US citizenship comes with a big administrative burden even if you don't live in the US.
Some parents with European citizenship sometimes do not file an American birth certificate when registering their child for a European birth certificate. I.e. if the country facilitates registration of child based on parent citizenship and not birth ___location of child, they just never declare the child was born in the US. "It was a home birth"
At international schools in some countries this is an open secret and happens quite often, as long as the parents are not feds and are not under heavy scrutiny. So the kid has two different BC & passports with two different birthplaces. Some even have different birth-dates and names.
Sure saves the poor kids the nightmare of not being able to open a bank account abroad, as a US citizen.
The moral is, plan your money, plan your kids, the federales will never inform on what is in your best interest. Both kids and money come with paperwork attached. Best read up now.
And yes, a timely consultation with a lawyer before the fact is most often cheaper than the cost of renouncing US citizenship and the time you waste on declaring while not living in the US.
>>Sure saves the poor kids the nightmare of not being able to open a bank account abroad, as a US citizen.
You save them nothing, soon or later Uncle Sam will crunch numbers and discover that the German version of John Doe is an American, as far as IRS is concerned.
USA can solve the problems for 99.99% of expats and accidental Americans by making laws for those with $million+ salaries /assets. They gain nothing by making every poor guy spend thousands a year to tell IRS that they owe nothing.
FYI: People from a lot of countries are paying and will pay tens of thousands to bring their kids to USA...illegally. So US citizenship is still valuable. Very valuable.
I used to own a company in the UK, which was bought by Apple and part of the purchase agreement was that I and the other company partner[] move to Cupertino.
Owning a company meant actually submitting forms to the Inland Revenue (the UK equivalent of the IRS) every year, and it was sufficiently a hassle that we paid an accountant to do it.
Fast forward to a few years after the move to the US, and the IR are still sending me forms every year to fill out about my income in the UK. Eventually I tire of this yearly ritual, so I just drew a diagonal line over every single page of the return, put a big fat '0' in the last entry, and in the comments at the end I wrote
"I live in the US. I have lived in the US for the past 5 years. I do not have any immediate plans to return to the UK, so this is a waste of your time and mine. Please. Stop."
I wasn't actually expecting it to stop... But a month or few later I got a letter from them saying that they took note of my comments, would stop sending me yearly forms, warning me that if I returned to live in the UK, they would expect me to notify them "perhaps more politely". At which point I sort of felt guilty letting the frustration spill out onto the form...
[] Before we were bought, we travelled yearly to the US (in part to see Apple). Most times, in the Bay Area, we stayed in Sausalito just over the bay from San Francisco, and caught a ferry to SF in the morning. String in the sunlight on a ferry with a Danish pastry is an excellent way to commute, and we typically stayed in 'Hotel Sausalito' (interesting fact: a converted brothel).
Early on in this series of yearly events we arrive (for Java-one this time), and John (not his real name) walks into the reception and proclaims "I am John <name> and this is my partner <my name>". They booked us into a single room with a queen bed. Both being owners we generally shared a room on these trips (small company finances can be brutal), but never actually a bed. The hotel didn't have any two-bed rooms left, and there'd been a mix-up with the booking, but eventually they gave us another room for 1/2 the price, which was an acceptable compromise :)
Plenty of countries allow dual citizenship, including the US, Canada and most of the EU, so it's not that unusual to have and travel with multiple passports.
Having your entire life shut down, through no fault of your own, by some entire remote country you have no dealings or relationship with and no power to fight, is a first world problem?
Even in the thirdest of third worlds, people have some sort of shop which is their families livlihood, which could be taken away and destroyed, and which would be devastating.
1. Getting a visa to be in the US is so difficult for citizens of third world countries that very few would find themselves in such a situation.
2. Only first world citizens would perceive an additional US citizenship as a mere nuisance, best to be avoided. For the vast majority of third world citizens, the benefits of an additional citizenship from the US far outweighs the difficulties of abiding by its rules.
The people who got visas (however they got them) are not accidental citizens.
And, everyone else should just shut up and not cpmplain that something they didn't ask for is being done to them, regardless of it's cost or damage? Because you think it's valuable? Wow. I can only assume you didn't read the article you are commenting on, or are the last person whos opinion anyone should care about, given how thoroughly you just disregarded anyone else's. And at the same time having the balls to charge "first world problem"... holy cow.
> The people who got visas (however they got them) are not accidental citizens.
The visa point was about the parents of the accidental citizens. How many Papua New Guinean are there out there who were born in the US while their parents were on vacation there? How many Australians?
I don't know why you're taking so much offense here, but this is actually first world problem by definition - it only applies to residents of countries in the US sphere of influence. Everyone else can just ignore any latent US claim of citizenship.
It applies to, by definition, people who do not live in the US. Anything other guilt-by-assosciation is an invalid and callous invention to avoid caring about a problem that doesn't affect you personally.
The reason these laws exist at all is the moral outrage over rich Americans illegally hiding their money overseas. Predictably, the laws have had limited effect on rich tax evaders and huge negative impact on millions of non-rich expats. In general one should be extremely skeptical of regulations which are sold as "not even applying to most people," as the unintended consequences will almost certainly hurt a lot of people outside of the scope of the law's stated target.
The laws have limited effect on rich tax evaders by design. FATCA explicitly exempts reporting of directly held fine art. Is there any better medium for committing tax evasion?
The US could solve most of its expat issues if they simply said foreign accounts are those accounts foreign to your current place of residence. By saying foreign means foreign to the US, they’ve made it very challenging to form banking relationships in expats’ countries of residence. The next step would be to repeal citizenship based taxation in favour of residency based taxation like every other country on earth (except for Eritrea).
> A surprising number of Americans seem to think it's reasonable to tax non-residents, so such legislation may be hard to get passed.
So let's get this straight. On one side you have Americans who think it's reasonable to tax people who don't live in the country and thus don't use any of the services that tax pays for and then on the other side you have Americans who believe that all tax is theft under the threat of violence?
It's not true to say they necessarily don't use any of the services. The US still defend its citizens abroad, and might evacuate you in case some disaster happens, do hostage rescue using the full power of its military and intelligence agencies, and will generally provide consular help and speak on your behalf should you get into trouble.
Odd then that no other country (except Eritrea) follows the US footsteps. The UK and many other countries have the ability to defend its citizens abroad, evacuate them, engage in hostage negotiations, etc.
(As I recall, in the UK that cost is paid via part of your passport fees. Not via world-wide taxation and monetary oversight.)
That should be "most of its citizens abroad." As we know from Anwar al-Awlaki, the US may decide to remove due-process rights of its citizens and use its military power to kill them.
