For Tax Purposes, We Are All Americans

I apologise to Vadio (it is an honest post), and you should have a PM from me in response to yours.

The US taxing on citizenship is out of the mainstream as almost no other countries do it. It's a pain, but I have no real problem with it. The issue I have is with the US citizenship rules that then open someone up to taxation by the IRS. It's ridiculous that someone with no connections to the US other than a US citizen parent or that they were born in the US is a US citizen and they don't get a choice in the matter.

no apology necessary!

The chances of even the nasty IRS finding some poor soul who was a USC by birth, but never set foot in the country and levying a fine for failure to file is pretty slim. But for someone like myself, failure to file would be a deliberate attempt to circumvent the law. So I don't, and I won't, unlike someone I know who became a naturalized USC at age 30 and then said to me "but if they expect me to file a US tax return, they can have their passport back." She got citizenship through her mother, who had lived and worked in the US for 20 years, then returned to Ireland, married and had kids. Her daughter wanted the dual citizenship, went to the US Embassy with mom and the paperwork, and walked out with a passport. She wants to benefits but none of the responsibilities....and I do have a problem with that.

Your friend's daughter was always a US citizen by virtue of her birth to a US citizen. You don't just walk into the embassy and naturalize - they gave her a passport because she already was a US citizen.

She should have been filing US taxes all along. She probably didn't owe anything but the failure to file FBAR penalties might well have taken a large chunk of her net worth.

She could have kept quiet about it but most people don't like living life looking over their shoulder waiting for some database to match you up.

Someone who was a USC by birth would be easy to find. If born in the US the British passport will list a US birthplace.

If visiting the US applying for a visa is an offence so could be picked up at immigration.

If inheriting from another USC the decedents executors will tell the IRS.

On death the individuals own executors will tell the IRS.

Long before that FATCA will mean that non-US banks and financial institutions will tell the IRS where the person is living and how much money he or she has.

I agree with some of your points, but in the case I know all too well, the mom had not been back to the US for over 30 years, and the daughter who proved right to citizenship and got the passport has been once as a 'tourist'. Had she not decided to get a US passport, the IRS would likely never have known about her. And,given that she go the passport before the requirement to have a SSN, there is little way to track her. The family has no ties to the US otherwise.I know passport renewals are reported by the Department of State to the IRS/Treasury Department, but I am not sure if she has renewed. If so, it would have been about 8 years ago.

Similarly, she has 2 children, one born before she officially established her USC status, one born after. They are now aged 19 and 17, and the likelihood of the IRS ever finding them and prosecuting for failure to file is pretty slim, IMHO.

By contrast, those of us who have worked and filed a return since (in my case) 1961 who just drop off the radar screen, absent a death certificate would be a prime target. And given that I have reported a foreign bank account since 1993, I would be easy to find over here, and I don't need that in my life at my age (or any age, for that matter).

But in any case, w/r/t the subject of this thread, most of us who move here as the spouse of a UKC will fall under the foreign earned income exclusion, and the filing is pretty simple. No tax due to the US, but you do your duty as a citizen of a civilized country, and file the return. f you are lucky enough to have a huge income, well, hire an accountant and do the needful, meanwhile counting your blessings.

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But in any case, w/r/t the subject of this thread, most of us who move here as the spouse of a UKC will fall under the foreign earned income exclusion, and the filing is pretty simple. No tax due to the US, but you do your duty as a citizen of a civilized country, and file the return. f you are lucky enough to have a huge income, well, hire an accountant and do the needful, meanwhile counting your blessings.

Then why does not other civilised country require non-resident citizens file taxes? Unless you're counting North Korea and Afghanistan as civilised countries, of course, as if I remember correctly, those are the only other countries in the world who impose taxation on non-resident citizens.

Similarly, she has 2 children, one born before she officially established her USC status, one born after. They are now aged 19 and 17, and the likelihood of the IRS ever finding them and prosecuting for failure to file is pretty slim, IMHO.

They wouldn't need to file because they aren't citizens unless the second generation citizen has lived in the US for 5 years, two being before her 14th birthday.

Meanwhile, two US senators have come up with a terrific scheme so that our Brit friends can also enjoy filing US taxes:

http://www.latimes.com/business/la-fi-visas-home-buyers-20111021,0,6715779.story

Sadly, the Canadians have already figured out that this might not be wise:

http://fullcomment.nationalpost.com/2011/10/21/u-s-dangles-visas-for-snowbirds-in-return-for-taxes-on-everything-they-own/

Legs Akimbo is quite correct regarding the children's status - and thanks for posting the correction.

I was so used to seeing it from the current resident point of view - per the comments made to the 'new citizens' when my husband was naturalized (at age 70).  I totally forgot about the other rules. (BAD Vadio)!

Homer, a 75 year old widower, and a USC, goes to the local NHS surgery for a chat with his GP:

GP: Why are you worried, Homer?

Homer: Well sir, it's US taxes. Pensioners can't use FEIE, need to invoke a Treaty, TurboTax has no clue about Treaties, income resourced by Treaty, which basket, FBAR and FATCA reporting, how to complete 1040 and 1116 with exempt Social Security under the Treaty, 8833, ISA savings mean I don't owe HMRC, but do owe the IRS. I'm looking to sell the house after 35 years, no tax in the UK, but a whopping CGT in the US. Accountant wants £2500 to sort it out, but my State pension is only £2500, It's just becoming too much.

GP: Homer, you live in the UK now. You haven't lived in America for 40 years. I know nothing about this, but surely you wouldn't file US tax when you live here. I don't know of anyone who files taxes to an old country. Do you often have other thoughts about still being in America?

Homer: No, Doc, you don't understand. My bank is closing my account because I'm American. How will I pay my bills? I'm just really worried.

GP: Homer, lad, calm down. I was at the bank this morning. No one's closing accounts. You seem to have an obsession about America. Here, let me give you a jab. It won't hurt, and soon you'll be 'comfortably numb'.

The GP reaches for his book, and writes 'Dementia, Delusional', and contacts the local old folks home for the gaga.

Five years later Homer dies in the old folks home. He leaves a Will, but his Estate is worth nothing. The IRS have cleared out his frozen bank account for FATCA penalties, and willful FBAR penalties (well, he had been filing for the previous 40 years!). Seems the local UK staff at the old folks home knew nothing about some bizarre US tax obligation.

We are not unreasonable. We are not unsympathetic. We are not irresponsible." US Ambassador to Canada, David Jacobson, 18 October 2011.

Time will tell, Ambassador Jacobson .

They wouldn't need to file because they aren't citizens unless the second generation citizen has lived in the US for 5 years, two being before her 14th birthday.

Actually, I think it's at least two years after one's 14th birthday, not before.

 on taxation and representation -

1. Americans abroad can vote by virtue of a federal statute. There is no constitutional right to vote;  voting is committed to the states. It's not clear therefore that this statute would survive a constitutional challenge (on federalism grounds), i.e., the right could easily be taken away. This is not quite the case for residents of the separate states.
2. just having the vote doesn't mean you have effective representation. That's what gerrymandering in the south was all about - splitting up concentrations of black Americans so that they were minorities in different districts, and therefore couldn't effect any outcomes.  Remedying this wrong is why there was extensive voting reform.
3. As for your taxes getting you much from American consular services abroad, dream on. You're a nuisance. You will get very little (you can compare this to the way in which other countries treat their citizens abroad).
4. While we might not owe US tax, some of us have had to spend unconscionable and obscene amounts of time and money just trying to figure out how to accurately  show that on our tax forms. In that case it's not a nuisance; it's a nightmare.