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  1. Anonymous,

    I haven’t given it that much thought, but at first blush it does seem like a real issue, unless the treaty requires the residence country to give a credit.

  2. Michael, thanks for the article. It seems to me that aside from the issue you’ve written about, double taxation might be likely in more mainstream cases.

    The example I’m considering is of an expat or ex-LTPR who must pay the deemed-distributed exit tax on an IRA account in their year of departure from the US, and then pay tax again to their new home country on withdrawals in later years. Many US tax treaties allow only the “state of residence” to tax retirement account withdrawals, and on staggered years such as this a treaty country may not allow a credit for the US exit tax paid perhaps decades earlier. In addition, taking early withdrawal of the IRA prior to departing in order to pay the exit tax may bring in a further set of issues — early withdrawal penalties and possible state tax on top (insult added to injury).

    Any comments on this? Is my reasoning here correct? And if it is, any known cases of people successfully fighting this unilateral unwinding of tax treaties by the US?

  3. I read liability to mean exactly that — liability, so if foreign tax credits wipe out that liability, you are not ‘covered’. Although if someone had a significant income, I would think they would meet the other prong — $2M assets.

  4. Michael or Phil: Clarification regarding the exit tax PDF: “…Average annual net income tax liability for the five years immediately preceding the deemed expatriation that exceeds $147,000”.

    This does not mean that someone had an income of that amount, but that someone had to actually pay this much in federal US (!) income taxes, correct?

    So, broadly speaking, I could have an 7-figure income and more than 147k in income taxes, but pay all income taxes only to my host country and zero to the US due to a double-taxation agreement AND I do not have assets of 2M – I would not be a covered expatriate.

    Is this the case or does the income tax liability refer to any income tax paid to foreign government as well?

  5. Thanks Michael for that response.

    That’s why the FBAR is ridiculous in the hands of the IRS. They are applying it for the wrong reason to the wrong people. If I make money in Canada, then put it in a Canadian bank account, it is not laundered by definition. So the FBAR law doesn’t ever need apply to me. But then a money launderer isn’t exactly going to hand over his banking information to the Feds either, since that could lead to the end of his crime spree. So the IRS is wielding a useless law to extort money from people that the law was never intended to target. This is injustice of gargantuan proportions and it is a sign that the US has lost her way.

  6. I think that this Congressman might be a natural ally in a fight to repeal FATCA…. See letter below. He is responding strongly to the IRS newest “What is good for the goose is good for the gander” rules which will require US banks (the Ganders) to report to foreign countries on interest paid to Non US residents in similar fashion as FATCA requires of the Gooses.

    This could get interesting. 🙂

    Charles Boustany, Jr., MD
    Subcommittee on Oversight

    I think American Citizens Abroad is contacting him in their lobbying efforts to repeal FATCA. I am sending my letter, for what it is worth…

  7. @Canuck Parent of (Surprise) American,

    Start from the assumption that someone with U.S. citizenship will have to do a bare minimum of paperwork:

    – the de-immigration 🙂 paperwork at the Embassy and Department of State.

    – five solid years of tax returns (in this case let’s say tax returns showing zero income).

    – the exit year paperwork: Form 1040 (showing zero income), Form 1040-NR (showing zero income), and Form 8854 (presumably showing trivial assets).

    Without knowing the full picture on the individual (which I am guessing is a kid which just might be related to you!) I would think there is a relatively easy (and tax-free) way to do this. Especially for kids. There is a window of time from age 18 to age 18 1/2 in which someone can relinquish U.S. citizenship without becoming a “covered expatriate.”


  8. For anyone who expatriates while entitled to deferred compensation for services performed outside the US, BEWARE. The rules make it extremely difficult to avoid double taxation. (I won’t spam this site with any links, but there’s an article on my website for anyone interested.)

  9. Thanks for replying Poser. Since those statutes are all related to tax crimes, and the FBAR is a non-tax requirement under a completely different title of the US Code (Title 31, relating to money laundering, not Title 26, relating to tax) I very much doubt they could apply to the FBAR statute of limitations. (That’s lawyer-speak for I think there’s no way in hell they could apply.)

  10. Phil, So if I understand, a “Jus sanguinis” American citizen, born in Canada, of recent majority age, who has no significant earnings (babysitting money) and has never lived in US: easy to renounce?

  11. Phil, if you are a dual citizen at birth and meet all the other conditions and hold both a US and Canadian passport would you still be free of the exit tax?

  12. Poser, in Europe there will be probably be legal challenges ultimately to the European Court of Human rights.

    On the face of it FATCA contravenes both Article 8 (Privacy) and Article 14 (Discrimination)of the European Covention of Human Rights. Financial freedom would more than likely fall under its remit.

    With particular interest is Article 14 which states “While the article specifically prohibits discrimination based on “sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status”

    It’s going to be difficult for a bank to plead innocent it had to sign a franchise agreement with the IRS and not break the “national or social origin” clause.

    If my bank ever tries to pass information to the IRS or close down my account, as an EU citizen I have the right to go through the courts up to the European Court of Human Rights. Who knows perhaps the bank would want to help to keep EU citizens off the FATCA hook.

    How can you open a bank account for an EU citizen (who may have been born abroad – except the US) and discriminate against a dual US / EU citizen? It doesn’t make sense.

    We may not be able to stop Washington from FATCA Madness (perhaps Sen. Levin and Doug S have watched the 1930s movie Reefer Madness) while putting together FATCA, but we can bloody well stymie FATCA to make it ineffective for EU citizens.