I don't buy it. We're talking here about people who have literally never lived in America since they were too young to even remember. They have lived in another country, paid taxes in that other country, and probably have a passport for that other country. If anything happens to them there would likely be an expectation that their adopted country would look after them, not the US.
Isn't this essentially exactly what they for some period said of every new ethnic or religious group in the US going back to before it was even an independent country?
Catholics, Jews, Irish, Chinese, Russians, Muslims, Mexicans, and Italians have all had or are having their time of being seen an existential foreign threat, irredeemably incompatible and insidiously perverting the pure culture (at least by some), and that's just off the top of my head.
Wouldn't your thesis predict more political problems in areas of greatest diversity (ie, cities)? The cleft in the US runs mainly between rural and urban populations; ie, between high-diversity and low diversity areas. Each 'system' seems to find political equilibria just fine on their own.
(Or, in a more flippant form: I hadn't noticed Toronto had become a hellscape of inter-ethnic conflict...)
If wonder if all those same Americans would think it reasonable the non-resident tax payers finally got something for their tax returns/hoop-jumping, in the shape of coronavirus support cheques. Thanks to that I think I've almost broken even. Apart from all the wasted time, of course.
If your total lifetime costs to date of compliance as an American abroad amount to the coronavirus support cheque value, you should be running a popular YouTube channel teaching others. For most people in this situation that I know, the costs are $4-6k per year, minimum. Heaven forbid they try to make use of their local country retirement schemes, or have anything but the basic banking services and do not participate in partnerships or other “complicated” legal entities.
I've kept my financial situation very simple, I've likely sacrificed some (potential investment) income from doing so. I used an accountant the first few times who taught me what I needed to know and then I waste part of my life each year remembering how it works and researching the changes. Perhaps I also don't earn as much as the people you know, no idea. Due to exclusion and the credit I thankfully (and IMO, fairly) pay very little US tax each year, my major costs have been those initial accoutant fees. That wasn't worth a youtube channel (the income from which would only complicate my future returns, no thanks).
But I would like to hold some investments and that's an area I have no US tax knowledge of. So that'd be another accountant hit. Maybe renouncing is the better investment, once it becomes available again.
I’m an expat and I’m not allowed to vote and I don’t owe my home country any taxes (Canadian in the US)
That’s the way it should be. I shouldn't tell my home country how to live a life I have no stake in, and they should not charge me taxes for services they cannot render abroad.
Spoken like someone who is not stationed abroad, just for one off the cuff easy example.
Perhaps I'm wrong but there must be countless reasons and situations like that which make this simple idea in fact merely simplistic.
I certainly expect to still receive all manner of services while abroad. I expect my property to still be mine and protected by the police. My home should not revert to being owned by the state just because I went on vacation. I damned well do expect to be able to vote in whatever country I hold citizenship rather than mere residence.
If I move to some other country fully, and want to participate in it's policy direction, then I expect to do whatever is required to gain the new citizenship and reliquish the old.
Maybe double dipping shouldn't be allowed, but being remote should mean essentially nothing by itself.
Even fairly extended residence where you have a local job and rent a home etc shouldn't constitute some sort of automatic change of citizenship. That should only happen if and when you actively choose to do it. People get sent places for work. People go places for school or research. People have to take care of family. People are in the military. There are all kinds of situations requiring a person to be somewhere other than home, for any amount of time, even years, without changing what is "home" and what is "away".
> I certainly expect to still receive all manner of services while abroad. I expect my property to still be mine and protected by the police. My home should not revert to being owned by the state just because I went on vacation.
There are huge numbers of foreign owners of US real estate that enjoy these benefits by paying property taxes and income tax on any income that may be derived from such property. This is also the standard way foreigners and expats are taxed in every other country on earth save for Eritrea and the United States. So there is only an exception made for only one class of people in the United States, and that class is the group of citizens who move abroad and pay taxes abroad. They are punished for leaving, and I use this word very specifically - the law came into effect during the revolutionary war to punish US citizens that became turncoats for the British. It is a punishment that hasn’t been repealed. Oh, and if you do some Google searches you will find examples of the US criticizing Eritrea for citizenship based taxation, calling it an unfair punishment of its expats.
> If I move to some other country fully, and want to participate in it's policy direction, then I expect to do whatever is required to gain the new citizenship and reliquish the old.
Many, many, many US expats are trying to go this route, but the US has jacked up the renunciation fees in recent years, limited the maximum annual number of renunciants, and made it extremely difficult to “pass” the exit test which involves a ton of subjectivity on behalf of angry embassy employees.
> Maybe double dipping shouldn't be allowed, but being remote should mean essentially nothing by itself.
Except it means essentially everything for citizens of nearly every other country on the planet. Born in the UK and want to move to Papua New Guinea? No problem. Pay the UK only on income still derived from the UK and pay PNG based on any income derived there. Simple.
Also, don’t get me started on all those accidental Americans born prematurely while their parents were on vacation, or born to one American parent, or who lived in the US for their first year of life and have never been back. Citizenship and US taxation haunts them for the rest of their life unless they are one of the lucky few to be “allowed” to renounce.
> Even fairly extended residence where you have a local job and rent a home etc shouldn't constitute some sort of automatic change of citizenship. That should only happen if and when you actively choose to do it. People get sent places for work. People go places for school or research. People have to take care of family. People are in the military. There are all kinds of situations requiring a person to be somewhere other than home, for any amount of time, even years, without changing what is "home" and what is "away".
Residency has a pretty bright line legal definition that varies by country. In Canada, if you spend 183 days there you are a resident for tax purposes and need to pay Canadian income tax on your worldwide income. The US is the same. In some countries it is based on your “economic locus” so they take a bit more holistic approach to see whether your behaviour indicated you were a resident (resided in a home, had a job, etc etc).
What you refer to about “automatic change of citizenship” almost never happens (though, funnily enough, the US tried that shit too, stripping Vietnam draft dodgers of their citizenship until the US Supreme Court ruled it unconstitutional). We are talking here about tax residency - not citizenship. For example, in every other country you can retain your citizenship while automatically losing your tax residency obligations simply by becoming a tax resident of another country.
In the above, I’ve played fast and loose with some things to simplify and not bore people to tears, but everything is approximately correct.
I think you should have at least some small amount of Canadian taxation and representation. You could probably use a Canadian consolate or benefit from or be adversally affected by some legislation passed in Canada (and of course in the USA.) Anyway I think it makes sense to pay taxes and vote in the country of residence, not in the one of citizenship.
A lot of people in this discussion are unaware of the scope of the difficulty and dismissive of the extent of the problem. While the article focuses on the plight of "accidental Americans," the burdens they face are the same faced by all Americans living abroad, and that is not a small number of people.
