Posted on 09/22/2011 8:10:12 AM PDT by danielmryan
When Julie Veilleux discovered she was American, she went to the nearest U.S. embassy to renounce her citizenship. Having lived in Canada since she was a young child, the 48-year-old had no idea she carried the burden of dual citizenship. But the renunciation will not clear away the past 10 years of penalties with the Internal Revenue Service (IRS).
Born to American parents living in Canada, Kerry Knoll’s two teenaged daughters had no clue they became dual citizens at birth. (An American parent confers such status on Canadian-born children.) Now the IRS wants to grab at money they earned in Canada from summer jobs; the girls had hoped to use their RESPs (registered education savings plans) for college.
The IRS is making a worldwide push to squeeze money from Americans living abroad and from anyone who holds dual citizenship, whether they know it or not. It doesn’t matter if the “duals” want U.S. status, have never set foot on U.S. soil or never conducted business with an American. It doesn’t matter if those targeted owe a single cent to the IRS. Unlike almost every other nation in the world, the United States requires citizens living abroad to file tax forms on the money they do not owe as well as to report foreign bank accounts or holdings such as stocks or RSSPs. The possible penalty for not reporting is $10,000 per “disclosed asset” per year.
Thus, Americans and dual citizens living in Canada (or elsewhere) who do not disclose their local checking account — now labeled by the IRS as “an illegal offshore account” — are liable for fines that stretch back 10 years and might amount to $100,000. A family, like the Knolls, in which there are two American parents and two dual-citizen children, might be collectively liable for $400,000.
Approximately 7 million Americans live abroad. According to the IRS, they received upward of 400,000 tax returns from expatriates last year — a compliance rate of approximately 6%. Presumably, the compliance of dual-citizen children is far lower. Customs and Immigration is now sharing information with the IRS and, should any of 94% expats or their accidentally American offspring set foot on U.S. soil, they are vulnerable to arrest.
Why Now?
As of 8:30 a.m. EST, Sept. 20, the US National debt was $14,744,278,404,668. That is over $47,000 per American citizen, over $131,000 per taxpayer. America is bankrupt and desperate to grab at any loose dollar within its reach. Having reaped the easy pickings within its own borders, America is extending its reach.
So far, the IRS push into foreign territory has been a rousing success by their own standards. In 2009, the IRS offered “amnesty” — that is, lessened but still hefty penalties — to whoever stepped forward to disclose foreign bank accounts. According to Fox Business News, the 2009 program netted
“the government $2.2 billion in tax revenues…and $500 million in interest from the 2011 program, for a total of $2.7 billion…Moreover, the IRS says it has yet to reap penalties from these evaders, which could rake in hundreds of millions more.”
IRS Commissioner Doug Shulman stated:
“we are in the middle of an unprecedented period for our global international tax enforcement efforts. We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion.”
Going after the college money earned by children born and raised in Canada (or elsewhere) is just one part of the international enforcement effort. The entire package is called the Foreign Account Tax Compliance Act, or FATCA; it was a revenue-raising provision that was slipped into one of Obama’s disastrous stimulus bills. Starting in 2013 — or 2014 if an exemption is granted — every bank in the world will be required to report to the IRS all accounts held by current and former U.S. citizens. If account holders refuse to provide verification of their non-U.S. citizenship, the banks will be required to impose a 30% tax of all payments or transfers to the account on behalf of the IRS. Banks that do not comply will “face withholding on U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities and pass-through payments.”
Australia and Japan have already declared their refusal to comply. Canada’s Finance Minister Jim Flaherty has publicly stated that the proposed American legislation “has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians.”
According to the Financial Post:
“Toronto-Dominion Bank is putting up a fight against a new U.S. regulation that would compel foreign banks to sort through billions of dollars of deposits to find U.S. citizens who might be hiding money.… TD has complained that the proposed IRS rule is unreasonable because it would require the bank to make US $100-million investment in new software and staff. Other lenders resisting the effort include Allianz SE of Germany, Aegon NV of the Netherlands and Commonwealth Bank of Australia.… Now the Canadian Bankers association has joined the fray. In an emailed statement the CBA called the requirement ‘highly complex’ and ‘very difficult and costly for Canadian banks to comply with.’”
