There are many unhappy people in this world. Unhappiness has many, many causes – almost as many as there are those suffering its doleful effects.
Unhappy people sometimes do things that they wouldn’t normally consider, all in an effort to relieve themselves from their personal angst. They often don’t consider possible consequences, they just want relief.
Lost in the crowd of unhappy souls, you’ll find some “expats” from the United States. These poor souls have any number of reasons for being unhappy, both real and perceived, just like their counterparts in the general population.
Some of these “unhappy expats” focus on laying the blame for their misery at the feet of the very country that they used to call home. Now, they see potential relief from their unhappiness by removing the cause of their sorrows from their life. They hastily decide to exchange their U.S. citizenship for that of another country.
But, there are consequences.
“HEY, I’M OUTTA HERE!”
An article in the Wednesday, November 13, 2013 issue of The Wall Street Journal (Asian Edition) entitled, “More U.S. Taxpayers Renounce Citizenship,” discusses one method of obtaining relief that’s employed by some of those unhappy expats.
It reported that the names, published by the U.S. Treasury Department, of Americans who renounced their citizenship or long-term residents who gave back their “Green Cards” in the third quarter of 2012, reached 560. Such “expatriations” are at a record high – 2,369 for the year. The prior record for an entire year was set in 2011.
Whether fed up with the “political shenanigans” back home, perceived regressive and unfair tax policies, the direction in which they see the country heading, “all of the above” or some combination thereof, they’ve had it. They want OUT. For them, being out is being cured. For them, renouncing their citizenship is the answer.
But, there are consequences.
IT GETS UGLY
Yes, there are consequences to renouncing U.S. citizenship. You give up your blue passport, you give up your ties to your homeland, you give up just about everything that’s connected with the U.S. – all for the relief from unhappiness that you’re sure will follow. But, at what cost?
Oh, yes! There’s a cost involved: the price tag lists its denomination in a currency of which you have plenty – unhappiness. This price is paid with your time, your 
endurance to heretofore unexpected hassles and, of course, your U.S. Dollar bills. If you thought you were unhappy before,….
The U.S. is a land awash in the bureaucracy of Rules, Regulations, Acts, Public Laws, Directives, “Official” Guidelines, and other roadblocks to happiness; and each on Federal, State and Municipal levels. Originally well-intended, the size and scope of their resulting bureaucracies have grown immense. “For your well-being,” you are at their mercy.
Outside of felonious acts that could result in your incarceration in a federal prison, the only way to renounce your citizenship is to physically appear at a U.S. Embassy or Consulate outside of the U.S. and formally make your renunciation in writing and verbally swear or affirm that it is your intent and it is being made without coercion or threat. You even have to do so on the appropriate government forms.
Even if you weather all of this, you still remain responsible for 1) any military obligations you may have, and 2) any tax obligations you may have.
IT GETS UGLIER
One of those appropriate forms is the Internal Revenue Service (IRS) Form 8854, Initial and Annual Expatriation Statement. Through it, you report your net worth (everything you own and all of your financial information), your record of meeting your prior tax obligations (going back a number of years), and – if that’s not enough – calculate your “Exit Tax” and any future U.S. tax obligations.
Are we happy, yet?
To think, not only do you have to tackle a mountain of paperwork, you get to pay (and, in some instances, keep paying) for the privilege of saying, “So long, U.S.” All of this in pursuit of happiness. As the late and great television pitchman, Billy Mays, used to say, “But wait, there’s more!”
You’ll go through all of the hoops mandated by the U.S. State Department, the U.S. Citizenship and Immigration Services, and the IRS, and you’re not easily and automatically out the door. Your formal renunciation of U.S. citizenship must be accepted and approved by the U.S. If disapproved, you’ve accomplished nothing save for making some “political enemies” along the way.
I really don’t see any happiness just around the corner.
