the hits have gone past the 400,000. mark !
    : )

    Will there be a party when it passes the 500,000. line?

  4. 400,000 hits … I confess to probably hundreds of them. This is the only place I can go to get information and very welcomed commiseration without alienating myself from people who just don’t get it. I have as yet not dared to get information directly from the IRS or the CRA or any other entity with 3 letters (except for a half day’s futile attempt to get 1040 forms mailed to us — my husband is going to drive down to the USA to get them). For myself and my husband it is definitely the paperwork problem because despite having what we thought was the simplest possible financial situation we are discovering new “flitches” (forms with glitches) all the time now it seems. We don’t feel we will be able to cope with this as we head into our senior years. Escape as soon as possible seems the only option right now.

  5. Sad but true. Instead of keeping a good relationship with a productive individual, the US demands a complete termination of the relationship.

  6. Just a thought… if my country of residence taxes me 15% on my earning from Money Market Account and the USA is coming after me where I work and reside to collect taxes…but is nice enough to give me a tax credit for the taxes I pay here…and they also will charge 15%… why do I have to fill a complicated form in order not to be double taxed?… Is this done to reduce unemployment in the USA by forcing me to hire US CPAs and Tax Lawyers?

  7. I have written and called the IRS. For me the call is long distance and the responses are given by computers. The times I wrote they did answer me. As a rule saying that my questions were complex and that I should get advise from CPAs and Tax Lawyers. There is NO IRS representative in the country I live and work.

  8. 400,000 hits. Besides that, probably more than 250 distinct individuals have posted, threads and/or comments. That threshhold recently crossed.

  9. This story is sickening. We here in “foreign countries” see more and more clearly the insanity of US tax policies, but the 535 temple monkeys in Congress that make the policies only see
    endless opportunities to mug more victims for all their shiny things. They are indifferent to pleas, tears, begging or stories of ruined lives. This may have been posted before but it bears repeating, especially in the context of this expat’s story: ““When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you… you may know that your society is doomed.” -Ayn Rand. author, “Atlas Shrugged”.

  10. There was a great commenary on Market Place by P.J. O’Rouke, the conservative satirist on the subject of Tax Complexity. It is a Fraud he says.

    Listen to it here…

    http://www.marketplace.org/topics/economy/commentary/taxes-are-fraud

    The Comment section is down right now, and as soon as it comes up, I have this comment ready to go…

    Mr O’Rourke is exactly correct on Tax complexity. However, I think he is way understating the size of the Tax Code which is over 72,000 pages now as reported by CCH Standard Federal Tax Reporter. Google it!

    It might be a bit hyperbolic to say it is a Fraud, (not an intentional one at least) but certainly the Tax Code has become beyond fathomable. The IRS can not keep up with almost the daily changes that are occurring as Congressmen tweak this or that provision to provide new loopholes, exemptions, credits, deductions for their favorite lobbyist or special interest group. The code just grows and grows and grows and O’ Rouke is correct, you can no longer tell what this tax complexity is buying us.

    I think the size of the code and it’s complexity is directly tied to the Congressional money game. Google the recent This American Life program called “Take the Money and Run for Office”, and you will get a very clear picture of why we have this complexity.

    For BIG corporations the complexity that arises from lobbying does allow them to “buy their rate”, and that is certainly not available to mere mortals like you and I. GE, Apple, Google can arrange their business practices to utilize obscure tax provisions so they pay almost no income tax, and for you and I, well…need I say more? They might have to employ an army of CPAs and Tax attorneys, but if it takes GE 57,000 pages of an income tax return, and Berkshire Hathaway 17,000 pages to deal with the complexity their lobbying has created, so be it. Owing zero taxes or getting big credits from the Treasury is worth the effort.

    The complexity problem is even worse for US citizens living abroad, who have much more complex filing requirements and draconian penalties for living pretty pedestrian moderate middle class lives. The US is unique in that it taxes its citizens no matter where they reside in the world, while the rest of the world’s countries practice a territorial system of taxation, just like the 50 states do inside the Union.

