I’m often asked about whether I accept guest posts. I do. Once per year. And it’s that time of year!
Earlier this year, I announced my annual call for guest posts where I offered readers the chance to answer one of six tax-related questions. I chose, out of all of the submissions, thoughtful posts that represented a mix of viewpoints on each of the issues. That mix means that there might be opinions that differ from yours – and that’s okay. Feel free to chime in with your own thoughts as a comment. Remember, however, that the normal terms and conditions for Forbes apply to comments: additionally, I have my own rules (they can be summed up in two words: play nice).
Giving Up Citizenship Because Of Taxes
Would you be willing to give up your citizenship if it meant you would save money in taxes?
“No, of course I wouldn’t!”
The newspaper article in front of us was about rich people expatriating to avoid taxes. My friend pushed it away and spoke reassuringly: “It’s ok, I didn’t think you would….”
That was around 15 years ago. I felt a bit indignant at her question, and that may have been because I used to experience a sort of gladness when doing my taxes, a feeling that the experience made me part of something significant.
My earnings as a typist, and then later as an artist/small business owner, were never high. But the act of preparing my 1040EZ or 1040A, and later also the Schedule C, felt important and they created in me a sense of belonging as well as duty.
One thing that made this possible was the very clear design and instructions of the federal tax forms.
But by far the most important factor in boosting my loyalty and confidence was the obvious fairness of the penalty structure. As I recall, penalties then were only taken if tax was actually owed but had not been paid in time. They were assessed by adding a percentage of the tax overdue at a rate that seemed moderate and fair.
It was a tax system that inspired confidence and loyalty, which I found especially important during the startup of my business, when I was working 18-hour days but not yet turning a profit. Exhausted and hungry I might have been, but frightened of the IRS I wasn’t. I saw the system as fair and considerate, and was happy to be part of it.
Oh what an innocent time that was. How little we knew of the tragedy soon to come our way on 9/11.
The ensuing restrictions ended my business. My mother was also becoming increasingly unwell, so I went to live with her.
Fast forward eight years: My poor mother’s illness had become so severe that I was nursing her night and day, unable to leave the house, utterly exhausted. We had no broadband access and very little contact with the outside world. If I thought about taxes at all during that time, it was to thank Heaven that my income (from a tiny pension taken early) was well below the filing threshhold.
Inevitably, my mother’s illness drew to its close and we said our saddest goodbye. Then gradually, as my exhausted mind recovered, I began to re-enter the outside world.
I started researching at the public library to find out what, if anything, would be required in taxes as a result of my mother having bequeathed me a share of her assets.
The information was reassuring: My income (under $4,000) was indeed too low to require the 1040, and inheritances were received tax free.
What a relief. I had already passed the age of 60, so if I could find a very cheap place to live, and could eke out her bequest without drawing on my social security until age 70, its rate should then have risen j-u-s-t enough to live on. There seemed little hope of finding a job, since my skills and references were more than 10 years out of date; but once settled in, I would definitely try.
Such are the plans of mice and men….
Then, further research at the library revealed absolutely devastating news: Not only would I have to file a tax return after all (***Why? – you may well ask. Soon to be explained.***), in fact I would have to file THREE returns annually, covering two different tax periods, two different exchange rates, two currencies, three different sets of rules, three filing deadlines, with risk of $60,000 in penalties if filing late in the first year, and risk of $30,000 in late filing penalties each subsequent year for several years thereafter.
Even more horrifying was the realization that IF I had held power-of-attorney to manage my mother’s multiple small accounts, I would have been looking at a potential $360,000 in penalties already accrued, even though the accounts would have been managed entirely for her benefit. In other words, with zero tax due, I could face bills totaling four times my mother’s entire bequest to me.
I began to feel abject horror, and then bitter hatred of the system I had once admired and praised so readily.
Except it WASN’T the same system at all. There had been more than 5,000 changes to it since the day my friend had asked the question about expatriation.
Legislators had found themselves struggling to respond to multiple traumas: 9/11, the ensuing Iraq war, bank failures, the recession, financial globalization, and last but not least the desperate plight of those workers whose occupations had been wiped out by automation, leaving an ever-widening gap between have’s and have-not’s. Legislators desperately sought to find funds, and they hoped that constraining financial criminality might provide some.
Laudable goals, BUT alas their implementation was tainted by a mechanism that reoccurs throughout our history in times of famine and scarcity: Xenophobia. Things foreign come to be seen as intrinsically “threatening” and “criminal.” Foreigners are assigned the role of scapegoats.
Now, if you recall my earlier note: “(***Why? – you may well ask. Soon to be explained.***),” well here is that explanation:
Had my mother lived in Florida, or Maine, or any one of the US states, when I moved from Pennsylvania to care for her, I would now be living out my final years entirely free of tax and reporting obligations.
But she didn’t. She lived in Europe and was solely a citizen of the country where she lived. I now live there, too, feeling that I am too old to start over yet again, and expect I will end my days here.
This meant that her local accounts (and now my local accounts too) are considered “foreign accounts” under current US law, and therefore in current US law can attract reporting requirements with horrendous, punitive, vindictive penalties for failure to file, even if absolutely no tax is owed, if there is any connection with any “US person”.
So will I renounce to avoid taxes? Not exactly, because I DON’T OWE taxes due to my very low income. BUT IN ORDER TO AVOID THE CONSTANT THREAT, like a huge hammer hanging over my head, of “INFORMATION FILING PENALTIES” as I grow older and less able to cope. To protect my executors from those same things?
YES, I’m afraid I shall have to. I have put off taking this step until now, partly because of the cost and my fear of the long journey to the embassy in a distant city; but mainly in the hope that my beloved homeland would regain its wisdom and fix its mistakes by switching to an equitable system of residence-based taxation with penalties that reflect only a percentage of tax actually owed.
And now it seems I have waited too long. A price increase from $450.00 to $2,350.00 was just announced. I may be trapped. I am becoming desperate to escape, but unable to afford it.
What a silly situation this would be, if it weren’t so very tragic.
Oh my dear, sad homeland. I do so wish you happiness and a return to shared prosperity. Please do the same for me. Thank you.
*Tisha (who prefers not to be identified by last name) remembers fondly her years in Pennsylvania and its wonderful people. She now feels she is too old to start over again, and so remains in her mother’s country.