Why U.S. Pursues Citizens Overseas / Important if you EVER consider living outside of the USA again

[OnTheGo]

Another interesting article .. and even way more (!) interesting comments by people actually suffering under the ridiculous CBT (citizenship based tax) system (which includes LPR, green card holders, too btw!) that the USA has as the ONLY developed nation on the planet:

Article on WSJ (Wall Street Journal) from last year:
http://blogs.wsj.com/washwire/2012/05/18/tax-history-why-u-s-pursues-citizens-overseas/
Comments on that article:
http://blogs.wsj.com/washwire/2012/05/18/tax-history-why-u-s-pursues-citizens-overseas/tab/comments/

"...the crazy double taxation/FATCA laws [...] how ridiculous, onerous and how unbelievable the penalties for lack of compliance even if out of ignorance are. These stupid laws have made it difficult to live abroad on many levels, not to mention finding a bank that will actually do business with you.

Personally, I can’t believe that our Founding Fathers would have agreed with this policy and it certainly isn’t helping our competitiveness in getting the best and the brightest to take on American citizenship for the double taxatio/FATCA policy. Many want to bypass the bank boycott and other craziness that makes life extremely complicated and have the ability to move around as need be and not worry about complying from abroad with ever more complicated paperwork and expose themselves to mammoth penalties. The reality is that many people abroad don’t know all their reporting obligations and could “owe” the IRS tens of thousands because they didn’t know they had to file an invasive report of all their foreign bank accounts that surpass 10K to two different US entities, for example.

I live abroad right now, I don’t work, but my husband a green card holder does. He doesn’t have the right to vote, yet under this ridiculous tax system that only the US, North Korea and Eritrea follow he actually owed taxes this year. Why is this fair??? And when he pays 20% VAT and 50% tax in our current country, I am left to wonder why we are paying more for a system that we are not benefiting from, while 47% of Americans are reportedly not paying federal taxes at all.

It is in EVERYONE’s interest that our country stay competitive by making it easy for people to move around and work abroad. We are in a global economy and these policies make Americans too expensive and hamstring our business abroad. Some have cited the implementation of the double taxation policy with the beginning of our trade imbalance. Clearly from the comments most here have not.."

"Three demographics are affected by these tax rules:

1 – wealthy citizens relocating abroad to avoid taxes

2 – citizens living abroad either due to job relocation and/or marriage

3 – children born abroad of U.S. parent(s)

An exit tax on someone in the first demographic is understandable. However, the argument to tax anyone in the second or third demographics is much more challenging.

Take someone in the third demographic as an example. To suggest that a citizen who is born and brought up abroad, should somehow owe the IRS an annuitized tribute on his/her lifelong revenue, eventhough he/she is a foreign national and resident, is the equivalent of the State ownership of its citizens: Slavery…"

"Did your ancestors immigrate from elsewhere to U.S.? Unless they are native Americans, the
answer is yes.

Did their homeland stalk them for life demanding a share of the wealth they earned in US? Did
their homeland claim financial rights over their children? The answer is likely No.

Yet, that is exactly what US is doing to former and current citizens who choose to live outside
US borders. The reasons are as diverse as the individuals themselves. Some are aid workers in
Africa, some are executives in Europe, some are homemakers, some are journalists. Many are
citizens of other countries.

Some–like me–are retirees–who spent their entire adult life working, earning a living, raising a
family, owning a home, voting, volunteering and contributing in another country. When many of
us became citizens of another country four, five or even six decades ago, US Consulates told us
we were “permanently and irrevocably” relinquishing our US citizenship.

Now, suddenly Congress and IRS are acting like a long divorced bitter spouse, stalking us for a
share of our life savings, which was entirely earned, saved, invested and taxed at high rates in our
country of residence."

"They are also demanding our banks reveal all of our savings and financial holdings to IRS beginning in 2014. If we do not consent, IRS expects our banks, where we have been customers for years or even decades to close our accounts. This is in violation of privacy, banking, and constitutional laws in my country and in many other countries. Unfortunately, US only cares about its rights and laws–not those of other democratic independent nations."