The number of American citizens living overseas is somewhere between 6 and 9 million last I read. That is around 2% of the total population of Americans, and more than the populations of 15 states. If you are a regular employee, and do not own property, and do not own a business, you can mostly get by with some extra tax paperwork each year and filing FATCA. (Which you had better hope someone tells you about, because the penalties are extreme if you mess it up.) If you can get a local bank account, you can live a relatively normal life, and this is what I see being pointed to by people in this discussion as the usual case. It is not. Nearly everyone falls outside this case eventually, the penalties are harsh, compliance is difficult, and it is all unnecessary.
Some examples:
You get married, and you fail to disclose your new spouses retirement account in your FATCA filing. That could cost you five figures.
You make a bit of self employment income on the side, not realizing that self employment income is not covered under the foreign earned income exclusion, and now you owe all of your profit in taxes.
You start a small business, and really, you're just fucked. All profit earned by your foreign business each year is counted as personal income added to your AGI in the US, but not excludable under the foreign earned income exclusion. And if you don't file (a form which, by the way, says at the top that it takes an estimated 100 hours to complete), or file incorrectly, the penalty is 10k a day until the filing is corrected. But at least you are only fucked now - if you already owned a foreign business in 2018, you got super fucked with a 10 year retroactive tax on all your business profits for the past decade. If you think this is an edge case, read some expat news sites. This wiped out thousands of Americans life savings.
I am an expat. I know many expats. The usual case is to find yourself fucked by these rules. Best case is that you spend a lot of time staying informed, hire good accountants, and avoid penalties. But even then things like GILTI can come along and destroy everything you have built.
I know many expats that have exactly the experiences you mention. My question: how can it be changed? It seems to hurt American competitiveness (i read a legal analysis by a US law school which seemed to support this) by putting Americans at such a disadvantage to citizens of other countries living abroad. Anecdotally, when I lived abroad, there were easily 10x the number of Brits or Aussies or Canadians to every American.
Also, there was a report that the revenue generated by FATCA was outweighed 100:1 by the worldwide banking industry’s compliance costs.
So how does it get changed? Why does everyone act like it is a forgone conclusion that it will never change?
The law was meant to tackle wealthy American residents hiding money offshore, not normal people living offshore for whom banking services are “local” to them.
The best way out of this is the EU asking for reciprocal measures in future trade agreements and tax treaties (fatca reporting, residency based taxation).
If US banks had the same reporting requirements to EU countries regarding EU dual citizens accounts, this absurd situations of being denied banking relationships in the country you work and reside would stop promptly.
> If US banks had the same reporting requirements to EU countries regarding EU dual citizens accounts
US banks wouldn’t. The reason that the EU is wary of ending up on the USA’s bad side, is that European banks rely on large New York banks for clearing international transfers. They can’t not do business with the USA. American banks don’t have the same dependency on the EU.
FATCA is an agreement signed between countries, not between the US and foreign banks. The US certainly has more leverage with the USD than the EU with the EURO but trade agreements are made of various things and the US cannot simply bully the EU and Asian countries with FATCA indefinitely. I can't wait to see how this plays out in the next 10 years.
They don’t have to ask. These reciprocity agreements were made during the FATCA implementation process. People have filed Freedom of Information Act requests (local versions) in countries all over the world to identify how many records were sent back to these countries by the US and it appears the number is zero. Not a lot of reciprocity it seems.
The US has some reciprocity in terms of information flow in the original FATCA agreement. The US (and US banks) does not comply.
Many countries would need information flow about their former or current tax residents to enforce tax obligations, similar to the information the EU banks report to the IRS about US persons. E.g. several EU countries have an exit tax on worldwide income and they would need the reporting from US banks to enforce it.
At the point this is also a competitivity issue for the EU to attract talent and capital. Coming to the EU after having been a US person (citizen or green card) is such a hassle for banking and to manage stock investments in the $100,000s. Just so much pain in terms of paperwork and tax uncertainty that staying in the US and not coming back to the EU solves a lot of hassle.
Why it must cost over $2,000 to give up something that others spend much more trying to acquire is a total mystery. Surely it does not cost $2,000 to make a note of someone’s ex-citizenship.
Yeah it's stupid. But many countries have similar weird rules about this. In the UK the fee is about £400 so not too bad, but for instance in Poland the only way to do this is to write a letter addressed to the current President of Poland and only they can grant it(my understanding is that they always do, it's pretty much an automated process, but you do actually have to send a letter to the president).
In Germany, if you are a male inside a certain age range, you first have to get a waiver from the government office responsible for the draft before you can lose your citizenship.
In Iran, you have to first finish your military service, currently 2 years, then apply to the president's office, which (almost?) never approves an application anyway.
There are some citizenships you cannot loose, I think Afghanistan is one such case. And Austria as well. The latter are also really picky with dual citizenship.
Austrian citizenship is quite easy to lose: by acquiring another, which is in almost all cases seen by Austrian law as incompatible with the Austrian one. As you say, dual citizenship is usually only possible if jus sanguinius applies.
What reason would there be to give up British citizenship?
The only one I can think of, is to aquire a different citizenship that doesn't allow dual citizens (like China). Although even then, the guidance on the British government site suggests they will go along with whatever crap China wants (like destroying a British passport) but allow keeping British citizenship, issuing a new passport afterwards, if requested to.
This was a very big deal during earlier days of Brexit discussions, as dual German-British citizens were in a pickle - German constitution only allows German citizens to hold a citizenship of another EU country, which the UK was going to stop being. So German citizens were faced with a choice - they had to revoke one of their citizenships. Fortunately the German government passed emergency legislation which allowed the British citizens to retain their German citizenship as well.
And then, well, someone times people renounce because they don't live there and they don't agree with the policies of that country.
There was an immigration case a few months ago which involved a person born in Northern Ireland attempting to use an immigration scheme for her husband which was only available to EU Nationals.
Because the British State conferred British Citizenship onto this person upon merely being born in Northern Ireland, despite this person identifying solely as Irish, they were unable to avail of this scheme.
The UK Home Office told this person to renounce their citizenship if they wished to available of this scheme.
(This was all basically nullified by the EU Settlement Scheme coming up to Brexit, but it'll probably rear it's head again)
TL;DR Dual National wanted to avail of an EU Scheme, which was unable to be used by a British Citizen. One solution was to renounce British Citizenship.
You may think politicians don't give a shit about voters, but they give even less of a shit about non-voters. Just look at the treatment of illegal immigrants or Iraqi civilians.
Anyone giving up their citizenship will be unable to vote at the next election - making them a non-voter. As such, in the eyes of senators they're no more important than the people that Academi mercenaries kill with impunity. Charging them $2000 is nothing.
> Surely it does not cost $2,000 to make a note of someone’s ex-citizenship.
