Taxes

The Insatiable Taxman

New laws push expatriate Americans to keep their money in their mattresses.

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Does the government have a right to your money after you've paid taxes on it? This question, unsurprisingly, has considerably more urgency for me at age 44 than it did at 24. The answer, in an age of chronically underfunded and overspending governments the world over, is increasingly disturbing.

I married my wife, a French journalist, in 1997. Sometime prior to that she had written some articles for a couple of U.K.-based newspapers. She opened a bank account in London to ease the transactions and provide a little walking-around money when she visited town. Since her primary source of U.K. income collapsed in the late '90s, the account has languished in the three figures for more than a decade.

Under tax rules that went into full effect this year, we have to report that little savings pot—including the account number and the maximum value of the holdings during the calendar year—to the Internal Revenue Service (IRS) every April 15, or face up to a $100,000 fine and five years in prison. This is true for every American (which my wife now is) who holds more than $10,000 in foreign-based financial institutions, either individually or together with his spouse, assuming they file a joint return.

Back when I was living in Bratislava and making money as a street musician in Vienna (don't ask), I opened up an Austrian savings account just to deal with the plethora of pfennigs. It is possible that account still exists, with about $1 in it, and that by not reporting it to Uncle Sam I am technically a scofflaw. Coins are for piggy banks, not the real things!

There are many things American residents do not realize about their 6 million or so countrymen living abroad. One of them is that the United States—unlike every other country in the world except Eritrea—taxes its citizens based on passport, not residence. If my French-American daughter moved to Lyon tomorrow and lived there for the rest of her life, she would be obliged to file a U.S. tax return every year, including all those aforementioned intimate and convoluted banking details. (So convoluted that my paid tax preparer this year contemplated the TD 90-22.1 form used to report holdings in foreign financial institutions, shrugged, and handed me a highlighter pen in case I could figure the damned thing out.)

But it gets worse for our expatriate friends. That's because in 2010 a revenue-starved populist Congress passed an abomination of a law called the Foreign Account Tax Compliant Act (or—you guessed it!—FATCA) "to combat tax evasion by U.S. persons holding investments in offshore accounts." The law jacked up the penalties for those of us above the $10,000 threshold and created a new form-filling threshold at the $50,000 level ($100,000 for joint filers). It also charged IRS agents with determining whether the foreign assets Americans report were properly taxed before being parked abroad. "Underpayments of tax attributable to non-disclosed foreign financial assets," the IRS website warns, "will be subject to an additional substantial understatement penalty of 40 percent." Worse, FATCA requires foreign financial institutions to disclose information about their American customers to the IRS and send 30 percent of assets believed to be untaxed directly to the U.S. government.

Close your eyes for five seconds and imagine what "unintended" consequence might result from such an unprecedented power grab in the name of bringing rich tax outlaws to heel. Yes, that's right: Nonrich Americans the globe over can no longer open bank accounts.

A group called American Citizens Abroad collected dozens of stories from such Americans for an April 2012 letter to the IRS. Here's an American retiree and former non­governmental organization employee who has lived in Geneva for all but four years since 1973: "Just since the beginning of the year, I have been informed by one of Switzerland's two largest banking institutions that due to the fact that I am an American, I had to divest myself of all my investment holdings in their financial institution. Another bank agreed to accept my investments; then, just this month, on the day that I went to sign the papers, I was informed that the authority to do this had been withdrawn.…I feel that I now am being squeezed between my country of citizenship and my country of residence and they are forcing me to choose my mattress as the only site where I can place my savings. I am an American who loves my country. I always have filed my U.S. income tax return.…I do not understand why my government is treating me this way."

Suddenly (and I mean "why doesn't my ATM card work anymore?" suddenly), expatriate Americans are discovering they can no longer use banks where they live. Some are opting to renounce their U.S. citizenship rather than continue dealing with the hassle. A presumed record of at least 1,788 Americans turned in their passports in 2011. We know that number because the IRS publishes a "name and shame" list of citizenship renouncers it suspects of evading taxes each year.