 

[OnTheGo]

Some useful links ...

http://www.irs.gov/Individuals/Inte...ional-Individual-Tax-Matters#GreenCardHolders

http://www.irs.gov/publications/p519/ch04.html#en_US_2012_publink1000222390

http://www.irs.gov/publications/p519/ch01.html#en_US_2012_publink1000222158

Green Card Holders1. What are my responsibilities as a green card holder if I have been absent from the United States for a long period of time?
As a green card holder, you generally are required to file a U.S. income tax return and report worldwide income no matter where you live.
However, if you surrender your green card or the U.S. Citizen & Immigration Service determines that you have abandoned your green card and takes it away from you, you will need to follow the nonresident alien requirements for filing a Form 1040NR, U.S. Nonresident Alien Income Tax Return(PDF). See Publication 519, U.S. Tax Guide for Aliens, for more details.
Return to FAQs
2. I was a long-term resident of the United States prior to surrendering my green card. What is my U.S. tax filing obligation?
You are a long-term resident for U.S. federal income tax purposes if you were a lawful permanent resident of the United States (green card holder) in at least 8 of the last 15 tax years ending with the year your residency ends. In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits.
If you are a long-term resident who has surrendered your green card, you may be subject to the expatriation tax. Please refer to the expatriation tax provisions in Publication 519, U.S. Tax Guide for Aliens, and in later questions. In general, the expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their residency. The rules that apply are based on the dates of expatriation.
You may also be a dual status alien if you have been both a resident alien and a nonresident alien in the same tax year. Dual status does not refer to your citizenship, only to your resident status for tax purposes in the United States.

• For The Part of the Year that You are a Resident Alien, you are taxed on income from all sources: inside and outside of the United States.
• For The Part from the Time that You Abandon Your Green Card, you are taxed on income from U.S. source only.

Return to FAQs
3. I am a green card holder. May I claim residence in a foreign country under a tax treaty and obtain benefits under the tax treaty?
As a green card holder, you are a U.S. tax resident. However, the definition of residency under U.S. tax laws does not override tax treaty definitions of residency. If you are a dual-resident taxpayer (a resident of both the United States and another country under each country's tax laws), you can still claim the benefits under an income tax treaty.
The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence (tie-breaker rule). If you would be treated as a resident of the other country under the tie-breaker rule and you claim treaty benefits as a resident of that country, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident. For example, the rules discussed here do not affect your residency time periods as discussed in FAQ 17 above.
If you are a dual-resident taxpayer and you claim treaty benefits as a resident of the other country, you must file a return by the due date (including extensions) using Form 1040NR or Form 1040NR-EZ, and compute your tax as a nonresident alien. You must also attach a fully completed Form 8833 if you determine your residency under a tax treaty and receive payments or income items totaling more than $100,000. You may also have to attach Form 8938 (as discussed in Other Forms You May Have to File under Chapter 7 of Publication 519). For more information on reporting treaty benefits, see Reporting Treaty Benefits Claimed in Chapter 9 of Publication 519.
If you are a long-term resident and you claim treaty benefits as a resident of another country pursuant to a tax treaty, you may be subject to the expatriation tax. Please refer to the expatriation tax provisions in Publication 519, U.S. Tax Guide for Aliens, and in later questions.
Return to FAQs

Foreign Earned Income Exclusion (Form 2555)
1. What deductions and/or credits am I allowed on my U.S. income tax return as a U.S. citizen living and working in a foreign country?
U.S. citizens and resident aliens living outside the United States generally are allowed the same deductions as citizens and residents living in the United States. If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a foreign tax credit on foreign income taxes or an itemized deduction for eligible foreign taxes. However, if you take the foreign earned income exclusion your foreign tax credit or deduction will be reduced.
If eligible, you can claim a foreign tax credit on foreign income taxes owed and paid by filing Form 1116 with your U.S. income tax return. See Publication 514, Foreign Tax Credit for Individuals for more details.
You may also be eligible for the foreign earned income exclusion. See the “Foreign Earned Income and Housing: Exclusion – Deduction” section of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad for more details. Please note that for purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. This includes amounts paid from both appropriated and nonappropriated funds.

{...etc....}

 

[OnTheGo]

Income tax to be paid to the US on an actual LOSS (this one is called "phantom income"):

• 9:33 am July 21, 2012
• James wrote :