Of course. Still, doesn’t renunciation of US citizenship actually require an act of Congress annually, under which all recent applicants are included? That the price was jacked up to $2000 is outright exploitation of desperate people, but certainly there would be some administrative fee (like the earlier one, which was generally considered reasonable) to cover the chain of people from your local US consulate to those congressional staff.
There is a quarterly publication of those who have renounced citzenship - https://en.wikipedia.org/wiki/Quarterly_Publication_of_Indiv... . But that appears to have been put into place mostly to try to shame rich people who expatriated, under an invalid idea that most renunciations were from rich people trying to avoid paying US taxes.
If you were born in the US to a foreign parent before October 1953 and moved back to that parent's country, and remained there three years past the age of 22, your US citizenship lapsed. That provision of the Immigration and Nationality Act was repealed effective October 1978. Many retirees can benefit from this.
Children born in the US to diplomats, and possibly foreign military on posting, do NOT receive US citizenship on birth.
There are a number of provisions in the Immigration and Nationality Act where US citizenship can be lost. Elective office and becoming an officer in a foreign military (think reserves) can lose US citizenship.
A careful reading of current and repealed provisions of the INA will show ways to automatically lose US citizenship.
I thought there were tax treaties, basically you don't pay taxes on the first $100k if you paid into the national tax system of the country you are in. I can imagine FICA taxes though might be difficult. Maybe US social security would deny benefits if you claimed them without any contributions and residence abroad.
The $100k you're referring to is the Foreign Earned Income Exclusion [1]. If you're an American working abroad, you don't need to pay income tax on your first $107,600. The exclusion does not apply to self-employment tax or investment income.
That's not even the real problem, though. The problem is that banks don't want to deal with the FATCA compliance issues and just refuse to deal with Americans, period. I've experienced this firsthand as an American expat and it is a colossal pain in the ass.
I was affiliated with a company in Singapore which had it's bank account closed, I believe due to FACTA, even though at the time no one involved with the company had ever been to the US and didn't have any ties to the US. It was simply that the size of the account was too small to justify the associated administrative burden. FACTA has impact beyond US citizens - pretty annoying.
I work in finance and it IS a colossal pain to deal with the FATCA compliance.
There is no official guidance to FATCA and its processes, and every country has passed its own FATCA related regulations. Therefore running a FATCA compliant entity in say france requires you to comply with all french laws around fatca. Which also leads to issues with GDPR. This creates a cost of several hundred thousand USD per year just to deal with US clients for most western finance companies, per country they do business in.
Or - simply flatly refuse to offer services to any US citizens and rest easy knowing the IRS isn't going to ruin your life just because a US citizen tried to open an account without even depositing a single cent, but you didn't file your IRS stuff correctly
If you're in a country like Malaysia, the domestic branch of a multi-national bank may not accept US citizens, because the Malaysian branch doesn't deal with FATCA/US gov.
No. If you earn more than the allowable amount for the Foreign Earned Income Exclusion (FEIE), you claim the Foreign Tax Credit instead. Under the FTC, you essentially pay the higher of the two tax rates. Except the accounting can get tricky if you have multiple sources of income that are taxed at different rates between the US and the foreign country.
For example, if you earn 200k in a foreign country and that country charges you 75k on 190k of that, and decides that 10k doesn't count for some reason. Suppose the US rates are such that you owe 60k on 190k, then the FTC erases that 60k. But you might still owe 3k on the remaining 10k that the foreign country ignored.
There are actually two exclusions for countries on the treaty list, one is the first ~100k of income, and the other is a tax credit for taxes paid in the other country.
So, if you happen to be an expat in a higher tax country (which is certainly Europe), then you won't owe taxes in the US. You still have to file, which can cost $500 for an accountant to make sure everything is correct, but owing taxes isn't really an issue.
Not always true. Some things may be tax free in your resident country (e.g an ISA in the UK) but pay normal tax rates in the US. Since credits from each income category are separate, you may not have enought credit in the 'bank interest' category to cover what the US demands (I'm simplifying but that's essentially the issue). It may be a small amount but it's still owed tax and I'd imagine it's quite a common situation.
As a US citizen in Israel, I do owe some money to the US every year even though I pay more to Israel overall than I would if I only paid the US. This is because the FTC is applied to each dollar of income separately, so in the few places where Israeli taxes are lower than the US I get to pay the US. In a sense you get the worst of both tax regimes.
Not so strange after you experience it. Walk into a bank to open an account where to receive your salary. In no time after mentioning your US citizenship, you are shown the exit door. Try every bank until you eventually lie about it as the only way go on with your life.
> Walk into a bank to open an account where to receive your salary. In no time after mentioning your US citizenship, you are shown the exit door. Try every bank until you eventually lie about it as the only way go on with your life.
Things are highly inconvenient, but not this hopeless. In most EU countries there is at least one bank that will open an account for (locally resident) US citizens, although the process does involve some extra forms where you have to write down your American Social Security Number as your “tax information number”.
Regular bank accounts may not be hopeleless after some paperwork fights. Investments accounts on the other hand are actually hopeless. Source: Googling the bogleheads forums for investments options for US citizens residing in the EU.
“Renouncing your U.S. citizenship will not automatically cancel your tax obligations. Prior obligations remain, so you would only be a non-resident on an ongoing basis. You must notify the IRS of the change in your status by filing Form 8854 and then filing a copy with the Department of Treasury as well.
You will be treated as a U.S. citizen for tax purposes until you file this form. The same rules apply to green card holders. You must file the form as soon as possible after you renounce your citizenship.“
To make matters worse, there’s an exit tax (https://americansoverseas.org/en/knowledge-centre/us-taxes-a...). That applies only if you have over $2 million of net worth or “if you have not complied with your US tax obligations for the last five years.”
You pay it over all your assets, including houses and future pensions, and it’s up to 23.8%.
It's such a nightmare. And if you don't get it right the US government will come after you - and the have the international treaty agreements in place where most national governments will shaft you on behalf of the IRS, because of another relevant aspect of US culture:
I tried to get rid of my US citizenship while residing in Canada. I found out about the $2.5k and cannot pay that while I’m not in a great financial situation to afford giving away that much. Also I suffered conversion therapy in Michigan against my will. So I greatly despise the idea of the US ever getting a dime from me. Luckily my name is different between citizenships and I’ve not disclosed being a US citizen to banks. Anyway I’ll be dead by cancer in the near future so I’m not that concerned but I wanted to share my experience. I contacted the US embassy by email about not being able to pay but greatly wanting to drop US citizenship because of past trauma that effects my health. The agent just sent an email that looks like a template explaining all must pay 2.5k and he didn’t respond to any following responses I sent. It feels like extortion and really should be considered unconstitutional. I’m writing from a hospital bed on my phone so I apologize for the bad grammar mistakes
As a fellow expat who would very much like to get rid of my US citizenship too, I can tell you my experience with Americans is that they are not happy that anyone gets out and doesn't have to deal with the same crap they deal with. Tell them you like the life/people/culture in country X better and they get upset, defensive, angry even, like you wronged them by calling attention to the reality that its not actually a very nice place to live, and they know it, and they know they are stuck there. More than anything, I believe this essential truth about American character explains things like this $2.5K "fee" and the spineless response from the embassy you got. It's all just to fuck with you, cause you got away and don't have to live around those people and their crazy anymore.