Who are these hateful tax evaders? Some are billionaires, such as Facebook co-founder Eduardo Saverin, a longtime Singapore resident and dual national who renounced his U.S. citizenship in advance of his company's initial public offering. But many are guys like Peter Dunn, a dual American-Canadian citizen, married to a Canadian, who has lived abroad for a quarter of a century, and who (according to a Reuters article) "felt American citizenship had become more of a liability than a privilege."

"If it was just me then it would be one thing," Dunn told Reuters in April. "Disclosing joint accounts I hold with my wife and anyone I ever want to do business with—that's just too much. My wife's account is none of their business." FATCA is "making life difficult for a lot of people," he said. "It's driving us away."

What's the upside of such harassment? The U.S. Treasury projects that increased FATCA enforcement will bring in a little less than $1 billion a year. The federal government spends about that much every two and a half hours. And in case the cost-benefit formula isn't whacked enough, consider that Swiss and other European expatriate executives who live and work in America are seeing their home-country bank accounts unceremoniously shuttered by financial institutions that just don't want to deal anymore with anything involving the United States. In an age of globalization, when countries that trade are countries that thrive, Washington is making it much more difficult for Americans to live abroad and for the best and brightest foreigners to live here.

How has Congress reacted to this mess of its own creation? Sen. Chuck Schumer (D-N.Y.) in May unveiled yet another ham-handed acronym of a bill: The Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy (ExPATRIOT) Act. Schumer's brainchild would slap a 30 percent tax on the capital gains of anyone renouncing U.S. citizenship and bar him from ever setting foot in the country again.

All because Americans have the temerity to park their after-tax money in financial institutions and don't want to face draconian IRS sanctions should they fail to understand the inscrutable filing requirements. This is what happens when government is as broke as its politicians are immoral. Time to invest in mattresses. 

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100 responses to “The Insatiable Taxman

  1. My brother, an otherwise mostly sensible person, believes fervently in a “wealth tax”.

    He gets mad when I tell him it’s a stupid and grotesquely wrong idea.

    1. You mean like a property tax?

      1. You don’t own that.

  2. Back when I was living in Bratislava and making money as a street musician in Vienna…

    This is like a kind of word-beard. Welch continues to write things or say things or fail to groom things that inevitably become the focus of interest, thus knocking readers/viewers completely off topic.

    1. I read that and keep thinking about Hitler for some reason.

        1. I see you’re forgetting your The Boys from Brazil.

      1. Well, Welch was turned down by the Vienna Art Institute. And curiously, none of his music ever described people.

        Make of it what you will.

        1. So, Matt Welch was performing songs about buildings and food? Hmm. I sense a lawsuit in the making. He may owe some roylaties.

          1. Did he sing “Don’t Worry About the Government”? Because we might have to have another purity purge.

            1. Not admitting anything on Matt’s behalf, but if he were to have sung such a song, he would have obviously intended it to be sarcasm. And sarcasm, however poorly it may be done, is never against the tenets of libertarianism.

              Hell, I think it’s required, isn’t it?

              1. Actually, I think song is sardonic. Therefore, singing it sarcastically would be statist.

                In deference to his work on behalf of libertarianism, however, I vote we only purge one of his ties.

                1. If he was a street musician does that mean he was taking advantage of the roads?

  3. “I do not understand why my government is treating me this way.”

    Fuck you. That’s why.

    1. Social contract, blah, blah, fucking blah.

      1. These days, “social contract” uses “contract” in the sense that paid assassins use it.

        1. I like that analogy

          1. It’s not a suicide pact! It’s a homicide pact!

      2. Funny thing about that social contract. I never signed it! Apparently, it was signed for me before I was even born. Even worse, the party signing it for me is also the party on the receiving end of the payments I am obligated to make. All very fishy, I’ll have to talk to someone from the Government to help me see the light.