WHEN ALL SEEMS LOST, THERE’S HOPE
There is currently a move afoot by savvy tax lawyers to sever the connection between the Exit Tax and those who “relinquish” vs. “renounce” U.S. citizenship. Allegedly, “relinquishing” citizenship under §349(a)(1) of the Immigration and Nationality Act [8 U.S.C. 1481] is less painful than “renouncing” citizenship under §349(a)(5).
The former involves the obtaining naturalization in a foreign state upon application (either the person’s own, or a duly aduthorized agent’s), with the intention of relinquishing U.S. nationality. The latter involves a formal renunciation of nationality before a diplomatic or consular officer of the U.S. in a foreign state.
Again allegedly, “relinquishing” citizenship has no tax or other penalties for loss of citizenship; or so the argument is being made. This is the strategy being currently employed by “legal beagles” on behalf of entertainment icon Tina Turner, who is a long-time resident of Switzerland.
A quick, “down and dirty” review of the related provisions of the Internal Revenue Code, Treasury Regulations, the Immigration and Nationality Act, and other such rules and rulings (by your “tax-jaded” scribe) reveals enough “gray area,” contradiction and confusion wherein the argument being made is plausible, and may stand at least a 50% chance of successful defense in the court of last resort.
That being said, it is – as is everything connected to the IRS – CAVEAT EMPTOR, “Let the buyer beware” for those thinking of travelling the same path to happiness.
While I am certainly not contemplating the move to give up citizenship in the USA, I would ask folks to consider this:
Does it make sens that ANY country can do this simply because you accidentily were BORN on their land? Its a mild form of slavery. (Tax slavery), that someone simply through an accident of birth is forever beholden to a flag they may or may not choose to live under.
This question does not always mean someone is unhappy. Far worse it may mean they are tired of being under the Iron Heel. I for one would gladly let someone give up, with the knowledge that they should never be able to visit or return. Making them PAY to leave is absurd and a moral crime.
As the great Frederic Bastiat wrote, “When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” THIS is the real tragedy of the USA today.
Hi Joe P – I’m right there with you. There are many who cite “tax reporting and payment burden” as one of their primary reasons for renouncing their U.S. citizenship, though it is not supposed to be THE primary reason. I find it rather comical (in a sick vein) that a person’s renunciation must be approved by the U.S. Government before citizenship is revoked. 😯
This article really makes you feel sorry for those with the unlucky birth”right” of US citizenship. Birth-obligation it looks more like. Soft slavery as somebody called it.
At little less sorry for those who have themselves to blame, getting suckered in by green card mirages.
Paul, are you advocating “Fogeddaboutit” or are you trying to warn the expats that this will get worse and that the door (on your money) is closing fast?
Hi joop – I’m not advocating anything at all. I’m merely telling it like it is.
As far as the actual payment of the “Exit Tax” goes, there are certain thresholds that must be met or exceeded before you become liable for payment. Many contemplating citizenship renouncement foolishly think, however, that because they fail to meet the thresholds, they don’t have to do a thing.
They are wrong, and this is where the U.S. Government places a “technicality trap” – One who is renouncing citizenship must still file the tax form to report certain information. Failure on one’s part to do so can trigger liability for paying the tax without meeting the thresholds.
So, I guess that if I was to advocate anything, it would be to “Make sure all of your “T”s are crossed and all of your “I”s are dotted.” That is, make sure that you’ve researched the whole process, determining what is required of you, and do it.
Interesting subject Paul and a good insight for us non-US citizens.
Perhaps a change of wording to the US national anthem is required with “The land of the FREE” being removed?;-)
Need to check what happens with the UK but I’m not aware of that many people wanting to relinquish citizensship as our tax laws, for now(!!!), are not as restrictive and we don’t pay UK tax on earnings after a certain period out of the country. All we have to do is spend a whole tax year out of the country and prove ourselves non-resident (getting more complicated these days though!)
Not sure what would happen to anyone living in the Philippines who renounces their US or any other passport. Can they obtain a Philippine passport?