Yes, I have no way of knowing if that’s the reason why I haven’t been contacted by banks or the US but I assume it’s a good possibility. They probably just scan a list of names with birthdates. Unless you’ve already reported being a US citizen then they probably have an easy way of contacting you.
I am a green card applicant basically waiting to become a US citizen in the next 5 - 10 years. Comments are mostly blaming the person for not renouncing it but is renouncing really necessary?
If I end up going back to the country I was born in and leave the US what benefit do I have as a US citizen? This has been a scary scenario for a long time for me and I don't think I would be able to pay tax to the US with my income in that country.
If I basically stop being a citizen of the US by moving to another country why do I need to continue paying for it?
Is there any other country that does this?
Edit: This post made me finally read about this scenario. FEIE [1] exclusion for about $105,000 as of 2020. Is a relief because I can never earn that amount with the exchange rate in my country of birth.
If you become a US citizen you have to file yearly IRS tax returns, calculate and pay taxes. There is no getting around this, it does not matter where you live.
The US has bilateral tax agreements with certain countries to avoid double taxation. So if you happen to be in one of these countries, you will normally pay taxes to your host country and if those are greater than the taxes owed to the US (which in many cases they will be), your US tax will be zero. You still have to file the US tax return and you still need to pay taxes on income derived in the US (such as dividends and interest) as that can not be eliminated by foreign taxes.
Good reply. This is a cost of US citizenship and you are not forced to acquire citizenship. You could get permanent residency. I had to make this choice and chose citizenship 15 years ago. It’s a hell of a thing swearing that you’ll bear arms to defend a country you weren’t born in.
I have had many occasions to feel glad that I did. From military base tours to easier to entry/exit to Canada to buying a house or getting a loan. It generally makes paperwork much easier in this country and opens up a few doors.
If you think the tax filing requirement is a big deal, consider the restrictions and obligations that other countries have. Compulsory military service, restrictions on moving money, etc.
Well I have another good news for you: Permanent residents still have to pay the IRS the same way citizens do even if they left or to renounce their green card.
Not only do you have to file tax returns, but you’ll get no help in doing it since you aren’t going to be issued W2s. At least you can e-file now, but doing taxes abroad is much harder than doing them here.
> If I end up going back to the country I was born in and leave the US what benefit do I have as a US citizen?
You have a benefit of a right to return to the country of your citizenship and to live there. You also still could vote in a country of your citizenship even if living outside (not sure how that fit in US federal setup).
Realistically, it does not matter whether you apply for citizenship for not. All the same regulations will apply to you, including the exit tax, as a green card holder.
> If I basically stop being a citizen of the US by moving to another country why do I need to continue paying for it?
You don't "stop" being a citizen. Part of the process to apply for citizenship is education about what becoming a citizen means through the civics test, and it should be very clear to you that this is not meant to be just a convenient thing that you do as a formality.
Citizenship comes with rights but also duties, if you are not willing to accept the duties that comes with it, you should not become a citizen and you should instead renew your green card.
The solution is to use your accidental US citizenship to your advantage. The US is actually a remarkable tax haven and has some amazing trust structures if you know what you're doing.
For example the Roth IRA, will in most cases due to reciprocal tax treaties, allow for a tax free pension even when your tax residency is in another county.
On top of the trust structures I've alluded to, there are few reciprocal data sharing arrangements with countries forced to comply with FATCA. In other words, the data sharing usually only goes one way.
Yes, this is a remarkable pain to learn and administer, but it's all possible to do without paying thousands in ongoing accountant and lawyer fees.
This means that it's possible to shelter your assets in a remarkably secretive way the US. So in one sense, you could consider US taxes as insurance against spurious lawsuits in say the EU, or bad faith spouses wherever you get married.
It sounds very similar to a Roth IRA, the very account type mentioned by the GP. (Though the roll over and lack of income limits make it more accessible)
Yeah, I was surprised the article completely glossed over why nobody outside the US wants to deal with FATCA, because on face value it sounded like a good tool to prevent money laundering and tax haven stashing.
But based on FATCA, only the other countries have a responsibility of reporting wealth information about US citizens, while if you are a Russian or a Brit or whatever you can safely stash all your wealth in the US if the tax regime is more lenient than your own country.
This is generally correct. One of the main effects of CRS being separate to FATCA is that a person from a CRS country like anywhere in the EU, UK, Aus, Canada, NZ... many countries... can hold assets in the US itself which is not a CRS signatory.
It would depend on your country's tax treaty and the treatment of the Roth 401k's annual required minimum distributions (RMDs). In comparison, for countries that don't accept Roth IRA pension income as tax free when tax resident in that country, the Roth IRA allows you to flexibility plan income amounts to stay under income thresholds for tax. This is one of the things you need to consider with a Roth 401k.
However, you could rollover funds from a Roth 401(k) to a Roth IRA, just be aware of the clock for the 5-year rule.
If doing any of this stuff please for the love of binary get proper financial advice!
Being an American expat is a complete nightmare. The retroactive GILTI/transition taxes enacted by Trump and the republican Congress put a massive strain on my family and finances. Imagine getting a bill for a significant portion of your life savings despite paying already 50% tax in your foreign country and having dutifully filed US taxes at great expense. Never have I disliked being an American so much. Some people have it much worse than me. The whole system is punitive and evil and punishes ordinary people for simply not living in the US. I can’t even open a simple retirement fund without it being a landmine.
I have already made up my mind to renounce, due to the immense stress and uncertainty. But you can’t even do that because all embassies are closed until further notice. Top that with the hefty fees to file the exit taxes and the renunciation
fee and it’s a giant shit sandwich.
I advise never living abroad if you are an American. And think very carefully before getting permanent residence or US citizenship as a foreigner. You are becoming an inmate of the IRS for life.
The taxes are the least of it. The expense and time it consumes to file the various forms is a huge pain. Anyone who has investments, a business, or property abroad will suffer from this. My net taxes were very low, but I have spent thousands on accountancy fees and hundreds of hours of my own personal time. GILTI was just the latest landmine.
