US policy compels expats to give up citizenship
I still remember my favourite ’80s movie: “The Jazz Singer,” starring Neil Diamond. A remake of the 1927 classic, it featured the soul-stirring title track “Coming to America” and a melting-pot montage of Lady Liberty all but using her torch as a microphone to emcee an obvious paean to immigration, many races and creeds taking their bite out of the Big Apple.
Given the long lines of people historically wanting to come in, it may come as a surprise there has lately also been a line, if a much shorter one, wanting to leave.
One of those who recently made it through the exit is Boris Johnson, former London mayor, current foreign secretary and future prime minister (he wishes). Born in New York to British parents, his family permanently resettled in the UK when he was five, so he’s spent the vast majority of his life here, technically a dual citizen but for all intents and purposes British.
I don’t know exactly why Johnson gave up his U.S. citizenship, but it might have had something to do with the Internal Revenue Service.
The U.S. is one of only two countries in the world which taxes all its citizens regardless of place of residence. (The other is Eritrea, a one-party state with a poor record in human rights.)
While many countries have reciprocal arrangements whereby taxes you pay to them partially offset those owed to the United States, the fact is the IRS is keen to get its hands in your pocket whenever possible. For example, if you’re a UK citizen lucky enough to win the lottery in the UK, it’s tax-free. But if you also have a U.S. passport, the IRS considers a large chunk of your good fortune theirs by right.
Most of us aren’t lottery winners. But a fair number of people make money in more mundane ways, for example through the sale of a house. In Britain, there is no capital gains tax on a main residence. In the United States, subject to some exclusions, there is. When Johnson sold his house in London, he got a bill from his long-lost Uncle.
Simply filing a U.S. tax return as an expat is very complicated, so much so that it isn’t unusual to have to hire an expensive accountant.
As it happens, my wife used to be an accountant. She does our taxes. It takes a very stressful month of all her spare time to prepare our fairly basic return.
If you have a foreign bank account — almost unavoidable when living long term overseas — you also have to disclose a great deal of personal information to the U.S. government should the balance go over a relatively modest amount, even for a day. If the account is held jointly and your spouse isn’t a U.S. citizen, the government wants to know all their details, too. Most countries have laws about data protection. It matters not: Tell or be fined.
The fines for noncompliance can be huge: up to half the account balance. Tough luck if that was supposed to be your retirement nest egg.
In order to collect this information, banks around the world have had to open their databanks to the IRS to help ensure compliance, at a high cost. (Incidentally, the United States doesn’t return the favour.) It’s a culture of fear: the reporting agency is the Financial Crimes Enforcement Network, the implication being it’s a crime to hold a bank account outside the country until you prove your innocence in advance.
It’s gotten so bad that American citizens are having difficulty meeting basic necessities such as opening a bank account, as many banks no longer want U.S. citizens as customers.
Giving up your citizenship is a troubling prospect, even weighed against the stress of merely being an expat struggling not to break the law. Many are understandably reduced to tears at the prospect, but feel compelled by the changed circumstances of their lives. Once you go, you’re not even guaranteed the right to come back on a tourist visa, even to visit a relative on their deathbed.
Waving goodbye isn’t just sad all around, it’s expensive. Less than 10 years ago, it didn’t cost a dime. Starting in 2014, if you wanted to escape this nightmare of nearly impossible-to-fill forms, scary fines, outrageous demands and pariah-status amongst institutions necessary for basic financial functioning, the filing fee became $2,350 — more than 10 times higher than giving up UK citizenship, for example. It’s like a final slap in the face.
This fee now is even payable by “accidental Americans” wishing to relinquish citizenship: those born abroad with a U.S. citizen parent, who may have always lived in another country, and possibly not even informed until late in life about their punishing obligations.
When you take those steps through the exit, your name is put on a list published by the U.S. government, which is how I discovered Johnson had forsaken his birthright, along with thousands of others who have had a burden lifted which should have never been there in the first place. To those aware of the true costs of being an American abroad, it’s known as the “liberty list.” The price of freedom in this case is enough to make even a statue weep.
Scott Munn is a former Tiffin resident who has lived in England for 20 years.
Email Munn at email@example.com.