Hi AJ – While U.S. taxpayers are required to report all income from all sources world-wide in their annual tax returns, those who are bona fide residents of another country or have spent at least 330 days of the tax year outside of the USA are eligible for the Foreign Earned Income Exclusion. Up to about $95,000 of income earned abroad by those eligible is excluded from their taxable income. For many US expats who work here in the Philippines, that makes for a huge tax savings. Unfortunately for most US expats, however, is that word “earned” income. Interest, dividends, pensions, etc. are considered unearned income and fully taxable.
As to a US citizen who renounces his/her citizenship in the Philippines – without proper, prior planning, the individual will become a person without a country. The Philippines only issues its passports to its citizens. If the individual renouncing does not have dual citizenship with another country, there is big trouble. If the renunciation occurs in the Philippines, and the individual does not have citizenship in another country or in the Philippines, that individual will be deported to the location from which he/she came. For most US expats, that would be the US. Upon arrival in the US, the individual will be put on immigration hold until a decision is made as to where he/she goes next (which country they’ll be deported to). Quite a mess!
Hi Paul – I am proud to be Australian and would never renounce such a privilege . Australian law permits an Australian that lives out of the country more than six months a year with no solid asset ties to be outside their tax jurisdiction . To my understanding you can be a citizen of another country as well as a citizen of Australia with out drama. You can even be the Prime Minister and not be born in the country. For our recent elected Prime Minister this is true. The social welfare and justice system is amongst the best in the world. Maybe some Americans don’t like America, but I can’t imagine many Australians ever wanting to renounce their citizenship.
Hi Brenton – Well, I can’t really speak for any Americans outside of the one currently pounding the keyboard here in reply to your comment! 😀
Some people become so disenchanted with their environment that they are willing to do anything in order to change that environment or move to a more pleasing environment. The “tax rationale” argument is quite funny to me. Here the person pays taxes all his/her life, then all of a sudden, they feel too burdened to pay anymore and believe they shouldn’t have to pay if they live outside of the territorial boundaries of the US. Why the sudden switch? I don’t know. Perhaps they are more disgusted in how their tax dollars are being spent than they are in providing those tax dollars in the first place. (?) 😯
As for myself, I’d consider becoming a dual-citizen.
Hi Paul – America undoubtedly used to be the greatest country in the world, but they are fast loosing this title and their edge. People in the Philippines look at me cross eyed when I say I never want to visit America, that I would prefer to stay here or visit elsewhere.
Hi again, Brenton – When you take a step back and look at the entire picture, the US is still the greatest country in the world, albeit it is slipping right now. I say this, not out of my over abundance of pride, but because the US is the final destination for a huge number of immigrants each year. All pick the US as their destination, and would rather expend all of their resources to get to the US than to continue living where they came from. Such a huge number of people can’t be wrong. 😉
Hi Brenton –
The last time someone said, “America is dead and gone”, here on LiP, I was already biting my tongue for far too long. It was the last straw. I couldn’t let that lie pass without a rebuttal because it just isn’t the America that I see. Posting as Ricardo Sumilang, I am quoting my response in its entirety:
Ricardo Sumilang says:
September 8, 2011 at 7:06 am
“America is dead and gone as we well know it.” – Brian
I thought Paul Thompson’s Martinez was a great mimic act by a bird, but the quote above has been mimicked so many times by humans that the cliche now sounds worn and tired, if not downright absurd. May I ask, where do you folks live? Casper, Wyoming, or in some one-traffic-light hick town in the mountains of Appalachia?
If America is “dead and gone”, why then are the world’s top 4 companies in Forbes annual list of Global 2000 companies American ( JP Morgan Chase, General Electric, Bank of America, and ExxonMobil)? In fact, the USA is listed on the Forbes list of the world’s top companies with 551, while China has 113 and India, 56. When it comes to the world’s 50 innovative companies, 21 of which are American, 4 are Chinese; and 2 are Indian. In a poll of businessmen from several countries using data sets from the World Bank and the Organization for Economic Cooperation and Development the USA ranks no. 11 in the global innovation index, ahead of China (ranked 43) and India (ranked 53).
