Thursday, September 22, 2011

Welcome to the Hotel USA

You can check out any time you like, but you can't leave until the IRS says so.

The Globe and Mail reports a story about the situation of many American citizens living abroad - they left the US years ago, didn't think twice about filing a tax return because they lived and worked overseas, and now are in the crosshairs of the IRS for potentially huge amounts of money.

The USA is almost unique among countries for the extent to which it pursues its citizens for tax payments after they emigrate. US citizens are required to file a tax return every year and report their worldwide income. Even if you haven't lived in the US for years. And if you've worked in a low-tax jurisdiction like Singapore, they'll demand the difference in tax between the Singapore tax rate and the US tax rate.

The only way you can get out of this is to renounce your citizenship. But in a delightful catch 22, they won't let you renounce your citizenship until... you guessed it... you file your back tax returns!

As a matter of practicality, if you've given the US the middle finger and don't plan to return, it's not really a problem - they're not going to travel to Kazakhstan to file suit against you. But if your elderly mother is in America and you might want to visit her at some point? Well, let's just say things get a bit complicated:
“It’s not the back taxes that will kill you,” Brian told me. “It’s the penalties.” It turns out the IRS can fine you for every unreported bank account, mutual fund and RRSP – at a rate of $10,000 per offence per year. It can also confiscate as much as 25 per cent of the maximum amount you’ve held in each account. This is so absurd it can’t possibly be true. But it is.
So I called our accountant. “Do I have to do it?” I wailed. “I can’t advise you,” he said. He told me that I might be able to get off the hook for only a few thousand dollars. “Can they come after me for more?” I asked. “Yes,” he said. “Nobody knows what they’ll do.”
Representative government at its best! Arbitrary penalties may be imposed upon you, and there's no way of finding out in advance how big they'll be.

Sadly, I see no chance of this changing. The federal government is desperate for money, and the cynical political calculus is that people who've lived overseas for years are unlikely to vote in elections, so f*** 'em.

I suspect that a lot of people will make the sad decision to just turn their back on the US for good than deal with the hassle of the IRS. I remember when London mayor Boris Johnson did the same in 2006, renouncing his US citizenship publicly in The Spectator. His reasons were even less - he fell victim of the fact that if you ever held a US passport, you can't travel into the US on anything other than a US passport. Yes, they're serious. Yes, they'll refuse you entry if you try. Yes, they won't even let you renounce your citizenship.
Last Sunday lunchtime we were boarding a flight to Mexico, via Houston, Texas, and we presented six valid British passports. As soon as the Continental Airlines security guy saw my passport, he shook his head. ‘Were you born in New York?’ he asked. ‘Have you ever carried an American passport?’
Yes, I said, but it had long since expired. ‘I am afraid we have a problem,’ he said. ‘The US Immigration say you have to travel on an American passport if you want to enter the United States.’ 
When the ranking officer arrived, the story was the same. ‘I’m sorry, sir,’ he said, ‘but you’ll have to go to the US Embassy tomorrow morning and get a new American passport.’ But I don’t want an American passport, I said, inspiration striking me. I tell you what: I renounce my American citizenship. I disclaim it. I discard it.
‘That’s not good enough, sir,’ he said. ‘I need some official document saying that you are no longer American,’ and that, of course, is the point of this piece.
So I circumnavigated America. I flew via Madrid, managing to beat the rest of my family to Mexico by 45 minutes; and yet I still seethe. It’s not just the stupidity of the rule that gets me. It’s the arrogance. What other country insists that because you can be one of its nationals, then you must be one of its nationals?
Well, I love America. But I don’t like being pushed around and kicked off flights to what, after all, they claim is my home country.
Can you blame him?

The IRS and US Immigration authorities have succeeded in the admirable task of driving away a good number of their most ambitious and adventurous citizens who spent years abroad, and might otherwise be at risk of travelling back the USA to work in productive jobs and contribute to the economy.

If you cannot leave your country, you are not a citizen but a slave. If you prevent someone from leaving without paying money in perpetuity, you are either a mob boss, someone who traffics in sex slaves, or the IRS. As they say in Russian - how can you not be ashamed?

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