Giving up U.S. citizenship so as to avoid taxes

As reported here some months ago, the Congress passed and Bush signed a law raising taxes on Americans making more than $82,500 and living abroad, retroactive to 1.1.2006.

Well, the results of that tax increase are being felt and there appears to be surge in the number of Americans already holding a second passport giving up their original U.S. passport. If anyone is wondering, the U.S. is the only major country to tax citizens who are resident abroad.

There is a law prohibiting former-Americans who make this choice from ever setting foot again in the U.S., but it evidently has not been enforced.

Article from the New York Times here.

I read that this morning in the IHT, but noted that only some 500 have decided to give up their citizenship this year. Not a large number.

So, hang on... US citizens are forced to pay the government money ON TOP OF the money they pay in taxes in the country they live in? So, although they are not actually claiming anything at all from the US government, they have to pay them for the privilege of living abroad? What kind of fucked up system is that?

No, they have to pay for the privilege of being American.

How much is it?

As Germany already has taxes that far exceed that of the US (like all other European countries save Swiss & Gib), I don't owe anything. Only when you start to really make a killing, do you need to start to pay AMT (alternative minimum tax).

But everyone still has to file...

Its called a painful one, and they charge you on the freaking exchange rate. So quite a lot of people are making a killing, on freaking paper.

And Democrats are still complaining about Bush's tax cuts!

I would not call making $82,500 = ~ € 63,500 a "killing" by any measure. And I don't think it then subjects you to the AMT, it's just that the credit you get for paying taxes elsewhere stops. Additionally the deduction for housing and nannies was pretty much eliminated, so they count as pure income.

Regarding the number of filings, no one knows yet how many there will be. They do know that you now have to wait several months for the appointment to turn in the passport, when the wait used to be only a few days.

There's actually a law that says I couldn't visit the States if I decided to give up my American passport ? (which I've considered, though not because I'm over the tax allowance)

Can you provide a link to said law?

Couldn't you still get in on your other passport, or sneak across the Canadian border

Whether or not the law applies appears, from the article, to be based on the reason you give it up.

This was a Bush tax increase and on the middle class and on the "real" ambassador's to the world. The ones that bring jobs and technology back to the states. Senator Charles E. Grassley will lose the next time he comes up for re-election because of it I predict. If you weren't such a partisan hack, you would be agaisnt this as much as most business organizations are.

Never said I was 4 it. I thought you libs and your handlers loved tax increases?

Does the US tax office actually have agreements with other countries that enables them to get income information from foreign tax departments? I can't see too many countries giving out that information as it's additional work they don't get any return on.

I can't imagine this to be anything less than a total headache.

Also, can an American abroad collect social security or other benefits from the US? They are, after all liable to pay tax, so it would only be fair to be eligible for benefits as well...

Germany and the U.S. have an agreement. Americans as well as Germans can collect their social security benefits in Germany. One German informed me that she is getting a 3% increase in social security starting in January.

Yeah, but what about the rest of the world?

If a US citizen lives in, say India, or Egypt, or Bulgaria - do all these governments send the US tax department information about all their US residents? Or how do they know what they earnt?

Does everyone just tell the truth?

The German tax authorities can request a copy of your US tax info straight from you, which I just had to do. Similarly, the US tax authorities will request proof of what you paid from you, not the German government.

You have to provide the requested docs or face some kind of penalties.

One might suggest that, if you are the one supplying the info, you can edit it as you need. However, if a cross-check does somehow occur, a prison sentence in either country isn't worth saving some tax $.

I heard that for dual passport holders entering the US on the 'other' passport was a de facto surrendering of the US passport. Seems simple, like writing 'keine' on the 'religion' question here.

Another comment: this change to the law doesn't affect Americans working in countries that have higher tax rates than the US, Germany for example.

More specifically, if you make over the $82k, you switch to the tax credit system, whereby you offset the taxes you paid in country A to those you would owe in country B. This is the agreement the US has with many countires, including DE, to avoid double-taxation.

Simple example:
- you are an American citizen
- you make $100,000
- you live in Germany (Country A), with a tax rate of 35% (for your income level)
- you pay Germany $35,000 in taxes
- your tax rate in the US (Country B ) is 30% (for your income level)
- you should owe the US $30,000
- you actually owe the US $0 because the $35,000 you paid to Germany offsets your US tax liability (i.e., $35k > $30k so no taxes to be paid to the US)

not true, you would only loose the other passport/nationality if you deliberately told the authorities that you are giving it up, but you would have to be really stupid to spend hours in line with your other passport when you can skip through in a few minutes with an American one. I am always amazed how the US can double tax people, but I understand that they are not the only country Israel does as well but the earnings are far higher (500k), lets face it 82k in USD is not a very high salary in Europe

This is my point though. I can't imagine most countries putting in the extra work to provide the US government with this info. They don't get squat for it. Also, if you are indeed caught supplying false information, I would imagine that the US would either try to extradite you (not worth it in most cases) or arrest you on your return. If you paid your taxes correctly in your country of residence, then I can't think that they would really give a shit if you paid your home government or not.