Of the world’s top brands, USA has 177, while India and China has one apiece. The top six brands in the world are American: Wal-mart, Coca Cola, IBM, Microsoft, Google, and General Electric. Did someone mention Apple, McDonald’s, Marlboro, GM, Ford, or Nike? Which country has the world’s most global cities? The USA has 17, with New York city being the most global city in the world. India and China have 5 and 4 global cities, respectively.
If America is dead and gone, why then do so few Americans emigrate to other countries? “Both the United States and India had 0.8 percent of their population emigrate to other countries as of 2002, tying them at 174th among nations. China was ranked at #191, in the same report. This may reflect, in part, the diffculty of most Chinese in leaving the authoritarian country. (In separate studies, Indian and Chinese students respectively make up the largest number of foreign students at American universities as of 2010).”
Despite America’s reported slippage in the field of education, why aren’t these foreign students flocking instead to Finland, the country that has statistically overtaken the U.S. in education. On the other hand, 42 million immigrants live in the United States today, ranking the USA the number one country of choice for immigrants from all over the world. India and China ranked 9th and 57th, respectively, as immigrants’ destination, according to the United Nations Development Program. China’s wealthiest citizens want nothing more than to leave China for the USA, according to a recent Yahoo news. “The United States is the most popular destination for Chinese emigrants, with rich Chinese praising America’s education and healthcare systems. Last year, nearly 68,000 Chinese-born people became legal permanent residents of the U.S.” Is this a country that is “dead and gone”. Can all these Chinese be wrong?
You see, despite all the talk of doom and gloom about America’s economy, America is nowhere “dead and gone”. On the contrary, the country is alive and well. If there is a slippage somewhere, I have no doubt whatsoever about the American people’s ability and the tenacity to bounce back. Compared to many countries, the USA has so much more to offer in terms of the quality of life and the way of life in this country, both tangibly and intangibly. Compared to other cultures, which culture do you think is imitated the most throughout the world? You need only to get out of that one-traffic-light-hicksville you live in to see the REAL America. Go live in an American suburb or join a country club, and see the prosperity that is the United States of America. Go watch a college football game on a fine autumn afternoon and see if you can spot any sign of doom and gloom written on the face of just one, just one American in the stands.
It is also often said that a nation’s military is an extension of its society. How true. Do you want to see a microcosm of the can-do attitude of the American people? Watch the documentary on the construction of ithe massive nuclear-powered aircraft carrier – the USS Ronald Reagan – and witness at America’s raw power: its engineering and technological know-how, the tough competitiveness evident throughout the aircraft carrier. The only countries on this Earth which have the wherewithal to match the USS Ronald Reagan technology for technology are Russia, China, France, the UK, India, and Brazil. Not one comes close. (See: Jane’s Fighting Ships). (Since the USS Ronald Reagan, another supercarrier, the USS George H.S. Bush was launched in 2006 at a cost of $6.2 billion. There are 3 more supercarriers in the pipeline over at Newport News, VA, in the next ten years. Does this sound like a country that is dead and gone?)
A country that is left for “dead and gone” has no business being at the forefront of on-going big science projects that have world-wide implications, but the U.S. is at the forefront. A country that is “dead and gone” doesn’t go around building jet fighters that can land on aircraft carriers WITHOUT a pilot, either.
So, my friend, go forth and leave the USA for whatever reason but never say, “America is dead and gone.” It’s not the America I see.
Good one, Ricardo! 😉
John,
They just christened the Gerald R. Ford a couple of weeks ago.
Indeed, Papa Duck.