    Even the National Tax Advocate in its recent report to Congress, pointed out all the complexity and difficulty there is in the International tax payer community. You can read it at http://www.irs.gov/pub/irs-utl/2011_arc_internationalmsps.pdf

    There is the FBAR form, and the duplicative new FATCA 8938 form. There is the Foreign tax credit form, the foreign earned income exclusion form 2555. If you have mutual funds there is the Form 8621. Heaven forbid, if you try to open a business, then there is the Corporate Form 5471 problem. If you have a family trust, then you have another form 3520 to deal with. All of these forms come with serious and draconian penalties that Homeland tax payers do not have to deal with. Additional, with recent FATCA legislation, where all banks in the world are supposed to be IRS tax collectors, US persons are finding their lives complicated by being shut out of normal banking services. Banks don’t want US persons either, as they are too complex and expensive to deal with if they are to be compliant with US new world wide tax statutes.

    It is annual compliance cost of dealing with all this complexity is what really gripes Americans abroad, and now with the IRS jihad on offshore taxes and accounts, many are just packing it in. It is NOT the Tax, as much as it is the COMPLEXITY that is driving many to consider renunciation of their citizenship to be free enough to live their lives just saddled with one tax system (the country where they reside) and not the US tax system too. The alternative is just to return home and not try to create markets for US products abroad.

  11. Ten Good Reasons Why US Citizens Should Expatriate
    http://www.qwealthreport.com/blog/ten-good-reasons-why-us-citizens-should-expatriate/

    This is an old article from 2010 but it is still relevant today … maybe even more so. Point number 5 particularly resonated with me …

    5) Freedom from the paperwork prison.
    Millions of Americans are plagued every year by days, sometimes weeks, of preparing tax documents and paying thousands of dollars to accountants to decipher the IRS tax code. There are, literally, hundreds of different IRS forms. The tornado of rules and regulations in the tax code fills roughly 70,000 pages. And then you have to save boxes and boxes of papers for years in fear of someday being audited and not being able to produce the demanded documents. If you’re unfamiliar with audits, here’s how they work: You’re guilty of whatever the IRS claims, unless you prove yourself innocent. If that sounds preposterous, I encourage you to ask a tax lawyer. “Innocent until proven guilty” does not apply. Freedom from spending days of tedium on mind-numbing paperwork and thousands on accounting fees has been an absolute joy. Highly recommended.

  12. An example of investors (the UK taxpayers in this case because of bank bailouts questioning a bank chairmain’s pay packet) –

    An American, Bob Diamond, chairman of Barclays Bank, is under fire because of his American Tax Bill and the bank’s promise to “foot” the US tax bill.

    Essentially it amounts to the British Government paying the US income tax – is this fair?

    It highlights how expensive it is to hire “US-persons” in the boardroom and how the US is loosing its corporate influence abroad. It’s the old adage, “out of sight, out of mind” even in the world of video conferencing, interenet, nothing replaces feet on the ground.

    You see what makes matters worse is that if they hired another nationality this “tax equalisation” agreement would essentially be a one-off payment, but because he’s American the payment goes on and on and on……..year in year out……

    Here’s the link –

    http://www.dailymail.co.uk/news/article-2128514/Outrage-Barclays-says-pay-Bob-Diamonds-U-S-tax-good.html

  13. Love seeing more coverage like this one! However, seems very high to go up 5.75 million pounds to 27 million pounds.

  14. @markpinetree

    Forget the international taxpayers’ IRS service, this is what the ‘homelanders; experience:

    “At a recent congressional oversight hearing, IRS Commissioner Doug Shulman testified that telephone calls have increased by 34 percent, but the hours phones are answered have decreased by 20 percent (see IRS Commissioner Shulman Addresses Tax Delays). Only 65 percent of taxpayers seeking telephone assistance are able to speak to an IRS employee, and they must wait an average of 17 minutes.”
    http://www.accountingtoday.com/news/Taxpayers-Not-Helped-IRS-Budget-Cuts-NTEU-62326-1.html?ET=webcpa:e2388:241779a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=WebCPA_Daily_041312