        1. I think that’s the socialism contract.

          If you and ten friends get together and agree to take money from some people and give it to others, and you go and take the money, that’s a conspiracy to commit theft.

          If voters do the same thing, it’s social justice.

          1. Or the Chicago Teachers’ Union.

  4. My son was born in the US but we left when he was about 18 months old. I already have to deal with this crap now that we’ve started an education savings account for him, but we’re holding off on renunciation in case he decides to go live in the US.

    Good move? Bad move? Renounce now? Hang on? Any advice from the local commentariat?

    1. This form is too complicated! I forgot I owned that account! I’m a baby!

      The IRS grows weary of your excuses.

    2. You can renounce without affecting your spawn’s citizenship.

      And I would imagine the already shitty deal for renouncing will only get worse in the future.

      1. Chucky Bitchtits has altered the deal. Pray he does not alter it further.

        1. And thank God I retired, there is no way I am taking garrison duty in Bespin!

      2. I am not an American citizen, only my son is.

        1. I don’t know if a child can have their citizenship renounced by their parents, but I can’t imagine why you would want to unless and until he starts earning some pretty serious coin.

          Why do you have an education savings account for him if you aren’t a citizen? Do you owe any American taxes at all, as a non-citizen who doesn’t live here?

          1. I am Canadian, living in Canada. He was born in the US. He has triple-citizenship (Canada, USA, Italy).

            but I can’t imagine why you would want to unless and until he starts earning some pretty serious coin.

            He might soon be, albeit indirectly: interest in a Registered Education Savings Plan in Canada. Since he has a financial interest in it and it is valued over $10K, I had to declare it to the IRS this past April (and every April?), even though it is in my name.

            When he starts drawing from that account, will he have to pay US taxes, since in Canada it will be non-taxed? If I fuck up a form somewhere and we go to Disneyland for a holiday, will they seize the whole lot? It’s this kind of grey area crap that has me wondering.

            Do you owe any American taxes at all, as a non-citizen who doesn’t live here?

            I do not owe any American taxes nor have any requirement to file as I no longer meet the “substantial presence” test.

            1. If I fuck up a form somewhere and we go to Disneyland for a holiday, will they seize the whole lot?

              Just go to Hong Kong Disneyland. It’s more interesting anyway.

        2. If his citizenship is renounced and he ends up coming back to the states for college, illegally, he can get a good deal on tuition.

  5. Why am I not surprised that Schumer has come up with one of the most assholish ideas I’ve ever heard to “solve” this problem?

    1. Really, you’d think that kind of crap would be unpopular in a cosmopolitan city like NYC.

    2. Everybody’s good at something. Schumer does asshole relly well.

      1. Chucky Bitchtits is a truly horrible human being.

        1. He’s a human being? I had taken some solice that at least that walking diaper stain wasn’t the same species as me, but now? Fuck that’s depressing. Any smidgen of hope that I had for the human race just got flushed down the toilet. Thanks.

        2. Chucky Bitchtits is a truly horrible human being.

          But Chuck Biscuits is an awesome human!

  6. My wife’s boss is from Northern Ireland. Years ago while he was in grad school he got an inheritance of a couple of thousand pounds. So he put it in the bank and kind of forgot about it. Over the years it earned interest that he never declared after he got to the US. The IRS found out about his secret foreign bank account and the few hundred dollars he had failed to declare and charged him $30,000 in fees and penalties.

    That ladies and gentleman is the 21st Century equivalent of the King’s tax farmers ransacking houses to make sure no one is hiding so much as a chicken from the tax collector.

  7. Matt Welch: Why do I subscribe to Reason Magazine when I can read all the articles here for free?

    1. Shut yer gob! If they here this, they’ll take away our ability to read ’em here.

      1. I will not buy this record, it is scratched.

        1. Ah, my mistake “I will not buy this tobacconist. It is scratched.”

    2. So you can help pay for them to continue writing articles?

    3. Juxtaposition. Timeliness. Art. Ads for Institute for Justice and FreedomFest. Bathroom-time. Freaking out your loved ones through well-placed coffee-table placement.