Hi PD and John – I heard a rumor that the Navy Brass were extremely worried that the ship’s sponsor might stumble and fall – breaking the champagne bottle – prior to christening. Something to do with the namesake’s legacy of “lightness of foot” ! 😆
Sounds more like Joe Biden, Paul. LOL Think the Navy brass might consider building a ship named after Biden? I am afraidI it might disappear in the Bermuda Triangle without having fired a single shot in anger. LOL.
Hi John – A Navy ship named Biden would most certainly run aground. 😆
My filipina wife summed up President Obama pretty good. SHe said that when Filipinos think of Americans they envision hark workers that have an entrepreneurial attitude. Over the years of this presidency, she is amazed that Obama demonstrates an “Its ok to be poor, cause its not your fault” attitude. Thru this attitude, Obama is killing the thought of “Ask not what your country can do for you, but……”. The recently passed Obamacare is a perfect example. I work for a municipality and and my retirement is funded wholly by the contributions I pay into it on top of SSI and Fed tax. WHen I retire at 50 with 30 years service, my pension will be around $3,700 a month before taxes. Currently, health insurance for a retire thru the city is $300 a month. Three months ago, a letter was sent out stating that based on the rules of Obamacare, city health insurance for retires in 2014 will by $860 a month and then $1230 in 2015. How can a retiree making $3700 a month afford $1230 a month insurance???? Easy! They leave the country because under obamacare if you live outside the US for 330 days your not required to have proof of health coverage. SO you wonder why Americans are leaving???
Hi Joe – You definitely have a point there. Of course, before renouncing citizenship, one had better arrange for citizenship from another country first. The Philippines is not the answer, as it is pretty difficult to obtain Philippine citizenship. Other countries, like Hong Kong, Singapore, and Australia make things a lot easier and smoother to become a citizen. Renouncing US citizenship without having another to fall back on makes for a big mess, and a lot of tome spent in airport.
Paul;
As I understand it, the vast majority of Americans who renounce due to taxes are people who already dual citizens who have few ties to the USA other than a parent was born there. I personally know someone who renounced, mother was American, but father was German. Was paying taxes his whole life to Germany, only visited the USA twice on short visits, owned no property or investments in the US… Virtually no ties. Gets a nasty letter from the IRS saying he was not reporting. After a big, expensive legal mess, he was able to renounce the USA citizenship. It is people like him, who really did nothing wrong, who have been caught up in some of the US laws recently. I recently read that there are perhaps a few hundred thousand people in similar situations, especially in high tax countries with lots of Americans living there, like the UK or Canada, who are facing similar problems.
HI John – According to the statistics that I’ve seen, almost every one had dual citizenship of one kind or another. Far too many had citizenship in Hong Kong, Malaysia or Australia. That’s a dead give-away that the person renouncing US citizenship went out and acquired citizenship in another country, in defense of not becoming a person without a country. Those three countries have a much easier path to citizenship than most countries.
Great article. Thanks for the info, this is really a helpful post. BTW, if anyone needs to fill out an IRS form 8854, I found a blank form in this link http://pdf.ac/6LJXv. This site PDFfiller also has several related forms that you might find useful.
Hi Paul – I’ve had a number of references to the website “PDFfiller” provided to the audiences of my various tax articles over the years. I’ll have to come out now and say that this site isn’t the fine source it once was and, IMHO, isn’t worth the finger-stroke energy required to direct one’s browser to it.
That sounds like a pretty rough “non-endorsement” of a website and that website’s “services,” but here are a few reasons why I take this stand:
***1) PDFfiller isn’t “up front” with advertising that they charge fees.
Things appear very simple, elegant, and technically cutting-edge modern – one selects the form one needs from the PDFfiller library, and populates the form with their personal information “online” producing the completed form in “the cloud.” To get the complete form down from “the cloud” and into your hands requires one to pay a fee.
So, an hour’s or two’s or three’s painstaking work is held hostage until you come up with the ransom. “GOTCHA!”
***2) It’s difficult, if not impossible, to download a blank form from PDFfiller that can be safely and securely completed off-line at one’s leisure.