I net in the low 6 figures, via my own consultancy. I have a one man shop which basically incurs the wrath of the IRS because it doesn't fit into the IRS tax code worldview. This is not abnormal, in fact many experienced software people in the city work this way.
I also can't just ignore it. The IRS under the Obama administration launched one of the most aggressive foreign tax ramp ups ever. With FBAR/FACTA, they know everything you have. It is incredibly risky to ignore filing and paying your US tax obligation - they can do all kinds of horrible things, with minimum 10k penalties and foreign agreements in place for enforcement. Plus I have retirement accounts in the US which could be affected.
You don't have to come back to the US. If it's not worth it to do so, don't. But if it is keep filing your taxes.
I could see improving things but your perspective still sounds like whinging. Accounting and filing is the cost of doing business. More troublesome is the SS and other tax contributions you're responsible for, but that just means you should charge more.
To give you a comparison, this sounds to me like people stating we should wipe out student debt. Doing so is inherently regressive. Already well off people go to college anyway and people with a degree make more over their lifetime. They are not the people who need help the most. Likewise, if you are encountering serious financial strain because of this you need to charge more, but you're still making more than most people do.
Even paying zero dollars you still have to file taxes, send in FBAR, invest in a FACTA compliant way, sort out redundant pensions, and deal with the IRS - all at comically inflated costs since software products (e.g. Turbotax) don't do overseas taxes well, if at all. And if you make a mistake navigating an incredibly complex web of under-documented treaty law and ambiguous paperwork you can quite literally end up imprisoned by a country with one of the developed world's most comically broken justice systems the next time you go on holiday. I once won a random prize drawing for a modest amount of cash ($15k) and ended up paying nearly $3k in accountant fees to navigate the double-taxation process safely. My US tax burden was $0, but the filling burden was way beyond that. I haven't benefited from US public services or anything in many years. The US is essentially the only country on the world that inflicts this nonsense on people.
Looks like living abroad is not the issue here, being an owner of a foreign corporation is. There are millions of Americans living abroad, maintaining their US bank and retirement accounts.
So you're saying it's all okay as long as you remain a permanent employee your entire life with a company owned pension plan? Is that a joke? What if you want to buy property, invest in a business, open up a private retirement fund, or a million other things. All of these are a massive land mine for any American living abroad. On top of that you have things like FACTA that affects everyone. This kind of stuff has negatively touched the entire expat community, saying otherwise just shows ignorance.
Buying property doesn't expose you to GILTI/transition taxes.
Neither does investing in a business. You just have to pay taxes on income derived from that business, as normal.
FATCA can be completely nullified by not maintaining foreign bank accounts. Keep your money in the US, problem solved. Maybe that's not an option for everyone but it's still an option.
I think you have a very narrow view of an expats life. If you live in a country for 10+ years, it is impractical to not have a local bank account. You can't even get a rental contract easily without a bank account.
Buying property exposes you to capital gains tax, which is essentially double taxation, because the UK taxes the buyer unlike the US.
GILTI tax is limited to company ownership. Which is what hit me. I realize that won't affect a lot of people, but for those in the IT field it is very common in London to have a one man or small group consultancy. Because of this, I was essentially retroactively taxed on all company revenues despite not having access to that money (since it's in the company, obviously). Truly insane. Then to pay the retroactive tax, you have to withdraw money from your company which obviously incurs local taxes. Massive double taxation.
This is all the tip of the iceberg. There are many ways to get screwed as an American abroad.
Genuine question, have you considered giving in and going to work in the USA? As an American, working as a software consultant in the UK is swimming against the tide. You could be free of the tax burden and earn more by working practically anywhere in the USA.
I know money isn't everything, but would be curious to know what is keeping you in London (as someone in an analogous situation asking myself the same question).
My wife is British, and my kids are thoroughly integrated with the local community. So that's what keeps me here. If I was single I'd definitely go back at this point, it's too much of a headache, and my earning potential would be way higher in the USA like you say.
> FATCA can be completely nullified by not maintaining foreign bank accounts.
That is not even remotely feasible. You pay forex fees every time you buy milk? Lots of government stuff / utility companies will only accept local bank accounts. The hassle and expense of having only a foreign bank account in a foreign currency is massive.
As someone who's lived abroad several times in my life, I agree. I've always had local bank accounts in my countries of residence.
That said, I have recently heard of a new product called the Transferwise Borderless Account that lets you hold money in different currencies, and along with the provisioning of local banking IDs in several jurisdictions like the EU, UK, Au/NZ, Hungary, Romania, Singapore and the U.S. It also comes with a debit Mastercard.
Transferwise is great, I do have one of their multi currency debit cards. It doesn't fully solve the problem though, it's more useful for visits and online purchases.
You couldn't get paid straight into it, so you need to get paid into your home account, then transfer in dollars, then convert them into local currency, so you're still doing two forex transactions. Better than one for each purchase, but will not ideal. Also, it's still not a real local bank account, so all the problems wrt government and bills still apply.
The Transferwise Borderless page (see section "Coverage") says they provide a local bank ID in several countries (ABA/Routing in the US, SWIFT/BIC and IBAN in the EU etc), so it seems like it would be like a real local bank account?
I'm thinking this could be quite useful for digital nomads.
Not maintaining a foreign bank account is a non-trivial thing, equivalent to saying "just pay for everything in cash". In many European countries pretty much all routine bill payments are handled by direct bank transfer between local banks. The US banking system doesn't interface with this system.
"MYR is considered to be a restricted currency, which implies an inherent limitation to the tradability of this currency. Fund transfers in this currency are not allowed outside of Malaysia"
Lets say you work in Malaysia; your salary is paid in MYR as its legally required to be. You can't get a bank account with most banks because US passport - therefore you can't get a MYR bank account.
How do you not know that you’re a US citizen? Surely that’s an edge case?
The price of renouncing your US citizenship went from around $500 to just under $3000, so the key issue seems to be to make renouncing more accessible.
If filing IRS paperwork no matter where you reside seems an onerous obligation for a citizen, try compulsory military service or currency export controls, both of which the US does not have.
Typically happens when a child is born in the US to non-US citizens who return to their home country. Often they do not realize that simply being born in the US creates citizenship (many countries do not have birth citizenship). There have been court cases in the US when a family comes to the US on vacation and one of the parents gets arrested for failure to file tax returns - the birth happened in the US and the hospital filed the paperwork and the computers remember.
As others have mentioned, it isn't just a case of filing IRS paperwork. I know many non-US banks will refuse to do business with someone if they discover the person is a US citizen because the bank paperwork is not worth it.
FATCA sucks, cannot believe EU accepted something like that into the legislation.
Recently, one of the banks in EU falsely flagged me as a potential US citizen. I had to file tons of forms to opt out.