  15. This says it all about Tax Complexity…

    It’s a game. We [tax lawyers] teach the rich how to play it so they can stay rich– and the IRS keeps changing the rules so we can keep getting rich teaching them. John Grisham

  16. Let me say this. My first wish is for the IRS to leave me alone when I am living and working in another country and investing no US dollars here. When I lived and worked in the US for thirty years my country of origin did not go after me demanding that I file an Income Tax Return to them. My second wish is, if the IRS is going to come after me while I am residing and working in another country, that they make it easy for me to file my IRS Return without having to spend a lot of time and money (US CPAs and Lawyers), making my life a nightmare of forms and more forms. My third wish is that if the IRS wants to give an amnesty for Americans Abroad, Dual Citizens and Greencarders, that they give a true amnesty and allow them to start filling the FBARs without threats of taking away 27.5% of their highest investment in the country where they are living and earning the invested money. I trust that the Obama Administration sooner or later will see the light and be fair. By doing this they may earn millions of votes of Americans Abroad.He should read the report ot the IRS Tax Advisor on the way Americans Abroad are being treated by the IRS.

  17. Pingback: New HR Block blog offers tax tips for U.S. citizens abroad As goes “Form Nation” so goes HR Block! « Renounce U.S. Citizenship – Be Free

  18. Found this article today, it’s from Tuesday, quotes Phil Hodgen. It’s on Time World. http://www.time.com/time/world/article/0,8599,1983238,00.html
    excerpt, “”Their income and wealth are generated largely outside the U.S., so why does the U.S. get a slice of that?” says Phil Hodgen, a California-based international tax attorney who helps Americans in the expatriation process. “More and more people see no long-term benefit to retaining U.S. citizenship.”
    another excerpt, “Cutting my ties with America hasn’t been easy,” says Ben, who as a foreigner can now spend only 90 days a year in the U.S. “My family and friends think I am a traitor. But the financial burden was killing me.”

    Apologies if someone has already posted this one, it’s hard to keep up sometimes. The article’s not too in depth, but it does show the plight that is faced. And seems sympathetic.

  19. This is what makes me so angry…Even if I end up not having to pay any USA taxes I will have to go through all this paper work every year, with forms, reports and all. It is incredible. I can understand and support the IRS going after Americans living in the USA who are investing US dollars in foreign banks and hiding it. But us? They know that we have an Earned Income Exclusion and Tax Credits? So what are they hoping to get from us? The only thing I can think is that they are counting on us not knowing about FBARS and making mistakes to penalize the hell out of us, Is this fair? If nothing changes the only alternative will be renounciation. But they have a complicated form there too that only a professional can file!!!

  20. Here’s another GAO report to Congress ; but with no mention of how this affects those of us ‘abroad’ http://www.gao.gov/products/GAO-12-652T
    “Internal Revenue Service
    Opportunities to Improve the Taxpayer Experience and Voluntary Compliance”
    GAO-12-652T, Apr 26, 2012

    for example – for those inside the US only:
    “Reducing tax complexity could ease taxpayer burden and make it easier to comply. Simplifying the tax code could reduce unintentional errors and make intentional tax evasion easier to detect.”……………..

  21. Americans Living and Working Abroad is not the same as Americans Hiding Investments Abroad yet we have been treated the same. I continue to anguish over my situation. 79 years old, self employed, having to pay SS Self Employment Tax in two cointries, having to pay US tax on income where I reside that is not taxable here and having to hire an US CPA to do all the forms that are impossible for me to do. I wrote to a Congressman from the State where I last resided. He sent my letter to the IRS without revealing names, with my consent. He gots back a form letter with information I already knew. I then explained what I said above that distressed me. Guess what? I go a letter back from the IRS saying that if I was having such problems I should renounce my citizenship and file form 8854.
    Maybe this was the best advice they good give…but after working 30 years in the USA, being proud of being an American and having family in the USA I felt quite hurt. Reminded me of the old saying:” America, Love it or Leave it”.
    Not only hurt but shocked. I am not going to renounce my citizenship, Sorry,

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