So rather than renouncing your citizenship for tax reasons (which prevents you from ever re-entering the US), it would be better just to lie on your returns and if you don't get caught, you can always go back...

The renouncing of the citizenship idea is stupid because you actually aren't "double-taxed". Okay, that is assuming that you reside in a country that has a double-tax treaty with the US, which is most industrialized countries. You don't even have to lie on your tax forms.

The problem is that people are assuming that if you are a US citizen and live in Germany, for example, you pay both the German taxes and the US taxes, which is NOT the case.

You pay the German taxes.
You fill out your US tax form and it says that you SHOULD owe $X, but, because you paid the German taxes, you actually owe $0 (i.e., because your tax rate in Germany was higher).

If you lived in a country where your tax rate is lower (e.g., Japan) then you pay the difference to the US. For example, if your Japanese tax bill was $20,000 and your US tax bill is $30,000, you only pay $10,000 to the US goverment ($30k owed - $20k paid = $10k left to pay).

I've had to file US 1040's the last couple of years, even while living here, due to the US lax that requires all US citizens to file a tax return, regardless of their country of residence. But, as Anwalt said, you don't pay double, as long as you've paid more taxes in German than you would've had to pay in the US.

HOWEVER, I'm not even sure there is a law requiring US citizens to pay tax on their income at all !!!

Have you seen Aaron Russo's movie entitled, Freedom to Fascism? He makes a compelling argument that is worth checking out if you're an American.

It's 110 mins, but worth seeing, IMHO. You can view it here: http://video.google.com/videoplay?docid=-4...reedomtofascism

Thoughts (after viewing pls)?

No, I understand that.

I have had several friends who have worked in oil-rich middle east countries that have little or no tax. That is obviously one of the attractions to going there. If a US citizen worked there, then would it not be better to lie on your forms? Is Qatar, the UAE or Kuwait really going to bother with all the paperwork associated with sending paperwork to the US tax office?

No time to watch the movie, but I'll comment anyway, if you don't mind.

One of my high school classmates' dad refused to pay income tax, I assume for the same reasons laid out in the film. He was in trouble with the tax authorities all the time, and I bet his lawyer's fees were substantial.

Plus, everybody in the (small) town hated him for not paying taxes and basically implying that everyone else who did were dupes.

Yes, theoretically you could lie on your forms. However, I can almost guarantee that if you live in a place such as those you listed, the US government knows the type of money people make there and knows the tax rates there. They will be expecting to see certain numbers, and if your numbers don't add up, you are going to get audited.

For example, with Germany, the US government can request that you get a document from the German tax authorities stating the amount of income you claimed in Germany and the tax paid there. It is a standard form that you can request. If you don't provide it, you are fucked. If you do provide it, and it doesn't match what you put on your US tax declaration, you are fucked.

Let's look at the numbers for a second. Assuming you are making some big numbers in one of those countries, the amount you are going to save by lying on your US tax forms could be, for example, between $10k and $20k per year. Is that worth a 10 - 20 year prison sentence, assuming you get caught. Probably not.

And how does the US government know where you live?

I'm pretty certain that the Australian government has no idea of where I am officially. I never told them and they didn't ask...

@Anwalt or @cinzia, or actually, anyone commenting here who thinks they know the tax laws...

Do you have any idea what the specific US law is that requires a citizen to pay income tax? If not, the entire discussion is actually moot, and everything written with regard to that topic here is purely anecdotal. I don't purport to be a tax expert, nor a legal expert, but I'm still waiting for someone to reference the specific law requiring citizens to pay income tax.

Also, just because the IRS puts people in prison doesn't mean they are acting within the law.

I'm not suggesting people should cheat on their taxes, but I'm curious as to how the US government manages to enforce the law requiring them to pay tax if they are not in the country...

Then they probably put them away in Guantanamo

If you are registered to vote, they know where you live. Specifically, I know that when I updated my registration this year to reflect the fact that I'm moving abroad, I was told that since I had checked the indefinite stay box, not only would my ballots be sent to my address in Germany, but I don't have to pay state taxes anymore. This implies that, since the state taxes and federal taxes are linked, the IRS now has that information available to them.

they arrest you when you go back to the US, they have some really weird shit with passport control, Sarabryds brother was not allowed to renew a passport (it had expired) to visit us earlier this year for the wedding of her other brother, because he hadn't paid alimony to his ex wife for for their daughter, who had very unfortunately died, ...fucking nuts really

Right - but if you renounce your citizenship for tax reasons, you aren't allowed to go back anyway.