The Financial Times reports,
“One of Asia’s largest financial groups is quietly mulling a potentially explosive question: Could it organize some of its subsidiaries so that they could stop handling all U.S. Treasury bonds? Their motive has nothing to do with the outlook for the dollar.… Instead, what is worrying this particular Asian financial group is tax. In January 2013, the U.S. will implement a new law called the Foreign Account Tax Compliance Act…The new rules leave some financial officials fuming in places such as Australia, Canada, Germany, Hong Kong and Singapore…Implementing these measures is likely to be costly; in jurisdictions such as Singapore or Hong Kong, the IRS rules appear to contravene local privacy laws…Hence the fact that some non-U.S. asset managers and banking groups are debating whether they could simply ignore FATCA by creating subsidiaries that never touch U.S. assets at all. ‘This is complete madness for the U.S. — America needs global investors to buy its bonds,’ fumes one bank manager. ‘But not holding U.S. assets might turn out to be the easiest thing for us to do.’”
Meanwhile, banking will become more difficult within the United States. FATCA will hold banks liable for any “improper” transfer of money to outside the United States. The Wealth Report, a financial analysis site, states,
“U.S. banks will be desperately trying to cover their liability by checking the exact purpose of the payment, to make sure it doesn’t come within the scope of the legislation. The burden of proof will naturally pass to the account holder who is trying to transfer money, to demonstrate that the transaction is not subject to the new withholding tax. If the sending bank in the USA has any doubt at all about the purpose of the transaction, they will be forced to deduct 30% tax. Net result? It is going to be darned difficult for anyone to transfer money out of the USA. If that isn’t a form of currency control, then I don’t know what is! (emphasis original)”
Returning to the Little Guy and Gal
Expat Americans and children — aka dual citizens — will be caught in the indiscriminate steel net that the IRS wants to throw around the globe. Their innocence or ignorance will not matter. The IRS wants money. If expats and duals do not owe money from their earnings, then the IRS will pursue obscure reporting requirements and apply them to people who did not even know they were American. It will try to yank their college funds and drain their parents’ retirement savings.
They can renounce their American citizenship, but that is an imperfect solution. For one thing, it does not immunize them from the past 10 years of nonreporting. For another, following the United States’ “exit” sign takes many people directly through the Treasury Department, where they may be required to pay a brutal one-time exit tax. Basically, for those with more than $2 million dollars in assets, the tax comes to $600,000.
Moreover, renunciation is a difficult process. The Globe and Mail is one of many Canadian newspapers now explaining to readers how they can renounce American citizenship. G&M states,
“Renouncing your U.S. citizenship starts with a hefty fee — $450 (U.S.), just for the chance to appear in front of a consular official. Need it done in a hurry? Forget about it. It can take about two years to get an appointment.”
The true hope lies in a worldwide refusal to comply. The only power strong enough to rein in the United States is the world itself. There is hope that this will happen.Reuters declared,
“A U.S. law meant to snuff out billions of dollars in offshore tax evasion has drawn the criticism of the world’s banks and business people, who dismiss it as imperialist and ‘the neutron bomb of the global financial system’…A senior American finance executive at the Hong Kong branch of a major investment house [declared] that FATCA was ‘America’s most imperialist act since it invaded the Philippine Islands in 1899.’ The regulation…was ‘engendering a profound and growing anti-American sentiment abroad.’”
How long can America maintain that people “hate us for our freedom”? People fear and hate America for its totalitarianism. And among those people filled with fear are American citizens.
One of those accidental Americans is Globe and Mail columnist Margaret Wente. If the name rings a bell, it's because her opinions often dovetail with the regular fare here. "Help! I’m on the IRS hit list" explains why the IRS has sized her up as a FATCA 'fatcat': she was born in America, and came to Canada at thirteen. That's right: as a girl. She estimates that up to a million Canadians might be affected. Some came to Canada so young, they don't even know they're formally Americans. As Dr. McElroy pointed out, the IRS is picking on a girl because she was born in the States.