I couldn't figure out why, there was no reason for that since I've got no ties with US and I've visited as tourist only couple of times. Then I realized my phone number I used in communication with the bank is Canadian (live in Canada, but EU citizen). Please note that the country code for Canada and US is the same (+1). What a joke.
The problem is the EU banks are forced to be compliant with this thing, but they have no clue who is US citizen and who is not. So they can just guess.
Many of my friends who are US citizens are actively trying to get rid of their citizenship and are scared of retaliation of the "we won't give you a visa anymore" kind. I can't say that for any other country. Land of the Free.
It's BY accident; "on accident" is incoherent gibberish, no matter how many young whippersnappers imagine that it's clever of them to "evolve" the language in this way. (And get off my lawn while you're at it ....)
It’s a common mistake by non native English speakers. There are many non native English speakers on the internet. Go easy, it’s not necessarily what you assumed
You could have shared a more neutral article title like this[0] instead of that charged phrase: '"Anchor baby" is a term (regarded by some as a pejorative'
Linked article says a bit more than 3,000 around the world. So, 0.001%. Article content is clickbait. Basically, a very small part of the population complains about something that others work decades on.
Non-accidental Americans and green card holders living in the EU also face major difficulties for opening bank accounts and basic investments. The accidental ones are the tip of the iceberg, but the problem need a fix for everyone.
That’s like saying “Accidental lottery winners complain they have to pay taxes, but hey, we need to make sure the tax code is good for everyone” - totally, but don’t paint the article like it’s some massive global problem of lottery winners struggling.
You can find a continuous spectrum of Americans suffering FATCA and IRS struggles while living abroad.
At the end of the spectrum are these accidental Americans.
In the middle you can find e everything, e.g. your kid studying in the EU that cannot open a bank account there or issues getting a real estate loan to buy a house in the foreign country you work and live in. Essentially opening a bank account abroad is a no-go unless you lie or have a lot of money.
Then you have ultra wealthy tax evaders that were the target of those regulations. Obviously these people don't have a hard time opening bank relationships anywhere.
Your math is wrong. The one thousandth of percent is for whole US population. For these who experience problems abroad the percentage must be much higher because, frankly, most of these with problems do not live in US and their count is much smaller.
> She received automatic citizenship by being born on U.S. soil, but has no other connection to the country, having left as a baby.
Sorry, but there is no way in hell a European wouldn't know they have dual citizenship by being born in the U.S. And there's no way they wouldn't have renounced it in all this time unless they saw that citizenship as a benefit that outweighs the costs, or at least as a potential benefit down the road.
This article imbues Accidental Americans with the stereotypical dumbassery of I-Am-A-Real-American's in an attempt to get me to sympathize with people who don't want to pay taxes.
Edit: added Hulk Hogan entry song reference for clarity
This is not true. Many of these accidental Americans really weren't aware of this. Why would they? They never received a US passport or any other official US documents, never lived there, didn't go to school, and had no reason to be aware of their unintended dual citizenship until the US started bugging them for taxes.
Also, renouncing this accidental citizenship is far from trivial. That requires jumping through a lot of bureaucratic hoops. They never received any benefit from it, and if they knew at all, they ignored it.
And they have no problem paying taxes, they just pay their taxes in the country in which they live and work. They don't want to have to fill in tax forms for every random country that chooses to bestow unwanted citizenship on them.
Make no mistake, the only reason this is an issue at all, is because the US is too powerful to ignore. No other country does this (except maybe Ethiopia or Eritrea, I think), and no other country would get away with this. Only the US does.
It's rather odd that for a country where so many people question Obama's citizenship, the country is so eager to claim ownership over people who don't want it.
While I don't like that warmongering nation any more than you do, in this case, it is not a secret that people's citizenship can be affected by where they are born, their parents' citizenship etc.
So, if anything, their parents are to blame and not these folks who had no choice in the matter.
The US is really the only country in the world that's this aggressive about their citizenship. A few others come close (I believe Turkey doesn't allow you to revoke Turkish citizenship and claims children of Turks born abroad as citizens, or something like that), but most western countries determine citizenship based on where and how you register your child's birth.
It's quite unreasonable to expect all non-Americans to be aware of all these little exceptions in US law.
Well, regarding the French citizenship, as long as the parents aren't registering their children born abroad at a French consulate the kids are not French citizens. Easy enough yo do all that later. And that part of citizenship is different from requesting passports.
Source: My own children, both dual citizenship, different names on each passport due different naming legislation for unmarried parents, one with two passports, the other currently only with one.
I don’t think it is unreasonable for them to not know they had US citizenship despite being born in the US. Completely unconditional citizenship based on ___location of birth isn’t really a thing in Europe.
It is also possible they knew and they didn’t think it was a problem. The US is one of only two countries in the world that do taxes based on citizenship.
I think you’re being a bit unfair. Certainly there will be some like you suggest but a lot that just never thought about it or as the article says couldn’t spend the money to renounce it: “in part because the fees to relinquish American citizenship jumped in 2014 from $450 to $2,350, a sum many U.S.-born people could not afford to pay.” Note when you renounce your US citizenship (as I understand it) you may also be required to pay capital gains on what you own as if you sold it at that time, the rules around this are a little complicated. So imagine you live abroad since you’re a baby, don’t speak English, don’t have a US passport, and now you have to pay thousands in fees and maybe tens or hundreds of thousands in one time tax to the US government to be free from their dragnet, plus met a bunch of legal requirements about having filed your tax returns for past years etc.
I can definitely see a lot of people would just ignore that problem thinking it’s US overreach and they are a citizen of a sovereign country, then low and behold one day it catches up with them at their bank.
Even if they were aware that they are a US citizen, it is highly unlikely that they are aware of the tax consequences unless somebody explicitly told them.
In almost all countries in the world, there is no good reason to renounce your accidental citizenship of a foreign country and there is no point in going through the trouble of doing so. And that doesn't even take into account the high cost of doing it.
It might only come up in later life when the IRS come after your inheritance "sorry your parent just died - but that house they left you we want a slice"
It's not easy to renounce American citizenship. The US considers itself entitled to taxes from citizens who live in other countries. Even if they haven't been to the US since they were a baby. If you want to renounce citizenship you have to pay up.
I am looking on with interest as it appears increasingly plausible that US states will try some form of this justification in order to tax in perpetuity former residents who flee to lower-tax states
In most countries, you do have to pay for government services. Renouncing citizenship is not a trivial thing and of course most countries would have some fee associated with it.
One could claim "I have never been there since I was an infant" but it falls on the people rendering the service to verify the facts.
I can see why people are upset (and I don't like the warmongering nation) but many of these complaints are not really well considered in my view.
Most countries don't tax their citizens abroad though, so there's no real necessity to give up citizenship.
