May 25, 2012 - Phil Hodgen

American Citizens Abroad Dinner in Geneva

Last night (Thursday night) Mary and I were guests at a dinner and extended conversation hosted by American Citizens Abroad, in Geneva.

Perhaps not coincidentally, the dinner was at the restaurant of Le Musee des Suisses dans le Monde and as Anne Hornung-Soukup noted as we were walking in the Swiss tend to honor their citizens abroad rather than, well, ignore and/or pillory them. My words, not hers.

You can see Karl Jauch’s collection of photos (don’t I look fetching?). I am sitting between Jackie Bugnion (on my right) and Marylouise Serrato (on my left).

American Citizens Abroad

For those of you who do not know the people of American Citizens Abroad, let me tell you only one thing: this organization is the adult in the room when it comes to talking about (and understanding) the effect of U.S. tax policy on American citizens overseas, as well as the entirely predictable future effects of these policies on immigration to the United States, expatriations, and investment flows. I count myself as one of the adolescents because I sometime *ahem* rant a bit and I have a potty mouth.

I first came to know the organization about three years ago as the UBS bank hoo-hah was heating up in 2009. My initial contacts were with Dorothy van Schooneveld, Jackie Bugnion, and Anne Hornung-Soukup.

Anne Horning-Soukup told us on the drive back to the hotel that in her 30 years with the organization the activities have shifted from helping proud parents acquire U.S. citizenship for their foreign-born children (long ago) to dealing with the toxic tax landscape how which is increasingly driving people to relinquish U.S. citizenship. Again, my words, not hers.

Everything I know in my day job, the ACA members know because they live it. They are living inside the effects of the various voluntary disclosure programs, the entirely predictable (and unavoidable) exclusion from banking that is befalling U.S. persons living abroad, and just the general paperwork overhead that the citizenship-based tax system imposes.

What it’s like for a normal American abroad to deal with tax returns

For those of you living inside the USA and not quite understanding what Americans abroad live with, consider this simple example. Imagine you live in a high-tax country. Anywhere in Europe, for example. You pay your taxes in your country of residence. You pay a lot of income tax.

The IRS also asks that you file U.S. income tax returns. The USA requires its citizens to file tax returns and pay income tax, no matter where those citizens live.

For you, the American living overseas, tax return preparation is an order of magnitude more complicated than for someone living at home in the USA. There are extra forms to fill out. Extra stuff to report. Big, big penalties if you fluff things up. So you either spend an inordinate amount of your free time doing the tax returns yourself, or you pay a lot of money to an accountant to do the work for you. I don’t know what the people around the table last night spend, but it would be common to see tax bills of $3,000 – $4,000 in my experience. Let’s say you only spend $2,000. Lucky you.

The amount of tax that the IRS typically collects from people living in Europe and other high tax countries is ZERO. The foreign tax credit (PDF) ensures this. So does the foreign earned income exclusion (PDF).

Short story? You pay $2,000 or maybe much more to do a tax return that yields zero revenue for the U.S. government. And you burn up a lot of nights and weekends doing the paperwork.

Then you hear some Senator yammering about people like you and how you should be paying your “fair share” to the U.S. Treasury.

But it’s worse than that. A set of obscure tax rules (I’m looking at you, Mr. PFIC) (PDF) designed to short-circuit semi-clever multinational corporate tax planning tricks just happens to apply to the average American living abroad.

If you save a bit of money and decide to buy foreign mutual funds because this looks like a good investment strategy, you run afoul of Form 8621. Translation for the uninformed: add another $1,000 to your tax return preparation bill, AT LEAST.

Because Google and its worldwide empire (on the one hand) and you, the Average American Abroad (on the other hand) should live by the same set of tax rules and fill in the same paperwork. Right?

In short — excessive burdens on humans. Useless paperwork to be processed by the IRS (oh dear, we need to hire more staff at the IRS). Very low (many times zero) tax collections in the USA from these people.

The dinner discussion

This is what the ACA members around the table live with, and this is what we collectively discussed on Thursday night. There’s not much to report. Voluntary Disclosure Programs — resoundingly counterproductive. Expatriations and interest in expatriation on the rise. FATCA — a law that is impossible to apply but creates intolerable burdens on Americans abroad.

Oh. Marylouise Serrato told me that the Bern Embassy is now much quicker at processing expatriation appointments. This is welcome news.

ACA has an active effort to bring awareness of these issues to the elected officials in Washington.

I hope this works, but frankly it is a long shot because the ACA does not have hundreds of thousands of dollars to throw at lobbying and campaign contributions. So some type of low-budget but effective campaign is necessary and the ACA crew is working at this. The first phase is complete, I think. There is some awareness on Capitol Hill that ACA exists.


At the end of the evening Mary and I were presented with an enormous (!) bottle of wine and a small brick of Swiss chocolate. Yay. The bottle of wine will be saved for a future special event to be selected — probably a family wedding in August in Chicago. The brick of Swiss chocolate has already been savagely attacked and will probably not survive until the train ride tomorrow to Zurich.

This has been a great trip. I should be back to Switzerland in the autumn. If you would like to connect next time I am here, pop me an email and let me know.

Americans Living Abroad