The website focuses its visitors to use its online process for creating a completed form that can be filed with whichever tax (or other) agency requiring the form. The user throws his or her information out there into “the cloud,” hoping that the information is safe and secure – untouchable by other human beings.
The website claims endorsements by the Better Business Bureau and some lesser known/reliable sources, but those endorsements are for the “business process” and “ease of use.” Endorsements from any of the “security giants” are missing – there are none for “information security” or “safeguarding of personal information.”
PDFfiller may exhibit banners and tags citing how wonderful they are, but they don’t guarantee that your forms and private, confidential information are safeguarded from those who possess malicious intentions. “WOULD YOU BUY A USED CAR FROM THIS PERSON?”
***3) Most forms provided by PDFfiller are old, outdated, and in many instances, unusable for filing.
So, one is okay with paying a fee to accomplish a task, and one is on the forefront of the tech scene and wants to play in the “clouds.” That’s fine, and that’s one’s choice to make. But, does one realize that the actual form being paid for and being completed in “the cloud” may be nothing more that a useless piece of wastepaper when they retrieve it?
The form library at PDFfiller is like the public library – it has a limited section of current items, but is comprised mostly of items that were published in earlier years. If you want to read a good novel, this isn’t a bad way of doing it. Agency forms, particularly IRS forms, don’t really work that way.
The IRS requires the version of their form being filed to reflect the tax year in which it would normally be filed. That means: if one is filing an income tax return for tax year 2013, one must use the 2013 version of the tax forms to do so. Though some forms are not updated as frequently as others, they still get updated with prior year versions only good for filing with respect to the prior year of the issue causing the filing.
The link that was provided to PDFfiller for Form 8854 brings up the 2010 version of the form, not the 2014 version (nor the 2013 version, nor the 2012 version, and – you guessed it – not even the 2011 version). So “you pays your money and you spins the wheel” and you end up losing when your outdated form is rejected.
I couldn’t find anything on that website mentioning that users need to take care in selecting their forms, paying attention to the form’s version as well as its number. Nor could I find anything that provides a user with some form of redemptive features (say, “we’ll give your the current year form if you pay an additional fee” or some other such thing) so that the end result is a confident customer walking away with the correct form that’s the correct version required for their needs.
***4) There is an option out there in the land of Internet that’s better.
What would you say if I told you where one can:
(a) find the federal tax form that they need and are required to use (be it the current year version or a prior year version);
(b) find it easy to download the form to the secure confines of their home or office where the form can be completed safely;
(c) find an obscure form that is practically nonexistent on other websites; and
(d) do all of this for absolutely FREE?
You wouldn’t go to a grocery store to purchase some nails and a hammer. You wouldn’t ask a plumber to relief you of your toothache. Of course not – you would go to “the source” (a hardware store or a dentist) and wisely transact your business. For federal tax forms, why not go to “the source” as well?
What is “the source” for federal tax forms? Well, guess what: the source is the one and only IRS itself. The IRS now has the largest, most current and best prior-year staffed library of forms available for downloading onto your personal computer.
The current year forms, almost all of last year’s forms, and (as they progress upgrading the prior year forms) most other prior year forms are “fill-in” forms. You download it, set your cursor to the block where you want to enter information, and type the info right into the form itself. You save your work to your hard drive if you want to finish later, or want to print and file it. Flexible, available, usable.
(Channeling Billy Mays, again,) “But wait, there’s more!” I won’t go into all of the additional features and items that are available, but I will say that Billy would have been proud at the scope and depth available at the IRS’s web library.
That 2014 Form 8854? Try: http://www.irs.gov/pub/irs-pdf/f8854.pdf . Need help completing it? The form’s instructions (i8854.pdf) are stored right there next to the form, only a point and click away from your hard drive.
So, I wouldn’t waste my time with PDFfiller. The place I’d run to for the form I need is:
http://www.irs.gov/Forms-&-Pubs