So in my book, better to cheat on your taxes and then never return if you get caught, rather than not returning from the word go...

Plus, if you have been filing 1040's for the last so many years, then suddenly stop while you are abroad, the gov't is going to wonder why you stopped.

Then, assuming you move back to the US at some point, they are going to wonder why there is a hole in between year X (when you moved away) and year Y (when you moved back).

I haven't paid US taxes since 1998. I have been back to the US many times since then without ever getting stopped by passport controll for Tax stuff...
Nor have they "Wondered where I went", or asked how come I stopped filing...

I have also never registered to vote overseas, so they have no idea where I'm at

Ya'll are blowing this all outta Proportion..

@Hazza
Hi dude. You seem really interested in how the US finds out where their citizens are living and how much they are making. Although they request this info from the individual, they can get that info fairly easily in most cases. This is due primarily to tax treaties between the US and other countries,

http://www.irs.gov/businesses/internationa...d=96739,00.html

Also, the US acquires a lot of information from other countries, about it's citizens, and other interests (ie. criminals, etc.). This is accomplished due to the huge influence and power the US has in the world, and the ability to use that power to make other countries do what they want. (I'm not saying it's right, just how it is.) Qatar, or whatever country doesn't just give the US info because they want to. They give it knowing that act helps their relationship with the US. Doing otherwise hurts their relationship (of course, not on a single case basis, but in general). Next time one of these countries needs info from the US, they might just get it, as it's the common "you pat my back, I'll pat yours" agreement. The countries that don't like to play this game are either neutral, or eventually get bombed.

In today's world, all the US has to do is say to (insert foreign country here), "oh, we have a citizen named Joe Blow living and working in your country. We have reason to believe they may be involved in espionage and possibly deemed a terror threat. Please send us all the info you have on that person (ie. residence, place of employment, bank details, etc..). Due to the sensitivity of this situation, we cannot release any further details to you at this time. Thanks for your help (insert foreign country here). You are a great ally to the US." What do you think happens next?

@ davo:

U.S.C. TITLE 26; Subtitle A; CHAPTER 1; Subchapter A; PART I; § 1

i only had 2 years of federal income tax law during law school, so i might not know what i am talking about.

Thanks Anwalt. Can you please provide a link to the text?

http://www.law.cornell.edu/uscode/html/usc...01----000-.html

Thanks for the link.
According to Russo's movie, where he interviewed several former IRS employees, one former head of the IRS, several politicians, and other activists, the IRS tax code saying citizens must file a 1040 and pay income tax, has been repeatedly overturned by the Supreme Court on the basis that it is not legally consistent with the constitution. I'm not saying I believe everything I see or read, but I think this is worth investigating further, even considering your vast legal experience, no?

This conversation is getting totally off topic. Another thread can be started on whether the US tax code is constitutional or not. It'll have the same results as the "plane taking off from a treadmill" thread.

The point of this thread is, assuming the US tax code is consititutional and you, as a US citizen, are required to report and to pay taxes, whether you are double-taxed while living abroad. If so, should you give up your citizenship to avoid paying US taxes.

My answer: if you reside in a country that has a treaty with the US regarding double-taxation, which includes most countries anyone would want to live in anyway, you are not double-taxed, so giving up your citizenship is pointless in that case.

You don't know how vast anybody's experience is in any matters discussed on this board. So, let's keep the sassiness to a minimum.

I completely agree Anwalt, assuming citizens are required to pay income tax. I don't believe my comments were too off topic either. If citizens aren't legally obliged to pay income tax, then they don't have to avoid paying income tax. Thus, they don't need to consider giving up their citizenship either. Simple logic which basically addresses the subject quite directly.

I still find it incredible that the US subjects it's citizens to this...

@Hazza, the real purpose is so the US government has justification for tracking US citizens who are involved in international drug trafficking and other international crimes. I'm no longer surprised by the stuff they pull.

Hazza, it does kind of blow, but in practice, it is really not a big deal.

You end up paying the same amount of taxes as if you lived in the US. Unless you live somewhere like Germany, which has a higher tax rate. For example, the last two years I have filed my US tax forms as normal and have owed the US government $0 in taxes, without any "editing" of the tax forms.

But surely this actually costs money more than it raises.

Most countries have higher tax rates than the US, so most expats would have to pay nothing extra. But all these forms need to be processed, and checks made, etc. Even if there is money due, then it would just be the difference, rather than the full tax load.

I can't imagine that this actually raises any money at all and inconveniences everyone.

@Hazza, it's not really about collecting $.
It's about keeping track of people.

Why keep track of people?

Another completely unneccessary cost...