      There are many possible reasons, just as there are many different layers of subscription!

      1. Bathroom-time.

        I didn’t know the magazine had naughty pictures!

        1. Back when Postrel was editor…

      2. So a followup question. I send some small pittance every month. Would you rather I divert the subscription price to a subscription so you can send me paper every month (you Eden despoiling litter freak!) or just get the straight cash without needing to send me anything in return?

        I could see the paper route, as I usually leave print magazines (what’s left of them) at the local post office (population 100 in the winter, 1000 in the summer) after reading, so there’s the free advertising. Your advertising rate might go up a very small amount. You might have a bonus triggered by my very subscription.

        Your call! If you no call, I no subscribe.

  8. It’s not about the money, it’s the principle of the thing: the principle that success is despised and to be brutally punished. It does absolutely no good to explain to wankers like Schumer that the revenue brought in is miniscule; they don’t fucking care. They just want to dry-fuck any member of the Great Collective who dares entertain the notion that his life is his own.

    1. the principle that success is despised and to be brutally punished

      I don’t think so. They like success because success gives them the opportunity to wield their power.
      They don’t ruin lives as punishment. They ruin lives because it gives them pleasure.
      It’s all about power. Pure, intoxicating power.

      1. Power is not a means, it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?

        – George Orwell, 1984 Book 3, Chapter 3

  9. So all this, the administration of 401k’s, IRA’s, pensions – all this bullshit – just so we can go on taxing people’s savings? Is it worth it, even close?

    Does it ever occur to non-libertarian politicians that this makes no sense?

  10. ‘IN 1742 THE SPANISH EMPIRE LAY IN RUINS. TORN BY INTERNAL DISSENT, AND WRACKED BY NUMEROUS WARS, ITS RICH TRADE ROUTES FELL EASY PREY TO BRITISH PRIVATEERS…AND THE TREASURE OF THE SPANISH MAIN WAS BROUGHT HOME TO THE SHORES OF ENGLAND’

  11. I do not understand why my government is treating me this way.

    Because in the eyes of the government we’re nothing more than living, breathing ATM machines. And, as always, because FUCK YOU THAT’S WHY.

    1. Automatic Teller Machine machines?

      1. The aftertaste is the same.

      2. Ass-To-Mouth machines.

        1. You and your Human Centipede fetish.

      3. Dept. of Reundancy Dept.

  12. All this mattress talk will ensure the US Government makes private ownership of gold illegal.

    1. They’ll ban the sale and ownership of mattresses. If you love no knock drug raids, just wait until the no knock mattress raids start.

      1. Air mattresses will still be legal, they work by inflation.

        1. This comment is pure gold. harble harble

      2. Any bedbugs they care to reposess, they are welcome to. Parasites find their own level.

        Also +100 to Tim for the Air Mattress exemption.

    2. I’m afraid my gold stash and a couple of high-end guns were tragically lost in boating accident. All reported legal like.

    3. All this mattress talk will ensure the US Government makes private ownership of gold illegal.

      What, again?

      Of course, its hard to see how they outlaw private ownership of gold without putting us back (at least nominally) on some kind of gold standard.

      I remain confident that I will be able to exchange my coins for cash juuust over the border, in any event.

      1. Assuming the feds don’t find the contraband on you when you are in the act of crossing the border, steal it, and toss you into a cage.

      2. Or find the cash when you are coming back, steal it, and then toss you into a cage.

        1. I’m pretty sure I can get one (1) gold coin past the Sherlocks at the border. And one (1) preloaded debit card on the way back.

  13. One word: Bitcoins baby

    ok that’s two words

    1. “One word, baby: Bitcoins.”

      That’s how it’s done.

      1. I’m absolutely terrified of bitcoins. Perhaps it is my streak of statist confirmation bias. I will attempt to purge my soul.