The US policy of citizenship based taxation even results in some citizens living abroad having “phantom income”, which is not real income, but it ends up being taxed by the US.
Phantom income exists because the IRS requires all US citizens living abroad to calculate their taxes in US dollars, even if the person does not earn or us US dollars. Here’s an example:
Let’s presume we have a US citizen – John – who has lived in Australia his entire life. John, however, holds both Australian citizenship because he was born there, and he holds US citizenship because his mother was from the US.
From Australia’s point of view, John is subject to Australian taxes because he is a resident of Australia. From the US’s point of view, John is subject to US taxes because he holds US citizenship.
Now, let’s say that John buys some investment property in Australia for AU$100,000. After ten years, the property has not increased in value, in fact it has lost value and is now only worth AU$90,0000. John decides to sell the property for AU$90,000. This would mean that John lost money on the investment. He sold the property for the less than he paid for it and lost AU$10,000
BUT – the IRS will require John to report the transaction in US dollars, and they require him to use the individual currency rates of exchange in effect on the dates that he purchased the property and sold the property.
On the date John bought the property, the Australian dollar was worth 50 US cents. So the IRS would say that the AU$100,000 purchase price of the property was equal to US$50,000. On the date John sold the property, the Australian dollar was worth 95 US cents. So, again, the IRS would say that the AU$100,000 sale price of the property was equal to US$85,500. The IRS would then subtract the US$ purchase price ($50,000) from the US$ sale price ($85,500) and claim that John made a profit (capital gain) of US$35,500 and they would expect John to pay US income tax on this profit.
John’s “profit” is called phantom income. It would only exist if John had taken US dollars on the day he purchased the property, converted into Australian dollars that day, bought the property, waited 10 years, sold the property and converted the Australian dollars he received back into US dollars.
But, since John’s transaction was entirely in Australian dollars, he actually had a loss – he bought the property for AU$100,000 and sold it for AU$90,000. Still, the IRS will insist that John had income because they require transactions to be reported in US dollars. The IRS even admits that phantom income occurs, but they still would require John to pay US income tax on his phantom income.
Worse than that. Because this is investment income, it could not be included from US tax under the foreign earned income exclusion, which applies primarily to salaried income. Additionally, because there was no income in Australia, there wouldn’t even be any Australian tax to offset the US tax. The US would expect John to pay tax on income he never had.
The US should abandon citizenship based taxation and move to a residence based system like the rest of the world follows. In fact, even the US states with an income tax use a residence based system.

 

[SusieQQQ]

I'm kind of ya-ya- we all know the problems with the system.

I found this bit very interesting though... Britsimon maybe find out more from your tax guy? I'd been worried if one tried this it would have ramifications for LPR status/time to citizenship but apparently not...

---
The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence (tie-breaker rule). If you would be treated as a resident of the other country under the tie-breaker rule and you claim treaty benefits as a resident of that country, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident. For example, the rules discussed here do not affect your residency time periods as discussed in FAQ 17 above.
----

 

[OnTheGo]

http://www.wts.de/en/docs/Greencard-steuerlicheFolgen_ManuelVogt_ENGL.pdf --> Good run down on tax obligations by Green card holders living in or outside of the US.

 

[newacct]

http://www.wts.de/en/docs/Greencard-steuerlicheFolgen_ManuelVogt_ENGL.pdf --> Good run down on tax obligations by Green card holders living in or outside of the US.

Green card holders are required to maintain residence in the U.S., or they lose their permanent residency. So "green card holders living outside the U.S." doesn't really exist.

 

[Britsimon]

Green card holders are required to maintain residence in the U.S., or they lose their permanent residency. So "green card holders living outside the U.S." doesn't really exist.

You can get permission to live outside the US for a long period of time -two years at least, perhaps longer.

 

[rogers.com]

(214)b refusal and DV interview

I know am posting the question to the right thread on behalf of a fred a DV winner, he was denied B1 visa twice on 2012 and 2013 on sec (214)b where he was to attend a medical conference what they term as immigrant intent because he had previously partcipated in DV lottery. luckly after denial in feb 2013 he found later he was one of 2014 dv winners will this denial jeopardize his DV interview? .

 

[Britsimon]

I know am posting the question to the right thread on behalf of a fred a DV winner, he was denied B1 visa twice on 2012 and 2013 on sec (214)b where he was to attend a medical conference what they term as immigrant intent because he had previously partcipated in DV lottery. luckly after denial in feb 2013 he found later he was one of 2014 dv winners will this denial jeopardize his DV interview? .

Merely entering the DV lottery won't normally get a denial of a temporary visa on the grounds of immigrant intent. Fred must have failed to demonstrate sufficient ties to his home country in other ways so the DV entry was only a part of the overall picture. FYI, SusieQQQ got a B1 approved AFTER she had won and AFTER she had submitted her 122/230 forms. Submitting the forms is "normally" the point at which immigrant intent is demonstrated but as Susie proved it is still possible to get a temp visa approved even after that point.

Now then, to your question. No the previous denial won't affect the DV process - but the DV process will prove that the original CO was right!

 

[SusieQQQ]

Merely entering the DV lottery won't normally get a denial of a temporary visa on the grounds of immigrant intent. Fred must have failed to demonstrate sufficient ties to his home country in other ways so the DV entry was only a part of the overall picture. FYI, SusieQQQ got a B1 approved AFTER she had won and AFTER she had submitted her 122/230 forms. Submitting the forms is "normally" the point at which immigrant intent is demonstrated but as Susie proved it is still possible to get a temp visa approved even after that point.