The US charges far more to give up citizenship than most other countries, and requires you to pay any outstanding tax before you can do so. For some people that is just not possible. What exactly are they supposed to do now that they can't access any financial services?
> Sorry, but there is no way in hell a European wouldn't know they have dual citizenship by being born in the U.S. And there's no way they wouldn't have renounced it in all this time
Wrong on both counts. I know two people who fall under the category you deem "no way in hell"
It's been my experience that most natives of a country know little about the immigration and citizenship laws of their own country, much less another. Why? They've never had occasion to find out, until they find themselves having to sponsor a foreign spouse or do anything that forces them to interact with the system.
I have dual citizenship with another country and haven’t given it any consideration since I have not lived there since I was 18 months old. I wouldn’t know or consider tax implications of the country since I have lived my entire life here and identify as American.
I’ve known people who didn’t realize they were actually undocumented immigrants having grown up here past where their memories began. It is an awkward conversation with their parents eventually, but not knowing your citizenship isn’t weird.
So, these people chose to keep their US citizenship, but chose to not follow the rules ?
The woman was brought over as a baby, but chose to keep the citizenship into adulthood, presumably acquiring a passport or other citizenship documents. Otherwise how are the banks finding out ?
Why should she be surprised if the IRS eventually comes for her ?
Seems like giving up citizenship is the right solution for these people.
Not debating the merits of whether the US should be taxing expats, this does not seem "accidental" to me in the least.
Also as far as owing onerous back taxes go, aren't taxes you paid in your country of residence deductible ?
For most EU countries wouldn't that result in net zero US taxes ?
Edit: as pointed out by commenters, you have to list your place of birth in documents. stupid me
> but chose to keep the citizenship into adulthood, presumably acquiring a passport or other citizenship documents
That is ... not how citizenship works. Once you are a citizen, it can be very difficult to get rid of that status (souce: born in the US, will end up paying an arm and a leg to get rid of mine). Failing to get a passport, file returns with the IRS, etc. can lead to you getting ignored, but it can also lead you to getting into serious hot water in the future.
Example: most passports list the place of birth of the holder. If you are an American citizen, you must enter the US on a US passport. Because of American citizenship law, someone trying to enter the US on a Dutch passport with a place of birth listed as being in the US is going to have to do some explaining, and possibly provide documentation of renouncing their US citizenship. "I never applied for my American passport" is probably not going to cut it. It's a huge pain!
> Also as far as owing onerous back taxes go, aren't taxes you paid in your country of residence deductible ? For most EU countries wouldn't that result in net zero US taxes ?
It depends! But you still have to file, and there are still penalties for filing late, and even if you do, IRS reporting requirements to other banks mean that many European financial institutions won't touch you with a 10-foot pole no matter if you are also a European citizen.
Ones that will (like my bank), still won't offer you much beyond current account services and a basic savings account. If you want to do any kind of real saving for the future or basic investing (ETFs, for example), you are going to have trouble. The supposed disruptors in the market for this kind of thing (Trade Republic etc.) certainly don't have the resources or the interest in dealing with you either.
What’s super fun is that if you’re a US citizen who is an EU resident, no US-domiciled mutual fund is allowed to be sold to you because they don’t meet the EU's customer disclosure requirements, but you’re an idiot if you buy the EU-domiciled ones you’re allowed to because of US-assessed PFIC.
Closest solution I’ve found is a Schwab International Account based in the US, and buying Berkshire Hathaway shares, because it's so broadly invested in lots of other companies.
This seems true in 99% of cases, but it seems the rule is not quite as simple.
"If you are an American citizen, you must enter the US on a US passport" is true for air travel. If you travel by land or sea, it is possible to enter with other documents (driver's licence, birth certificate... see https://help.cbp.gov/s/article/Article-3618?language=en_US).
This is especially important in times of pandemic when the US government elects to stop processing passports and dual citizens may hold a passport of another country to be able to travel out, only to have re-entry problematic upon return...
"presumably acquiring a passport or other citizenship documents" Why are you being so bold as to assume that? I'm not saying that either way is the case, but you can't assume that that's the case. Also, as stated elsewhere in this thread, dropping the citizenship is expensive. Why should someone have to pay money to not be taxed by a country they have no relationship with, other than having been born there?
You don't have to choose anything, if you're born in the US you're a citizen whether you get a passport or not. No affirmative steps required.
It's not surprising that banks would cotton on. The US has been very aggressive about enforcing reporting requirements on citizens abroad, and they do it via the banks.
And what's worse is that if an American has a joint account e.g. with their (European) spouse in Europe, strictly speaking the bank shouldn't release information on that account as it violates privacy laws, which is part of the reason European banks aren't keen to hold accounts for US citizens.
> Also as far as owing onerous back taxes go, aren't taxes you paid in your country of residence deductible ?
No, the USA has treaties with only some other countries that result in net-zero taxation of self-employed people. If you live in a country with which a tax treaty has not been concluded, and you are self-employed, you are liable to both your local country for income taxes etc., and to the USA for Social Security and Medicare.
OTOH, isn't there a poverty-line amount in USA that makes some income level practically tax-free (through deductions, etc.)? I imagine that in most countries $15.000 / year is a rich person's income, while in USA it puts you under "starving". What I want to say, if you're living in, say, Kazakhstan, earning a good fat paycheck of $1000 a month and living like a king, shouldn't you file "I'm starving poor at $12000" to the IRS and get zero taxes, or, perhaps, even some food stamps or something like that?
(Just guessing, I don't have experience with this)
Kazakhstan is not a cheap country, at least not the cities of Almaty and Astana where foreigners are likely to live. They regularly appear on "Most expensive cities" lists.
Social Security and Medicare is paid by American workers regardless of their total income. That is, there is no poverty limit under which they do not have to send that money to the IRS.
According to google, the average salary in Kazakhstan is 212894 KZT/month, which is $500. How much does an American worker making $500/month have to pay to the IRS for SS and Medicare?
Some parents with European citizenship sometimes do not file an American birth certificate when registering their child for a European birth certificate. I.e. if the country facilitates registration of child based on parent citizenship and not birth ___location of child, they just never declare the child was born in the US. "It was a home birth"
At international schools in some countries this is an open secret and happens quite often, as long as the parents are not feds and are not under heavy scrutiny. So the kid has two different BC & passports with two different birthplaces. Some even have different birth-dates and names.
Sure saves the poor kids the nightmare of not being able to open a bank account abroad, as a US citizen.
The moral is, plan your money, plan your kids, the federales will never inform on what is in your best interest. Both kids and money come with paperwork attached. Best read up now. And yes, a timely consultation with a lawyer before the fact is most often cheaper than the cost of renouncing US citizenship and the time you waste on declaring while not living in the US.