    If the courts rule against FATCA, the IRS would then have to convince the EU and 27 member countries to change their laws for the benefit of the IRS- good luck Doug!

  13. Sorry, I “mis-remembered” a discussion at Townsend blog, and in googling it, I found that Jack had written as follows:

    Jack Townsend said…
    On the statute of limitations issue, here is a cut and paste from my Federal Tax Crimes book (note FBAR violations would be subject to the rule in Title 18):

    • Tolling By Absence from Country or Fugitive Status.
    • Tax Crimes & Conspiracies. For the tax crimes created in the Internal Revenue Code and for conspiracies related to tax – both offense conspiracies and Klein defraud conspiracies – where the statute of limitations is determined in § 6531, the statute is tolled while the defendant is outside the United States or a fugitive from justice within the meaning of 18 U.S.C. § 3290. Tolling is in the disjunctive.
    • Absence. The defendant’s mere absence from the United States tolls the statute. For example, a defendant’s eleven-day health and pleasure trip to Switzerland tolled the statute of limitations under 26 U.S.C. § 6531.
    • Fugitive. Section 3290 defines fugitive as “any person fleeing from justice.” The “majority rule” is that “intent to avoid arrest or prosecution must be proved” for § 3290’s fugitive definition to apply; the minority rule is that mere absence from the jurisdiction, regardless of intent, is sufficient. As noted, of course, the disjunctive provision in § 6531 tolls the statute upon mere absence from the country regardless of fugitive status under § 3290.
    • For Other Crimes. For other tax related Title 18 crimes where the statute of limitations is determined in Title 18 (e.g., false statements to an agent) rather than § 6531, the statute of limitations is tolled only if the defendant is a fugitive as defined in § 3290. As noted, intent for the absence is critical under the majority rule.

    I therefore asked if this conclusion was correct: ” If I understand correctly, if a person is not under indictment, they are not a fugitive, and the FBAR requirements will expire normally at the end of 6 years, even if he/she is living outside the USA.” Jack didn’t actually reply to that conclusion.

    discussion took place here:

  14. Poser, I’m curious why you say the FBAR statute of limitations would be tolled for a person living outside the US. Can you elaborate?

  15. Thanks for much for your response. That’s a good point (transferring assets) but it is really not possible now, because my understanding is that an expatriating act fixes the date by which the person is no longer a citizen for tax purposes. Since that act took place already, the forms must be filled out based on the state of affairs, mark to market, on that date. Thus, it is too late to do anything about it.

    I thought, well I could just wait until the statute of limitations for FBAR expired, but apparently living outside the US, the statute of limitations may never expire.

    Note the words of the 1868 Expatriation Act:

    Whereas the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness; and whereas in the recognition of this principle, this government has freely received emigrants from all nations, and invested them with the rights of citizenship; and whereas it is claimed that such American citizens, with their descendents, are subjects of foreign states, owing allegiance to the governments thereof; and whereas it is necessary to the maintenance of public peace that this claim of foreign allegiance should be promptly and finally disavowed; Therefore,
    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.

    Ok, now let’s see, according to the law, I have committed an expatriating act, that is taking on the citizenship of another nation with the express intent of relinquishing my US citizenship. The IRS therefore cannot hinder me from expatriating–it is a fait accompli, and I am by statute no longer a US person. And I wish them good luck in collecting my assets into their unrighteous coffers, since the assets are here in Canada.

    Just to be clear, it seems that the above Act was passed to hinder other nations from their claims on new Americans whom they believed should be loyal to their own nation instead of to the USA. Thus, the United States passed the 1868 Act, but now, with its expatriating laws, contradicts what is a natural right. It should be remembered that the US revolutionary war was fought on this very principle, the natural right of expatriation.

    So I ask again, what are they going to do? I have natural law on my side, I have the Declaration of Independence on my side, and I don’t plan on giving them any information about my assets on any form. I am no longer a US person they have no claim on me. So are they going to arrest me at the border if I try to visit my family? What is this? Is this some despotic nation? (like the Communist China, or USSR?) Is it the Hotel California? You can check out any time you want, but you can never leave. Or have I died and gone to hell, a never ending loop of IRS bull crap.

  16. There’s little reason to lie. In a previous post there was discussion to temporarily move assets into, for example, your non-US wife’s name (as long as you can trust she won’t run off with her fancy man!).

    If I’m correct the exit tax only really applies if you have a consecutive number of years with six figure plus income (not sure of the figure without looking up but $125-150K US rings a bell), and assets of $2M US at any rate.

    If you meet the income figure, you can skirt around the $2M asset rule by transferring.

    However, I do agree filling all this IRS bu**sh*t non-sense form filling exercise to prove you owe zero tax is a waste of time.

    In my opinion the US at present has about 20% of the world GDP, and by 2021 that will be down to around 15%. The US is losing about 0.005% share per year. Please remember with Asia growing at around 7-8% a year, and the US and Western economies at 1-3% this will happen by default.

    The US will have to start acting like a country with a lower percentage world GDP in future full stop.

  17. The forms are a violation of the constitutional rights of the expatriating American. Tell me why I can’t just continue living my life here in my country, and never fill out those exit forms. Because if I have to fill out those forms, you can be sure that I will have to lie on them, because I am sure the hell not going to tell the IRS (1) about my private assets; (2) about my bank accounts, which would show that I am in FBAR violation–for which I could be thrown in the slammer.

    What will happen if I visit my family in the states? Are they going to throw me in a federal prison?

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.