Now then, to your question. No the previous denial won't affect the DV process - but the DV process will prove that the original CO was right!

Just on a point of fact, the B1 visa approval was after another immigration petition (family based) had been approved, but the principle stands as immigrant intent was clear. I subsequently entered the US on that visa a few times, including after submitting my forms to KCC, without a problem.

 

[Britsimon]

Just on a point of fact, the B1 visa approval was after another immigration petition (family based) had been approved, but the principle stands as immigrant intent was clear. I subsequently entered the US on that visa a few times, including after submitting my forms to KCC, without a problem.

Thanks for that Susie - please excuse me using your case as an example (not for the first time either) but it is useful to dispel a myth. It helps to get it accurate though! Thanks

 

[rogers.com]

Thanks britsimon and sussie qqq for kind help if (214)b denial wont affect his interview though it should not be taken for granted that some consul might consider as a reason to deny a NIV if yu have previously participated in DV lottery though every case is unique by itself. thanks again.

 

[OnTheGo]

You can get permission to live outside the US for a long period of time -two years at least, perhaps longer.

Green card holders are required to maintain residence in the U.S., or they lose their permanent residency. So "green card holders living outside the U.S." doesn't really exist.

I know of someone (a friend's brother) who has the green card and been living overseas for years...all he does to maintain his permanent resident status is that he enters the US for a short time once per year. That is all that is required from what I understand. He has been in and out of the US since his early 20's and he is now in his 50's. He worked in places like Dubai, Kuwait and is now based in India. He married someone from some African nation (can't remember which one) and they were planning on returning to the US together, however her visa application has been dragging on for (years?).

 

[Britsimon]

I know of someone (a friend's brother) who has the green card and been living overseas for years...all he does to maintain his permanent resident status is that he enters the US for a short time once per year. That is all that is required from what I understand. He has been in and out of the US since his early 20's and he is now in his 50's. He worked in places like Dubai, Kuwait and is now based in India. He married someone from some African nation (can't remember which one) and they were planning on returning to the US together, however her visa application has been dragging on for (years?).

Good point - that would do it too. As long as he is filing all the necessary tax filing etc then no problem...

 

[s6656]

You can get permission to live outside the US for a long period of time -two years at least, perhaps longer.

I spoke to my lawyer abt this. As a green card holder, you can only live outside US for max of 2 yrs only. My son has to serve National Service in my home country for 2.5 yrs. According to my lawyer, he has to return before the end of the 2 yr period, file another extension and once it is accepted you can leave again. This can be only done, if you have a good reason.

 

[Tazmania]

Taxation is usually not an issue because almost every country has higher income tax than the U.S. and you end up paying 0.

 

[Britsimon]

Taxation is usually not an issue because almost every country has higher income tax than the U.S. and you end up paying 0.

Yeah agreed, but you also spend a lot of time (and probably money) in complying with US tax laws. I think the US expats that are dumping their passports are doing so because of the unfair burden of paperwork, and the draconian approach by the US government, not the tax itself.

 

[Britsimon]

I spoke to my lawyer abt this. As a green card holder, you can only live outside US for max of 2 yrs only. My son has to serve National Service in my home country for 2.5 yrs. According to my lawyer, he has to return before the end of the 2 yr period, file another extension and once it is accepted you can leave again. This can be only done, if you have a good reason.

But as OnTheGo said, it would be possible to restart that 2 year clock by visiting the US every so often...

 

[newacct]

You can get permission to live outside the US for a long period of time -two years at least, perhaps longer.

You are still required to demonstrate that you maintain residence in the U.S., or you lose your permanent residency -- if you are doing that, then you are claiming that your home is actually in the U.S., no matter where you may be physically located.

 

[OnTheGo]

You are still required to demonstrate that you maintain residence in the U.S., or you lose your permanent residency -- if you are doing that, then you are claiming that your home is actually in the U.S., no matter where you may be physically located.

My friend's brother (see my post further up) actually owns a condo in Puerto Rico, so maybe that helps to meet the 'maintain residence' requirement, in addition to filing tax returns every year.

In all honesty, realizing that he will have earned tax free salary in places like Dubai and Kuwait for years means that he would have been fully hit with taxes imposed by the US while living in those places...if it wasn't for the foreign earned income exemption (FEIE) ("you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($91,500 for 2010, $92,900 for 2011, $95,100 for 2012, and $97,600 for 2013). " - but that only applies to incomes like salary and NOT to passive incomes or income from being self-employed!
These are VERY important things for people to know, if they think there is a chance of ever working abroad (outside of the US) again in the future. And because of these "citizenship based taxation" laws the US holds onto, it is no surprise that an increasing number of green card holders are actually dumping (or letting expire) their visa status.