  14. “Under tax rules that went into full effect this year, we have to report that little savings pot?including the account number and the maximum value of the holdings during the calendar year?to the Internal Revenue Service (IRS) every April 15, or face up to a $100,000 fine and five years in prison. This is true for every American (which my wife now is) who holds more than $10,000 in foreign-based financial institutions, either individually or together with his spouse, assuming they file a joint return.”

    How does less than a thousand dollars (or 1 dollar) in a foreign account somehow make you or your wife legally obligated to disclose this information? Unless you have more than 10,000 in foreign accounts, you’re exempt.

    1. Read slowly and carefully and then even the mentally challenged such as yourself will understand how this so.

    2. A clue for the clueless: That wasn’t their only account.

      1. So the article describes the law accurately, but disingenuously describes the author’s financial position?

        I’m not sure that’s any better.

    3. Anyone who is actually “middle class,” and not this credit poor fantasy middle class that actually exists in its stead, typically has more than 10k in liquid assets.

  15. The author made the first mistake (and probably worst) regarding opening foreign bank accounts, he was too honest and too public about it.

    1. Its not terribly hard to form a corporation in many countries that doesn’t have your name anywhere on the paperwork. That corp. owns the account. Bingo. Anonymity.

      In this day and age, you don’t even need a signature card with your name on it on file at the bank. Online banking, baby. Access the account only with debit/credit cards, and it should be invisible to the IRS.

      1. Unless you get a MasterCard or Visa branded debit card. I know Bank of Scotland was a popular choice for such activities, not being a US institution, and the IRS subpeonaed MasterCard for the records and got them.

        1. Never underestimate the government’s ability to ban or regulate something through sheer force of will.

  16. I find this whole thing horrendous. A tax for giving up citizenship, what kind of tax is that? Taxing for what? Its incredible. Putting barriers on people who want to leave is tyranny. Whats next? a Berlin wall?

    1. You used their roads to get your ass out of the country.

    2. A tax for giving up citizenship, what kind of tax is that?

      An estate tax.

    3. That’s nothing new. Government even taxes people who DIE to avoid paying taxes!

      1. The jokes don’t come with a roadmap…

        1. A roadmap? So you’re using roads to convey jokes?

  17. How has Congress reacted to this mess of its own creation? Sen. Chuck Schumer (D-N.Y.) in May unveiled yet another ham-handed acronym of a bill: The Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy (ExPATRIOT) Act. Schumer’s brainchild would slap a 30 percent tax on the capital gains of anyone renouncing U.S. citizenship and bar him from ever setting foot in the country again

    God these people are a loathsome bunch of fuckwads.

    1. I love it when statists call other people greedy. Their hunger for other people’s money knows no limits.

  18. “Americans in Sweden Suffer Us Tax Crackdown” with FBAR law: IRS fines expat over one million dollars…
    http://www.thelocal.se/39522/20120306/

  19. “If you drive a car, I’ll tax the street.
    If you try to sit, I’ll tax your seat.
    If you get too cold, I’ll tax the heat.
    If you take a walk, I’ll tax your feet.”

    -George Harrison on taxes

    1. Should five percent appear too small / Be thankful I don’t take it all

      Once you grant the principle, that’s all you’ve got left – hope – that they don’t take it all.

  20. Why do New Yorkers keep electing Schumer?

  21. Welch suggests investing in mattresses.

    I say invest in ammunition.

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  23. Yes I agree. Google: Model T Stock Trends Beware of the Tax Zombies

  24. I see the Reason comment board is still a swamp of irrelevancies and silliness. ugg canada So ironic for magazine named “Reason” – ugg boots canada considering the generally high quality of this magazine’s articles, what a waste.

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  26. Yes most of my extended family either never sought American citizenship or did and then renounced it later for this very reason. Moreover when you do renounce your citizenship, the first thing the government does is send the IRS to sue you in tax court because the somewhat correctly and un ironically assume that the only reason anyone would do this is for tax reasons. It’s backdoor way to create a law similar to South Africa’s pre 1994 regulations making it illegal to export your wealth out of the country.

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