There are two reasons why I asked you to cut her some slack: first of all, this is a classic liberal policy. It deserves the name (w/ h/t to Jonah Goldberg) "liberal imperialism." Not American imperialism, liberal imperialism.
The second reason is, Dr. McElroy is right about this measure inflaming anti-Americanism. More specifically, and more worrisomely, it'll wedge anti-Americanism into groups who are inclined to be pro-American.
Nothing good can come of this measure. Obama's apology tours will become even more scoffed at - and not in a good way, either. His successor will have to deal with the reluctance that will come in the IRS's wake: once burned, twice shy. Real anti-Americans will be galvanized; I'm sure they'll say "I told you so." The inherent meanness of the IRS is going to become a huge diplomatic liability. Consequently, the War of Terror will be harder to fight.
Words fail me. The libs go soft when they should be firm, and they lash out when it's counterproductive. Do they even know what they're doing?
You can probably get an exemption if you are one of Eric Holder’s people.
Did she get a PhD?
I seem to remember that the US does not allow dual citizenship. That is, to be an American citizen you must be a citizen of the US ONLY.
Was I wrong?
WAIT A SECOND!!!
THIS IS THE SOLUTION TO THE OBAMA ELIGIBILITY QUESTION!!!!
Did Obama’s parents pay income taxes while he was in Indonesia? If not, then either they are tax cheats, or they renounced their citizenship.
Is Obama an accidental president?
This is purest predaton. No doubt whoever slipped this into the porkulus bill did not spend five minutes considering possible unanticipated consequences. But this is so much more than finding new was to prey on the little guy. Forcing every bank in the whole dam world to spend jillions on new software and specialists to rat out people who are in many cases their own citizens AND make it that much harder to do business with America is a nightmare come to life. The consequences promise to be huge. In fact, it’s clearly not going to work. This monster is going to collapse but only after causing much bad blood for us everywhere. Deservedly so, this time.
Conservatives don’t use the term “imperialist” often but this qualifies in spades. And this is liberal imperialism all the way.
no, she could just dump her US Citizenship and come across illegally and not pay a dime. Plus, she’ll get all kinds of free stuff!
Taxation on worldwide income is evil. Americans should be able to “vote with their feet” like Brits.
You can have dual citizenship until you’re 18 i believe it is. Then you gotta choose one or the other.
no, it changed in the 1980’s.
the danger is that you are subject to the other countries military conscription rules.
Why doesn’t the IRS just put a tax lien on their citizenship, foreclose, and sell it to the highest bidder?
Revenue enhancement, son, they call it revenue enhancement.
My nieces and nephews have dual citizenship with Ireland. One of the brothers also has dual citizenship with Brazil.
And Americans have let that happen. As long as it doesn't happen to you it's okee dokee, right?
At what point will freedom loving Americans stand up to this legitimized Godfather and remove their power to intimidate, steal from, threaten and bankrupt people?
We fought the King of England for less egregious offenses. And won, I might add.
When the people fear their government, there is tyranny; when the government fears the people, there is liberty.
Thomas Jefferson
We have failed the Founding Fathers in countless ways. And we continue to slowly boil, while shaking our tiny fists at the beast.
Still, none of these people are eligible for in-state tuition in Texas ~ but they gots’ta’ pay the IRS more than they’ve ever earned!
We changed some time back.
Yes.
U.S. law does not mention dual nationality or require a person to choose one citizenship or another. Also, a person who is automatically granted another citizenship does not risk losing U.S. citizenship.
http://travel.state.gov/travel/cis_pa_tw/cis/cis_1753.html
In order to lose U.S. citizenship, the law requires that the person must apply for the foreign citizenship voluntarily, by free choice, and with the intention to give up U.S. citizenship.
I see. Thanks for the update. Nephew was born in Nova Scotia to US Navy parents stationed there and had to make the decision when he turned 18. It’s been many years ago.
May you live in interesting times.
May you come to the attention of powerful people.
May you find what you are looking for.
"Slowly"? It happened fast and now it's too late. I read a lot of biographies and am constantly amazed at how free we were as recently as the 70s and 80s. And OMG, pre-WWII was anarchy! We blew it.
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